Finance - Risk Management

Please answer the following two questions.

1.Jan Czyrmer, the employee benefits manager atLudlow Enterprises, wants to restructure the leave policy for the company. Heis concerned that employees abuse the sick leave policy, taking sick leave timefor personal reasons not related to illness. He wants to abolish particulartypes of leave (such as sick leave, vacation leave, personal leave) and giveemployees a certain number of general leave days per year to use as theychoose.

a.What advantages might Jan cite to convince uppermanagement that consolidating leave time may be helpful for Ludlow Enterprises?

b.If upper management rejects Jans idea of amajor restructuring of leave time, what can he do to prevent abuse of thecurrent sick leave policy? What steps can be taken to reduce moral hazardwithin the traditional leave system?

2.Rosa Sanchez, single, age twenty-five, receivedtwo job offers after college graduation. Both were with organizations that sherespected, and the nature of the work at each place sounded very interesting toher. One job was with a larger, well-established firm and offered $22,000 peryear in salary plus noncontributory benefits worth $7,000 per year. The otherjob was with a small business and offered a salary of $30,000 per year withoutemployer voluntary benefits (the employer is required to pay for socialinsurance programs). Rosas mother suggested that she make the choice betweenthe two jobs based on which offered better total compensation.

a.What factors should Rosa consider in determiningthe better package? Which package do you think maximizes her totalcompensation?

b.Which employer is economically better off (allelse being equal), the one offering salary plus benefits or the one offeringsalary only? Explain your answer.