1. Benefits, Nonfinancial
Rewards, and Other
Compensation Issues
Presented by Emran & Fida
Presented to Sir Adeel
UOT City Campus

2. Benefits (Indirect Financial
Compensation)
All financial rewards that are not
paid directly to the employee
UOT City Campus

3. Benefits in a Total Compensation Program
External Environment
Internal Environment
Compensation
Financial
Direct
Nonfinancial
Indirect (Benefits)
The Job
Legally Required Benefits
Social Security
Unemployment Compensation Workers’
Compensation
Family &
Medical Leave
Voluntary Benefits
Payment for Time Not Worked
Health Care
Life Insurance
Retirement Plans
Disability Protection
Employee Stock Option Plans
Supplemental Unemployment Benefits
Employee Services
Premium Pay
Customized Benefit Plans
UOT City Campus
Job Environment

4. Mandated Benefits
(Legally Required)




Social security
Unemployment compensation
Worker’s compensation
Family and Medical Leave Act of
1993 (FMLA)
UOT City Campus

5. Social Security
 Created system of retirement benefits
 Federal payroll tax to fund
unemployment and retirement
benefits
 Amendments included disability
insurance, survivors’ benefits, and
Medicare
UOT City Campus

6. Unemployment Compensation
 Laid off individual receives
compensation for up to 26 weeks
 Administered by states
 Payroll tax paid solely by employers
UOT City Campus

7. Worker’s Compensation
 Expenses resulting from job-related
accidents or illnesses
 Administered by states
 Program paid for by employers
 Premium expense directly tied to past
experience
UOT City Campus

8. Family and Medical Leave Act of 1993
(FMLA)
 Private employers with 50 or more
employees and governmental employers
regardless of number of employees
 Up to 12 workweeks of unpaid leave per
year for absences due to employee’s own
serious health condition, need to care for
newborn or newly-adopted child, seriously
ill child, parent, or spouse
UOT City Campus

9. Discretionary Benefits (Voluntary)









Payment for time not worked
Health care
Life Insurance
Retirement plans
Disability protection
Employee Stock Option Plans (ESOP)
Supplemental Unemployment Benefits (SUB)
Employee services
Premium pay
UOT City Campus

10. Payment for Time Not Worked - Paid
Vacations
 Provide workers with opportunity to rest,
become rejuvenated, and more productive
 Encourage employees to remain with the firm
 Increases with seniority
 American workers are giving back 415 million
vacation days a year
 35% of U.S. workers feel stressed about work
even while on vacation
UOT City Campus

11. Payment for Time Not Worked - Sick
Pay and Paid Time Off
 Many firms allocate each employee a
certain number of days of sick leave
 Some managers are very critical of sick
leave programs
 Paid time off (PTO) - Certain number of
days off provided each year that
employees can use for any purpose
UOT City Campus

12. Payment for Time Not Worked Sabbaticals
 Temporary leaves of absence from
organization, usually at reduced pay
 Used for years in academic community
 Some companies are now using
 Helps reduce turnover and prevents
burnout
UOT City Campus

13. Payment for Time Not Worked - Other
Forms







Perform civic duties
Handle personal affairs
Jury duty
National Guard or military reserve
Voting time
Bereavement time
Rest periods, coffee breaks, lunch periods,
cleanup time, and travel time
UOT City Campus

14. Health Care
 Employers spend $300 billion annually on
health insurance for employees,
dependents, and retirees
 Health insurance typically constitutes 25%
of employer’s benefit costs
 Premiums for average family of 4 now cost
about $11,000 a year
UOT City Campus

15. Factors Contributing to the High Cost of
Health Care
 Aging population
 Growing demand for medical care
 Increasingly expensive medical
technology
 Inefficient administrative processes
UOT City Campus

16. Forms of Managed-care Health
Organizations
 Health maintenance organizations (HMOs) cover all
services for a fixed fee but control is exercised over
which doctors and health facilities a member may use.
 Preferred provider organizations (PPO) are managedcare health organizations in which incentives are
provided to members to use services within the system;
out-of-network providers may be utilized at greater cost.
Point-of-service (POS) requires a primary care
physician and referrals to see specialists, as with HMOs,
but permits out-of-network health care access
 Exclusive provider organizations (EPOs) offers a
smaller PPO provider network and usually provides little,
if any, benefits when an out-of-network provider is used
UOT City Campus

17. Consumer-Driven Health Care Plans
 Defined-contribution health-care plan: Employee gets
set amount of money to purchase health-care coverage
 Health savings account (HSA): Tax-sheltered
account similar to IRA, but earmarked for medical
expenses with high-deductible health plans that have
deductibles of at least $1,050 for individuals and $2,100
for families
 Flexible spending account (FSA): Established by
employers that allow employees to deposit certain
portion of salary into account (before paying income
taxes) to be used for eligible expenses
UOT City Campus

18. On-Site Health Care
 Trend of providing on-site medical care
growing because it permits employers to
better manage and reduce growth of
health care costs
 Assists in treating minor illnesses and
injuries and provides follow-up care
UOT City Campus

