ber81438_exr_001-068.qxd 8/11/09 7:38 PM Page 51 EXERCISE 10.3: D EVELOPING AN E MPLOYEE B ENEFITS P ROGRAM * Overview Chapter 10 provides an overview of types of employee benefits programs. The following exercise describes a new business start-up and some key decisions that need to be made if this organization is going to succeed with its planned \"preferred employer\" strategy. Learning Objectives After completing the exercise, you should be able to 1. Determine the critical issues that must be considered when designing an employee benefits program. 2. Identify the trade-offs that are made when choosing from a wide variety of benefits alternatives. 3. Decide how to judge the effectiveness of a benefits program. Procedure Part A: Individual Analysis After reading the chapter and before coming to class, read the scenario below and all exhibits and then answer the questions on Form 10.3.1. Part B: Group Analysis In groups, students should first review all their Forms 10.3.1 and then attempt to reach consensus on the questions. The group should prepare a concise, written response to each question on Form 10.3.1. Copyright 2009 The McGraw-Hill Companies. All rights reserved. Scenario USA Credit is a major financial services organization with growing interests in the private label credit card area. The organization began three years ago when it successfully acquired the credit card portfolios of five major U.S. retailers that were interested in outsourcing their programs. Since then, the organization has grown to a $1.5 billion business covering 25 retailers with a total of 6 million cardholders. Since its founding, USA Credit has targeted medium-sized retailers that like the customer closeness associated with having their own credit card but lack the technical expertise to effectively manage an accounts receivable business. USA Credit's business plan projects that it will double in size in the next two to three years. In addition, it plans to develop a bank card product and aggressively market it to small financial institutions that need this service to compete with the \"megabanks\" moving into their neighborhoods. Traditionally, the business has used one of two organization models in its credit card relationships, depending on the needs and the sophistication of the retail client. With *Contributed by Christine M. Hagan. its earliest acquisitions, USA Credit simply subcontracted the credit and collections function and staffed the storebased credit offices with its own personnel who processed customers' applications for credit, accepted payments, and assisted customers in the resolution of billing questions and problems. As the business grew, regional processing centers became the more efficient model, facilitated by sophisticated information systems. In recent acquisitions the on-site credit offices have been replaced with a bank of telephones tied directly to the regional processing center. In addition, there is a payment drop box for customer payments and an attractive kiosk containing applications and assorted credit-related information. Recent customer surveys indicate elimination of the traditional, staffed credit office has had no effect on customer satisfaction. In addition, retailers express a neutral attitude concerning whether or not there is a staffed, on-site office. Their major concerns focus on (1) increasing the number of credit card customers; (2) maintaining accurate billing information that is summarized in attractively designed monthly statements to customers; and (3) maximizing collection efforts. Since its founding, USA Credit's offices (both storebased and regional) have been staffed with part-time employees working 20-25 hours per week. Most employees are full-time students, mothers of school-age children, and senior citizens. Employees have been paid wages similar to those offered by other entry-level employers in the area, such as fast-food restaurants and retailers. No employee benefits have been offered, except those required by law. Several months ago, USA Credit's top management team decided its future goals would best be met by establishing a national service center to replace the regional and in-store credit offices. The firm's information technology is more than capable of supporting such a shift and executives believe that this would effectively position the company for the expected short-term growth, as well as a long-term plan to expand into Mexico and Canada. They wish to attract a full-time workforce in order to provide stability and a level of professionalism as new accounts are added and as strategic services are expanded. Estimates are that the center would initially employ 75 customer service associates and 4 to 7 other individuals, such as managers and technical specialists. If business grows according to plan, the number of customer service associates is expected to double over the next few years. A lengthy search has been conducted using a crossfunctional managerial team, which included Andy Wolfson, USA Credit's HR manager. After months of research, the team recommended locating the center on a two-acre lot just northeast of Las Vegas, Nevada. Real estate values are excellent in the region, the profile of the local worker is very appealing, the tax situation is favorable, and state and local political and community organizations welcome the 51 ber81438_exr_001-068.qxd 8/11/09 7:38 PM Page 52 Appendix B / Chapter Exercises opportunity to sponsor the opening of a solid, reputable, growing business such as USA Credit. Last week, the recommendation was unanimously approved for implementation. Groundbreaking is scheduled for next month. Andy Wolfson's main challenge is to assemble an HR plan. A key element of this involves designing a compensation and benefits program for the customer service associates. In addition to its state-of-the-art information systems technology, the competence and courtesy of its associates are expected to be major sources of competitive advantage. If USA Credit is going to continue to be successful in this upcoming growth period, it will be because it didn't