EMPLOYEE BENEFITS
IV
Where We Are Now:
G
A
PART III, DESIGNING COMPENSATION SYSTEMS, explained
the concepts and methods
T
to build compensation systems that meet important goals of compensation professionE
als, including internal consistency, market competitiveness, and recognition of employee
S
contributions. Our focus was on core compensation issues. We do know that employee
,
benefits represent an important component of total compensation. Now we turn to
D !
also give attention to designing and planning the benefits
E program in the discretionary
benefits chapter.
In PART IV, WE WILL COVER
Chapter 9
DISCRETIONARY BENEFITS
A
N
D
R
A
Chapter 10 LEGALLY REQUIRED BENEFITS
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1
1
®
MyManagementLab
2
You can access the CompAnalysis Software to complete
3 the online Building Strategic
Compensation Systems Project by logging into www.mymanagementlab.com.
T
S
201
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
9
Discretionary Benefits
Learning Objectives
G
When you finish studying this chapter,
A you should be able to:
9-1. Discuss the origins of discretionary
benefits.
T
9-2. Explain the three categories of discretionary benefits.
E
9-3. Summarize legislation that pertains to discretionary benefits.
S
9-4. Discuss the fundamentals of designing and planning the benefits program.
,
9-5. Explain the benefits and costs of discretionary benefits.
D
E
CHAPTER WARM-UP!
A
If your professor has assigned this, go to the Assignments section of mymanagementlab.com
N
to complete the Chapter Warm-Up! and see what you already know. After reading the
chapter, you’ll have a chance toD
take the Chapter Quiz! and see what you’ve learned.
R
A a significant cost to companies. In 2014, on average,
Today, discretionary benefits represent
companies spent nearly $15,000 per employee.1 For the same period, discretionary benefits
accounted for nearly 23 percent of employers’ total payroll costs.
As the term implies, discretionary1benefits are offered at the will of company management.
Discretionary benefits fall into three 1
broad categories: protection programs, paid time off, and
services. Protection programs provide
2 family benefits, promote wellness, and guard against
income loss caused by such catastrophic factors as disability, serious illness, or death. Retirement
3 as an income source throughout retirement. Paid time
plans assist employees to accumulate wealth
off, not surprisingly, provides employees
T time off with pay for such events as vacations. Services
provide such enhancements as tuition reimbursement and day care assistance to employees and
S
their families.
9-1. Discuss the
origins of discretionary
benefits.
ORIGINS OF DISCRETIONARY BENEFITS
202
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
In the past several decades, firms have offered a tremendous number of both legally required and
discretionary benefits. In Chapter 10, we will discuss how the growth in legally required benefits
from a select body of federal and state legislation developed out of social welfare philosophies.
Quite different from these reasons are several factors that have contributed to the rise in discretionary benefits.
_
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The rise of retirement plans, in particular, pension plans, appeared as one of the first signs
in the use of discretionary benefits. According to the Employee Benefit Research Institute,2 the
first pension plan in the United States was established in 1759 to benefit widows and children of
Presbyterian ministers. In 1875, the American Express Company established a formal pension
plan. From that point until World War II, pension plans were adopted primarily in the railroad,
banking, and public utility industries. The most significant growth occurred after the favorable
tax treatment of pensions was established through the passage of the Revenue Act of 1921, and
government-imposed wage increase controls during World War II in the early 1940s led more
companies to adopt discretionary employee benefits.
Because of the government-imposed wage freezes, companies invested in expanded discretionary benefits offerings as an alternative to pay hikes as a motivational tool. As a result, many
companies began to offer welfare practices. Welfare practices were “anything for the comfort
and improvement, intellectual or social, of the employees, over and above wages paid, which is
G companies offered employees
not a necessity of the industry nor required by law.”3 Moreover,
welfare benefits to promote good management and to enhance
A worker productivity.
The opportunities for employees through welfare practices varied. For example, some
T provided financial assistance for
employers offered libraries and recreational areas, and others
education, home purchases, and home improvements. In E
addition, employers’ sponsorships of
medical insurance coverage became common, which, until S
the Patient Protection and Affordable
Care Act of 2010, was made on a discretionary basis.
, unions also directly contributed
Quite apart from the benevolence of employers, employee
to the increase in employee welfare practices through the National Labor Relations Act of 1935
(NLRA), which legitimized bargaining for employee benefits. Even today, union workers tend to
D
have greater access to discretionary benefits than do nonunion employees.4 Table 9-1 illustrates
E and union employees as well as
some of the differences in particular benefits between nonunion
by major occupational groups, and full- and part-time workAstatus.
Unions also indirectly contributed to the rise in discretionary benefits offerings in nonunion
N often fashion their employment
settings. As we discussed in Chapter 2, nonunion companies
practices after union companies as a tactic to minimize the D
chance that their employees will seek
union representation5 and may offer their employees benefits
R that are comparable to the benefits
received by employees in union shops.
A
TABLE 9-1 Percentage of Workers with Access to Selected Employee Benefits in
Private Industry: March 2014
1
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Retirement
2
Plans
EmployeeAssistance
Plans
&"
%& 22"
Child Care
Wellness
Programs
0
Workplace
54
54
49
11
17
5
39
54
32
6
17
5
38
59
38
77
50
8
12
6
16
10
24
43
25
50
37
8
12
6
16
10
Worker Characteristics
Vacation
@
Leave
Total
Management occupations
Production, transportation, and material-moving
occupations
Service occupations
Full-time
Part-time
Union
Nonunion
77
88
82
61
82
56
65
80
70
55
91
35
91
75
40
74
24
70
60
38
74
37
92
62
3
T
S
Source: Based on U.S. Bureau of Labor Statistics. (2014). National Compensation Survey: Employee Benefits in the United States,
March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
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Through many decades, discretionary benefit offerings were based on a relatively homogenous workforce, characterized by males who were the sole bread winners and provided for
their wives and children. In recent decades, the labor force has become more diverse in terms of
age, gender, race, ethnicity, and definition of families based on same-sex civil unions and marriage.6 Increasing diversity has given rise to flexible benefit plans, which we discuss later in this
chapter. According to the U.S. Bureau of Labor Statistics, labor force diversity will continue to
increase. A standardized, one-size-fits-all employer-sponsored benefits program is most effective when the workforce is relatively similar in terms of needs and preferences.
For example, let’s assume a company’s workforce has 60 percent women and 40 percent
men. Most of the women are of child-bearing age and most of the men range in age between
their 50s and 60s. One could reasonably expect that there will be substantial differences in the
needs and preferences for benefits. Chances are that most of the women in this example may
place a high value on day care benefits while most of the men will not have a need for such
G to be near or at adulthood.
benefits because their children are likely
9-2. Explain the
three categories of
discretionary benefits.
A
T
CATEGORIES OF DISCRETIONARY
BENEFITS
E
Several benefits practices fall into the
S category of discretionary employee benefits. We can
explore these practices by recognizing the three broad goals employers hope to achieve when
,
offering discretionary benefits: protection, paid time off, and services to enhance work and life
experiences.
D
E
Three important discretionary protection programs include disability insurance, life insurance,
A employer-sponsored health insurance benefits were
and retirement programs. Until recently,
offered on a discretionary basis, falling
N into the protection category. Since the passage of the
Patient Protection and Affordable Care Act of 2010, the government has imposed an employer
D
mandate for health insurance. As such, we will review health insurance as a legally required
R
benefit in Chapter 10.
A
DISABILITY INSURANCE Disability insurance
replaces income for employees who become
Protection Programs
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
unable to work because of sicknesses or accidents. Employees unfortunately need this kind of
protection. At all working ages, the probability of being disabled for at least 90 consecutive days
1
is much greater than the chance of dying while working; one of every three employees will have
a disability that lasts at least 90 days.71
Employer-sponsored or group disability
insurance typically takes two forms. The first,
2
short-term disability insurance provides benefits for a limited time, usually less than
3
6 months.8 Approximately 40 percent of private sector workers had access to employersponsored short-term disability plansTin 2014.9 Access was greater in more hazardous work
environments, such as manufacturing,
S where approximately 63 percent of workers had
access. The second, long-term disability insurance provides benefits for extended periods
between 6 months and life. Approximately 34 percent of private sector workers had access
to employer-sponsored short-term disability plans in 2014.10 Access was greater in more
hazardous work environments, such as manufacturing, where approximately 44 percent of
workers had access.
Disability criteria differ between short- and long-term plans. Short-term plans usually
consider disability as an inability to perform any and every duty of the disabled person’s occupation. Long-term plans use a more stringent definition, specifying disability as an inability to
engage in any occupation for which the individual is qualified by reason of training, education,
or experience.
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Short-term disability plans classify short-term disability as an inability to perform the duties
of one’s regular job. Manifestations of short-term disability include the following temporary
(short-term) conditions:
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š
š
š
š
Recovery from injuries
Recovery from surgery
Treatment of an illness requiring any hospitalization
Pregnancy—the Pregnancy Discrimination Act of 1978 mandates that employers treat
pregnancy and childbirth the same way they treat other causes of disability (Chapter 2)
Most short-term disability plans pay employees 60 to 70 percent of their pretax salary on a
monthly or weekly basis.11 Many companies set a maximum benefit amount. In 2014, the typical maximum annual benefit amount was $2,400.
