Total Rewards part 3
Managing Revenues
- Compensation drives future revenues -companies analyze the value added of pay decisions and influence on revenues -requires a shift in viewing compensation as an investment as well as an expense -Employers must keep compensation current and competitive: to retain high performing employees
Dental insurance
-60% of employers with 500 or more employees provide some coverage -at the start of the century, cost was $219 but has increased -expected to increase in coming years due to a shortage in dentists
Retirement and Savings Plan payments
-68% of workers have access to pension coverage and only 53% participate -employees rank pensions as important -two generic pension plans are: defined benefit plans and defined contribution plans -many companies shifted to 401k plans
Benefit Administration Issues: Will employees have a choice of benefits?
-A standard benefit package offers no choice -The other extreme is "cafeteria style" or flexible benefit plans -most companies are offering some choices -flexible plans may increase employee recongition of benefit value -The biggest trend is to offer market based or consumer driven health care
Communication: managing the message
-Compensation communicates what is important and what is not -employees must understand the pay system -understanding is shaped indirectly by paycheck -shaped through formal communication -Two reasons for communicating pay information: 1. attract, retain, and motivate performance. 2. Employees mispercieve the pay system
Benefit Options
-Historically, benefits lagged behind other rewards, such as pay -As health care costs increased, so did their popularity as benefits -benefits are listed at the top reward contributing to employee sanctification -HR professionals need to understand benefits are important to workers
Future of the ACA
-Still the law of the land -senate tax bill was amended to repeat the aca's indiviudal mandate beginning in 2019 which requires Americans to have insurance or pay a fine
Benefit Administration Issues: Who should be protected or benefited?
-There are a variety of employees and statuses -are there probationary periods? -which dependents are covered? -Should retirees be covered? -How about survivors of deceased employees? -What coverage is extended to employees with disabilities -Should coverage be limited to full-time workers?
Four steps of a comparable worth plan
-adopt a single gender neutral point job evaluation plan for all jobs within a unit - all jobs with equal job evaluation results should be paid the same -identify the % of male and female employees in each job group -the wage to job evaluation point ratio should be based on the wages paid for male dominated job
State and local laws affect regulations
-cover employers excempt from federal laws, or -include requirements that go beyond federal law
Government as part of the employment relationship
-people and countries, differ in their view of what role government should play. -Governments usual interests are: fair pay, safety for the unemployed, and protecting employees from exploitation
Factors for unequal pay other than sex:
-shift differentials or temporary assignments -bona fide training programs -differences based on ability training or experience -other reasons of business necessity -reverse discrimination is when men receive less than women when adjusted
There are three popular forms of defined contribution plans
1. 401K plan -savings plan where employee can defer pretax income -employers match on average at 50 cents on the dollar 2. Employee stock ownership plan (ESOP) -employer makes a tax deductible contributions of stock shares or cash to a trust -the trust allocates stock to employees based on earnings 3. Profit sharing plan -this can be considered a DC pension plan if the distribution of profits are delayed until retirement
The value of employee benefits
1. Companies spend trillions on benefits. -Yet a typical employee recalls only 15% 2. some say benefits are taken for granted -yet they drive job satisfaction 3. one study says employees dont want more benefits, rather a choice of benefits -perceived value rises when employers offer a flexible benefit package
Three distinct but related concepts and their measures
1. Consumer price index: goods and services, markets, price changes 2. personal expense budge: employees cost of living 3. pay surveys: labor market wage changes
The compensation communication cycle
1. Define objective of the employee communication program 2. collect information and identify the facts 3 choose communication tools and media 4. conduct the communication sessions with employees 5. evaluate the success of communication program
defined benefit plan
1. Employer provides a pension in either -fixed dollar, or percentage of earnings, seniority 2. financed by following a formula, making investments now that yield the future pension benefit 3. Benefit amount takes average earnings of last 3-5 years and -pays about half of 30-80% adjusted for seniority 4. Biggest complaint from CFO's center on funding
Health Insurance Portability and Accountability Act (HIPAA)
1. Enacted in 1996 2. designed to: lessen denial for preexisting conditions, prevent discrimination on the basis of health - privacy provisions cause added compliance problems
Impact of legislation on selected benefits
1. Fair labor standards act of 1938 2. Employee retirement income security act of 1974 3. tax reforms 1982, 1986 4. Maintenance Act of 1973 5. Discrimination legislation( Age, Civil rights, pregnancy, disability) 6. Consolidated Omnibus Budget Reconciliation Act (COBRA) act of 1984 7. Family Medical Leave Act 8. the patient protection and affordable care act
