Thomas E. Murphy<br />(Last revised: October 13, 2010<br />Benefits and Beyond, Chapter 2<br />
October 20, 2010<br />Thomas E. Murphy<br />2<br />
The total reward scheme<br />How does an employer allocate these rewards?<br />Thomas E. Murphy<br />October 20, 2010<br /...
Used to design benefits<br />Applicable to evaluate benefits<br />Assures balance in compensation and total reward.<br />W...
Thomas E. Murphy<br />October 20, 2010<br />5<br />
Tournament theory: does this affect internal fairness?<br />Benefits are not valued by certain workers<br />Is a “cafeteri...
Why is this relevant?<br />Labor or product/service competitor<br />What are the details? What type of health care plan do...
Can benefits positively affect employee behaviors? <br />What about retirement benefits that are calculated based on years...
Should benefit accruals be based upon company results? <br />Do equity awards change employee productivity?<br />What is t...
Thomas E. Murphy<br />Line of Sight. . How far? <br />October 20, 2010<br />10<br />
Can an employee visualize the impact of his work on the shop floor on the price of his company’s stock?<br />Is the line o...
What is a gain sharing plan and does it perfectly align with employee interests?<br />Does a profit sharing retirement pla...
Portability<br />Long or medium service?<br />Phased retirement<br />Why offer early retirement? <br />Can benefits encour...
Agency theory<br />Adverse selection<br />Actuarial principles (see page 47)<br />The Dependency Ratio (# below 18 and abo...
Thomas E. Murphy<br />October 20, 2010<br />15<br />
What is the efficacy of a given benefit?<br />How do we measure its efficiency?<br />Does the retirement plan encourage lo...
How do these affect benefits?<br />Impact?<br />Processing . . .<br />Tax Laws<br />Accounting Practices<br />Monetary val...
October 20, 2010<br />Thomas E. Murphy<br />18<br />What do actuaries do?<br />
How much will I need? (Future cost)<br />When do I need it?<br />What rate of return?<br />What can I afford?<br />Can oth...
When will employees retire?<br />How to calculate the benefit?<br />Investment return of retirement fund<br />Life expecta...
October 20, 2010<br />Thomas E. Murphy<br />21<br />Model Provides Balance!<br />
Thomas E. Murphy<br />Are there alternative, less costly designs that can do the same?<br />October 20, 2010<br />22<br />
The Benefits Model is an important tool <br />We should use it to evaluate the effectiveness of our benefit plan designs! ...
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Benefits and beyond, chapter 2

  1. 1. Thomas E. Murphy<br />(Last revised: October 13, 2010<br />Benefits and Beyond, Chapter 2<br />
  2. 2. October 20, 2010<br />Thomas E. Murphy<br />2<br />
  3. 3. The total reward scheme<br />How does an employer allocate these rewards?<br />Thomas E. Murphy<br />October 20, 2010<br />3<br />
  4. 4. Used to design benefits<br />Applicable to evaluate benefits<br />Assures balance in compensation and total reward.<br />Will guarantee strength and effectiveness<br />October 20, 2010<br />Thomas E. Murphy<br />4<br />Benefits Model: “Son of Balanced Score Card”<br />
  5. 5. Thomas E. Murphy<br />October 20, 2010<br />5<br />
  6. 6. Tournament theory: does this affect internal fairness?<br />Benefits are not valued by certain workers<br />Is a “cafeteria plan” a possible solution?<br />How can a reward package signal and sort?<br />MBA program?<br />Overtime, two tier wage plans<br />Executive Pay, pay differentials, supplemental pensions (See page 53 of text)<br />Thomas E. Murphy<br />Internal Fairness <br />October 20, 2010<br />6<br />
  7. 7. Why is this relevant?<br />Labor or product/service competitor<br />What are the details? What type of health care plan do they offer? What are the specifics of the retirement plan?<br />How do you get this data?<br />Go to Exercise Number 1at page 19 (Start-up Airlines)<br />October 20, 2010<br />Thomas E. Murphy<br />7<br />External Cometition<br />