Three additional features of short-term disability plans include the preexisting condition
G conditions. Similar to health insurclause, two waiting periods, and exclusions of particular health
ance plans, a preexisting condition is a mental or physicalAdisability for which medical advice,
diagnosis, care, or treatment was received during a designated period preceding the beginning of
T any time prior to employment and
disability insurance coverage. The designated period is usually
enrollment in a company’s disability insurance plan. Insurance
E companies impose preexisting conditions to limit their liabilities for disabilities that predate an S
individual’s coverage.
Two waiting periods include the preeligibility period and an elimination period. The
preeligibility period spans from the initial date of hire to, the time of eligibility for coverage
in a disability insurance program. Once the preeligibility period has expired, an elimination
period refers to the minimum amount of time an employee must wait after becoming disabled
D
before disability insurance payments begin. Elimination periods exclude insignificant illnesses
or injuries that limit a person’s ability to work for just a fewEdays.
Short-term disability plans often contain exclusion provisions.
Exclusion provisions list
A
the particular health conditions that are ineligible for coverage. Disabilities that result from selfinflicted injuries are almost always excluded. Short-termNdisability plans often exclude most
D (e.g., addictions to alcohol or illemental illnesses or disabilities due to chemical dependencies
gal drugs). Many employers support addicted workers through
R employee assistance programs,
which we will discuss shortly.
A to employees who, due to illness
Long-term disability insurance provides a monthly benefit
or injury, are unable to work for an extended period of time. Payments of long-term disability
benefits usually begin after three to six months of disability and continue for a specified number
1
of months. Payments generally equal a fixed percentage of pre-disability earnings, most typi1
cally, 50 to 60 percent.12
Long-term disability insurance companies rely on a two-stage
definition for long-term dis2
ability. Long-term disability initially refers to illnesses or accidents that prevent an employee
3
from performing his or her “own occupation” over a designated period. The term own occupation applies to employees based on education, training, T
or experience. After the designated
period elapses, the definition becomes more inclusive by adding
S the phrase “inability to perform
any occupation or to engage in any paid employment.” The second-stage definition is consistent
with the concept of disability in workers’ compensation programs (Chapter 10). There are four
types of disabilities: temporary total, permanent total, temporary partial, and permanent partial.
Full benefits usually equal 50 to 70 percent of monthly pretax salary, subject to a maximum
dollar amount. As for short-term plans, the monthly maximum may be as high as $5,000. Longterm benefits are generally subject to a waiting period of anywhere from 6 months to 1 year and
usually become active only after an employee’s sick leave and short-term disability benefits have
been exhausted.
Long-term disability plans also include preexisting condition and exclusion clauses. These
are similar to the provisions in short-term disability plans. Long-term plans impose two waiting
periods: preeligibility period and elimination period. The preeligibility periods for short- and
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
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long-term plans are usually identical. When companies offer both plans, the elimination period
expires upon the exhaustion of short-term benefits. As discussed earlier, long-term plans become
effective immediately following the end of short-term benefit payments, making the elimination
period virtually nonexistent. When companies offer long-term plans only, the elimination period
runs three to six months following a disability.
Both short- and long-term disability plans may duplicate disability benefits mandated by the
Social Security Act and state workers’ compensation laws (Chapter 10). These employer-sponsored
plans generally supplement legally required benefits. Employer-sponsored plans do not replace disability benefits mandated by laws – workers’ compensation and disability benefits through the Social
Security Act of 1935, which we will discuss in Chapter 10.
LIFE INSURANCE Employer-provided life insurance protects employees’ families by paying a
specified amount to an employee’s beneficiaries upon the employee’s death. Most policies pay
a fixed multiple of the employee’s salary.
G Customarily, the multiple equals one to two times
an employee’s annual salary. Employer-sponsored life insurance plans also frequently include
A
accidental death and dismemberment claims,
which pay additional benefits if death was the result
of an accident or if the insured incurs accidental
loss of a limb. In 2014, approximately 57 percent
T
of private sector employees had access to employer-sponsored life insurance protection.13
E
There are three kinds of life insurance: term life insurance, whole life insurance, and universal
life insurance. Term life insurance, theSmost common type offered by companies, provides protection to employees’ beneficiaries only during
a limited period based on a specified number of years
,
(e.g., 5 years) subject to a maximum age (e.g., 65 or 70). After that, insurance protection automatically expires. Neither the employee nor his or her beneficiaries receives any benefit upon expiration.
Whole life insurance pays an D
amount to the designated beneficiaries of the deceased
employee, but unlike term policies, whole
E life plans do not terminate until payment is made to
beneficiaries. As a result, whole life insurance policies are substantially more expensive than are
A insurance approach an uncommon feature of employerterm life policies, making the whole life
sponsored insurance programs. FromNthe employee’s or his or her beneficiary’s perspective,
whole life insurance policies combineD
insurance protection with a savings (or cash accumulation
plan). That is, a portion of the money paid to meet the policy’s premium will be available in the
Rwith a low fixed annual interest rate of usually no more
future. The amount will be augmented
than two or three percent. Universal life
A insurance combines features of term life insurance and
whole life insurance. The insured may shift money between the insurance and savings components of the policy, making this a more flexible alternative to whole life insurance.
1
1 retirement. Individuals may participate in more than one
beneficiaries during some or all of their
program simultaneously where employers
2 offer this option. Companies establish retirement or
pension plans following one of three3design configurations: a defined benefit plan (commonly
referred to as pension plan), a defined contribution plan, or hybrid plans that combine features
T contribution plans. According to the U.S. Bureau of
of traditional defined benefit and defined
Labor Statistics, nearly 55 percent ofSworkers employed in the private sector participated in at
14
RETIREMENT PROGRAMS Retirement programs provide income to employees and their
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
least one company-sponsored retirement plan from 1992–1993. In 2014, the participation rate
has increased to approximately 65 percent as displayed in Table 9-1.15 However, there has been
a noticeable decrease in participation rates for defined benefit plans over the past several years.
In 1992–1993, 32 percent of private sector employees participated in defined contribution plans,
and slightly fewer participated in defined benefit plans.16 In 2014, 60 percent participated in
defined contribution plans, but only 19 percent participated in defined benefit plans.17
Defined benefit plans guarantee retirement benefits specified in the plan document. This
benefit is usually expressed in terms of a monthly sum equal to a percentage of a participant’s
preretirement pay multiplied by the number of years he or she has worked for the employer.
Employees typically forfeit their benefits if they leave their employer before meeting a minimum
age and years of service requirement. Although the benefit in these plans is fixed by a formula,
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the level of required employer contributions fluctuates from year to year. The level depends on
the amount necessary to make certain that benefits promised will be available when participants
and beneficiaries are eligible to receive them. One of the reasons for the decline in defined benefit plans is increasing longevity. On average, a 65-year old man will live to be 86.6 years old
and a 65-year-old woman will live to be 88.8 years old.18 Longevity increases an employer’s
necessary to ensure that these plans have sufficient funds to support longer-living retirees.
Annual benefits are usually based on age, years of service, and final average wages or salary. Retirement plan formulas specify annual retirement benefits as a percentage of final average
salary. Table 9-2 illustrates these percentages for one retirement plan based on age and years of
service. Looking at this table, let’s assume Mary retires at age 59 with 35 years of service. Let’s
also assume her final average salary is $52,500. Mary multiplies $52,500 by the annual percentage of 68.20 percent. Her annual benefit is $35,805.00 ($52,500 * 68.20 percent).
Under defined contribution plans, employees have the option to make regular contributions
G in the plan document. Formulas
to separate accounts in their names, based on a formula contained
typically call for employers to contribute a given percentageAof compensation annually with these
funds automatically deducted from pay in equal amounts. Employers invest these funds on behalf
T such as company stocks, diverof the employee, choosing from a variety of investment vehicles
sified stock market funds, or federal government bond funds.
E Most often employees are given a
choice of investment vehicles based on the guidelines established
S by the employer.
Oftentimes, employers contribute money to defined contribution plans in the form of a company match. A recent survey revealed that 92 percent of ,companies made matching contributions to defined contribution plans. Company matches are typically expressed as a percentage of
an employee’s contribution, up to a limit, and this amount varies according to employer policy.
D
When company matches are made, a company may provide a 50 percent match ($0.50 per dollar
E
contributed by the employee) in the range of three to six percent
of the salary. In other words,
a company will not provide matching contributions for employee
contributions
below 3 percent
A
or above 6 percent of salary. This approach challenges employees to save as much as possible.
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TABLE 9-2
N
D
Annual Retirement Benefits for a Defined Benefit Plan
R
Age
A
N%" 2
60
59
58
5
6
7
8
9
10
…
…
…
13.36
15.03
16.70
…
…
…
12.56
14.13
15.70
35
36
37
38
39
40
+40
68.20
70.50
72.80
75.10
77.40
79.70
80.00
68.20
70.50
72.80
75.00
75.00
75.00
75.00
…
…
…
11.76
13.23
14.70
.
.
.
.