Two theories of discrimination behavior
1. disparate treatment- application of different standards to different classes of employees 2. disparate impact- pay practices that appear to be neutral but have a negative effect on females or minorities
Advantages of flexible benefit programs
1. employees choose packages that best satisfy their unqiue needs 2. flexible benefits help firms meet the changing needs of the changing workforce 3. increased involvement of employees and families improves understanding of benefits 4. flexible plans make introduction of new benefits less costly. Any new option is added merely as one among a wide vairety of elements to choose from 5. Cost containment: Organizations sets dollar maximum;. employee chooses within that constraint
disadvantages to flexible benefit programs
1. employees make bad choices and find themselves not covered for predictable emergencies 2. adminstrative burdens and expenses increase 3. adverse selection: employees pick only benefits they will use; the subsequent high benefit utilization increases its costs 4. flexible benefit plans are subject to nondiscrimation requirements in Section 125 of the IRS
Factors influencing choice of benefits package: employee factors
1. equity: fairness historically and in relationships to what others receive 2. Personal needs as linked to: -age, sex, marital status, # of dependents
Compensation forecasting and budgeting cycle
1. instruct managers in compensation policies and techniques 2. distribute forecasting instructions and worksheets 3. provide consultation to managers 4. check data and compile reports 5. analyze forecasts 6. review and revise forecasts and budgets with management 7. conduct feedback with management 8. monitor budgeted vs actual increases
Factors influencing choice of benefit package: Employee factors
1. relationship to total compensation costs 2. costs relative to benefits 3. competitor offerings 4. Role of benefits in -attraction, retention, motivation 5. legal requirements
For an employer to support a claim of unequal work the following must be met
1. the effort/skill/responsibility must be substantially greater in one of the jobs 2. tasks with the extra effort/skill must consume a significant amount of time for all employees wages in question -extra skill must have value commensurate with the pay differential
Four major issues in setting up a benefit package
1. who should be protected or benefited? 2. How much choice should employee have among an array of benefits? 3. How should benefits be financed? 4. Are the benefits legally defensible?
Legally required benefits
1. workers compensation 2. social security 3. unemployment compensation 4. FMLA 5. COBRA 6. HIPAA
why the growth in employee benefits?
3. employer impetus -many of todays benefits were employer initated -traced to pragmatic concerns about employee satisfaction and productivity -benefits slowly became a costly entitlement 4. cost effectiveness of benefits -employee benefits are not taxable -group based benefits come at a lower cost
Life insurance
3/4 employees have paid life insurance -typically one to two times annual salary -most premiums are paid by the employer -30% include retiree coverage -nearly all are forfeit able upon quitting -some offer a core coverage with optionla additional coverage available
Workers compensation
A form of no fault insurance, covers injuries and diseases arising from employment -Benefits given for: medical care, temporary or permanent disability payments, survivor benefits, rehabilitation and training -Costs vary over time, but on the decline mainly due to increased emphasis on safety -states vary in the size of payouts for claims -covered by state, not federal laws
Compliance: a proactive approach
A proactive compensation manager can: -join professional associations -stay informed on emerging issues -to act in concert to inform and influence public and legislative opinion
Benefits under social security
Benefits fall into four categories -old age or disability benefits -benefits for dependents -benefits for surviving family members -lump sum death payments Workers must qualify for these benefits by -working in covered employment -earning a specified amount per quarter (1250)
Cost containment
Common cost containment opportunities -probationary periods -benefit limitations -copay -administrative cost containment -deny service -self insure, provide accomations, negotiate lower fees, develop wellness programs -outsourcing is a common cost containment strategy - hiring vendors to administer the benefit programs
vision insurance
Dates back to 1976 contracted between the UAW and the big three automakers -78% of employers offer a vision plan -most plans cover partial costs
Benefits Planning and Design Issues
Decide the role of benefits and integrate them into the overall compensation package -include strategies for ensuring external competitiveness -know what your competitors offer -There is no magic formula for defining adequacy -The answer may be relationship between benefit adequacy and cost effectiveness
Consolidated Omnibus Budget Reconciliation Act (COBRA)
Employees who resign or are laid off through no fault of their own are eligible to continue receiving health coverage under employers plan at a cost borne by the employer
Core and Contingent employees
Employers desire a long term relationship with core employees and have a short term relationship with contingent workers Contingent works: -regular part time -supplemental employees -small independent vendors -large indepdent vendors -overtime
Employee or independent contractor?
