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Benefits, nonfinancial rewards, and other compensation


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Benefits, nonfinancial rewards, and other compensation

  1. 1. Benefits, Nonfinancial Rewards, and Other Compensation Issues Presented by Emran & Fida Presented to Sir Adeel UOT City Campus
  2. 2. Benefits (Indirect Financial Compensation) All financial rewards that are not paid directly to the employee UOT City Campus
  3. 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. 4. Mandated Benefits (Legally Required)     Social security Unemployment compensation Worker’s compensation Family and Medical Leave Act of 1993 (FMLA) UOT City Campus
  5. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 20. Dental and Vision Care  Employers typically pay entire costs for both types of plans except for a deductible UOT City Campus
  21. 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. 22. Life Insurance  Group life insurance commonly provided benefit to protect employee’s family in event of death UOT City Campus
  23. 23. Retirement Plans  Defined benefits plans  Defined contribution plan  Cash balance plan UOT City Campus
  24. 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. 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. 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. 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. 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. 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. 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. 31. Employee Services        Relocation benefits Child care Educational assistance Food service/subsidized cafeterias Financial services Legal services Scholarships for Dependents UOT City Campus
  32. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 43. Workplace Flexibility (Work-Life Balance)       Flextime Compressed workweek Job sharing Telecommuting Part-time work More work, fewer hours UOT City Campus
  44. 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. 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. 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. 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. 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. 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. 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. 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. 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. 53. Other Compensation Issues  Severance pay  Comparable worth  Pay secrecy  Pay compression UOT City Campus
  54. 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. 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. 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. 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. 58. Any question UOT City Campus