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 got 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? 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 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) $1,460.00 $1,427.00 $ 83.00 $ 57.00 $ 51.00 $ 27.00 $ $ 0 24.00 $ 727.00 $2.769.00 $1,558.00 $ 973.00 462 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 $ 83.00 $ 57.00 $ 51.00 $ 27.00 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 $ $ 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 EXHIBIT 2 Benefit Preferences Benefit Type or Method Importance Renofit Thinner Moth ow Help Shop Now Compensation, 12th Edition 483 XHIBIT 2 Benefit Preferences Benefit Type or Method Importance Benefit Type or Method Importance of Administering to Workers of Administering to Workers Pensions 87 55 Paid rest periods, lunch periods, etc. Hospitalization 86 51 Dental insurance 79 Life insurance 31 Christmas bonus Paid vacation 82 Profit sharing 21 Holidays 82 Education expenditures 15 Long-term disability 72 Contributions to thrift plans 15 Short-term disability 69 Discount on goods 5 Paid sick leave 70 Fair treatment in administration 100 Me: 0-unimportant; 100 = extremely important. XHIBIT 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 Amount of Copay Hospital, surgical, medical and major medical premiums $350.00 54 5 100 3 69 Short-term disability Discount on goods Paid sick leave 70 Fair treatment in administration No important 100limportant EXHIBIT 3 Two Possible Packages for Cutting Benefit Costs Option 1 Implement Copay for Benefit Amount of Copay Pension $300.00 350.00 Hospital, surgical, medical, and major medical premiums 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 Amount of Copay Hospital, surgical, medical and major medical premiums $350.00 EXHIBIT 4 Analysis of Cost Implications for Different Cost-Cutting Strategles: Lightning Industries Savings as Percent of Cost-Saving Strategy Benefit-Type Cost Dollar-for-dollar savings 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 15 463 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 got 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? 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 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) $1,460.00 $1,427.00 $ 83.00 $ 57.00 $ 51.00 $ 27.00 $ $ 0 24.00 $ 727.00 $2.769.00 $1,558.00 $ 973.00 462 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 $ 83.00 $ 57.00 $ 51.00 $ 27.00 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 $ $ 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 EXHIBIT 2 Benefit Preferences Benefit Type or Method Importance Renofit Thinner Moth ow Help Shop Now Compensation, 12th Edition 483 XHIBIT 2 Benefit Preferences Benefit Type or Method Importance Benefit Type or Method Importance of Administering to Workers of Administering to Workers Pensions 87 55 Paid rest periods, lunch periods, etc. Hospitalization 86 51 Dental insurance 79 Life insurance 31 Christmas bonus Paid vacation 82 Profit sharing 21 Holidays 82 Education expenditures 15 Long-term disability 72 Contributions to thrift plans 15 Short-term disability 69 Discount on goods 5 Paid sick leave 70 Fair treatment in administration 100 Me: 0-unimportant; 100 = extremely important. XHIBIT 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 Amount of Copay Hospital, surgical, medical and major medical premiums $350.00 54 5 100 3 69 Short-term disability Discount on goods Paid sick leave 70 Fair treatment in administration No important 100limportant EXHIBIT 3 Two Possible Packages for Cutting Benefit Costs Option 1 Implement Copay for Benefit Amount of Copay Pension $300.00 350.00 Hospital, surgical, medical, and major medical premiums 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 Amount of Copay Hospital, surgical, medical and major medical premiums $350.00 EXHIBIT 4 Analysis of Cost Implications for Different Cost-Cutting Strategles: Lightning Industries Savings as Percent of Cost-Saving Strategy Benefit-Type Cost Dollar-for-dollar savings 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 15 463