68.20
70.50
72.80
75.00
75.00
75.00
75.00
1
1
2
3
T
S
57
56
55
…
…
…
10.96
12.32
13.69
…
…
…
10.15
11.42
12.69
…
…
…
9.35
10.52
11.69
68.20
70.50
72.80
75.00
75.00
75.00
75.00
68.20
70.50
72.80
75.00
75.00
75.00
75.00
68.20
70.50
72.80
75.00
75.00
75.00
75.00
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Copyright © 2017 by Pearson Education, Inc.
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Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
Defined contribution plans specify rules for making contributions. Unlike defined benefit
plans, defined contribution plans do not guarantee particular benefit amounts. Participants bear
the risk of possible investment gain or loss. Account balances mainly depend on several factors,
including contribution amounts, company matches, and investment performance. Compared to
defined benefit plans, defined contribution plans are portable. That is, an employee is able to
take the balance of the account from employer to employer.
The Internal Revenue Code (IRC), which is the body of tax regulation in the United
States, sets annual contribution amounts to these plans on a pretax basis. That is, contributions
are not subject to income tax. Annual addition refers to the annual maximum allowable contribution to a participant’s account in a defined contribution plan. In 2015, annual additions were
limited to the lesser of $53,000, or 100 percent of the participant’s compensation mainly based
on the sum of employer and employee contributions.19 Of the annual addition, an employee’s
contribution was limited to $18,000 ($24,000 for employees age 50 or above) or 100 percent of
salary, whichever is less. WithdrawalsG
in retirement are taxed.
There are a variety of defined contribution
plans. The most common are 401(k) plans, Roth
A
401(k) plans, and deferred profit sharing plans. Section 401(k) plans are retirement plans named
T them. Following the previous description of defined
after the section of the IRC that created
contribution plans, 401(k) plans enable
E employees and employers to defer part of employee
compensation to an employee’s account.
S Only private sector employers are eligible to sponsor
401(k) plans. The IRC established Roth 401(k) plans in 2006. These plans are similar to 401(k)
,
plans, but there are two noticeable differences.
First, employee contributions are taxed at the
individual’s income tax rate. Second, upon retirement, employee withdrawals are not taxed.
Roth 401(k) plans are becoming an increasingly popular offering to help employees manage the
D
uncertainty of possible changes in future income tax rates. For example, it is difficult to predict
what income tax rates will be when anEindividual retires. The rates could be equal to, lower than,
or greater than current income tax rates.
A Higher future income tax rates would require greater
withdrawal amounts to meet retirees’ needs. Higher withdrawal rates would lower the value of
a 401(k) plan more quickly, affecting N
the number of years in which available funds will provide
D
income. Similar to 401(k) plans are Section
403(b) plans and Section 457 plans. 403(b) plans
may be offered to employees of government
and tax-exempt groups, such as schools, hospitals
R
and churches. Section 457 plans apply to state government employees.
A plans to distribute money to employees. Companies
Companies set up profit sharing
choose between offering a current profit sharing plan as an incentive or a deferred profit sharing plan for retirement savings. Current profit sharing plans award employees with a share of
1
the company’s profits, usually on an annual basis. Alternatively, deferred profit sharing plans
1 for use in retirement. For deferred plans, employees do
set aside money in employee accounts
not pay taxes until they make withdrawals
2 in retirement. In 2015, companies could take a tax
deduction for their contributions not to exceed 25 percent of each participant’s compensation or
3
$53,000, whichever is the lesser amount.20
T
Table 9-3 summarizes selected differences
between defined benefit and defined contribution plans.
S
Hybrid plans combine features of traditional defined benefit and defined contribution plans.
The cash–balance plan is the most common hybrid plan. Cash–balance plans are structured as
“defined benefit plans that define benefits for each employee by reference to the amount of the
employee’s hypothetical account balance.”21 Cash–balance plans are a relatively new phenomenon
compared to traditional defined benefit and defined contribution plans. Many companies have
chosen to convert their defined benefit plans to cash balance plans for two key reasons. First, cash
balance plans are less costly to employers than defined benefit plans. Second, these plans pay benefits in a lump sum instead of a series of payments. Companies are presumably in a better position
to recruit more mobile workers. Under a traditional defined benefit plan, an employee who leaves
employment prior to qualifying for a retirement annuity (a series of monthly payments for the rest
of one’s life) will forfeit the annuity.
_
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209
TABLE 9-3 Selected Differences between Defined Benefit and Defined Contribution Plans
Characteristic
F2& K&2 %&
F2& &0'& %&
Benefit formula
Determines pension due at normal retirement age.
Form of benefit expressed
by formula
An annuity—a series of payments beginning
at the plan’s normal retirement age for the life
of the participant.
Annual funding is based on an actuarial formula
subject to strict limits set by the IRC and is not
equivalent to annual increases in pension benefits.
Employee is guaranteed benefits regardless of
investment returns on trust. Employer is
responsible for ensuring sufficient
Gfunding
to pay promised benefit.
Determines amount regularly contributed
to individual account.
A single lump sum distribution at any time.
Funding
Investment risk/profit
Annual contributions and investment earnings
are held in an individual account.
Employee bears the investment risk, which
can result in higher investment returns or
the loss of previously accumulated pension
benefits.
A
T
E
Paid Time Off
S
The second type of discretionary benefit is paid time off. This category is relatively straight,
forward. As the name implies, paid time off policies compensate
employees when they are not
Source: U.S. General Accounting Office (2000). Cash Balance Plans: Implications for Retirement Income, GAO/HEHS-00-207. Washington,
"#$% &
' +
performing their primary work duties as defined by the Portal-to-Portal Act (Chapter 2). The
major types of paid time off benefits are:
š
š
š
š
š
š
š
š
š
š
š
š
š
Holidays
Vacation
Sick leave
Personal leave
Jury duty
Funeral leave
Military leave
Clean-up, preparation, or travel time
Rest period “break”
Lunch period
Integrated paid time off policies
Sabbatical leave
Volunteerism
D
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A
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A
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Companies offer most paid time off as a matter of custom, particularly paid holidays, vacations,
3 time off are in the collective bargainand sick leave. In unionized settings, the particulars about paid
T found in unionized settings are jury
ing agreement. The paid time off practices that are most typically
duty, funeral leave, military leave, clean-up, preparation, travelStime, rest period, and lunch period.
For employees and employers, paid time off benefits are significant. These benefits provide
employees the opportunity to balance work and nonwork interests and demands. Companies stand
to gain from sponsoring these benefits. Employees may legitimately take time off from scheduled
work without incurring loss of pay and benefits, which should help reduce unapproved absenteeism from work. By keeping absenteeism in check, overall productivity and product or service
quality should be higher. These benefits also contribute toward positive employee attitudes and
commitment to the company, particularly for employees with longer lengths of service. The length
of paid time off, such as vacation time, can increase to several weeks with years of service.
A standout example of paid vacation policy can be found at the Internet company
FullContact. Not only do employees receive their pay while on vacation, which is standard, but
the founder of this company also provides each employee with $7,500 cash to spend on their
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
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vacation. The following Watch It! video describes this unique approach to paid vacations and the
company’s rationale for offering this generous benefit.
WATCH IT!
If your professor has assigned this, go to the Assignments section of mymanagementlab.com
" K" K"" %/" /" & %%
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
As previously shown in Table 9-1, the majority of workers received paid time off benefits
in 2014. There have been three developments in paid time off offerings: integrated paid time
off policies, sabbatical leave, and volunteerism. We will discuss each of these practices in turn,
highlighting the benefits of such paid time off practices to employers.
Integrated paid time off policies or paid time off banks combine holiday, vacation, sick
leave, and personal leave policies into a single paid time off policy. Such policies do not distinguish among reasons for absence as do
G specific policies. The idea is to provide individuals the
freedom to schedule time off withoutAjustifying the reasons. This freedom should presumably
substantially reduce the incidence of unscheduled absences that can be disruptive to the workT
place because these policies require advance
notice unless sudden illness is the cause (e.g., you
went to sleep one evening feeling fineEand then wake up the next morning on a scheduled work
day with a stomach virus). Integrated paid time off policies have become an increasingly popuS
lar alternative to separate holiday, vacation, sick leave, and personal leave plans because they
,
are more effective in controlling unscheduled
absenteeism than other types of absence control
policies.22 In 2014, approximately 41 percent of companies used a paid time off bank arrangement.23 Integrated policies also relieve the administrative burden of managing separate plans and
D
the necessity to process medical certifications
in the case of sick leave policies.
E all types of time off with pay. Bereavement and funeral
Paid time off banks do not incorporate
leave are stand-alone policies because A
the death of a friend or relative is typically an unanticipated
event beyond an employee’s control. Integrating funeral leave into paid time off banks would also
N because it would signal that grieving for a deceased
likely create dissatisfaction among workers
friend or relative is equivalent to a casual
D day off. Jury duty and witness leave, military leave, and
nonproduction time are influenced by law, and nonproduction time is negotiated as part of a collecR
tive bargaining agreement. Sabbatical leaves are also not included in paid time off banks because
these are extended leaves provided as aAreward to valued, long-service employees.
Sabbatical leaves are paid time off for such professional activities as a research project
or curriculum development. These practices are common in college and university settings and
1
apply most often to faculty members. Most universities grant sabbatical leaves to faculty mem1
bers who meet minimum service requirements
(e.g., 3 years of full-time service) with partial or
full pay for up to an entire academic 2
year. The service requirement is applied each time, which
limits the number of leaves taken per faculty member.
