Compensation, 1h dition 1 produ Your Turn G ety. There World Measurement Are . wendig World Measurement is the global leader in product testing for safety. The recent problem with Chinese-made toy products (for example, Mattel recalled 19 million toys with evidence of lead paint) combined with the global recession has caused a 7 percent decline in sales and a 12 percent decline in net profits. The president of the company, Lewis Jacobs, is convinced that he must get concessions from the workers if World Measurement is to compete effectively with increasing foreign competition. In particular, Jacobs is displeased with the cost of employee benefits. He doesn't mind conceding a competitive wage increase (maximum 3 percent), but he wants the total compensation package to cost 3 percent less. The current costs are shown in Exhibit 1. Your assistant has surveyed other companies that are obtaining concessions from employees. You also have data from a consulting firm that indicates employee preferences for different forms of benefits (Exhibit 2). Based on all this information, you have two possible concession packages that you can propose, labeled "Option 1" and "Option 2" (Exhibit 3). 1. Cost out these packages given the data in Exhibits 1 and the information obtained from various insurance carriers and other information sources (Exhibit 4). 2. Which package should you recommend to Jacobs? Why? 3. Which of the strategies do you think will require less input from employees in terms of their reactions? From ANOS polled by the Orice of Po Aa W 462 EXHIBIT 1 Current Compensation Costs $26,769 $13.12 $8,923 $35,692 8.0 Dollar Cost/Employee/Year $2,141.00 $1,509.00 $ 292.00 $ 311.00 $ 29.00 $3,124.00 $1,460.00 $1,427.00 $ $ $ Average yearly wage Average hourly wage Dollar value of yearly benefits, per employee Total compensation (wages plus benefits) Daily average number of hours paid Benefits (by Category) 1. Legally required payments (employer's share only a. Old-age, survivors, disability, and health insurance (FICA) taxes b. Unemployment compensation c Workers' compensation (including estimated cost of self-insured d. Railroad retirement tax, railroad unemployment and cash sickness insurance, state sickness benefits insurance, etc. 2. Pension, insurance, and other agreed-upon payments (employer's share only) a. Pension plan premiums and pension payments not covered by insurance-type plan (net) b. Life insurance premiums; death benefits; hospital, surgical, medical, and major medical insurance premiums, etc. (net) c Short-term disability d. Salary continuation or long-term disability e. Dental insurance premiums f. Discounts on goods and services purchased from company by employees 9. Employee meals furnished by company h. Miscellaneous payments (compensation payments in excess of legal requirements, separation or termination pay allowances, moving expenses, etc.) 3. Paid rest periods, lunch periods, wash-up time, travel time, dothes-change time, get-ready time, etc. (60 minutes) 4. Payments for time not worked a. Paid vacations and payments in lieu of vacation (16 days average) b. Payments for holidays not worked (9 days) c. Paid sick leave (10 days macimum) d. Payments for state or national guard duty: jury, witness, and voting pay allowances, payments for time lost due to death in family or other personal reasons, etc. 5. Other items a. Profit-sharing payments b. Contributions to employee thrift plans c Christmas or other special bonuses, service awards, suggestion awards, etc. d. Employee education expenditures (tuition refunds, etc.) e Special wage payments ordered by courts, payments to union stewards, etc. Total 83.00 57.00 51.00 27.00 $ $ $ 0 24.00 $ 727.00 $2,769.00 $1,558.00 $ 973.00 $ 172.00 $ 66.00 $ 157.00 $ 0 $ 71.00 $ 0 $ $ 40.00 46.00 58,923.00 462 EXHIBIT 2 Benefit Preferences Benefit Type or Method Importance of Administering to Workers Pensions 87 Hospitalization 86 Life insurance 79 Paid vacation 82 Holidays 82 Long-term disability 72 Short-term disability 69 Paid sick leave 70 Benefit Type or Method of Administering Paid rest periods, lunch periods, etc. Dental insurance Christmas bonus Profit sharing Education expenditures Contributions to thrift plans Discount on goods Fair treatment in administration Importance to Workers 55 51 31 21 15 15 5 100 Hote: 0 = unimportant; 100 = extremely important. EXHIBIT 3 Two Possible Packages for Cutting Benefit Costs Option 1 Implement Copay for Benefit Amount of Copay Pension $300.00 Hospital, surgical, medical, and major medical premiums 350.00 Dental insurance premiums 75.00 Reduction of Benefit Eliminate 