Employers must pay: -social security, unemployment and workers compensation taxes on wages and salaries -unless the worker is an independent contractor How to classify? -Tax law and ERISA are relevant -Two criteria: -how much control the firm exercises - the type and permanence of the relationship
Family and Medical Leave act
Enacted in 1993, applies if 50 or more employees -up to 12 weeks of unpaid leave - more state legislatures are moving toward some form of paid family and medical leave
Overtime and Hours of Work
FLSA requires pay at one and half times standard pay for more than 40 hours per week -objective: make hiring additional workers less costly than scheduling overtime and compensating employees for extra hours worked. Conditions have changed and contemporary employers face: -a skilled work force, higher training costs, and -higher benefit costs, fixed per employee
Employee Retirement Income Security Act (ERISA)
Federal law that increased the responsibility of pension plan trustees to protect retirees, established certain rights related to vesting and portability, and created the Pension Benefit Guarantee Corporation
Unemployment insurance
Financed by employers federal and state unemployment insurance tax -federal garners 6.2% of the 7000 -states impose a tax above that amount - a company's experience rating may lower % Covered workers must meet elgibility -states require a base period -unemployment through no fault of their own
Other cost controls: Hours
Firms examine overtime hours vs. hiring more employees -The four factors in the labor cost model are not independent: # of employees, hours worked, cash compensation, benefit costs -Benefits: reducing benefits costs includes: suspending matching contributions, controlling health care benefits
General requirements and vesting portability of ERISA
General requirements: employees are eligible from age 21 but many require one to three years of service Vesting: or amount of time an employee must work before employers contributes to the plan Portability: becomes an issue for employees moving to new organizations
unemployment insurance continued
Historically, the maximum of weeks for UI has been 26 weeks. -Many stated extended that from 1958-61 Weekly benefit amounts are based on earning over the past year, up to a state maximum
Defined contribution plans
In a defined contribution plans, the employer sets up an investment account for each participating employee -when the employee retires, the pension is based on -their contributions -employer contributions, and any gains or losses in stock investments
Average Cash compensation (fixed and variable components)
Includes average salary level plus variable compensation payments such as: -bonuses, gain sharing, stock plans, and or profit sharing -during recession, salaries may be frozen -Adjustments to average cash compensation level can be made two ways: top down- management allocates money down -bottom up: collection of individuals pay then sent up for approval
Managing labor costs
Labor costs= # of workers and hours worked TIMES average cash compensation + average benefit costs
Government and legal issues in compensation
Law are enforced by agencies through: rulings, regulations, inspections, and investigations -companies respond by: altering their practices, defending their practices before the courts, or lobbying for legislative change
Family Medical Leave act
Mandates 12 weeks of leave for all workers at companies that employ 50 or more employees
pay discrimination: what is it?