3 are usually limited to professional and managerial employOutside academia, sabbatical leaves
ees who stand to benefit from intensive
Ttraining opportunities outside the company’s sponsorship.
Sabbatical leaves are most suitable forS
such employees as computer engineers whose standards of
knowledge or practice are rapidly evolving. Companies establish guidelines regarding qualification,
length of leave, and level of pay. An important guideline pertains to minimum length of employment following completion of a sabbatical. For example, companies require employees to remain
employed for a minimum of 1 year following the sabbatical or repay part or all of one’s salary
received during the sabbatical. This provision is necessary to protect a company’s investment and
to limit moves to competitors. For example, Capterra, which maintains a comprehensive catalog of
business software, offers a 5-week, fully paid sabbatical every five years to each of its employees.24
According to Capterra’s CEO, the cost of a sabbatical equals a 10 percent reduction in productivity
on an annual basis, but only 2 percent over a 5-year period. He maintains that the benefit to the company and the employee’s health and personal growth is a worthwhile expense.
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Volunteerism refers to giving of one’s time to support a meaningful cause. More and more
companies are providing employees with paid time off to contribute to causes of their choice.
In 2013, approximately 20 percent of companies offered paid time off for volunteer activities,
trending up since 2007.25 In many instances, companies tout this benefit as a form of work–life
balance and a mechanism for the betterment of the community. Brokerage company Charles
Schwab provides employees with eight paid hours per year for this purpose. Managers have
the discretion to provide additional paid time off for volunteer activities.26 From a company’s
standpoint, a meaningful cause is associated with the work of not-for-profit organizations, such
as the United Way, to help improve the well-being of people. There are a multitude of meaningful causes throughout the world including improving literacy, providing comfort to terminally
ill patients, serving food at shelters for individuals who cannot afford to feed themselves,
serving as a mentor to children who do not have one or more parents, and spending time with
elderly or disabled residents of nursing homes who may no longer have living friends or family.
Companies generally do not dictate the causes for whichG
employees would receive paid time
off, except they exclude political campaign and political action
A groups for eligibility because of
possible conflicts of interest with company shareholders and management.
Companies favor providing paid time off for volunteerTwork for three reasons. First, volunteer opportunities allow employees to balance work and lifeEdemands. Second, giving employees
the opportunity to contribute to charitable causes on company
S time represents positive corporate social responsibility, enhancing the company’s overall image in the public eye. Third, paid
time off to volunteer is believed to help promote retention., Employees are likely to feel that the
employer shares similar values, possibly boosting commitment to the company. The amount of
time off ultimately varies considerably from company to company, ranging anywhere between
D
1 hour per week and, in limited cases for long-service employees, several weeks.
E
A
Services
EMPLOYEE ASSISTANCE PROGRAMS Employee assistanceNprograms (EAPs) help employees
cope with such personal problems that may impair their job D
performance as alcohol or drug abuse,
domestic violence, the emotional impact of AIDS and other diseases, clinical depression, and
R
eating disorders. In 2014, approximately 54 percent of private-sector
employees and 74 percent of
27
government employees had access to an EAP.
A
Companies offer EAPs because many employees are likely to experience difficulties that
interfere with job performance. Although EAP costs are substantial, the benefits seem to out1 of an EAP is approximately $50 to
weigh the costs. For example, the annual cost per employee
$60. Anecdotal evidence, however, indicates that employers’
1 gains outweigh their out-of-pocket
expenses for EAPs: savings from reduced employee turnover, absenteeism, medical costs, unem2
ployment insurance rates, workers’ compensation rates, accident
costs, and disability insurance
costs. Most important, the majority of employees who take3advantage of EAP resources benefit;
unfortunately, large-scale evaluation studies are virtually nonexistent.
T
Depending on the employer, EAPs provide a range of services and are organized in various
S
ways. In some companies, EAPs are informal programs developed
and run on-site by in-house
staff. Other employers contract with outside firms to administer their EAPs, or they rely on a
combination of their own resources and help from an outside firm.
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FAMILY ASSISTANCE PROGRAMS Family assistance programs help employees provide elder
care and child care. Elder care programs provide physical, emotional, or financial assistance for
aging parents, spouses, or other relatives who are not fully self-sufficient because they are too
frail or disabled. Child care programs focus on supervising preschool-age dependent children
whose parents work outside the home. Many employees now rely on elder care programs
because of their parents’ increasing longevity and the growing numbers of dual-income
families. Child care needs arise from the growing number of single parents and dual-career
households with children.
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
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A variety of employer programs and benefits can help employees cope with their family
responsibilities. The programs range from making referrals to on-site child care or elder care
centers to company-sponsored day care programs, and they vary in the amount of financial and
human resources needed to administer them. The least expensive and least labor-intensive programs are generally referral services. Referral services are designed to help workers identify and
take advantage of available community resources, conveyed through such media as educational
workshops, videos, employee newsletters and magazines, and EAPs.
Flexible scheduling and leave allows employees the leeway to take time off during work hours
to care for relatives or react to emergencies. Flexible scheduling, which includes compressed work
weeks (e.g., 10-hour days or 12-hour days), flextime, and job sharing, helps employees balance
the demands of work and family. In addition to flexible work scheduling, some companies allow
employees to extend their legally mandated leave sanctioned by the Family and Medical Leave Act
(see Chapter 10). Under extended leave, employers typically continue to provide such employee
G individuals comparable jobs upon their return.
benefits as insurance and promise to secure
Day care is another possible benefit.
A Some companies subsidize child or elder day care in
community-based centers. Elder care programs usually provide self-help, meals, and entertainT care programs typically offer supervision, preschool
ment activities for the participants. Child
preparation, and meals. Facilities mustEusually maintain state or local licenses.
Soffer tuition reimbursement programs to promote their
TUITION REIMBURSEMENT Companies
employees’ education. Under a tuition
, reimbursement program, an employer fully or partially
reimburses an employee for expenses incurred for education or training. There is substantial
variability in the percentage of tuition an employer reimburses. Some companies vary the
D
percentage of tuition reimbursed according
to the relevance of the course to the companies’
goals or the grades employees earn. E
Tuition reimbursement programs are not synonymous with pay-for-knowledge programs
A category of employee benefits. Under these programs,
(Chapter 5). Instead, they fall under the
employees choose the courses they wish
Nto take when they want to take them. In addition, employees may enroll in courses that are not directly
related to their work. As we discussed in Chapter 5,
D
pay-for-knowledge is one kind of core compensation. Companies establish set curricula that employees take, and they generally award payR
increases to employees who successfully complete courses
within the curricula. Pay increases are not
A directly associated with tuition reimbursement programs.
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
TRANSPORTATION SERVICES Some employers sponsor transportation services, programs that
help bring employees to the workplace
1 and back home again by using more energy-efficient
forms of transportation. They may sponsor public transportation or vanpools: employersponsored vans or buses that transport1employees between their homes and the workplace.
Employers provide transit subsidies
2 to employees working in metropolitan and suburban
areas served by mass transportation 3
(e.g., buses, subways, and trains). Companies may offer
transit passes, tokens, or vouchers. Practices vary from partial subsidy to full subsidy.
T
Many employers must offer transportation
services to comply with the law. Local and state
governments increasingly request thatScompanies reduce the number of single-passenger automobiles commuting to their workplace each day because of government mandates for cleaner
air. The Clean Air Act Amendments of 1990 require employers in large metropolitan areas such
as Los Angeles to comply with state and local commuter-trip reduction laws. Employers may
also offer transportation services to recruit individuals who do not care to drive in rush-hour
traffic. Furthermore, transportation services enable companies to offset deficits in parking space
availability, particularly in congested metropolitan areas.
Employees obviously stand to benefit from these transportation services. For example,
using public transportation or joining a vanpool often saves money by eliminating such commuting costs as gas, insurance, car maintenance and repairs, and parking fees. Moreover, commuting
time can be quite lengthy for some employees. By leaving the driving to others, employees can
use the time more productively by reading, completing paperwork, or “unwinding.”
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OUTPLACEMENT ASSISTANCE Some companies provide technical and emotional support
through outplacement assistance to employees who are being laid off or terminated. They do
so with a variety of career and personal programs designed to develop employees’ job-hunting
skills and strategies and to boost employees’ self-confidence. A variety of factors leads to
employee termination. Those best suited to outplacement assistance programs include:
š
š
š
š
š
š
Layoffs due to economic hardship
Mergers and acquisitions
Company reorganizations
Changes in management
Plant closings or relocation
Elimination of specific positions, often the result of changes in technology
Outplacement assistance provides such services as personal counseling, career assessments
G cover letter preparation, interviewand evaluations, training in job search techniques, resume and
ing techniques, and training in the use of such basic workplace
A technology as computers. Although
beneficial to employees, outplacement assistance programs hold possible benefits for companies as
T those being terminated, as well as
well. They can promote a positive image of the company among
their families and friends, by helping these employees prepare
E for employment opportunities.