lose focus on current customers and the customer service associates at the national service center would be 52 critical contributors to this effort. Andy has requested a variety of information from knowledgeable sources concerning the employee marketplace and the practices of other area businesses. Exhibit 10.3.1 is a copy of a memo concerning local conditions that sums up the vast majority of information that he has compiled from other sources. Based on this information, he has sent a preliminary proposal to the corporate vice president for administration. Exhibit 10.3.2 is a copy of the vice president's response. Working with a number of consultants and with local insurance companies, Andy has developed a list of possible benefit choices and their costs, which are itemized in Exhibit 10.3.3. ber81438_exr_001-068.qxd 8/11/09 7:38 PM Page 53 Exercise 10.3: Developing an Employee Benefits Program Exhibit 10.3.1 To: Andy Wolfson, HR Manager From: Andrea Birch, Senior Consultant Human Resources Concepts, Inc. As requested, I reviewed the information you provided concerning the Customer Service Associate positions planned for your Nevada Service Center. First, let me tell you that I think you'll be pleased with your decision to locate here. Gambling casinos/hotels are our foremost employers, accounting for 55 percent of the total jobs in the area. Second are tourist-related organizations such as small rental car companies, local motels, and restaurants. From the worker's point of view, these businesses are very cyclical and there is little job security. However, good casino workers are paid very well, both in base salary as well as tips. Needless to say, employee benefit programs are very meager. It is my belief that, if you position yourself as a solid financial services company with a pleasant, stable work atmosphere, you will have no difficulty finding skilled, reliable workers. In particular, you would represent an excellent opportunity for a \"casino spouse\" whose concern for stable employment and a comprehensive benefits packagewith particular emphasis on spouse and family optionsis an important factor in choosing and staying with a job. Even if one or more benefits were contributory, access to the coverage would be valuable to these workers. Thus, in a market that would normally call for hourly wages of $11.00 and up, we believe that your Customer Service Associate positions could be filled with competent employees in the $10.00 to $10.50 per hour range if the benefits plan were attractive. As requested, I am also pleased to provide you with some local information concerning paid time off in this area. Most organizations in this market provide two weeks of vacation after one year of service Copyright 2009 The McGraw-Hill Companies. All rights reserved. and increase this to three weeks after five years. Typically, firms located here offer 7 to 10 days'sick leave per year and 5 to 7 paid holidays. Be aware, however, that there is quite a bit of variance across organizations relating to these practices. I'll call you next week so that we can identify the next step in this process. 53 ber81438_exr_001-068.qxd 8/11/09 7:38 PM Page 54 Appendix B / Chapter Exercises Exhibit 10.3.2 To: Andy Wolfson, HR Manager From: Xavier Ortenzio, VP Corporate Administration I applaud your efforts to date in constructing a \"preferred employer\" HR strategy for our National Service Center. Having reviewed the copy of the Birch memo concerning the worker marketplace in Las Vegas, I heartily support your recommendations. Our original estimates called for a total compensation package for Customer Service Associates of $13.75 to $14.00 per hour. We arrived at this figure including a 28 percent rate for fringe benefits. \"Fringe benefits\" was broadly defined to include mandatory coverages, time off, and various other programs. Your recommendationthat this amount be redistributed by reducing the average hourly pay rate to $10.50 and by increasing the fringe benefit amount to 38 percent of base ratemakes sense. I also have no strong feelings about whether or not some benefits require employee contributionsprovided that this would not interfere with our \"preferred employer\" strategy. In addition, I read in yesterday's newspaper that cafeteria benefits are becoming increasingly popular. Would such an approach offer us any advantages? In any event, consider this your go-ahead to draft your benefits program as outlined above. I look forward to receiving your final recommendations and anticipate a speedy Executive Committee approval. The successful staffing and management of the National Service Center is critical to USA Credit's business strategy, future growth, and overall success. 54 ber81438_exr_001-068.qxd 8/11/09 7:38 PM Page 55 Exercise 10.3: Developing an Employee Benefits Program Exhibit 10.3.3 List of Possible Benefits Benefit Cost (Unless, where specified, all costs are annual rates) FICA Social Security Medicare FUTA (Federal Unemployment Tax) Workers' compensation State disability 6.2% on first $102,000 earned by individual 1.45% .8% on first $7,000 earned by individual $1.50 for every $100 of total payroll Not required in Nevada Employee Only Employee and Family $400 650 1,000 250 4.5% 3.0% .7% .5% 3.5% $62 per day $57 per day $52 per day $1,000 $550 Copyright 2009 The McGraw-Hill Companies. All rights reserved. Health care insurance program High plan $4,000 $6,000 Medium plan 3,500 4,850 Low plan 2,700 4,000 HMO 2,400 3,000 Dental plan Regular plan 650 1,300 HMO dental 480 900 Vision care 150 230 Prescription drug 350 625 Life insurance 1 year's salary 2 years' salary 3 years' salary Dependent life ($5,000 for spouse; $1,000 per child) Pension plan Defined benefit Defined contribution Tuition reimbursement Employee assistance program Child care subsidy Paid vacation Paid holidays Paid sick leave Long-term disability High plan (full salary after five consecutive days absent due to illness) Low plan (60 percent of salary after 10 consecutive days absent due to illness) 55 ber81438_exr_001-068.qxd 8/11/09 7:38 PM Page 57 Name Group FORM 10.3.1 You have been retained as a consultant to Andy Wolfson. Structure a benefits program that you think would be most effective for the customer service associates to be hired by USA Credit. Assume an average wage of $10.50 per hour and a workweek of 40 hours. A benefits budget of 38 percent of salary has been approved. If needed, assume that 70 percent of the customer service associates will require family coverage. 