10-minute paid break (workers leave work 10 minutes earlier) Eliminate one paid holiday per year Coordination with legally required benefit; social security coordinated with Lightning Industries pension plan Option 2 Improved claims processing: Unemployment compensation Workers' compensation Long-term disability Require probationary period (one year) before eligible for: Discounts on goods Employee meal paid by company Contributions to employee thrift plans Deductible ($100 per incident): Life insurance, death benefits, hospital, etc. Dental insurance Copay Amount of Copay Hospital, surgical, medical and major medical premiums $350.00 464 EXHIBIT 4 Analysis of Cost Implications for Different Cost-Cutting St. Lightning Industries Your Turn World Measurement World Measurement is the global leader in product testing for safety. The recent problem with Chinese-made toy products (for example, Mattel recalled 19 million toys with evidence of lead paint) combined with the global recession has caused a 7 percent decline in sales and a 12 percent decline in net profits. The president of the company, Lewis Jacobs, is convinced that he must get concessions from the workers if World Measurement is to compete effectively with increasing foreign competition. In particular, Jacobs is displeased with the cost of employee benefits. He doesn't mind conceding a competitive wage increase (maximum 3 percent), but he wants the total compensation package to cost 3 percent less. The current costs are shown in Exhibit 1. Your assistant has surveyed other companies that are obtaining concessions from employees. You also have data from a consulting firm that indicates employee preferences for different forms of benefits (Exhibit 2). Based on all this information, you have two possible concession packages that you can propose, labeled "Option 1" and "Option 2" (Exhibit 3). 1. Cost out these packages given the data in Exhibits 1 and the information obtained from various insurance carriers and other information sources (Exhibit 4). 2. Which package should you recommend to Jacobs? Why? 3. Which of the strategies do you think will require less input from employees in terms of their reactions? vi Pg. 3010 Aa 114 ... EXHIBIT 1 Current Compensation Costs $26,769 $13.12 $8.923 $35,692 8.0 Dollar Cost/Employee/Year $2,141.00 $1,509.00 $ 292.00 $ 311.00 $ 29.00 $3,124.00 $1,460.00 $1,427.00 Average yearly wage Average hourly wage Dollar value of yearly benefits, per employee Total compensation (wages plus benefits) Daily average number of hours paid Benefits (by Category) 1. Legally required payments (employer's share only) a. Old-age, survivors, disability, and health insurance (FICA) taxes b. Unemployment compensation c Workers' compensation (including estimated cost of self-insured) d. Railroad retirement tax, railroad unemployment and cash sickness insurance, state sickness benefits insurance, etc. 2. Pension, insurance, and other agreed-upon payments (employer's share only) a. Pension plan premiums and pension payments not covered by insurance-type plan (net) b. Life insurance premiums; death benefits, hospital, surgical, medical, and major medical insurance premiums, etc. (net) c Short-term disability d. Salary continuation or long-term disability e Dental insurance premiums f. Discounts on goods and services purchased from company by employees g. Employee meals furnished by company h. Miscellaneous payments (compensation payments in excess of legal requirements, separation or termination pay allowances, moving expenses, etc.) 3. Paid rest periods, lunch periods, wash-up time, travel time, dothes-change time, get ready time, etc. (60 minutes) 4. Payments for time not worked a. Paid vacations and payments in lieu of vacation (16 days average) b. Payments for holidays not worked (9 days) c. Paid sick leave (10 days maximum) d. Payments for state or national guard duty jury, witness, and voting pay allowances, payments for time lost due to death in family or other personal reasons, etc. 5. Other items a. Profit-sharing payments b. Contributions to employee thrift plans c Christmas or other special bonuses, service awards, suggestion awards, etc. d. Employee education expenditures (tuition refunds, etc.) e. Special wage payments ordered by courts, payments to union stewards, etc. Total $ 83.00 $ 57.00 $ 51.00 $ 27.00 $ $ 0 24.00 $ 727.00 $2.769.00 $1,558.00 $ 973.00 $ 172.00 $ 66.00 $ 157.00 $ 0 $ 71.00 $ o $ 40.00 $ 46.00 $8,923.00 Compensation, 12th Edition EXHIBIT 2 Benefit Preferences Benefit Type or Method of Administering Pensions Hospitalization Life insurance Paid vacation Holidays Long-term