S
, health. Wellness programs vary in
promote and maintain employees’ physical and psychological
ISBN 1-323-59381-0
WELLNESS PROGRAMS In the 1980s, employers began sponsoring wellness programs to
scope. They may emphasize weight loss only, or they may emphasize a range of activities such
as weight loss, smoking cessation, and cardiovascular fitness. Programs may be offered on- or
D
off-site. Although some companies invest in staffing professionals for wellness programs, others
contract with such external vendors as community healthE
agencies or private health clubs. An
important goal besides promoting employee health is containing
A health care costs. The evidence
28
appears to be mixed. Nowadays, nearly 90 percent of employers offer financial incentives or
N Johnson & Johnson employees
prizes to employees who strive for better health.29 For example,
pay $500 less for their annual health insurance premium if D
they complete a health profile, which
the company uses to recommend wellness activities. Some R
employers, on the other hand, impose
penalties for employees who do not engage in at least three wellness activities (for example,
completing a health assessment). For instance, Houston,A
Texas, municipal employees take a
$25 monthly pay reduction for failure to complete designated wellness activities.
Companies need to ensure that wellness programs are not a condition of employment.
1
Recently, the U.S. Equal Employment Opportunity Commission charged that Orion Energy vio1
lated the Americans with Disabilities Act by requiring an employee
to submit to medical exams
30
and inquiries that were not job-related or of business necessity.
This
employee refused to par2
ticipate in the wellness program. In response, the company deducted the entire cost of the health
3
insurance premium from this employee’s pay, and, ultimately, terminated her employment. The
T of the book went to press.
disposition of the case was not reached by the time this edition
Smoking cessation, stress reduction, nutrition andSweight loss, exercise and fitness
activities, and health-screening programs are the most common workplace wellness programs.
Smoking cessation plans range from simple campaigns that stress the negative aspects of smoking to intensive programs directed at helping individuals to stop smoking. Many employers offer
courses and treatment to help and encourage smokers to quit. Other options include offering
nicotine replacement therapy (e.g., nicotine gum and patches) and self-help services. Many
companies sponsor such antismoking events as the Great American Smoke-Out, during which
companies distribute T-shirts, buttons, and literature that discredit smoking.
Stress management programs can help employees cope with many factors inside and outside
work that contribute to stress. For instance, job conditions, health and personal problems, and personal and professional relationships can make employees anxious and therefore less productive.
Symptoms of stressful workplaces include low morale, chronic absenteeism, low productivity, and
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
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high turnover rates. Employers offer stress management programs to teach workers to cope with
conditions and situations that cause stress. Seminars focus on recognizing signs of stress and burnout, as well as on how to handle family- and business-related stress. Stress reduction techniques
can improve quality of life inside and outside the workplace. Employers benefit from increased
employee productivity, reduced absenteeism, and lower health care costs.
Weight control and nutrition programs are designed to educate employees about proper
nutrition and weight loss, both of which are critical to good health. Information from the medical
community has clearly indicated that excess weight and poor nutrition are significant risk factors
in cardiovascular disease, diabetes, high blood pressure, and cholesterol levels. Over time, these
programs should give employees better health, increased morale, and improved appearance. For
employers, these programs should result in improved productivity and lower health care costs.
Companies can contribute to employees’ weight control and proper nutrition by sponsoring
memberships in such weight-loss programs as Weight Watchers. Sponsoring companies may
G
also reinforce weight-loss programs’ positive
results through support groups, intensive counseling, competitions, and other incentives.
Companies
sometimes actively attempt to influence
A
employee food choices by stocking vending machines with nutritional food.
T
FINANCIAL EDUCATION Some companies
E have added financial education to employee benefit
offerings. Financial education programs provide employees with the resources for managing
S
personal budgets and long-term savings (e.g., for retirement). Companies are increasingly
including financial education as part, of the benefits program. These companies reason that
financial education is a relatively low-cost benefit that helps employees plan current and future
(retirement) budgets.
9-3. Summarize
legislation that pertains
to discretionary
benefits.
D
E
A
LEGISLATION PERTINENT TO
N
DISCRETIONARY BENEFITS
D
Many laws guide the design and implementation of discretionary employee benefits practices.
R between core compensation and the National Labor
In Chapter 2, we reviewed the relationship
Relations Act, the Fair Labor Standards
AAct, and key antidiscrimination laws such as Title VII of
the Civil Rights Act of 1964. These laws also have bearing on discretionary benefits practice in
a more general way. Here we review additional key laws that influence discretionary employee
1 Code (IRC), the Employee Retirement Income Security
benefits practice: the Internal Revenue
Act of 1974 (ERISA), and the Pension1Protection Act of 2006.
2
3 of regulations pertaining to taxation in the United States
As noted previously, the IRC is the set
(e.g., sales tax, company [employer] T
income tax, individual [employee] income tax, and property tax). Taxes represent an essentialS
source of revenue to fund federal, state, and local governInternal Revenue Code
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
ment programs. The Internal Revenue Service (IRS) is the government agency that develops
and implements the IRC and levies penalties against companies and individuals who violate
the IRC. Since the early 1900s, the federal government has encouraged employers to provide
retirement benefits to employees with tax breaks or deductions. In other words, the government
allowed employers to exclude retirement plan payments from their income subject to taxation.
This “break” reduced the amount of a company’s required tax payments. In general, the larger
the contributions to retirement plans, the greater the reduction in the amount of taxes owed to the
government. The IRC also permits employees to make contributions to benefits such as health
care and retirement plans on a pretax basis. Earlier in the chapter we discussed 401(k) plans. The
tax deductibility of benefits costs also requires that employers meet particular requirements set
forth by the Employee Retirement Income Security Act (ERISA), which we discuss next.
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Employee Retirement Income Security Act of 1974 (ERISA)
The Employee Retirement Income Security Act of 1974 (ERISA) was established to regulate the
implementation of various employee benefits programs, including medical, life, and disability programs, as well as pension programs. The essence of ERISA is protection of employee benefits rights.
ERISA addresses matters of employers’ reporting and disclosure duties, funding of benefits,
the fiduciary responsibilities for these plans, and vesting rights. Companies must provide their
employees with straightforward descriptions of their employee benefit plans, updates when substantive changes to the plan are implemented, annual synopses on the financing and operation of the
plans, and advance notification if the company intends to terminate the benefits plan. The funding
requirement mandates that companies meet strict guidelines to ensure having sufficient funds when
employees reach retirement. Similarly, the fiduciary responsibilities require that companies not
engage in transactions with parties having interests adverse to those of the recipients of the plan and
not deal with the income or assets of the employee benefits plan in the company’s own interests.
G retirement programs. Some of the
As noted, tax incentives encourage companies to offer
ERISA Title I and Title II provisions set the minimum standards
required to qualify pension
A
plans for favorable tax treatment. Qualified plans entitle employers and employees to substanT
tial tax benefits. Employers and employees specifically do not pay tax on their contributions
E contribution plans. In addition,
within dollar limits that differ for defined benefit and defined
the investment earnings of the trust in which plan assets areSheld are generally exempt from tax.
Finally, participants or beneficiaries generally do not pay taxes on the value of retirement ben,
efits until they receive distributions. A company’s failure to meet any of the minimum standard
provisions “disqualifies” pension plans from receiving favorable tax treatment. Nonqualified
plans refer to pension plans that fail to meet at least one D
of the minimum standard provisions.
Qualified plans possess 13 fundamental characteristics. Table 9-4 lists these characteristics. We
E next – participation requirements,
will briefly discuss four of the more fundamental standards
coverage requirements, vesting rules, and nondiscrimination
Arules.
Participation requirements apply to pension plans. Employees
must specifically be allowed to
N
participate in pension plans after they have reached age 2131 and have completed 1 year of service
D for performing work and paid time
(based on 1,000 work hours).32 These hours include all paid time
off (e.g., vacation, sick leave, and holidays). Coverage requirements
limit the freedom of employers
R
to exclude employees. Qualified plans do not disproportionately favor highly compensated employA
ees.33 The IRS specifies the criteria for highly compensated employee status. We will review these
criteria in Chapter 11 on executive compensation. Vesting refers to an employee’s nonforfeitable
rights to retirement plan benefits.34 There are two aspects of1vesting. First, employees are always
ISBN 1-323-59381-0
1
TABLE 9-4 Characteristics of Qualified Retirement
2 Plans
š Participation requirements
3
š Coverage requirements
T
š Vesting rules
S
š Accrual rules
š
š
š
š
š
š
š
š
š
Nondiscrimination rules
Key employee and top-heavy provisions
Minimum funding standards
Social Security integration
Contribution and benefit limits
Plan distribution rules
Qualified survivor annuities
Qualified domestic relations orders
Plan termination rules and procedures
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
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vested in their contributions to pension plans. Second, companies must grant full vesting rights to
employer contributions on one of the following two schedules: cliff vesting or 6-year graduated
schedule. Cliff vesting schedules must grant employees 100 percent vesting after no more than
3 years of service. That is, after 3 years of participation in the pension plan, an employee has the
right to receive all of the contributions plus interest on the contributions made by the employer. This
schedule is known as cliff vesting because leaving one’s job prior to becoming vested under this
schedule is tantamount to falling off a cliff—an employee loses all of the accrued employer contributions. On the other hand, companies may use a gradual vesting schedule. The 6-year graduated
schedule allows workers to become 20 percent vested after 2 years and to vest at a rate of 20 percent
each year thereafter until they are 100 percent vested after 6 years of service. Nondiscrimination
rules prohibit employers from discriminating in favor of highly compensated employees in contributions or benefits, availability of benefits, rights, or plan features.35 In addition, employers may not
amend pension plans so that highly compensated employees are favored.
