Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
9Indirect Compensation:
Employee Benefit Plans
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Strategic Considerations in the Design of
Benefits Programs
The organization’s stage of development
Projected rate of employment, growth, or downsizing
Geographic redeployment
Acquisitions
Expected changes in profitability
Each of these conditions suggests a change in the optimum “mix” of
benefits to be consistent with long-term business plans
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Classifying Benefits
Three broad categories exist for classifying benefits
Security and health
Payments for time not worked
Employee services
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Security & Health Benefits
Life Insurance
Workers’ compensation
Disability Insurance
Hospitalization, surgical, and maternity coverage
Health maintenance organizations (HMOs)
Other medical coverage (dental, mental health, substance abuse)
Sick leave
Pension plans
Social Security
Unemployment insurance & supplemental unemployment insurance
Severance pay
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Payments for Time Not Worked
Vacations
Holidays
Reporting Time
Personal excused absences
Grievances and negotiations
Sabbatical leaves
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Employee Services
Employee Services – a broad range of benefits that employees
qualify for purely by virtue of their membership in the organization,
and not because of merit
Some examples include tuition aid, credit unions, auto insurance,
company car, food service, stock-purchase plans, parking, fitness and
wellness programs
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Gaining Control Over the Cost of
Health Care
Band together with other companies to form a ‘purchasing
coalition’ to negotiate better rates with insurers
Deal with hospitals and insurers as with any other suppliers
Induce employees to choose reduced medical coverage voluntarily
through flexible-benefits plans
Negotiate directly with doctors
Require pre-admission certification
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Cafeteria, or Flexible, Benefits
Cafeteria Benefits – instead of all workers at a company getting the
same benefits, each worker can pick and choose among alternative
options “cafeteria style”
Workers are offered a package of benefits that include ‘basic’ and
‘optional’ items
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Basic and Flexible ‘Credits’ in the
Cafeteria Benefits Plan
Basic
modest medical coverage
life insurance equal to a year’s salary
vacation time based on length of service
some retirement pay
Flexible ‘credits’ toward additional benefits
Full medical coverage
Dental and eye care
More vacation time
Additional disability income
Higher company payments to the retirement fund
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Employer Advantages in
Offering Cafeteria Benefits
Under conventional plans, employers risk alienating employees if
they cut benefits, regardless of increases in the costs of coverage
Flexible plans allow employers to pass some of the increases on to
workers more easily
Instead of providing employees a set package of benefits, the employer
and employee agree on a set amount of the employee’s salary to be
used toward benefits
If the employee wants more, he/she pays
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Communicating Benefits to Employees
Make employees aware of them
Help employees understand the benefits information they receive in
order to take full advantage of the plans
Make employees confident that they can trust the information they
receive
Convince present and future employees of the worth or value of the
benefits package
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Communicating the Value
of Benefits Programs to Employees
Alternative metrics:
Annual cost of benefits for all employees
Cost per employee per year
Percentage of payroll
Cents per hour
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