19. Major Medical Benefits

Plans provide for major medical
benefits to cover extraordinary
expenses that result from long-term or
serious health problems
UOT City Campus

20. Dental and Vision Care

Employers typically pay entire
costs for both types of plans
except for a deductible
UOT City Campus

21. Long-Term Care (LTC) Insurance
 Increasing costs of 24-hour home health
care for elderly relatives have given rise to
LTC programs
 LTC insurance picks up most or all of
expenses for skilled and custodial care for
people in own homes, adult day-care
centers, assisted-living facilities, and
nursing homes
UOT City Campus

22. Life Insurance
 Group life insurance commonly
provided benefit to protect
employee’s family in event of
death
UOT City Campus

23. Retirement Plans
 Defined benefits plans
 Defined contribution plan
 Cash balance plan
UOT City Campus

24. Defined Benefit Plans
 Formal retirement plan that provides the
participant with a fixed benefit upon
retirement
 Typically based on the participant’s final
years’ average salary and years of service
 Use has declined in recent years although
older workers tend to prefer them
UOT City Campus

25. Defined Contribution Plans
 Requires specific contributions by an
employer to a retirement or savings fund
established for the employee
 Has been a shift from defined benefits to
defined contribution pension plans
 Amount of retirement income from a
defined contribution plan will depend upon
the investment success of the pension
fund
UOT City Campus

26. 401(k) Plan
 Defined contribution plan in which employees
may defer income up to a maximum amount
allowed
 Some employers match employee contributions
50 cents for each dollar deferred
 Has required about 42 million employees to
become investment managers, shifting the
burden of retirement planning from employers to
employees
UOT City Campus

27. Cash Balance Plans
 Plan with elements of both defined benefit
and defined contribution plans
 Pension Benefit Guaranty Corporation
usually insures cash balance plans
 Employer contributes to each participant’s
account annually, and investment earnings
are at a set amount
UOT City Campus

28. Disability Protection

Provides monthly benefit to
employees who, due to illness or
injury, are unable to work for an
extended period
UOT City Campus

29. Employee Stock Option Plan (ESOPs)
 Firm contributes stock shares to a trust
 Trust allocates stock to participating
employee accounts according to
employee earnings
 Some employees want ability to sell
their shares prior to retirement, which
ESOPs do not allow
 Enron experience
UOT City Campus

30. Supplemental Unemployment Benefits
(SUB)
 Provide additional income for
employees receiving unemployment
insurance benefits
 Usually financed by company
 Tend to benefit newer employees
UOT City Campus

31. Employee Services







Relocation benefits
Child care
Educational assistance
Food service/subsidized cafeterias
Financial services
Legal services
Scholarships for Dependents
UOT City Campus

32. Nontraditional benefits
 Organizations are competing for the topcaliber employees
 For attracting and retaining these desired
employees
 E.g.: Lake Zurich-based new age
transportation, distribution and warehousing
handed out pedometers and promised to
pay a dollar for every mile employee walked,
plus more for losing weight, one won $1200
UOT City Campus

33. Customized Benefit Plans (Cafeteria
Compensation)
 Employees make yearly elections to
largely determine benefit package by
choosing between taxable cash and
numerous benefits
 Twenty years ago or so firms offered a
uniform package that generally reflected a
typical employee
 Today, the workforce has become
considerably more heterogeneous
UOT City Campus

34. Compensation Vehicles Utilized in a Customized Benefit Plans
Compensation Approach























Accidental death, dismemberment insurance
Birthdays (vacation)
Bonus eligibility
Business and professional membership
Cash profit sharing
Club memberships
Commissions
Company medical assistance
Company-provided automobile
Company-provided housing
Company-provided or –subsidized travel
Day care centers
Deferred bonus
Deferred compensation plan
Dental and eye care insurance
Discount on company products
Education costs
Educational activities (time off)
Free checking account
Free or subsidized lunches
Group automobile insurance
Group homeowners’ insurance
Group life insurance
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
UOT City Campus
Health maintenance organization fees
Home health care
Hospital-surgical-medical insurance
Incentive growth fund
Interest-free loans
Long-term disability benefit
Matching educational donations
Nurseries
Nursing home care
Outside medical services
Personal accident insurance
Price discount plan
Recreation facilities
Resort facilities
Sabbatical leaves
Salary continuation
Savings plan
Scholarships for dependents
Severance pay
Sickness and accident insurance
Stock appreciation rights
Stock bonus plan
Stock purchase plan

35. Premium Pay
 Compensation paid to employees for
working long periods of time or working
under dangerous or undesirable conditions
 Hazard Pay: Pay for work under extremely
dangerous conditions
 Shift Differentials: Pay for inconvenience
of working less desirable hours
UOT City Campus

36. Communicating Information
about Benefits Package
 Workers need to fully understand
benefits that are provided them
 Many times organizations do not have
to improve benefits to keep their best
employees
UOT City Campus