  8. 8. Can benefits positively affect employee behaviors? <br />What about retirement benefits that are calculated based on years of service?<br />How do health insurance deductibles and co-pays affect patient-employee behaviors? <br />Thomas E. Murphy<br />Benefits and behavior<br />October 20, 2010<br />8<br />
  9. 9. Should benefit accruals be based upon company results? <br />Do equity awards change employee productivity?<br />What is the impact of vesting on behavior?How is vesting used in a plan design?<br />Thomas E. Murphy<br />Benefits and behavior<br />October 20, 2010<br />9<br />
  10. 10. Thomas E. Murphy<br />Line of Sight. . How far? <br />October 20, 2010<br />10<br />
  11. 11. Can an employee visualize the impact of his work on the shop floor on the price of his company’s stock?<br />Is the line of sight too long to affect his behavior?<br />How can an employer shorten the line of sight? <br />Thomas E. Murphy<br />Line of Sight<br />October 20, 2010<br />11<br />
  12. 12. What is a gain sharing plan and does it perfectly align with employee interests?<br />Does a profit sharing retirement plan affect employee behavior?<br />What about a profit based employer contribution to a 401(k)? <br />Thomas E. Murphy<br />Results based benefits? <br />October 20, 2010<br />12<br />
  13. 13. Portability<br />Long or medium service?<br />Phased retirement<br />Why offer early retirement? <br />Can benefits encourage teamwork?<br />October 20, 2010<br />Thomas E. Murphy<br />13<br />Other plan design issues<br />
  14. 14. Agency theory<br />Adverse selection<br />Actuarial principles (see page 47)<br />The Dependency Ratio (# below 18 and above 65 ÷ Population between the ages of 18 and 65))<br />Longevity, investment, & inflation risks<br />Coordination of benefits<br />Efficiency Wage Theory<br />Reservation Wage<br />Thomas E. Murphy<br />Some other relevant theories<br />October 20, 2010<br />14<br />
  15. 15. Thomas E. Murphy<br />October 20, 2010<br />15<br />
  16. 16. What is the efficacy of a given benefit?<br />How do we measure its efficiency?<br />Does the retirement plan encourage long service?<br />Does the health care plan make employees more healthy? More productive? <br />Does it reduce absenteeism?<br />Thomas E. Murphy<br />Benefits Model . . . Costs?<br />October 20, 2010<br />16<br />
  17. 17. How do these affect benefits?<br />Impact?<br />Processing . . .<br />Tax Laws<br />Accounting Practices<br />Monetary value of benefits<br />Theory of Compensating Differentials<br />Means testing<br />October 20, 2010<br />Thomas E. Murphy<br />17<br />
  18. 18. October 20, 2010<br />Thomas E. Murphy<br />18<br />What do actuaries do?<br />
  19. 19. How much will I need? (Future cost)<br />When do I need it?<br />What rate of return?<br />What can I afford?<br />Can others contribute?<br />Will they all need it?<br />October 20, 2010<br />Thomas E. Murphy<br />19<br />How much to send her to university?<br />
  20. 20. When will employees retire?<br />How to calculate the benefit?<br />Investment return of retirement fund<br />Life expectancy of retirees and others? <br />What is inflation rate?<br />Should employees partially fund?<br />What can employer afford?<br />Who has the risks?<br />What if we goof?<br />October 20, 2010<br />Thomas E. Murphy<br />20<br />Relationship to Pensions<br />
  21. 21. October 20, 2010<br />Thomas E. Murphy<br />21<br />Model Provides Balance!<br />
  22. 22. Thomas E. Murphy<br />Are there alternative, less costly designs that can do the same?<br />October 20, 2010<br />22<br />
  23. 23. The Benefits Model is an important tool <br />We should use it to evaluate the effectiveness of our benefit plan designs! <br />Thomas E. Murphy<br />October 20, 2010<br />23<br />
  24. 24. Thomas E. Murphy<br />Remember: Keep Benefits and Strategy on the same track!<br />October 20, 2010<br />24<br />

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