2. Copyright 2009 The McGraw-Hill Companies. All rights reserved. 1. What were the trade-offs you made in deciding on your recommendations? 3. Assume that Andy Wolfson is interested in a cafeteria benefits approach. He has heard, however, that when people are permitted to select their own coverages, unit costs may rise (called \"adverse selection\"). In other words, in cafeteria benefits, the averaging effect of users versus nonusers across employee populations declines as people opt out of programs that they are not likely to use in favor of benefits that they are very likely to use. How might Andy deal with this problem in designing a cafeteria benefits plan? 57 ber81438_exr_001-068.qxd 8/11/09 7:38 PM Page 58 FORM 10.3.1 (Continued) Name Group 4. What additional information concerning this situation would have enabled you to provide better recommendations? 5. How will you decide whether or not your benefits program is an effective one? Describe the procedure that you would use. What specific criteria would you use? 58 Chapter 10 Compensation: Base Pay and Fringe Benefits COMPENSATION All forms of financial returns & tangible benefits that employees receive as part of an employment relationship Three trends 1. Diversity in compensation strategies 2. Soaring benefits costs 3. Pay inequity 4. Pay used to communicate organizational change Compensation programs are in a state of transition 10-2 COMPENSATION DOES PAY MATTER 60-70% of total costs, compensation can decide success or failure of an organization On an individual level Pay is both instrumental & symbolic to workers U.S. workers prefer pay for performance systems Workers are satisfied with pay when there is equity On a societal level Higher production leads to a higher standard of living Government controls potential abuse 10-3 COMPENSATION SYSTEMS CHARACTERISTICS 1. Enables an organization to attract & retain qualified, competent workers 2. Motivates employee performance, fosters a feeling of equity, & provides direction to their efforts 3. Supports, communicates, & reinforces an organization's culture, values, and competitive strategy 4. Complies with government laws/ regulations FLSA, EPA, Title VII & numerous other laws/regs 5. Cost structure reflects the organization's ability to pay Two parts to compensation 1. Direct pay 2. Fringe compensation 10-4 JOB EVALUATION Process of assessing the value of each job in relation to other jobs in an organization Used to create internal equity among jobs Internal equity -employees perceive their pay is fair relative to others within the organization Focuses on duties & responsibilities assigned to the job, not particular characteristics of person who occupies the job, or quality or quantity of an individual's performance Three step process 1. Conduct job analysis 2. Rate/rank the job or factors on value, importance, worth O*NET & Position Analysis Questionnaire provide useful information 3. Review job evaluation results 10-5 JOB EVALUATION METHODS JOB RANKING Placing jobs in order from most \"valuable\" to least valuable using a single factor such as the importance of the job to the firm's competitive advantage Advantages Simplest method Inexpensive Easy to understand Disadvantages Only ranking of "worth"not very reliable Does not measure differences among jobs 10-6 JOB EVALUATION METHODS JOB CLASSIFICATION Compares jobs with preexisting set of job classes with broad descriptions designed to reflect characteristics of jobs advantages Advantages Simple Easy to use for large numbers of jobs One rating scale Disadvantages Ambiguous Overlapping grade descriptors 10-7 JOB EVALUATION METHODS POINT FACTOR Factors are identified and degrees are developed. Jobs are evaluated against the factors Typically done within a job family Hay plan is well known Point Factor system Advantages Written evaluation documents differences Limited rater bias High levels of credibility Disadvantages Time-consuming process Costly to design & maintain 10-8 MAJOR FACTORS OF THE HAY PLAN Know-How Sum total of every kind of skill Three sub-factors Problem Solving Original \"self-starting\" thinking required by the job for analyzing, evaluating, creating, & reasoning Two sub-factors Accountability Answerability for action & for consequences of action; the measured effect of the job Three sub-factors 10-9 EXTERNAL EQUITY Process of pricing jobs by identifying total compensation provided by other organizations for similar jobs Salary Survey Steps 1. Plan data collection Benchmark positions Understand relevant market 2. Collect survey information Match job content to salary information Include all elements of compensation 3. Analyze information Mean, median, mode 10-10 CURRENT TRENDS MARKET PRICING Pay established solely on the basis of marketplace Advantages Saves time by eliminating job evaluation or other tools used to establish internal equity Disadvantages Pay for unusual or unique jobs may be better established in relation to other jobs in organization Strategic importance of a job to an organization may be misstated General consensus suggests that internal equity considerations are important 10-11 CURRENT TRENDS BROADBANDING Replaces traditional narrow salary ranges (40-60 % spread) with fewer, wider bands (200-300 % spreads) Advantages More consistent with downsized, flatter organizational structures Breaks down previous structural pay barriers among jobs to facilitate empowerment, teamwork, etc. Greater flexibility; more useful managerial tool Disadvantages Traditional cost control in pay structure is lost Job pricing may be more difficult Possibly more difficult to communicate to employees 10-12 CURRENT TRENDS PAY FOR KNOWLEDGE Employees