Ch10 (Short) Indirect Financial Compensation.ppt

Human Resource Management 12th Edition

Chapter 10Indirect Financial Compensation (Benefits) and Nonfinancial Compensation Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall10-*

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*

Indirect Financial Compensation (Benefits)All financial rewards that are not paid directly to the employeeCopyright 2012 Pearson Education, Inc. publishing as Prentice Hall10-*

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Indirect financial compensation (or benefits) includes all financial rewards not included in direct financial compensation. According to a recent SHRM survey, benefits are the second most important driver of job satisfaction, coming in just behind job security. Benefits are typically unrelated to employee productivity; therefore, although they may be valuable in recruiting and retaining employees, they do not generally serve as motivation for improved performance.

Total RewardsAll the ways in which people are rewarded when they come to workPay, benefits, and other non-financial rewardsAll items that add value to an employee

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall

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Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Many compensation packages were developed piecemeal over time without a comprehensive and coherent approach to rewarding employees. Organizations are now using a total rewards strategy that deals with compensation rewards as a whole, and only those rewards that contribute to attainment of corporate goals are being retained.

Mandated Benefits (Legally Required)SSSPag-ibigPhilHealth


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Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Employers voluntarily provide most benefits, but the law requires others. These legally required benefits currently account for about 10 percent of total compensation costs and include Social Security, unemployment insurance, workers compensation, and family and medical leave.

Discretionary Benefits

Health careLife insuranceRetirement plansDisability protectionEmployee stock option plans

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall10-*

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Discretionary benefits are benefit payments made as a result of management decisions in nonunion firms and of labormanagement negotiations in unionized firms. Major categories of discretionary benefits include payment for time not worked, health care, life insurance, retirement plans, employee stock option plans, and employee services.

Payment for Time Not Worked: Paid Vacations Employers recognize that employees need time away from the job for many purposes. Includes paid vacations, sick pay and paid time off, sabbaticals, and other forms of payment for time not worked.


Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Vacation time provides several important benefits. Paid vacations provide workers with an opportunity to rest, become rejuvenated, and thus return to work more productive. They may also encourage employees to remain with the firm, as vacation time typically increases with seniority.

Payment for Time Not Worked: Sabbaticals Temporary leaves of absence from organization, usually at reduced pay Used in academic community for yearsRecently entered the private sectorHelp reduce turnover and prevents burnout


Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Sabbaticals are temporary leaves of absence from an organization, usually at reduced pay. Although sabbaticals have been used for years in the academic community, they have only recently entered the private sector. Often sabbaticals help to reduce turnover and keep workers from burning out, hopefully returning revitalized and more committed to their work. UPS and Xerox are among the growing number of companies who pay employees expenses to participate in extended volunteer sabbaticals.

Payment for Time Not Worked: Other FormsPerform civic dutiesHandle personal affairs Jury duty National Guard or military reserve Voting time Bereavement time Rest periods, coffee breaks, lunch periods, cleanup time, and travel time


Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*It is also common for organizations to provide payments to assist employees in performing civic duties such as voting, jury duty, or military reserve. In addition, firms often provide bereavement time for the death of a close relative. Finally, there is the payment for time not worked on the job such as rest periods, coffee breaks, lunch periods, cleanup time, and travel time.

Major Medical Benefits Provided to cover extraordinary expenses that result from long-term or serious health problemsCopyright 2012 Pearson Education, Inc. publishing as Prentice Hall10-*

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Some plans provide for major medical benefits to cover extraordinary expenses that result from long-term or serious health problems. The use of deductibles is a common feature of medical benefits. For example, the employee may have to pay the first $500 of medical bills before the insurance takes over payment.

Child Care80% of employees miss work due to unexpected child-care coverage issues.


Copyright 2012 Pearson Education, Inc. publishing as Prentice HallAccording to the National Conference of State Legislatures, an estimated 80 percent of employees miss some days of work due to unexpected child-care coverage issues. It is estimated that every $1 invested in backup child care yields $3 to $4 in returned productivity and benefit. Company-sponsored child-care arrangements tend to reduce absenteeism, protect employee productivity, enhance retention and recruiting, promote the advancement of women, and make the firm an employer of choice.

Educational AssistanceImproves employee retentionMany different ways to reimburse workers


Copyright 2012 Pearson Education, Inc. publishing as Prentice HallEducational assistance plans can go a long way in improving employee retention. Some companies reimburse employees for part of the fee for completed courses, while others provide half the reimbursement up front and the rest upon satisfactory completion of the course. IRS regulations allow for up to $5,250 of nontaxable educational assistance benefits per year.

