Strategic Compensation, 8e, Global Edition (Martocchio)

Chapter 9 Discretionary Benefits

41) Define three types of life insurance.

Answer: There are three kinds of life insurance: term life insurance, whole life insurance, and
universal life insurance. Term life insurance, the most common type offered by companies,
provides protection to employees' beneficiaries only during a limited period based on a specified
number of years (e.g., 5 years) subject to a maximum age (e.g., 65 or 70). After that, the
insurance automatically expires. Neither the employee nor his or her beneficiaries receives any
benefit upon expiration. In order to continue coverage under a term life plan, an employee must
renew the policy and make premium payments as long as he or she is younger than the maximum
allowed age for coverage.

Whole life insurance pays an amount to the designated beneficiaries of the deceased employee,
but unlike term policies, whole life plans do not terminate until payment is made to beneficiaries.
As a result, whole life insurance policies are substantially more expensive than are term life
policies, making the whole life insurance approach an uncommon feature of employer-sponsored
insurance programs. From the employee's or his or her beneficiary's perspective, whole life
insurance policies combine insurance protection with a savings (or cash accumulation plan)
because a portion of the money paid to meet the policy's premium will be available in the future
with a low fixed annual interest rate of usually no more than 2 or 3 percent.

Universal life insurance provides protection to employees' beneficiaries based on the insurance
feature of term life insurance and a more flexible savings or cash accumulation plan than found
in whole life insurance plans.
Difficulty: Easy
AACSB: Analytic Thinking
Learning Obj.: Identify and define one example of income protection programs, paid time off,
and services. (3)

42) How are integrated paid time off policies different than holiday, vacation, sick leave, and
personal leave policies?
Answer: Integrated paid time off policies or paid time off banks combine holiday, vacation,
sick leave, and personal leave policies into a single paid time off policy. Such policies do not
distinguish among reasons for absence as do specific policies. The idea is to provide individuals
the freedom to schedule time off without justifying the reasons. This freedom should presumably
substantially reduce the incidence of unscheduled absences that can be disruptive to the
workplace because these policies require advance notice unless sudden illness is the cause (e.g.,
you went to sleep one evening feeling fine and then wake up the next morning on a scheduled
work day with a stomach virus). Integrated paid time off policies have become an increasingly
popular alternative to separate holiday, vacation, sick leave, and personal leave plans because
they are more effective in controlling unscheduled absenteeism than other types of absence
control policies. Integrated policies also relieve the administrative burden of managing separate
plans and the necessity to process medical certifications in the case of sick leave policies.
Difficulty: Moderate
AACSB: Analytic Thinking
Learning Obj.: Identify and define one example of income protection programs, paid time off,
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and services. (3)

43) What are the implications of discretionary benefits for strategic compensation?
Answer: Answer should include the following main points:

Discretionary benefits, like core compensation, can contribute to a company's competitive

advantage.

Management can use discretionary benefit offerings to promote particular employee behaviors
that have strategic value.

A company can use discretionary benefits to distinguish itself from the competition.

Discretionary benefits also serve a strategic purpose by accommodating the needs of a diverse
workforce.

Finally, the tax advantage afforded companies from offering particular discretionary benefits has
strategic value.
Difficulty: Moderate
AACSB: Analytic Thinking
Learning Obj.: Explain the benefits and costs of discretionary benefits. (4)

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