paid on basis of either degree of specific knowledge they possess or an inventory of skills Advantages Encourages workforce flexibility & enhanced competence Reduces need for supervision as employees improve knowledge & skill Fosters sense of individual empowerment about pay Disadvantages May increase pay costs Unused skills may get rusty Creating & maintaining skill & competency menus take time & effort Emerging controversy over paying for inputs or outcomes 10-13 CURRENT TRENDS TEAM PAY Any form of compensation contingent on group membership or team results Advantages Reinforces concepts of teams, empowerment May better communicate & support organization's culture & goals Disadvantages May demotivate top individual performers who prefer individual pay- for- performance Few existing plans; beginning to emerge 10-14 COMPENSATION GOVERNMENT INFLUENCE Policies ensuring minimum operating standards of fairness & humanity regarding compensation Fair Labor Standards Act (FLSA) of 1938 Dodd- Frank Wall Street Reform & Consumer Protection Act Equal Pay Act (EPA) of 1963 Lilly Ledbetter Fair Pay Act Prevailing Wage Laws Davis-Bacon Act-construction contractors Walsh-Healey Act-prevailing rates for federal contractors The Service Contract Act-prevailing rates for service contractors 10-15 COMPENSATION GOVERNMENT INFLUENCE Fair Labor Standards Act (FLSA) of 1938 Minimum Wage Overtime Pay Child Labor Laws Amended in 1963 to include the Equal Pay Act Pay differentials are allowed when based on Seniority Merit Quantity/Quality of work Factor other than sex 10-16 DEPARTMENT OF LABOR \"FAIRPAY\" OVERTIME RULES UNDER FLSA Workers earning less than $23,660 per yearor $455 per weekare guaranteed overtime protection In order to qualify for the executive employee exemption, all of the following tests must be met 1. The employee must be compensated on a salary basis at a rate not less than $455 per week 2. Employee's primary duty must be managing the enterprise, or managing a department of the enterprise 3. Employee must regularly direct the work of two or more other full-time employees 4. Employee must have authority to hire or fire Large class-action lawsuits centered on \"primary duty\" 10-17 COMPENSATION GOVERNMENT INFLUENCE Dodd- Frank Wall Street Reform & Consumer Protection Act Applies to publicly traded companies Shareholder nomination of corporate directors Compensation Committees composed of independent directors Increased company disclosure of executive compensation Shareholders get an advisory vote on executive pay \"Clawback\" provision requires the return of incentive pay based on misstated financial filings 10-18 PROPOSED THE PAYCHECK FAIRNESS ACT Reintroduced in 2010 Would amend the Equal Pay Act Mandates \"Equal pay for equivalent work\" Exemptions similar to the EPA Some states have some form of pay equity policy www.pay-equity.org 10-19 WAGE GAP Women make 78.5 cents for every dollar a man makes Warren Farrell in \"Why Men Earn More\" concludes wage gap exists primarily because of the type of work women choose & number of hours worked Disputes the arguments attributing the \"wage gap\" to discrimination Data indicates men & women with Bachelor's Degrees in 26 job categories have comparable salaries Women tend to prefer jobs with shorter & more flexible hours to accommodate family responsibilities Men more likely to have dangerous, higher paying jobs 92 percent of occupational deaths are men 10-20 EMPLOYEE BENEFITS EMPLOYEE BENEFITS Overview of Benefits Management Benefits are indirect compensation that provide something of value to the employee. Some are mandatory, due to federal and state statutes, and some are optional, based on the desires of the firm. According to the U.S. Bureau of Labor Statistics, benefits average roughly 30 percent of total employee compensation cost. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 22 EMPLOYEE BENEFITS Why are benefits growing as a portion of overall compensation? Tax advantages. Statutory requirements. Influence of Organized Labor. Buying in Bulk. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 23 EMPLOYEE BENEFITS Considerations in Providing Benefits Programs Amounts - affordability to the firm. Mix - various mixes include: a retirement benefit, health insurance, life and disability insurance, dental care, doggie day care, free parking, public transportation vouchers, etc. Flexibility - allows employees to choose one type of benefit over another. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 24 EMPLOYEE BENEFITS Statutory Benefits Social Security - Old-Age, Survivors and Disability Insurance (OASDI) programs. Retirement. Disability and survivor benefits. Medicare - national healthcare program for the elderly or disabled. Workers' Compensation - provides medical treatment and temporary payments to employees who are injured on the job or become ill because of their job. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 25 EMPLOYEE BENEFITS Statutory Benefits Unemployment Insurance - federal program managed by each state; provides payments for a fixed period to workers who lost their jobs. Family and Medical Leave Act of 1993 (FMLA) - unpaid leave that employers must provide to eligible employees when they or immediate family members are faced with medical issues. The Patient Protection and Affordable Care Act of 2010 (PPACA) - requires all employers with more than 50 employees to provide health insurance for employees or face significant penalties levied by the federal government. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 26 EMPLOYEE BENEFITS Statutory Requirements When Providing Certain Voluntary Benefits Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) - requires employers to offer to temporarily maintain health insurance on individuals who leave their employment. Health Insurance Portability and Accountability Act of 1996 (HIPAA) - if an employee had group health insurance at a previous employer and if the new employer has health care coverage, the firm is required to provide the opportunity to participate in their health insurance plan. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 27 EMPLOYEE BENEFITS Employee Retirement Income Security Act of 1974 (ERISA) - major provisions: Eligibility - available to all employees over 21 who have worked in the firm for one year. Vesting - a maximum time that a firm can retain company contributions to the employee's account. Portability - allows employees to move their funds from the employer to another qualified fund. Fiduciaries - they must act under a concept called the \"prudent man\". PBGC - Pension Benefit Guarantee Corporation insures retirement funds against failure. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND 28 EMPLOYEE BENEFITS Voluntary Benefits Paid Time Off Vacation or Annual Leave Sick Leave Holiday Pay Paid Personal Leave HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 29 EMPLOYEE BENEFITS Voluntary Benefits - Group Health Insurance Traditional health care plans typically cover a set percent of fees for medical services. Health Maintenance Organization (HMO) is a managed care program that provides both health maintenance services and medical care. Preferred Provider Organization (PPO) is a hybrid between traditional fee-for-service plans and HMOs. Health or Medical Savings Accounts (HSA/MSA) allow employers and employees to fund a medical savings account from which employees can pay medical expenses with pretax dollars. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 30 EMPLOYEE BENEFITS Retirement Benefits Are not mandatory, but if provided, the firm must comply with ERISA provisions. Defined benefit plan provides the retiree with a specific amount and type of benefit that will be available when the individual retires. Defined contribution plan identifies only the amount of funds that will go into a retirement account, not what the employee will receive upon retirement. A 401k retirement plan is a savings investment account for individual employees of corporations; a 403b retirement plan is similar but it is used for nonprofits. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 31 EMPLOYEE BENEFITS Retirement Benefits (continued) Matching contributions - many employers that offer a 401k or 403b provide a matching contribution up to a set maximum. IRAs and Roth IRAs - any taxpayer can make tax-free contributions to an IRA (subject to a maximum annual income limit); these contributions reduce the taxable income by the full amount of the contribution in the year in which they are placed in the account. Simplified Employee Pension (SEP) Plans - for selfemployed individuals and members of small companies. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 32 EMPLOYEE BENEFITS Employee Insurance Coverage Life Insurance Disability Insurance Life and Health Insurance Others: Employer-sponsored automobile insurance, homeowners and renters insurance, identity theft, and pet insurance. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 33 THE AFFORDABLE HEALTH CARE ACT The Affordable Care Act, or health care law, contains benefits and responsibilities for employers. The size and structure of the workforce - small, large, or part of a group - helps determine what applies to each employer. THE AFFORDABLE HEALTH CARE ACT Employers with: Fewer than 25 full-time equivalent employees may be eligible for a Small Business Health Care Tax Credit to help cover the cost of providing coverage. Generally 50 or fewer employees may be eligible to buy coverage through the Small Business Health Options Program (SHOP). Learn more at HealthCare.gov 50 or more full-time equivalent employees will need to file an annual information return reporting whether and what health insurance they offered employees. In addition, they are subject to the Employer Shared Responsibility provisions. Regardless of size, all employers that provide self-insured health coverage to their employees must file an annual return reporting certain information for each employee they cover. EMPLOYEE BENEFITS HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 36 EMPLOYEE BENEFITS Administration of Benefits Flexible Benefit (Cafeteria) Plans - employees choose from multiple options. Modular plans - employees choose benefits from modules, each with a different mix of insurance, employee services and retirement options; these plans are the easiest for HR to manage. Core Plus Plans - core benefits are available to everyone; employees choose from remaining benefits. Full Choice Plans - complete flexibility for employees. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 37 EMPLOYEE BENEFITS Communicate Value to Employees So they understand the true cost and value of the benefits they receive from the firm. Provide information through multiple communication channels more often than just once a year during open enrollment. Consider snail mail, searchable knowledge bases and email reminders, and/or social media, depending on the demographics of the firm. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 38 MISCELLANEOUS BENEFITS Non-monetary benefits or rewards of the job Never underestimate the \"power of hours\" Location Supervisor Co-workers Work environment Fun perks HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 39 INTERNATIONAL COMPENSATION Compensation in Offshore Operations Choice of centralized or decentralized approach Pay for Performance increasing Process similar to U.S. Consider regional differences & legislative issues Compensation of Mangers and Key Professionals Global management skills Going Rate Approach Balance Sheet Approach New approach creates an international pay scale 10-40 INTERNATIONAL COMPENSATION APPROACHES Traditional Going-rate approach or market-rate approach pay is linked to the prevailing pay in the local area Balance sheet approach pay equity focuses on other home-country colleagues and compensating the individual for the additional costs of an international assignment Contemporary Development of an international pay scale Ties all expatriate pay to some common reference point Pay remains relatively equivalent regardless of the location of a particular assignment, or the home country of a particular