disability Short-term disability Paid sick leave Importance to Workers 87 86 79 82 82 72 69 70 Benefit Type or Method of Administering Paid rest periods, lunch periods, etc. Dental insurance Christmas bonus Profit sharing Education expenditures Contributions to thrift plans Discount on goods Fair treatment in administration Importance to Workers 55 51 31 21 15 15 5 100 Note: 0 = unimportant; 100 = extremely important. EXHIBIT 3 Two Possible Packages for Cutting Benefit Costs Option 1 Implement Copay for Benefit Amount of Copay Pension $300.00 Hospital, surgical, medical, and major medical premiums 350.00 Dental insurance premiums 75.00 Reduction of Benefit Eliminate 10-minute paid break (workers leave work 10 minutes earlier) Eliminate one paid holiday per year Coordination with legally required benefit; social security coordinated with Lightning Industries pension plan Option 2 Improved claims processing: Unemployment compensation Workers' compensation Long-term disability Require probationary period (one year) before eligible for: Discounts on goods Employee meal paid by company Contributions to employee thrift plans Deductible (5100 per incident): Life insurance, death benefits, hospital, etc. Dental insurance Copay Hospital, surgical, medical and major medical premiums Amount of Copay $350.00 464 EXHIBIT 4 Analysis of Cost Implications for Different Cost-Cutting Copay Hospital, surgical, medical and major medical premiums Amount of Copay $350.00 3 464 EXHIBIT 4 Analysis of Cost Implications for Different Cost-Cutting Strategies: Lightning Industries Savings as Percent of Cost-Saving Strategy Benefit-Type Cost Dollar for dollar savings Copay equal to amount of copay Deductible (5100 per incident): Life insurance premiums, death benefits, hospital, etc. 10% Dental insurance 15 Require probationary period before eligible (one year): Discount on goods and services 10 Employee meals furnished by company 15 Contributions to employee thrift plans 10 Improved claims processing: Unemployment compensation 8 Workers' compensation 3 Long-term disability Coordination with legally required benefits: Coordinate social security with Lightning pension plan 15 1 Summary Given the rapid escalation in the cost of employee benefits over the past 15 vears Arcanization would do well to evaluate the af Compensation, 1h dition 1 produ Your Turn G ety. There World Measurement Are . wendig World Measurement is the global leader in product testing for safety. The recent problem with Chinese-made toy products (for example, Mattel recalled 19 million toys with evidence of lead paint) combined with the global recession has caused a 7 percent decline in sales and a 12 percent decline in net profits. The president of the company, Lewis Jacobs, is convinced that he must get concessions from the workers if World Measurement is to compete effectively with increasing foreign competition. In particular, Jacobs is displeased with the cost of employee benefits. He doesn't mind conceding a competitive wage increase (maximum 3 percent), but he wants the total compensation package to cost 3 percent less. The current costs are shown in Exhibit 1. Your assistant has surveyed other companies that are obtaining concessions from employees. You also have data from a consulting firm that indicates employee preferences for different forms of benefits (Exhibit 2). Based on all this information, you have two possible concession packages that you can propose, labeled "Option 1" and "Option 2" (Exhibit 3). 1. Cost out these packages given the data in Exhibits 1 and the information obtained from various insurance carriers and other information sources (Exhibit 4). 2. Which package should you recommend to Jacobs? Why? 3. Which of the strategies do you think will require less input from employees in terms of their reactions? From ANOS polled by the Orice of Po Aa W 462 EXHIBIT 1 Current Compensation Costs $26,769 $13.12 $8,923 $35,692 8.0 Dollar Cost/Employee/Year $2,141.00 $1,509.00 $ 292.00 $ 311.00 $ 29.00 $3,124.00 $1,460.00 $1,427.00 $ $ $ Average yearly wage Average hourly wage Dollar value of yearly benefits, per employee Total compensation (wages plus benefits) Daily average number of hours paid Benefits (by Category) 1. Legally required payments (employer's share only a. Old-age, survivors, disability, and health insurance (FICA) taxes b. Unemployment compensation c Workers' compensation (including estimated cost of self-insured d. Railroad retirement tax, railroad unemployment and cash sickness insurance, state sickness benefits insurance, etc. 2. Pension, insurance, and other agreed-upon payments (employer's share only) a. Pension plan premiums and pension payments not covered by insurance-type plan (net) b. Life insurance premiums; death benefits; hospital, surgical, medical, and major medical insurance premiums, etc. (net) c Short-term disability d. Salary continuation or long-term disability e. Dental insurance premiums f. Discounts on goods and services purchased from company by employees 9. Employee meals furnished by company h. Miscellaneous payments (compensation payments in excess of legal requirements, separation or termination pay allowances, moving expenses, etc.) 3. Paid rest periods, lunch periods, wash-up time, travel time, dothes-change time, get-ready time, etc. (60 minutes) 4. Payments for time not worked a. Paid vacations and payments in lieu of vacation (16 days average) b. Payments for holidays not worked (9 days) c. Paid sick leave (10 days macimum) d. Payments for state or national guard duty: jury, witness, and voting pay allowances, payments for time lost due to death in family or other personal reasons, etc. 5. Other items a. Profit-sharing payments b. Contributions to employee thrift plans c Christmas or other special bonuses, service awards, suggestion awards, etc. d. Employee education expenditures (tuition refunds, etc.) e Special wage payments ordered by courts, payments to union stewards, etc. Total 83.00 57.00 51.00 27.00 $ $ $ 0 24.00 $ 727.00 $2,769.00 $1,558.00 $ 973.00 $ 172.00 $ 66.00 $ 157.00 $ 0 $ 71.00 $ 0 $ $ 40.00 46.00 58,923.00 462 EXHIBIT 2 Benefit Preferences Benefit Type or Method Importance of Administering to Workers Pensions 87 Hospitalization 86 Life insurance 79 Paid vacation 82 Holidays 82 Long-term disability 72 Short-term disability 69 Paid sick leave 70 Benefit Type or Method of Administering Paid rest periods, lunch periods, etc. Dental insurance Christmas bonus Profit sharing Education expenditures Contributions to thrift plans Discount on goods Fair treatment in administration Importance to Workers 55 51 31 21 15 15 5 100 Hote: 0 = unimportant; 100 = extremely important. EXHIBIT 3 Two Possible Packages for Cutting Benefit Costs Option 1 Implement Copay for Benefit Amount of Copay Pension $300.00 Hospital, surgical, medical, and major medical premiums 350.00 Dental insurance premiums 75.00 Reduction of Benefit Eliminate 10-minute paid break (workers leave work 10 minutes earlier) Eliminate one paid holiday per year Coordination with legally required benefit; social security coordinated with Lightning Industries pension plan Option 2 Improved claims processing: Unemployment compensation Workers' compensation Long-term disability Require probationary period (one year) before eligible for: Discounts on goods Employee meal paid by company Contributions to employee thrift plans Deductible ($100 per incident): Life insurance, death benefits, hospital, etc. Dental insurance Copay Amount of Copay Hospital, surgical, medical and major medical premiums $350.00 464 EXHIBIT 4 Analysis of Cost Implications for Different Cost-Cutting St. Lightning Industries Your Turn World Measurement World Measurement is the global leader in product testing for safety. The recent problem with Chinese-made toy products (for example, Mattel recalled 19 million toys with evidence of lead paint) combined with the global recession has caused a 7 percent decline in sales and a 12 percent decline in net profits. The president of the company, Lewis Jacobs, is convinced that he must get concessions from the workers if World Measurement is to compete effectively with increasing foreign competition. In particular, Jacobs is displeased with the cost of employee benefits. He doesn't mind conceding a competitive wage increase (maximum 3 percent), but he wants the total compensation package to cost 3 percent less. The current costs are shown in Exhibit 1. Your assistant has surveyed other companies that are obtaining concessions from employees. You also have data from a consulting firm that indicates employee preferences for different forms of benefits (Exhibit 2). Based on all this information, you have two possible concession packages that you can propose, labeled "Option 1" and "Option 2" (Exhibit 3). 1. Cost out these packages given the data in Exhibits 1 and the information obtained from various insurance carriers and other information sources (Exhibit 4). 