G
A
Pension Protection Act of 2006
Tdesigned to strengthen employee rights and is an amendThe Pension Protection Act (PPA) was
ment to ERISA. The PPA focuses on bettering
employee rights in at least two ways. The first conE
sideration applies to defined benefit plans and the second applies to defined contribution plans.
S
DEFINED BENEFIT PLANS First, this law should strengthen the financial condition of the Pension
,
Benefit Guaranty Corporation (PBGC), which is a self-financed corporation established
by ERISA to insure private-sector defined benefit plans. Companies that offer defined benefit
plans are required to pay an insurance
D premium to protect retirement income promised by
these retirement plans. Companies that underfund these plans pay substantially higher costs for
E
insurance protection because they are at greater risk for not having the funds to pay promised
retirement benefits. The PPA aims toAstrengthen the PBGC financial condition by making it
more difficult for companies to skipNmaking premium payments. Finally, the PPA raises the
amount that employers can contribute to pension funding with tax advantages, creating an
Dpension plans.
additional incentive to adequately fund
R
A
workers
DEFINED CONTRIBUTION PLANS The PPA makes it easier for employees to participate in defined
contribution plans. Millions of
who are eligible to participate in their employers’
defined contribution plans do not contribute to them. In 2014, only 70 percent with access to a
defined contribution plan chose to participate.36 There are a variety of reasons why employees
1
choose not to participate; however, a prominent reason is that most individuals feel they do not
have sufficient knowledge about how1 to choose investment options that will help them earn
sufficient money for retirement. In addition,
once employees make the decision to participate
2
in these plans and have been making regular contributions, they are not likely to stop. With
3
these issues in mind, the PPA enables companies to enroll their employees automatically in
T greater access to professional advice about investing for
defined contribution plans and provides
retirement. In addition, this Act requires
S companies to offer multiple investment options to allow
employees to select how much risk they are willing to bear.
DESIGNING AND PLANNING THE
BENEFITS PROGRAM
As noted earlier, discretionary benefits can work strategically by offering protection programs,
paid time off, and services. As they plan and manage employee benefits programs, HR professionals should keep these functions in mind. There is probably no single company that expects
its employee benefits program to meet all these objectives. Company management, along with
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
9-4. Discuss the
fundamentals of
designing and planning
the benefits program.
_
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union representatives as appropriate, must therefore determine which objectives are the most
important for a particular workforce.
Many experts argue that employee input is essential to developing a successful program.
Such input helps companies target the limited resources they have available for employee
benefits to those areas that best meet employees’ needs. For example, if a company’s workforce
includes mostly married couples who are raising young children, family assistance programs
would probably be a priority. By involving employees in program development, they are most
likely to accept and appreciate the benefits they receive. Companies can involve employees
in the benefits determination process in such ways as surveys, interviews, and focus groups.
Fundamental design issues include:
š
š
š
š
š
Who receives coverage
Financing of benefits
Employee choice
Cost containment
Communication
G
A
T
Employers can ascertain key information from employees
that can be useful in designing these programs. The areas of input emphasize employees’
beliefs
about other employers’
E
benefits offerings and employees’ thoughts about the value of the benefits they receive.
S
Determining Who Receives Coverage
,
Companies decide whether to extend benefits coverage to full-time and part-time employees or
to full-time employees only. As shown in Table 9-1, part-time workers have much less access to
D
benefits than full-time employees.
E
Another scope issue companies must address is employees’
status. In many companies,
employees’ initial term of employment (usually shorter thanA6 months) is deemed a probationary
period, and companies view such periods as an opportunity to ensure that they have made sound
N
hiring decisions. Many companies choose to withhold discretionary
employee benefits for all
probationary employees. Companies benefit directly through
D lower administration-of-benefits
costs for these employees during the probationary period.
Financing
R
A
Human resource managers must consider how to finance benefits. In fact, the available
resources and financial goals may influence, to some extent, who will receive coverage.
1
Managers may decide among noncontributory, contributory, and employee-financed pro1
grams or some combination thereof. Noncontributory financing
implies that the company
assumes total costs for each discretionary benefit. Under2contributory financing, the company and its employees share the costs. Under employee-financed benefits, employers do
3
not contribute to the financing of discretionary benefits. The majority of benefit plans today
T risen so dramatically. In 2014, the
are contributory, largely because the costs of benefits have
percentage of employees who were required to contributeSto funding the following benefits is
as follows: Life insurance (6 percent), long-term disability (8 percent), short-term disability
(17 percent), and health insurance (100%).37 On average, the employee share of the contributions for health insurance was 31 percent.
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Employee Choice
Human resource professionals must decide on the degree of choice employees should have in
determining the set of benefits they will receive. If employees within a company can choose
from among a set of benefits, as opposed to all employees receiving the same set of benefits, the
company is using a flexible benefits plan or cafeteria plan. Companies implement cafeteria
plans to meet the challenges of diversity, as discussed earlier. Although there is limited evidence
regarding employees’ reactions to flexible benefits, the existing information indicates benefit
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
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TABLE 9-5 Core Plus Option Plan
The core plus option plan contains two sets of benefits: core benefits and optional benefits.
All employees receive a minimum level of core benefits:
š Term life insurance equal to one times annual salary
š Health protection coverage (e.g., indemnity plan, self-funded, HMO, PPO) for the employee and
dependents
š Disability insurance
All employees receive credits equal to 4 to 7 percent of salary, which can be used to purchase optional benefits:
š Dental insurance for employee and dependents
š Vision insurance for employee and dependents
š Additional life insurance coverage
š Paid vacation time up to 10 days perG
year
If an employee has insufficient credits to purchase the desired optional benefits, he or she can purchase
A
these credits through payroll deduction.
T
E
satisfaction, overall job satisfaction, pay satisfaction, and understanding of benefits increased
S benefits plan.38 Many of these outcomes are desirable
after the implementation of a flexible
because they are known to lead to reduced
, absenteeism and turnover.
Cafeteria plans vary,39 so only the two most common will be discussed here. Flexible spending accounts (FSAs) permit employees to pay for certain benefits expenses (e.g., health care or
D year, employees elect the amount of salary-reduction
child care) with pretax dollars. Each
dollars they wish to allocate to this kind
E of plan. Employers then use this money to reimburse
employees for expenses incurred during the plan year that qualify for repayment. IRS regulaA set aside each year in their FSA. In 2015, an employee
tions limit the amount an employee may
was eligible to contribute up to $2,550Nfor his or her own medical expenses. For dependent care
FSA accounts, the limit was $5,000. D
Core plus option plans extend a preestablished set of such benefits as medical insurance
R
as a program core, which is usually mandatory
for all employees. Beyond the core, employees
may choose from an array of benefitsAoptions that suit their personal needs. Companies establish upper limits of benefits values available to each employee. If employees do not choose the
maximum amount of benefits, employers may offer an option of trading extra benefits credits for
cash. Table 9-5 illustrates the choices 1
of a typical core plus plan.
1
2
Overall, HR managers today try to contain costs. As indicated earlier, the rise in health care costs
3 account for a substantial percentage of total compensais phenomenal, so employee benefits now
tion costs incurred by companies. In 2014,
T total employee benefits accounted for 31.2 percent.40
Discretionary benefits costs accounted for nearly 25 percent. The current amount has risen draS
matically over the past few decades. This increase would not necessarily raise concerns if total
Cost Containment
compensation budgets were increasing commensurably. As we discussed in Chapter 8, the growth in
funds available to support all compensation programs has stagnated. As a consequence, employers
face difficult trade-offs between employee benefits offerings and increases in core compensation.
Communication
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
Earlier, we noted that employees often regard employee benefits as an entitlement. Thus, it is
reasonable to infer that employees are not aware of their value. In fact, employees are either not
aware of or undervalue the employee benefits they receive. Given the significant costs associated
with offering employee benefits, companies should try to convey to employees the value they are
likely to derive from having such benefits. For example, a personal benefits summary, displayed
_
F N K
219
in Table 9-6, is a useful approach. A benefits communication plan is therefore essential. An
effective communication program should have three primary objectives:41
š To create an awareness of and appreciation for the way current benefits improve the financial
security and the physical and mental well-being of employees
š To provide a high level of understanding about available benefits
š To encourage the wise use of benefits
Companies have traditionally used printed brochures to summarize the key features of
the benefits program and to help potential employees compare benefits offerings with those of
other companies they may be considering. When new employees join the company, initial group
meetings with benefits administrators or audiovisual presentations can detail the elements of the
company’s benefits program. Shortly after group meetings or audiovisual presentations (usually
G
TABLE 9-6 Sample Personal Statement of Benefits
A PERSONAL BENEFITS STATEMENT FOR:
John Doe
REVIEW OF YOUR CURRENT BENEFIT CHOICES
As of March 2013, our records indicate you have chosen the
following benefits (rates may change July 1, 2013):
MEDICAL
For you:
PERSONAL CARE HMO
For your dependent(s):
NONE
Employer’s monthly contribution:
For you: $285.00
For your dependent(s): None
Your monthly contribution: $37.50
DENTAL
QUALITY CARE DENTAL PLAN
Your monthly contribution: $9.50
Employer’s annual contribution:
For you: $110.00
For your dependent(s): None
A
T
E
S
,
D
E
A
N
D
R
A
SSN: xxx-xx-xxxx
Marital Status: Single
Date of Birth:
04/10/61
LIFE INSURANCE
As a full-time employee, you receive employer-paid life insurance equal to your annual salary. If you work part-time, your
employer-paid amount is less. When you retire at age 60 or older,
you still receive $5,000 worth of employer-paid life insurance.