Food Services/Subsidized CafeteriasCompanies believe they get a high payback in terms of employee relations. Hope to gain:Increased productivityLess wasted timeEnhanced employee moraleHealthier workforce


Copyright 2012 Pearson Education, Inc. publishing as Prentice HallThere is generally no such thing as a free lunch. However, firms that supply food services or subsidized cafeterias provide an exception to this rule. What they hope to gain in return is increased productivity, less wasted time, enhanced employee morale, and, in some instances, a healthier workforce.

ScholarshipsAbout 27% of companies provide scholarships for dependents.This boosts employee recruitment and retention.


Copyright 2012 Pearson Education, Inc. publishing as Prentice HallThe Society for Human Resource Management reports that about 27 percent of companies provide scholarships for dependents. Scholarship programs can help improve employee recruitment and retention efforts.

Job Environment as a Nonfinancial Compensation FactorSound policiesCapable managersCompetent employeesCongenial coworkersWorking conditions


Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*The environment of a workplace is an important factor in employee satisfaction. Employees can gain satisfaction from their work through the factors listed here.

Work-Life Balance Focus on solving personal issues that detract from employees work Can be key strategic factor in attracting and retaining employeesWorkforce not homogeneous


Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Effective worklife balance programs focus on alleviating any personal issues that can detract from an employees work. For employers, creating a balanced worklife environment can be a key strategic factor in attracting and retaining the most talented employees.

Workplace Flexibility Factors FlextimeCompressed workweekJob sharingTelecommutingPart-time work


Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*What do most of the top 100 best companies to work for have in common? They offer flextime, a compressed workweek, job sharing, and telecommuting, which are some of the topics we will discuss next.

FlextimePractice of permitting employees to choose, with certain limitations, their own working hoursWork same number of hours per day as they would on standard scheduleMany firms are using flextime


Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Flextime is the practice of permitting employees to choose their own working hours, within certain limitations. In a recent survey, 79 percent of employers now allow at least some employees to change their arrival and departure times to some degree. Another benefit of flextime is that it can bring better health to employees by reducing employee stress levels.

Illustration of FlextimeCopyright 2012 Pearson Education, Inc. publishing as Prentice Hall10-*

Flexible TimeCore TimeFlexible Time (Lunch)Core TimeFlexible Time6 a.m.9 a.m.6 p.m.3 p.m.NoonBandwidth

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*In a flextime system, employees typically work the same number of hours per day as they would on a standard schedule. However, they work these hours within what is called a bandwidth, which is the maximum length of the workday. Core time is that part of the day when all employees must be present.

Compressed Work WeekArrangement of work hours that permits employees to fulfill their work obligation in fewer days than typical 5-day workweekFour 10-hour daysOften greater job satisfaction


Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*The compressed work week is an arrangement of work hours that permits employees to fulfill their work obligation in fewer days than the typical five-day, eight-hour-a-day work week. A common compressed work week is four 10-hour days. Working under this arrangement, employees have reported greater job satisfaction. Some employers have cited advantages such as increased productivity and reduced absenteeism. Other firms, however, have found that some employees become fatigued from working longer hours.

Job SharingTwo part-time people split duties of one job in some agreed-upon manner and are paid according to contributions.Partners must be compatible, have good communication skills, and trust must exist between job sharers and their manager.


Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Job sharing is an approach to work that allows two part-time people to split the duties of one job in some agreed-upon manner. The workers are paid according to their contributions.It provides an option to retain workers, particularly women who are opting out of the workforce to raise families. Often job sharers work as hard in three days as those working full time, and are grateful for the opportunity to be able to combine work and other interests.

TelecommutingWork arrangement whereby employees, called telecommuters, are able to remain at home, or away from office, and perform work using computers and other electronic devicesCopyright 2012 Pearson Education, Inc. publishing as Prentice Hall10-*

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Telecommuting is a work arrangement where employees are able to remain at home and perform their work using computers and other devices that connect them with their offices. For self-motivated workers, telecommuting can increase worker productivity and improve job satisfaction and loyalty. Telecommuters are generally information workers with jobs that require analysis, research, writing, budgeting, data entry, or computer programming.

Part-Time WorkSome people either do not want or need full-time employment.Part-time work was listed as the most important flexible work option. Adds many highly qualified individuals to labor market by permitting both employment and personal needs to be addressed.


Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall*Part-time employment adds many highly qualified individuals to the labor market by permitting employees to address both job and personal needs. Companies that offer part-time employment show increased rates of productivity and less employee turnover than other companies.

Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall10-*All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.


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*Indirect financial compensation (or benefits) includes all financial rewards not included in direct financial compensation. According to a recent SHRM survey, benefits are the second most important driver of job satisfaction, coming in just behind job security. Benefits are typically unrelated to employee productivity; therefore, although they may be valuable in recruiting and retaining employees, they do not generally serve as motivation for improved performance. *Many compensation packages were developed piecemeal over time without a comprehensive and coherent approach to rewarding employees. Organizations are now using a total rewards strategy that deals with compensation rewards as a whole, and only those rewards that contribute to attainment of corporate goals are being retained.