2. Which package should you recommend to Jacobs? Why? 3. Which of the strategies do you think will require less input from employees in terms of their reactions? vi Pg. 3010 Aa 114 ... EXHIBIT 1 Current Compensation Costs $26,769 $13.12 $8.923 $35,692 8.0 Dollar Cost/Employee/Year $2,141.00 $1,509.00 $ 292.00 $ 311.00 $ 29.00 $3,124.00 $1,460.00 $1,427.00 Average yearly wage Average hourly wage Dollar value of yearly benefits, per employee Total compensation (wages plus benefits) Daily average number of hours paid Benefits (by Category) 1. Legally required payments (employer's share only) a. Old-age, survivors, disability, and health insurance (FICA) taxes b. Unemployment compensation c Workers' compensation (including estimated cost of self-insured) d. Railroad retirement tax, railroad unemployment and cash sickness insurance, state sickness benefits insurance, etc. 2. Pension, insurance, and other agreed-upon payments (employer's share only) a. Pension plan premiums and pension payments not covered by insurance-type plan (net) b. Life insurance premiums; death benefits, hospital, surgical, medical, and major medical insurance premiums, etc. (net) c Short-term disability d. Salary continuation or long-term disability e Dental insurance premiums f. Discounts on goods and services purchased from company by employees g. Employee meals furnished by company h. Miscellaneous payments (compensation payments in excess of legal requirements, separation or termination pay allowances, moving expenses, etc.) 3. Paid rest periods, lunch periods, wash-up time, travel time, dothes-change time, get ready time, etc. (60 minutes) 4. Payments for time not worked a. Paid vacations and payments in lieu of vacation (16 days average) b. Payments for holidays not worked (9 days) c. Paid sick leave (10 days maximum) d. Payments for state or national guard duty jury, witness, and voting pay allowances, payments for time lost due to death in family or other personal reasons, etc. 5. Other items a. Profit-sharing payments b. Contributions to employee thrift plans c Christmas or other special bonuses, service awards, suggestion awards, etc. d. Employee education expenditures (tuition refunds, etc.) e. Special wage payments ordered by courts, payments to union stewards, etc. Total $ 83.00 $ 57.00 $ 51.00 $ 27.00 $ $ 0 24.00 $ 727.00 $2.769.00 $1,558.00 $ 973.00 $ 172.00 $ 66.00 $ 157.00 $ 0 $ 71.00 $ o $ 40.00 $ 46.00 $8,923.00 Compensation, 12th Edition EXHIBIT 2 Benefit Preferences Benefit Type or Method of Administering Pensions Hospitalization Life insurance Paid vacation Holidays Long-term disability Short-term disability Paid sick leave Importance to Workers 87 86 79 82 82 72 69 70 Benefit Type or Method of Administering Paid rest periods, lunch periods, etc. Dental insurance Christmas bonus Profit sharing Education expenditures Contributions to thrift plans Discount on goods Fair treatment in administration Importance to Workers 55 51 31 21 15 15 5 100 Note: 0 = unimportant; 100 = extremely important. EXHIBIT 3 Two Possible Packages for Cutting Benefit Costs Option 1 Implement Copay for Benefit Amount of Copay Pension $300.00 Hospital, surgical, medical, and major medical premiums 350.00 Dental insurance premiums 75.00 Reduction of Benefit Eliminate 10-minute paid break (workers leave work 10 minutes earlier) Eliminate one paid holiday per year Coordination with legally required benefit; social security coordinated with Lightning Industries pension plan Option 2 Improved claims processing: Unemployment compensation Workers' compensation Long-term disability Require probationary period (one year) before eligible for: Discounts on goods Employee meal paid by company Contributions to employee thrift plans Deductible (5100 per incident): Life insurance, death benefits, hospital, etc. Dental insurance Copay Hospital, surgical, medical and major medical premiums Amount of Copay $350.00 464 EXHIBIT 4 Analysis of Cost Implications for Different Cost-Cutting Copay Hospital, surgical, medical and major medical premiums Amount of Copay $350.00 3 464 EXHIBIT 4 Analysis of Cost Implications for Different Cost-Cutting Strategies: Lightning Industries Savings as Percent of Cost-Saving Strategy Benefit-Type Cost Dollar for dollar savings Copay equal to amount of copay Deductible (5100 per incident): Life insurance premiums, death benefits, hospital, etc. 10% Dental insurance 15 Require probationary period before eligible (one year): Discount on goods and services 10 Employee meals furnished by company 15 Contributions to employee thrift plans 10 Improved claims processing: Unemployment compensation 8 Workers' compensation 3 Long-term disability Coordination with legally required benefits: Coordinate social security with Lightning pension plan 15 1 Summary Given the rapid escalation in the cost of employee benefits over the past 15 vears Arcanization would do well to evaluate the af