Employer’s monthly contribution for your employer-paid life
insurance:
Basic life ($90,000): $32.50
Your monthly contribution for the following optional coverage:
For you (None): None
Spouse life
(None):
None
Child life
(None):
None
Accidental Death and Dismemberment:
(None):
None
FLEXIBLE SPENDING ACCOUNTS
ISBN 1-323-59381-0
1 You are enrolled in the following plan(s):
1 Dependent Care Assistance Plan
Not Enrolled
2 Annual deduction
Medical Care Assistance Plan
3 Annual deduction
DEPENDENTS
Not Enrolled
You have chosen to cover the following dependent(s) under yourTHealth Plan:
No Dependents
S
DOLLAR VALUE OF YOUR BENEFITS
Your total annual compensation is your salary or retirement payment plus the value of employer-paid medical, dental, and life
insurance coverage.
$3,420.00
Employer-paid medical insurance coverage for you:
None
Employer contribution for medical insurance coverage for
your dependent(s):
$110.00
Employer-paid dental insurance coverage for you and your
dependent(s):
Employer-paid life insurance coverage for you:
$390.00
Total Value of Your State-Paid Benefits:
$3,920.00
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
220
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TABLE 9-7 Menu of Employee Benefit Options
This section is designed to provide detailed information regarding your benefits as a University of Illinois employee. It will give
you a comprehensive explanation of each benefit and the resources you will need to initiate enrollment, make changes, or find
answers to questions regarding your benefits.
Please select from the following categories:
š Announcements—Provides announcements of upcoming sign-up periods or events and updated information relating to your benefits.
š Benefits Directory—Provides a listing of staff members, including addresses, phone numbers, and e-mail addresses for the
Benefits Service Center and each campus.
š Benefit Choice—Benefit Choice is an annual open enrollment period that allows employees to make changes to their state of
Illinois health, dental, and life insurance coverages, and enroll or re-enroll in flexible spending accounts.
š Benefit Forms—Provides links to printable and online benefit forms.
š Benefits Statement—Provides a statement outlining your current benefit enrollments and instructions for accessing that
G
information.
š Benefits Summary—Provides a detailed, comprehensive description
A of each benefit plan and its provisions.
š Frequently Asked Questions—Provides a list of commonly askedT
questions relating to your benefits.
š Leave Information—Provides time off related information for such benefits as family medical leave, sick leave, and vacation leave.
E
š Retirement Planning Seminars—Provides dates and sign-up information.
S
,
within a month), new employees should meet individually with benefits administrators, sometimes
known as “counselors,” to select benefits options. After employees select benefits, the company
should provide them with personal benefits
D statements that detail the scope of coverage and value
of each component. Beyond these particulars,
companies may update employees on changes in
E
benefits (i.e., reductions in or additions to benefits choices or coverage) with periodic newsletters.
Contemporary information sourcesAinclude a company’s intranet. An intranet is a useful way
to communicate benefits information toNemployees on an ongoing basis beyond the legally required
written documents. In an era of the paperless office, employees are less likely to have written materiD
als readily available. Employees can review general information about the benefits program whenever
they want. For example, Table 9-7 lists R
general information about the kinds of benefits options available at the University of Illinois. In the A
online version of such a list, each item (e.g., announcements,
benefits directory) would contain a hyperlink that leads to more detailed information.
9-5. Explain the
benefits and costs of
discretionary benefits.
1
1
THE BENEFITS AND COSTS
OF
2
DISCRETIONARY BENEFITS
3
Discretionary benefits, like core compensation, can contribute to a company’s competitive
T (e.g., tax advantages and recruiting the best-qualified
advantage for the reasons discussed earlier
candidates). Discretionary benefits can
S also undermine the imperatives of strategic compensa-
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
tion. Companies that provide discretionary benefits to employees as entitlements are ultimately
less likely to promote competitive advantage than companies that design discretionary employee
benefits programs to fit the situation.
Management can use discretionary benefit offerings to promote particular employee
behaviors that have strategic value. For instance, when employees take advantage of tuition
reimbursement programs, they are more likely to contribute to the strategic imperatives of
product or service differentiation or cost reduction. Knowledge acquired from job-relevant
education may enhance the creative potential of employees, as well as their ability to suggest more cost-effective modes of work. On the other hand, deferred profit sharing plans may
contribute to companies’ strategic imperatives by instilling a sense of ownership in employees
and a drive to help position the company to earn significant profits over the long run.
_
F N K
221
A company can use discretionary benefits to distinguish itself from the competition. In
effect, competitive benefits programs potentially convey the message that the company is a good
place to work because it invests in the well-being of its employees. Lucrative benefits programs
will presumably attract a large pool of applicants that include high-quality candidates, positioning a company to hire the best possible employees.
Finally, the tax advantage afforded companies from offering particular discretionary benefits
has strategic value. In effect, the tax advantage translates into cost savings to companies. These
savings can be applied to promote competitive advantage. For example, companies pursuing
differentiation strategies may invest these savings into research and development programs or
employee development. Companies pursuing lowest-cost strategies may be in a better position to
compete because these savings may enable companies to lower the prices of their products and
services without cutting into profits.
G
A
T
Many employees feel entitled to certain benefits that they con @ K -E
!
S
to the organization to decide on other benefits that are offered
and administered. As a line manager or HR professional, you,
COMPENSATION IN ACTION
Create workshops to help employees understand the
Ktion—highlight confusing aspects and aspects that are
not well known.
While many companies now have call centers that answer
Y
more complex benefits issues arise (e.g., long-term disabil @ Z
can be dealt with in a sensitive and timely manner.
might be in charge of creating a benefits program, but you will
certainly be called on to interpret policy in order to meet the
! -D
ation or interpretation of benefits, you will want to have access
E
to accurate information so your organization’s offerings serve
as true benefits for employees and not a source of frustrationA
Line managers take the lead
and ambiguity.
N Suggest ways to keep the “explaining your benefits”
portion of new employee orientation engaging and
D
interesting. The session should be conducted by HR
Action checklist for line managers and HR—
Z
helping employees understand and fully utilize R
[
Y
benefits
A
arise. Seek to be educated by HR on the specifics of
HR takes the lead
@ Y
Ensure that the employee benefits handbook is up to
and
accurately.
1
date and accurate. Depending on the employee popu When changes to benefits are made, call employees
1
lation, both an online version and a hard copy of the
together to discuss rationale and what can be done
manual should be accessible.
Y \
2
Ensure employee
handbook is up to date
and accessible
3
T
S
New employees
receive orientation to
understand benefit
options
ISBN 1-323-59381-0
Changes to benefits are
given importance and
communicated
accordingly
Education of line
managers so they can
respond swiftly and
accurately
Workshops to help
employees become
acquainted with
specifics of program
offerings
Benefits call centers should not be used as a crutch—these issues are
important to employees and should be treated as such
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
222
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END OF CHAPTER REVIEW
MyManagementLab
Go to mymanagementlab.com to complete the problems marked with this icon
.
Summary
Learning Objective 1: A variety of social and economic factors contributed to companies’ adoption of
discretionary employee benefit practices. For example,
the federal government provided tax incentives to companies that offered benefits. Wage freezes during World
War II prompted companies to offset those freezes with
new or enhanced benefits.
Learning Objective 2: The three categories of discretionary benefits include protection programs, paid
time off, and services. An example of a protection
program is life insurance. Vacation is one among many
paid time off benefits. Wellness programs provide important services to employees’ health and welfare.
Learning Objective 3: A host of laws influence
the design and implementation of discretionary benefit
Key Terms
G
Learning
Objective 4: Benefit program design entails
A consideration of many factors including who is
eligible to participate, financing of benefits, employee
T
choice in determining benefits, cost containment methE and communication plans.
ods,
S
Learning
Objective 5: Discretionary benefits are an
essential
component
of the total compensation system.
,
When designed properly, discretionary benefit practices
can help promote particular behaviors through promotD wellness, financial security, work-life balance, and
ing
so
E forth.