*Employers voluntarily provide most benefits, but the law requires others. These legally required benefits currently account for about 10 percent of total compensation costs and include Social Security, unemployment insurance, workers compensation, and family and medical leave. *Discretionary benefits are benefit payments made as a result of management decisions in nonunion firms and of labormanagement negotiations in unionized firms. Major categories of discretionary benefits include payment for time not worked, health care, life insurance, retirement plans, employee stock option plans, and employee services. *Vacation time provides several important benefits. Paid vacations provide workers with an opportunity to rest, become rejuvenated, and thus return to work more productive. They may also encourage employees to remain with the firm, as vacation time typically increases with seniority. *Sabbaticals are temporary leaves of absence from an organization, usually at reduced pay. Although sabbaticals have been used for years in the academic community, they have only recently entered the private sector. Often sabbaticals help to reduce turnover and keep workers from burning out, hopefully returning revitalized and more committed to their work. UPS and Xerox are among the growing number of companies who pay employees expenses to participate in extended volunteer sabbaticals. *It is also common for organizations to provide payments to assist employees in performing civic duties such as voting, jury duty, or military reserve. In addition, firms often provide bereavement time for the death of a close relative. Finally, there is the payment for time not worked on the job such as rest periods, coffee breaks, lunch periods, cleanup time, and travel time. *Some plans provide for major medical benefits to cover extraordinary expenses that result from long-term or serious health problems. The use of deductibles is a common feature of medical benefits. For example, the employee may have to pay the first $500 of medical bills before the insurance takes over payment.According to the National Conference of State Legislatures, an estimated 80 percent of employees miss some days of work due to unexpected child-care coverage issues. It is estimated that every $1 invested in backup child care yields $3 to $4 in returned productivity and benefit. Company-sponsored child-care arrangements tend to reduce absenteeism, protect employee productivity, enhance retention and recruiting, promote the advancement of women, and make the firm an employer of choice. Educational assistance plans can go a long way in improving employee retention. Some companies reimburse employees for part of the fee for completed courses, while others provide half the reimbursement up front and the rest upon satisfactory completion of the course. IRS regulations allow for up to $5,250 of nontaxable educational assistance benefits per year.There is generally no such thing as a free lunch. However, firms that supply food services or subsidized cafeterias provide an exception to this rule. What they hope to gain in return is increased productivity, less wasted time, enhanced employee morale, and, in some instances, a healthier workforce. The Society for Human Resource Management reports that about 27 percent of companies provide scholarships for dependents. Scholarship programs can help improve employee recruitment and retention efforts. *The environment of a workplace is an important factor in employee satisfaction. Employees can gain satisfaction from their work through the factors listed here.*Effective worklife balance programs focus on alleviating any personal issues that can detract from an employees work. For employers, creating a balanced worklife environment can be a key strategic factor in attracting and retaining the most talented employees. *What do most of the top 100 best companies to work for have in common? They offer flextime, a compressed workweek, job sharing, and telecommuting, which are some of the topics we will discuss next. *Flextime is the practice of permitting employees to choose their own working hours, within certain limitations. In a recent survey, 79 percent of employers now allow at least some employees to change their arrival and departure times to some degree. Another benefit of flextime is that it can bring better health to employees by reducing employee stress levels.*In a flextime system, employees typically work the same number of hours per day as they would on a standard schedule. However, they work these hours within what is called a bandwidth, which is the maximum length of the workday. Core time is that part of the day when all employees must be present. *The compressed work week is an arrangement of work hours that permits employees to fulfill their work obligation in fewer days than the typical five-day, eight-hour-a-day work week. A common compressed work week is four 10-hour days. Working under this arrangement, employees have reported greater job satisfaction. Some employers have cited advantages such as increased productivity and reduced absenteeism. Other firms, however, have found that some employees become fatigued from working longer hours. *Job sharing is an approach to work that allows two part-time people to split the duties of one job in some agreed-upon manner. The workers are paid according to their contributions.It provides an option to retain workers, particularly women who are opting out of the workforce to raise families. Often job sharers work as hard in three days as those working full time, and are grateful for the opportunity to be able to combine work and other interests.*Telecommuting is a work arrangement where employees are able to remain at home and perform their work using computers and other devices that connect them with their offices. For self-motivated workers, telecommuting can increase worker productivity and improve job satisfaction and loyalty. Telecommuters are generally information workers with jobs that require analysis, research, writing, budgeting, data entry, or computer programming.*Part-time employment adds many highly qualified individuals to the labor market by permitting employees to address both job and personal needs. Companies that offer part-time employment show increased rates of productivity and less employee turnover than other companies.

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Ch10 (Short) Indirect Financial Compensation.ppt