INDIRECT INDIRECT FINANCIAL FINANCIAL COMPENSATIONCOMPENSATIONCHAPTER 10CHAPTER 10

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© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part. 13–2

Employer-Provided Benefits

Absorb social costs for

health care and

retirement

Influence employee decisions

about employers

Are increasingly

seen as entitlements

Average over 40% of total payroll costs

Benefits and HR StrategyBenefits and HR Strategy• BenefitBenefit

An indirect reward given to an employee or group of An indirect reward given to an employee or group of employees for organizational membership.employees for organizational membership.

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FIGURE 13–1 Employer Compensation and Benefits Costs per Hour

Source: U.S. Bureau of Labor Statistics, 2008.

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FIGURE 13–2 Strategic Benefits Considerations

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FIGURE 13–3 Benefits Management Components

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Benefits DesignBenefits Design• Decisions Affecting Benefit Design:Decisions Affecting Benefit Design:

How much total compensation, including benefits, How much total compensation, including benefits, can be provided?can be provided?

What part of total compensation of individuals should What part of total compensation of individuals should benefits comprise?benefits comprise?

Which employees should get which benefits?Which employees should get which benefits?

What expense levels are acceptable for each benefit?What expense levels are acceptable for each benefit?

What are we getting in return for the benefit?What are we getting in return for the benefit?

How flexible should the benefits package be?How flexible should the benefits package be?

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Flexible BenefitsFlexible Benefits• Flexible Benefits PlanFlexible Benefits Plan

A program that allows employees to select the A program that allows employees to select the benefits they prefer from groups of benefits benefits they prefer from groups of benefits established by the employer.established by the employer.

• The Challenge of Providing ChoicesThe Challenge of Providing Choices Inappropriate benefits packageInappropriate benefits package

Requiring selection of core benefitsRequiring selection of core benefits Adverse selectionAdverse selection

Situation in which only higher-risk employees Situation in which only higher-risk employees select and use certain benefitsselect and use certain benefits

Administrative time and plan complexityAdministrative time and plan complexity

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HR Technology and Benefits HR Technology and Benefits AdministrationAdministration

Benefits Administration Issues and Trends

Outsourcing of Benefits

Administration

Internet-Based Administration

Systems

Benefits Measurement

(Return vs. Costs)

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FIGURE 13–5 Common Benefits Metrics

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Benefits Cost ControlBenefits Cost Control

• Reducing or dropping benefits• Cost sharing with employees• Sponsoring wellness programs• Fostering employee health education• Direct purchase of benefits by

employees• Negotiating reduced-rate benefit

contracts• Consolidating of benefits packages

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FIGURE 13–6 How the Typical Benefits Dollar Is Spent

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FIGURE 13–7 Types of Benefits

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Health-Care BenefitsHealth-Care Benefits

Controlling Health-Care Benefits Costs

Co-Payments and

Employee Contribution

s

Managed Care(PPOs and HMOs,

Utilization Reviews)

Mini-MedicalPlans

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Consumer-Driven Health (CDH) PlansConsumer-Driven Health (CDH) Plans

Employee-Focused Health Benefits Plans

Defined-Contribution Health Plans

Health Savings Accounts(HSAs)

Health Reimbursement Arrangements

(HRA)

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Pension PlansPension Plans

Types of Pension Plans

Defined-Benefit Plan

Defined-Contribution

Plan

CashBalance Plan

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FIGURE 13–11 Worker Participation in Pension Plans

Source: U.S. Bureau of Labor Statistics, www.bls.gov

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Pension Plan ConceptsPension Plan Concepts

PensionPlan

Formats

ContributoryPlan

Non-Contributory

Plan

Portability of Pension Benefits

Vesting of Pension Rights

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Individual Retirement OptionsIndividual Retirement Options

Individual Retirement

Options

Individual Retirement Account (IRA)

401(k) and Roth IRA

403(b)

Keogh

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FIGURE 13–12 Common Types of Financial Benefits

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Time-Off and Other BenefitsTime-Off and Other Benefits

Holiday Pay

Vacation Pay

Leaves of Absence

Miscellaneous Benefits

Paid-Time-Off (PTO)

Plans

Time-Off and Other Benefits