expatriate Standardizes international compensation and moves it away from an individual, case-by-case focus 10-41 FOUR COMPONENTS OF INTERNATIONAL COMPENSATION Base salary The amount of cash compensation that will be provided to an individual each pay period Foreign service premiums Monetary payments above and beyond base salary that companies offer in order to encourage employees to accept expatriate assignments, hazard pay Allowances Additional money given to expatriates for housing expenses, educational expenses, relocation expenses, spouse assistance, etc. Benefits Indirect forms of compensation that are intended to maintain or improve quality of life for employees 10-42 Chapter 10 Compensation: Base Pay and Fringe Benefits COMPENSATION All forms of financial returns & tangible benefits that employees receive as part of an employment relationship Three trends 1. Diversity in compensation strategies 2. Soaring benefits costs 3. Pay inequity 4. Pay used to communicate organizational change Compensation programs are in a state of transition 10-2 COMPENSATION DOES PAY MATTER 60-70% of total costs, compensation can decide success or failure of an organization On an individual level Pay is both instrumental & symbolic to workers U.S. workers prefer pay for performance systems Workers are satisfied with pay when there is equity On a societal level Higher production leads to a higher standard of living Government controls potential abuse 10-3 COMPENSATION SYSTEMS CHARACTERISTICS 1. Enables an organization to attract & retain qualified, competent workers 2. Motivates employee performance, fosters a feeling of equity, & provides direction to their efforts 3. Supports, communicates, & reinforces an organization's culture, values, and competitive strategy 4. Complies with government laws/ regulations FLSA, EPA, Title VII & numerous other laws/regs 5. Cost structure reflects the organization's ability to pay Two parts to compensation 1. Direct pay 2. Fringe compensation 10-4 JOB EVALUATION Process of assessing the value of each job in relation to other jobs in an organization Used to create internal equity among jobs Internal equity -employees perceive their pay is fair relative to others within the organization Focuses on duties & responsibilities assigned to the job, not particular characteristics of person who occupies the job, or quality or quantity of an individual's performance Three step process 1. Conduct job analysis 2. Rate/rank the job or factors on value, importance, worth O*NET & Position Analysis Questionnaire provide useful information 3. Review job evaluation results 10-5 JOB EVALUATION METHODS JOB RANKING Placing jobs in order from most \"valuable\" to least valuable using a single factor such as the importance of the job to the firm's competitive advantage Advantages Simplest method Inexpensive Easy to understand Disadvantages Only ranking of "worth"not very reliable Does not measure differences among jobs 10-6 JOB EVALUATION METHODS JOB CLASSIFICATION Compares jobs with preexisting set of job classes with broad descriptions designed to reflect characteristics of jobs advantages Advantages Simple Easy to use for large numbers of jobs One rating scale Disadvantages Ambiguous Overlapping grade descriptors 10-7 JOB EVALUATION METHODS POINT FACTOR Factors are identified and degrees are developed. Jobs are evaluated against the factors Typically done within a job family Hay plan is well known Point Factor system Advantages Written evaluation documents differences Limited rater bias High levels of credibility Disadvantages Time-consuming process Costly to design & maintain 10-8 MAJOR FACTORS OF THE HAY PLAN Know-How Sum total of every kind of skill Three sub-factors Problem Solving Original \"self-starting\" thinking required by the job for analyzing, evaluating, creating, & reasoning Two sub-factors Accountability Answerability for action & for consequences of action; the measured effect of the job Three sub-factors 10-9 EXTERNAL EQUITY Process of pricing jobs by identifying total compensation provided by other organizations for similar jobs Salary Survey Steps 1. Plan data collection Benchmark positions Understand relevant market 2. Collect survey information Match job content to salary information Include all elements of compensation 3. Analyze information Mean, median, mode 10-10 CURRENT TRENDS MARKET PRICING Pay established solely on the basis of marketplace Advantages Saves time by eliminating job evaluation or other tools used to establish internal equity Disadvantages Pay for unusual or unique jobs may be better established in relation to other jobs in organization Strategic importance of a job to an organization may be misstated General consensus suggests that internal equity considerations are important 10-11 CURRENT TRENDS BROADBANDING Replaces traditional narrow salary ranges (40-60 % spread) with fewer, wider bands (200-300 % spreads) Advantages More consistent with downsized, flatter organizational structures Breaks down previous structural pay barriers among jobs to facilitate empowerment, teamwork, etc. Greater flexibility; more useful managerial tool Disadvantages Traditional cost control in pay structure is lost Job pricing may be more difficult Possibly more difficult to communicate to employees 10-12 CURRENT TRENDS PAY FOR KNOWLEDGE Employees paid on basis of either degree of specific knowledge they possess or an inventory of skills Advantages Encourages workforce flexibility & enhanced competence Reduces need for supervision as employees improve knowledge & skill Fosters sense of individual empowerment about pay Disadvantages May increase pay costs Unused skills may get rusty Creating & maintaining skill & competency menus take time & effort Emerging controversy over paying for inputs or outcomes 10-13 CURRENT TRENDS TEAM PAY Any form of compensation contingent on group membership or team results Advantages Reinforces concepts of teams, empowerment May better communicate & support organization's culture & goals Disadvantages May demotivate top individual performers who prefer individual