Many believe valuation discrimination does not define correctly: and can occur when men and women hold different jobs, with the same comparable worth -hinges on equal pay for comparable worth -also called pay equity or gender pay equity -not supported by federal law but several state laws require a comparable worth standard
Social Security
Nearly every American worker is covered -money for benefits comes from: employees, employers, and self-employed -Money currently collected pay current beneficiaries -retirees numbers rise with no corresponding increases in contributions
Reducing Headcount
Organizations reduce headcount through layoffs or exit incentives -reduces benefit costs -opportunity to reshape the workforce -However, regulations make cuts difficult -may harm employee relations, increase turnover -increases unemployment insurance tax rates and administrative costs and disrupts workflow -may harm future business if it cuts too deep
miscellaneous benefits
Paid time off during work hours for rest periods, lunch -payment for time not worked: vacation and holidays, paid sick leave, and other payments such as jury duty -maternity leave -companies switching from time off plans to paid time of plans
Equal Pay Act of 1963
Part of FLSa -forbids wage discrimination on the basis of gender if performing equal work in the same firm - jobs are considered equal if requiring: equal skill, and responsibility, performed under the same conditions Pay differences legal if affirmative defense: -seniority, merit or quality of performance, quality of quanity of production, or some factor other than sex
Tax reforms 1982, 1986
Permit individual retirement accounts (IRA) for eligible employees. Establish 401K programs, a matched contribution saving plan that frequently serves as part of the retirement package
Short term and long term disability
Private sources of disability income: salary contribution plans and long term disability plans -short term illness is covered by PTO -Short term disability pays a % of an employees salary for temporary disability -long term disability plans take over when short term plans expire -usually underwritten by insurance provides 60 to 70% of pay for up to two years
Executive Order 11246
Prohibits discrimination on the basis of race, color, religion, sex or national origin -requires government contractors to file affirmative action plans with three parts 1. utiliization analysis compares contractors workforce to external workforce 2. goals and timetables to achieve affirmative action 3. action steps for achieving time tables and goals
Executive Order 11246
Prohibits federal contractors from discriminating based on race, color, religion, sex, or national origin Requires Affirmative Action plan
Minimum Wage
Provides a base income floor -higher rates prevails if state and federal laws cover the same jobs -Changes in minimum wage -directly affects workers and indirectly raises everyones base pay, the spillover affect -employers must comply if the wage is raised, experts fear this will increase labor demand
Range midpoints: controls
Range midpoints reflect the pay policy line in relation to external competition -to asses how pay relates to the midpoint, an index called a compa-ratio is often used compa-rato= average rate actual paid/ range midpoint - a ratio less than 1 means below midpoint pay -a ratio greater than 1 pays above the midpoint
Maintenance act of 1973
Required employers to offer alternative health coverage options to employees
Administering the benefit program: employee benefit communication
Resolves four issues: -what is communicated, to whom, how it is communicated, and how frequently -the most common method is the employee handbook -effective communication involves repetition and consistency -e-benefits are a huge trend
Definition of skill, effort, responsibility, working conditions
Skill: experience, training, education, and ability as measured by job performance requirements effort: mental or physical, the degree of effort actually performed on the job responsibility: the degree of accountability required in the job performance working conditions: the physical surroundings and hazards of a job.
How much information should you share?
Some advocate sharing all financial information with employees -at the minimum, the most important information to be communicated is: work related and business related reationales on which pay systems are based
Managing Pay to support strategy and change
Successful alignment drives future revenues -strategic business changes mean the compensation strategy must be realigned -Pay changes can play two roles in restructuring: can be a leading catalysts for change,or a follower of change
Pay discrimination and dissimilar jobs
Supreme court determined pay differences for dissimilar jobs may reflect discrimination -courts uphold the use of market data to justify pay differences in different jobs -or find a standard to compare the value of jobs -it must permit dissimilar jobs to be declared equal
Embedded (design) controls
Techniques: -job analysis and evaluation, skill and competency based plans, policy lines, range minimums and maximums, broad bands, performance evaluation, gain sharing, salary-increase guidelines -controls on managers pay decisions come from those inherent in the design of the technique, and the formal budget process
Managing labor costs and revenues
The cost implications of actions is critical for making sound decisions compensation budgets require tradeoffs, -employee contributions vs. across the board increases, -performance vs. seniority -cash compensation compared to benefits -Planning allows potential returns to be identified
Employee Retirement income security act
The early 1970s found mismanaged accounts or long vesting periods -ERISA passed in 1874 as a response -does not require a pension plan -but if there is one, must follow rules designed to achieve two goals: 1. to protect 100 million activate participants and to stimulate the growth of such plans
Range and maximums and minimums: controls
The maximum is an important cost control -rates above this are called red circle rates. -green circle rate are paid below the minimum Broad bands offer manager flexibility -bands may be more about career management than pay decisions promotions and external vs. internal hires -these are strategic decisions
Structuring the compensation function and its roles
The organizational arrangements of the compensation function vary widely. -decentralized- business units design and administer their own systems -publishing responsibilities to the units appealing -objectives may conflict with the firms objectives -centralized: headquarters designs and administers the compensation system -likely found in smaller or single product firms
Government impetus
Three mandated employee benefits 1. workers compensation(state) 2. unemployment(federal) 3. social security (federal) -Most other benefits are affected by laws -employee retirement income security act is one such law. -Patient protection and affordable care act
Exemption for executive and administrative employees under FSLA
To qualify, employee must meet all of the following: 1. compensated by salary not less than 455 per week -primary duty must be managing -directs the work of at least two full time employees -must have authority to hire or fire others Administrative exemption: -compensation by salary not less than 455 per week -primary duty is office or non-maual work -uses discretion and independent judgement in the job
US healthcare cost
Us health spending is much greater for all categories of care, particularly for ambulatory and administration costs.