37. Nonfinancial Compensation
 Historically, compensation departments in
organizations have not dealt with
nonfinancial factors
 This is changing
 Components of N.F.C are job itself and
job environment
 Provide work life balance in a more
desirable life for employees
UOT City Campus

38. Nonfinancial Compensation in a Total Compensation Program External
Environment
Internal Environment
Financial
Direct
Indirect (Benefits)
Nonfinancial
The Job
Job Environment
Skill Variety Task Sound Policies
Identify Task
Competent Employees
Significance
Congenial Coworkers
Autonomy
Suitable Status Symbols
Feedback
Working Conditions
Workplace Flexibility
Flextime
Compressed Workweek
Job Sharing
Customized Benefit Plans
Telecommuting
More Work, Fewer Hours
Part-time Work
UOT City Campus

39. The Job Itself as a Nonfinancial
Compensation Factor






Answering following questions can provide
considerable insight into value of job:
Is job meaningful and challenging?
Is there recognition for accomplishment?
Do I get feeling of achievement from doing job?
Is there possibility for increased responsibility?
Is there opportunity for growth and advancement?
Do I enjoy doing the job itself?
UOT City Campus

40. Job Characteristics Theory
 Employees experience intrinsic
compensation when jobs rate high on five
core job dimensions
 Skill variety: Extent work requires number
of different activities for successful
completion
 Task identity: Extent job includes
identifiable unit of work carried out from
start to finish
UOT City Campus

41. Job Characteristics Theory (Cont...)
 Task significance: Impact job has on
other people
 Autonomy: Individual freedom and
discretion employees have in performing
their jobs
 Feedback: Amount of information
employees receive about how well they
have performed job
UOT City Campus

42. Job Environment as a Nonfinancial
Compensation Factor






Sound policies
Capable managers
Competent employees
Congenial co-workers
Appropriate status symbols
Working conditions
UOT City Campus

43. Workplace Flexibility (Work-Life
Balance)






Flextime
Compressed workweek
Job sharing
Telecommuting
Part-time work
More work, fewer hours
UOT City Campus

44. Flextime
 Practice of permitting employees to
choose, with certain limitations, their
own working hours
 Work same number of hours per day as
they would on standard schedule
 Many firms are using
UOT City Campus

45. Illustration of Flextime
Flexible Time
6 a.m.
Core Time
9 a.m.
Flexible
Time
(Lunch)
Noon
Bandwidth
UOT City Campus
Core Time
Flexible Time
3 p.m.
6 p.m.

46. Compressed Work Week
 Arrangement of work hours that
permits employees to fulfill their
work obligation in fewer days than
typical 5-day workweek
 Four 10-hour days
 Often greater job satisfaction
UOT City Campus

47. Job Sharing
 Two part-time people split duties of one
job in some agreed-on 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
UOT City Campus

48. Examples of Executive Job Sharing
 It occurs below executive ranks, but not
always
 Example of Schutzman and Manix shared
many jobs during 16 years
 Share a job of vice president of public
affairs and communication at N.Y-based
Verizon Communication Inco.
UOT City Campus

49. Telecommuting
 Work arrangement whereby employees, called
teleworkers or telecommuters, are able to remain
at home, or otherwise away from office, and
perform work using computers and other electronic
devices that connect them with office
UOT City Campus

50. Part-time Work
 Some people do not either 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
UOT City Campus

51. More Work, Fewer Hours
 Variation of part-time work where
employees receive full-time pay and get
more done in fewer hours
 Corporate athlete paradigm One training
habit of world-class athletes is that they
have short periods of very demanding
work, but then “when they rest, they really
rest.”
UOT City Campus

52. An Exemplary Work-life Balance
Program
 Software giant SAS Institute Inco., has a
culture that gives it a powerful competitive
edge.
 The environment and benefits are
outstanding for the employees
 Gym, soccer field, café’, free juice and soda
for employees, unlimited sick leave, free
health insurance, free laundering etc..
UOT City Campus

53. Other Compensation Issues
 Severance pay
 Comparable worth
 Pay secrecy
 Pay compression
UOT City Campus

54. Severance Pay
 Compensation designed to assist
laid-off employees as they search for
new employment
 Typically offer 1 - 2 weeks of pay for
every year of service, up to some
predetermined maximum
UOT City Campus

55. Comparable Worth
 Requires value for dissimilar jobs, such
as company nurse and welder, to be
compared under some form of job
evaluation, and pay rates for both jobs
to be assigned according to their
evaluated worth
 Supreme Court has ruled the law does
not require comparable worth
UOT City Campus

56. Pay Secrecy
 Some organizations keep pay rates
secret for various reasons
 If firm’s compensation plan is
illogical, secrecy may be
appropriate
UOT City Campus

57. Pay Compression
 Hiring new employees at pay rates
comparable to, or higher than, those of
current employees who have been with
firm for several years and who hold same
or higher rated jobs
 May also occur when pay adjustments are
made at lower end of job hierarchy without
commensurate adjustments at top
UOT City Campus

58. Any
question
UOT City Campus