pay- for- performance Few existing plans; beginning to emerge 10-14 COMPENSATION GOVERNMENT INFLUENCE Policies ensuring minimum operating standards of fairness & humanity regarding compensation Fair Labor Standards Act (FLSA) of 1938 Dodd- Frank Wall Street Reform & Consumer Protection Act Equal Pay Act (EPA) of 1963 Lilly Ledbetter Fair Pay Act Prevailing Wage Laws Davis-Bacon Act-construction contractors Walsh-Healey Act-prevailing rates for federal contractors The Service Contract Act-prevailing rates for service contractors 10-15 COMPENSATION GOVERNMENT INFLUENCE Fair Labor Standards Act (FLSA) of 1938 Minimum Wage Overtime Pay Child Labor Laws Amended in 1963 to include the Equal Pay Act Pay differentials are allowed when based on Seniority Merit Quantity/Quality of work Factor other than sex 10-16 DEPARTMENT OF LABOR \"FAIRPAY\" OVERTIME RULES UNDER FLSA Workers earning less than $23,660 per yearor $455 per weekare guaranteed overtime protection In order to qualify for the executive employee exemption, all of the following tests must be met 1. The employee must be compensated on a salary basis at a rate not less than $455 per week 2. Employee's primary duty must be managing the enterprise, or managing a department of the enterprise 3. Employee must regularly direct the work of two or more other full-time employees 4. Employee must have authority to hire or fire Large class-action lawsuits centered on \"primary duty\" 10-17 COMPENSATION GOVERNMENT INFLUENCE Dodd- Frank Wall Street Reform & Consumer Protection Act Applies to publicly traded companies Shareholder nomination of corporate directors Compensation Committees composed of independent directors Increased company disclosure of executive compensation Shareholders get an advisory vote on executive pay \"Clawback\" provision requires the return of incentive pay based on misstated financial filings 10-18 PROPOSED THE PAYCHECK FAIRNESS ACT Reintroduced in 2010 Would amend the Equal Pay Act Mandates \"Equal pay for equivalent work\" Exemptions similar to the EPA Some states have some form of pay equity policy www.pay-equity.org 10-19 WAGE GAP Women make 78.5 cents for every dollar a man makes Warren Farrell in \"Why Men Earn More\" concludes wage gap exists primarily because of the type of work women choose & number of hours worked Disputes the arguments attributing the \"wage gap\" to discrimination Data indicates men & women with Bachelor's Degrees in 26 job categories have comparable salaries Women tend to prefer jobs with shorter & more flexible hours to accommodate family responsibilities Men more likely to have dangerous, higher paying jobs 92 percent of occupational deaths are men 10-20 EMPLOYEE BENEFITS EMPLOYEE BENEFITS Overview of Benefits Management Benefits are indirect compensation that provide something of value to the employee. Some are mandatory, due to federal and state statutes, and some are optional, based on the desires of the firm. According to the U.S. Bureau of Labor Statistics, benefits average roughly 30 percent of total employee compensation cost. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 22 EMPLOYEE BENEFITS Why are benefits growing as a portion of overall compensation? Tax advantages. Statutory requirements. Influence of Organized Labor. Buying in Bulk. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 23 EMPLOYEE BENEFITS Considerations in Providing Benefits Programs Amounts - affordability to the firm. Mix - various mixes include: a retirement benefit, health insurance, life and disability insurance, dental care, doggie day care, free parking, public transportation vouchers, etc. Flexibility - allows employees to choose one type of benefit over another. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 24 EMPLOYEE BENEFITS Statutory Benefits Social Security - Old-Age, Survivors and Disability Insurance (OASDI) programs. Retirement. Disability and survivor benefits. Medicare - national healthcare program for the elderly or disabled. Workers' Compensation - provides medical treatment and temporary payments to employees who are injured on the job or become ill because of their job. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 25 EMPLOYEE BENEFITS Statutory Benefits Unemployment Insurance - federal program managed by each state; provides payments for a fixed period to workers who lost their jobs. Family and Medical Leave Act of 1993 (FMLA) - unpaid leave that employers must provide to eligible employees when they or immediate family members are faced with medical issues. The Patient Protection and Affordable Care Act of 2010 (PPACA) - requires all employers with more than 50 employees to provide health insurance for employees or face significant penalties levied by the federal government. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 26 EMPLOYEE BENEFITS Statutory Requirements When Providing Certain Voluntary Benefits Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) - requires employers to offer to temporarily maintain health insurance on individuals who leave their employment. Health Insurance Portability and Accountability Act of 1996 (HIPAA) - if an employee had group health insurance at a previous employer and if the new employer has health care coverage, the firm is required to provide the opportunity to participate in their health insurance plan. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 27 EMPLOYEE BENEFITS Employee Retirement Income Security Act of 1974 (ERISA) - major provisions: Eligibility - available to all employees over 21 who have worked in the firm for one year. Vesting - a maximum time that a firm can retain company contributions to the employee's account. Portability - allows employees to move their funds from the employer to another qualified fund. Fiduciaries - they must act under a concept called the \"prudent man\". PBGC - Pension Benefit Guarantee Corporation insures retirement funds against failure. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND 28 EMPLOYEE BENEFITS Voluntary Benefits Paid Time Off Vacation or Annual Leave Sick Leave Holiday Pay Paid Personal Leave HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 29 EMPLOYEE BENEFITS Voluntary Benefits - Group Health Insurance Traditional health care plans typically cover a set percent of fees for medical services. Health Maintenance Organization (HMO) is a managed care program that provides both health maintenance services and medical care. Preferred Provider Organization (PPO) is a hybrid between traditional fee-for-service plans and HMOs. Health or Medical Savings Accounts (HSA/MSA) allow employers and employees to fund a medical savings account from which employees can pay medical expenses with pretax dollars. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 30 EMPLOYEE BENEFITS Retirement Benefits Are not mandatory, but if provided, the firm must comply with ERISA provisions. Defined benefit plan provides the retiree with a specific amount and type of benefit that will be available when the individual retires. Defined contribution plan identifies only the amount of funds that will go into a retirement account, not what the employee will receive upon retirement. A 401k retirement plan is a savings investment account for individual employees of corporations; a 403b retirement plan is similar but it is used for nonprofits. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 31 EMPLOYEE BENEFITS Retirement Benefits (continued) Matching contributions - many employers that offer a 401k or 403b provide a matching contribution up to a set maximum. IRAs and Roth IRAs - any taxpayer can make tax-free contributions to an IRA (subject to a maximum annual income limit); these contributions reduce the taxable income by the full amount of the contribution in the year in which they are placed in the account. Simplified Employee Pension (SEP) Plans - for selfemployed individuals and members of small companies. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 32 EMPLOYEE BENEFITS Employee Insurance Coverage Life Insurance Disability Insurance Life and Health Insurance Others: Employer-sponsored automobile insurance, homeowners and renters insurance, identity theft, and pet insurance. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 33 THE AFFORDABLE HEALTH CARE ACT The Affordable Care Act, or health care law, contains benefits and responsibilities for employers. The size and structure of the workforce - small, large, or part of a group - helps determine what applies to each employer. THE AFFORDABLE HEALTH CARE ACT Employers with: Fewer than 25 full-time equivalent employees may be eligible for a Small Business Health Care Tax Credit to help cover the cost of providing coverage. Generally 50 or fewer employees may be eligible to buy coverage through the Small Business Health Options Program (SHOP). Learn more at HealthCare.gov 50 or more full-time equivalent employees will need to file an annual information return reporting whether and what health insurance they offered employees. In addition, they are subject to the Employer Shared Responsibility provisions. Regardless of size, all employers that provide self-insured health coverage to their employees must file an annual return reporting certain information for each employee they cover. EMPLOYEE BENEFITS HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 36 EMPLOYEE BENEFITS Administration of Benefits Flexible Benefit (Cafeteria) Plans - employees choose from multiple options. Modular plans - employees choose benefits from modules, each with a different mix of insurance, employee services and retirement options; these plans are the easiest for HR to manage. Core Plus Plans - core benefits are available to everyone; employees choose from remaining benefits. Full Choice Plans - complete flexibility for employees. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 37 EMPLOYEE BENEFITS Communicate Value to Employees So they understand the true cost and value of the benefits they receive from the firm. Provide information through multiple communication channels more often than just once a year during open enrollment. Consider snail mail, searchable knowledge bases and email reminders, and/or social media, depending on the demographics of the firm. HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 38 MISCELLANEOUS BENEFITS Non-monetary benefits or rewards of the job Never underestimate the \"power of hours\" Location Supervisor Co-workers Work environment Fun perks HUMAN RESOURCE MANAGEMENT: FUNCTIONS, APPLICATIONS, SKILL DEVELOPMENT BY ROBERT N. LUSSIER AND JOHN R. HENDON 2012 SAGE PUBLICATIONS, 39 INTERNATIONAL COMPENSATION Compensation in Offshore Operations Choice of centralized or decentralized approach Pay for Performance increasing Process similar to U.S. Consider regional differences & legislative issues Compensation of Mangers and Key Professionals Global management skills Going Rate Approach Balance Sheet Approach New approach creates an international pay scale 10-40 INTERNATIONAL COMPENSATION APPROACHES Traditional Going-rate approach or market-rate approach pay is linked to the prevailing pay in the local area Balance sheet approach pay equity focuses on other home-country colleagues and compensating the individual for the additional costs of an international assignment Contemporary Development of an international pay scale Ties all expatriate pay to some common reference point Pay remains relatively equivalent regardless of the location of a particular assignment, or the home country of a particular expatriate Standardizes international compensation and moves it away from an individual, case-by-case focus 10-41 FOUR COMPONENTS OF INTERNATIONAL COMPENSATION Base salary The amount of cash compensation that will be provided to an individual each pay period Foreign service premiums Monetary payments above and beyond base salary that companies offer in order to encourage employees to accept expatriate assignments, hazard pay Allowances Additional money given to expatriates for housing expenses, educational expenses, relocation expenses, spouse assistance, etc. Benefits Indirect forms of compensation that are intended to maintain or improve quality of life for employees 10-42