Why the growth in employee benefits?
Wage and price controls during WW2 and the Korean War -strict limitations on wage increases led unions and employers to provide benefits - Unions flexed their new negotiation rights acquired from the Wagner Act of 1935 -several benefits common today started here -pension plans, unemployment, vacation plans, an guaranteed annual salary
Ethics: managing or manipulating?
absent a professional code, it is a challenge to ensure ethical compliance -public discussion informs ethical boundaries Managing compensation ethically is increasingly complicated due to: -pay really matters; important to all of us -fierce pressures to achieve results
Individual Retirement Accounts (IRA)
are tax favored retirement savings plan that individuals can establish themselves
employee benefits
are that part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments. ex: life insurance, pension, worker's compensation, vacation
miscellaneous benefits continued...
child care is becoming common -elder care is offered by almost half of the companies offering child care assistance -domestic partner benefits are voluntarily offered by employers -legal insurance premiums are paid by the employee so not a traditional benefit
Fair labor standards act of 1938
covers all employees of companies engaged in interstate commerce or in the production of interstate commerce. -Major provisions include: minimum wage, hours of work, and child labor laws, Records must be kept of employees their hours worked and their pay. Created time and half pay
Lilly ledbetter fair pay act
employers liable for pay loss resulting from discrimination
Cobra
enacted in 1985, applies if 20 or more employees -extends health coverage during certain events -an employer can charge individuals 102% of the premium, brief qualifying period of 18 months
Sarbanes-Oxley Act
executives cannot retain bonuses or stock if they mislead the public
Patient Protection and Affordable Care Act
health care reform law passed in 2010 that includes incentives and penalties for employers providing health insurance as a benefit
Possible options in a flexible benefit package
health, dental, vision, life insurance, dependent care, 401K savings, cash back
employee retirement income security act of 1974
if an employer decides to provide a pension, specific rules must be followed. Plan must vest after five years employment. Pension Benefit guaranty corporation, as set up by this law, provide workers some financial coverage when a company and its pension plans go bankrupt
Claims processing
is when an employee asserts an event has occurred and demands the employer pay. -a claim processor determines if the event occurred -if so, determines eligible benefits -if not denied, calculate payment level -ensure coordination of benefits
Professional exemption under FLSA
must meet the following -compensated on salary/fee of not less than 455 a week -primary duty is work requiring advanced knowledge -knowledge must be in a field of science or learning -knowledge gained by specialized instruction -to qualify for created professional exemption: -compensated on salary no less than 455 per week -primary duty is work requiring invention or original talent
Top three access to selected benefits:
paid holiday, paid vacation and health insurance
changes in benefits costs over time
percentage of payroll has increased.
Prevailing wage laws
set pay for work done to produce goods and services contracted by the federal government -government-defined prevailing wage: is the minimum wage that must be paid for work done on coverage government projects or purchasers - to comply with the law, the contractors must determine the going rate for labor in the area -one effect is to distort the market wages and drive up the cost of government financed projects
Employee Retirement Income security act
the major requirements of ERISa are -general requirements -vesting and portability - pension benefit guaranty corporation -the pension protect act of 2006
General health care
underlying structure of health care delivery -commercial insurance plan -health maintenance organization: (HMO)limited group of providers at agreed upon rates -preferred provider of organization(PPO) -lower rates for employer selected providers -Point of service plans: a hybrid plan combining HMO and PPO benefits
Variable pay: cost control
variable pay must be re-earned each period -the financial security may affect employees -Costing out wage proposals is done prior to recommending pay increases