2008 by Prentice Hall 10-1

Human Resource Management

10
th
Edition
Chapter 10
BENEFITS, NONFINANCIAL
COMPENSATION, AND OTHER
COMPENSATION ISSUES
2008 by Prentice Hall 10-2
HRM in Action: Nontraditional
Benefits
Organizations are continually competing
for top caliber employees
Benefits may not serve as strong
motivators of performance
They are obviously important in attracting
and retaining these desired individuals

2008 by Prentice Hall 10-3
Benefits (Indirect Financial
Compensation)
All financial rewards
that are not paid
directly to the
employee
2008 by Prentice Hall 10-4
Benefits in a Total Compensation Program
External Environment
Internal Environment
Compensation
Indirect (Benefits)
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
Financial Nonfinancial
The Job Job Environment
Direct
2008 by Prentice Hall 10-5
Mandated Benefits
(Legally Required)
Social security
Unemployment
compensation
Workers compensation
Family and Medical
Leave Act of 1993
(FMLA)
2008 by Prentice Hall 10-6
Social Security
Created system of retirement benefits
Federal payroll tax to fund
unemployment and retirement
benefits
Amendments included disability
insurance, survivors benefits, and
Medicare

2008 by Prentice Hall 10-7
Unemployment Compensation
Laid off individual receives
compensation for up to 26
weeks
Administered by states
Payroll tax paid solely by
employers
2008 by Prentice Hall 10-8
Workers Compensation
Expenses resulting from
job-related accidents or
illnesses
Administered by states
Program paid for by
employers
Premium expense
directly tied to past
experience

2008 by Prentice Hall 10-9
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 employees own
serious health condition, need to care for
newborn or newly-adopted child, seriously
ill child, parent, or spouse
2008 by Prentice Hall 10-10
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

2008 by Prentice Hall 10-11
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
2008 by Prentice Hall 10-12
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
2008 by Prentice Hall 10-13
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
2008 by Prentice Hall 10-14
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
2008 by Prentice Hall 10-15
Health Care
Employers spend $300 billion annually on
health insurance for employees,
dependents, and retirees
Health insurance typically constitutes 25%
of employers benefit costs
Premiums for average family of 4 now cost
about $11,000 a year
2008 by Prentice Hall 10-16
Factors Contributing to the High
Cost of Health Care
Aging population
Growing demand for medical care
Increasingly expensive medical
technology
Inefficient administrative processes
2008 by Prentice Hall 10-17
Canadian Province of Ontario
Surpassed Michigan in Car
Production
Manufactured by General Motors, Ford
and Daimler-Chrysler
Companies are shifting production out of
U.S. because of enormous health-care
costs
In Canada, which has a government-
funded and -run health-care system, cost
to employer per worker is just $800
2008 by Prentice Hall 10-18
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 managed-
care 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

2008 by Prentice Hall 10-19
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
2008 by Prentice Hall 10-20
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
2008 by Prentice Hall 10-21
Major Medical Benefits
Plans provide for
major medical
benefits to cover
extraordinary
expenses that result
from long-term or
serious health
problems
2008 by Prentice Hall 10-22
Dental and Vision Care
Employers
typically pay
entire costs for
both types of
plans except for
a deductible
2008 by Prentice Hall 10-23
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
2008 by Prentice Hall 10-24
Life Insurance
Group life insurance
commonly provided
benefit to protect
employees family
in event of death
2008 by Prentice Hall 10-25
Retirement Plans
Defined benefits plans
Defined contribution plan
Cash balance plan -
2008 by Prentice Hall 10-26
Defined Benefit Plans
Formal retirement plan that provides the
participant with a fixed benefit upon
retirement
Typically based on the participants final
years average salary and years of service
Use has declined in recent years although
older workers tend to prefer them

2008 by Prentice Hall 10-27
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
2008 by Prentice Hall 10-28
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
2008 by Prentice Hall 10-29
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 participants
account annually, and investment earnings
are at a set amount
2008 by Prentice Hall 10-30
Disability Protection
Provides
monthly benefit
to employees
who, due to
illness or injury,
are unable to
work for an
extended period
2008 by Prentice Hall 10-31
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
2008 by Prentice Hall 10-32
Supplemental Unemployment
Benefits (SUB)
Provide additional income for
employees receiving unemployment
insurance benefits
Usually financed by company
Tend to benefit newer employees
2008 by Prentice Hall 10-33
Employee Services
Relocation
Child care
Educational assistance
Food service/subsidized
cafeterias
Financial services
Legal services
Scholarships for Dependents
2008 by Prentice Hall 10-34
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
2008 by Prentice Hall 10-35
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

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

2008 by Prentice Hall 10-36
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

2008 by Prentice Hall 10-37
Health-Care Legislation
Consolidated Omnibus Budget Reconciliation
Act (COBRA)
Health Insurance Portability and Accountability
Act (HIPAA)
Employee Retirement Income Security Act
(ERISA)
Older Workers Benefit Protection Act
(OWBPA)
Pension Protection Act (PPA)
2008 by Prentice Hall 10-38
Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA)
Enacted to give employees opportunity to
temporarily continue their coverage they
would otherwise lose because of
termination, layoff, or other change in
employment status
Applies to employers with 20 or more
employees
May keep coverage for up to 18 months
after employment ceases
2008 by Prentice Hall 10-39
Health Insurance Portability and
Accountability Act of 1996 (HIPAA)
Protection for approximately 25 million
Americans who move from one job to
another, are self-employed, or have
preexisting medical conditions
Make health insurance portable and
continuous
Eliminate ability of insurance companies to
reject coverage for individuals because of
a pre-existing condition
2008 by Prentice Hall 10-40
Employee Retirement Income
Security Act of 1974 (ERISA)
Strengthens existing and future retirement
programs
Intended to ensure that when employees
retire, they receive deserved pensions
Does not force employers to create an
employee retirement plans
2008 by Prentice Hall 10-41
Older Workers Benefit Protection
Act of 1990 (OWBPA)
Amendment to Age Discrimination in
Employment Act
Prohibits discrimination in administration of
benefits on basis of age
Permits early retirement incentive plans as
long as they are voluntary
Establishes wrongful termination waiver
requirements
2008 by Prentice Hall 10-42
Pension Protection Act of 2006
(PPA)
Strengthen the funding rules for defined
benefit pension plans
Ensure that employers make greater
contributions to their pension funds
Makes it easier for employers to
automatically enroll workers in their 401(k)
2008 by Prentice Hall 10-43
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
2008 by Prentice Hall 10-44
Nonfinancial Compensation
Historically,
compensation
departments in
organizations have
not dealt with
nonfinancial factors
This is changing
2008 by Prentice Hall 10-45
Nonfinancial Compensation in a Total Compensation Program
External Environment
Internal Environment
Direct

Indirect (Benefits)

The Job
Skill Variety Task
Identify Task
Significance
Autonomy
Feedback

Job Environment
Sound Policies
Competent Employees
Congenial Coworkers
Suitable Status Symbols
Working Conditions
Workplace Flexibility
Flextime
Compressed Workweek
Job Sharing
Customized Benefit Plans
Telecommuting
More Work, Fewer Hours
Part-time Work
Financial Nonfinancial
2008 by Prentice Hall 10-46
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?
2008 by Prentice Hall 10-47
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
2008 by Prentice Hall 10-48
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

2008 by Prentice Hall 10-49
Job Environment as a Nonfinancial
Compensation Factor
Sound policies
Capable managers
Competent employees
Congenial coworkers
Appropriate status
symbols
Working conditions
2008 by Prentice Hall 10-50
Workplace Flexibility
(Work-Life Balance)
Flextime
Compressed workweek
Job sharing
Telecommuting
Part-time work
More work, fewer hours
2008 by Prentice Hall 10-51
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
2008 by Prentice Hall 10-52
Illustration of Flextime
Flexible Time Core Time
Flexible
Time
(Lunch)
Core Time Flexible Time
6 a.m. 9 a.m. 6 p.m. 3 p.m. Noon
Bandwidth
2008 by Prentice Hall 10-53
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
2008 by Prentice Hall 10-54
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

2008 by Prentice Hall 10-55
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
2008 by Prentice Hall 10-56
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
2008 by Prentice Hall 10-57
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.

2008 by Prentice Hall 10-58
Other Compensation Issues
Severance pay
Comparable worth
Pay secrecy
Pay compression
2008 by Prentice Hall 10-59
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
2008 by Prentice Hall 10-60
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
2008 by Prentice Hall 10-61
Pay Secrecy
Some organizations
keep pay rates secret
for various reasons
If firms compensation
plan is illogical,
secrecy may be
appropriate
2008 by Prentice Hall 10-62
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
2008 by Prentice Hall 10-63