A
N
D
R
A
Section 401(k) plans 208
Roth 401(k) plans 208
1
Section 403(b) plans 208
1
Section 457 plans 208
profit sharing plans 2208
deferred profit sharing plans 208
hybrid plans 208 3
cash-balance plans T
208
integrated paid time off
S
policies 210
paid time off banks 210
sabbatical leaves 210
volunteerism 211
employee assistance programs
(EAPs) 211
family assistance programs 211
flexible scheduling and leave 212
day care 212
tuition reimbursement
programs 212
transportation services 212
outplacement assistance 213
wellness programs 213
smoking cessation 213
stress management 213
weight control and nutrition
programs 215
Employee Retirement Income Security
Act of 1974 (ERISA) 214
qualified plans 215
nonqualified plans 215
participation requirements 215
coverage requirements 215
vesting 215
cliff vesting 215
6-year graduated schedule 216
Nondiscrimination rules 216
Pension Benefit Guaranty
Corporation (PBGC) 216
probationary period 217
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
welfare practices 203
short-term disability insurance 204
long-term disability insurance 204
short-term disability 205
preexisting condition 205
preeligibility period 205
elimination period 205
exclusion provisions 205
long-term disability 205
life insurance 206
term life insurance 206
whole life insurance 206
universal life insurance 206
retirement programs 206
pension plan 206
defined benefit plans 206
defined contribution plans 207
company match 207
Internal Revenue Code (IRC) 208
annual addition 208
practices, including the Internal Revenue Code, the
Employee Retirement Income Security Act, and the
Pension Protection Act.
_
noncontributory
financing 217
contributory financing
217
employee-financed
benefits 217
flexible benefits plan
cafeteria plan 217
core plus option plans
F N K
223
218
217
MyManagementLab
CHAPTER QUIZ!
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to complete the Chapter Quiz! and see what you’ve learned.
G
A
Many compensation professionals are faced
with making choices about which discretionary T
benefits to drop because funds are limited and E
the costs of these benefits continually increase.
Assume you must make such choices. Rank-orderS
discretionary benefits from the ones you would ,
Discussion Questions
9-1.
most likely eliminate to the ones you would least
likely eliminate. Explain your rationale. Do such
factors as the demographic composition of the D
workforce of the company matter? Explain.
E
9-2. Discuss your views about whether discretionary
employee benefits should be an entitlement or A
N
something earned based on job performance.
9-3. Assume that you are an HRM professional
D
whose responsibility is to develop a brochure for
R
A
the purpose of conveying the value of your company’s benefits program to potential employees.
Your company has asked you to showcase the
benefits program in a manner that will encourage
recruits to join the company. Develop a brochure
(of no more than one page) that lists the benefits
and the objectives.
9-4. Conduct some research in order to identify
examples of innovative benefit practices.
A useful starting point is an Internet search
using phrases such as “best companies to
work for.”
9-5. Are employees more likely to favor defined contribution plans over defined benefit plans? How
about employers? Explain your answers.
CASE
1
22 ' 2~% "
1
2 to consider changing her company’s
As she hangs up the telephone, Joan Jackson realizes that she needs
time off policies. She just received a call from an employee reporting
off work because he is sick. This
3
is the second employee on the same project team to call off this week, and the unscheduled absence will
T
likely cause a delay in meeting the project deadline.
Joan, the president of Superior Software Services, is proud that
S her company has earned a reputation
ISBN 1-323-59381-0
Case can be found on MyManagementLab.
for providing high-quality software solutions. Superior recruits and retains top software engineers and also
boasts an impressive administrative staff. However, even with a talented staff, Joan is concerned about the
company’s ongoing ability to meet project deadlines.
Over the past few months, unscheduled absences have caused Superior to delay the delivery of software products to a few clients. When a staff member calls in to take a sick day without prior notice, shifting
employees to cover the work in order to meet a deadline is difficult. Joan believes Superior’s time off policies may be causing some of the problems.
Superior offers employees 7 vacation days and 5 sick days each year. The company has a policy that
employees may use sick days only for illness or emergencies. Employees may not schedule sick days in
advance. Vacation days are scheduled at the beginning of the year. Employees receive approval of their
requested vacation days on a seniority basis, so most employees designate the days they will take their
vacation within the first few weeks of a new year so they are able to effectively plan vacation travel.
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
224
>N K
Joan believes Superior’s current time off policy creates an incentive for employees to call off at the last
minute. She has learned from supervisors that many employees use their sick days to take care of personal
business such as attending parent–teacher conferences or running personal errands. These are often events
that could be prescheduled time off, but employees do not feel they have a time off option to address such
needs. Sick days can’t be prescheduled, and vacation days are often already committed at the beginning of
the year.
Joan believes that changing the time off policies could reduce the number of unscheduled absences,
but she is not sure if her idea will address her concerns. She is considering replacing the current vacation/
sick day allowance with a paid time off (PTO) bank. Employees would receive 12 PTO days each year.
They would be permitted to schedule preferred days off at the beginning of the year so that they can make
vacation travel plans, and the remaining days could be saved for days when the employee is ill or could be
scheduled ahead of time to take care of personal business. Joan believes this change will encourage employees to schedule their time off in advance when possible. With advance notice of absences, supervisors
will be better able to plan projects and meet deadlines.
G
Questions:
A time off policies will decrease unscheduled time off?
9-6. Do you think changing Superior’s
9-7. Beyond reducing occurrences ofT
unscheduled time off, are there any other benefits to offering PTO?
9-8. Are there any disadvantages to offering PTO?
E
S
,
Crunch the Numbers!
Z` S@X %& &0'&"$
D ~%0 '&" %&
/ %
E
& %&% '& '0"1
A " %& 0 2'& & mymanagementlab.com.
You have just begun work at XYZ Manufacturing
Company. Among its benefits offerings is a generous
N
qualified 401(k) plan with an employer match. In 2015, your annual salary is $45,000 and you are age 55.
You’ve decided to contribute 10 percent ofDyour annual salary to your 401(k) plan even though the Internal
Revenue Service allows you to contribute R
up to $24,000 in 2015 ($18,000 plus a $6,000 catch up contribution for employees age 50 or more). The annual addition is $53,000.
A
Questions:
9-9. How much more money would you need to contribute to meet the allowable maximum
1
contribution?
9-10. In 2015, the company offers a $0.75
1 match for each dollar that you contribute between 3 percent
and 6 percent of your annual salary. How much is the company match based on your 10 percent
2
contribution?
9-11. Based on the sum of your answers3to questions 9-9 and 9-10, what is the difference between the
IRS maximum annual addition for 2015 and the total contribution to your 401(k) plan?
T
S
MyManagementLab
Go to mymanagementlab.com for Auto-graded writing questions as well as the following
Assisted-graded writing questions:
9-12. If a company’s budget were extremely limited and could only afford to offer one benefit,
control over absenteeism.
9-14. MyManagementLab Only – comprehensive writing assignment for this chapter.
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
which would you select? Provide your rationale.
9-13. Name at least one discretionary benefit practice that would help companies to have better
_
F N K
ISBN 1-323-59381-0
Endnotes
1. U.S. Department of Labor. (2015, March 11). Employer costs for employee compensation, December
2014 (USDL: 15-0386). Available: www.bls.gov, accessed March 14, 2015.
2. Employee Benefits Research Institute. (1997). Pension Plans (Chapter 4.). Fundamentals of
Employee Benefits Programs. Washington, D.C. Employee Benefits Research Institute.
3. U.S. Bureau of Labor Statistics. (1919). Welfare Work for Employees in Industrial Establishments in
the United States. Bulletin # 250, pp. 119–123.
4. U.S. Bureau of Labor Statistics. (2014). National Compensation Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
5. Solnick, L. (1985). The effect of the blue collar unions on white collar wages and benefits. Industrial
and Labor Relations Review, 38, pp. 23–35.
6. Toossi, M. (2009). Labor Force Projections to 2018: Older workers staying more active. Monthly
Labor Review, pp. 30–51.
G
7. Martocchio, J. J. (2014). Employee Benefits: A Primer for the Human Resource Professional (5th
ed.). Burr Ridge, IL: Irwin/McGraw-Hill.
A
8. U.S. Bureau of Labor Statistics. (2014). National Compensation Survey: Employee Benefits in the
T
United States, March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
9. U.S. Bureau of Labor Statistics. (2014). National Compensation
E Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
S
10. U.S. Bureau of Labor Statistics. (2014). National Compensation Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov,
accessed March 11, 2015.
,
11. U.S. Bureau of Labor Statistics. (2014). National Compensation Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
12. U.S. Bureau of Labor Statistics. (2014). National Compensation
D Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
E
13. U.S. Bureau of Labor Statistics. (2014). National Compensation Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov,
accessed March 11, 2015.
A
14. Costo, S. L. (2006). Trends in retirement plan coverage over the last decade. Monthly Labor Review,
N
February, pp. 58–64.
15. U.S. Bureau of Labor Statistics. (2014). National Compensation
D Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
R
16. Costo, “Trends in retirement.”
17. U.S. Bureau of Labor Statistics. (2014). National Compensation
A Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
18. Rapoport, M. (2015). Longer lives hit companies with pension plans hard. The Wall Street Journal
(February 23). Available: www.wsj.com, accessed February 25,
1 2015.
19. I.R.C. §415(c).
1
20. I.R.C. §404(a)(3).
21. 26 Code of Federal Regulations §§1.401(a)(4)-8(c)(3)(I). 2
22. Markowich, M. M. (2007). Paid Time-Off Banks. Phoenix, AZ: WorldatWork Press.
3
23. WorldatWork (2014). Paid Time Off Programs and Practices (September). Available: www.
T
worldatwork.org, accessed March 10, 2015.
24. Harrison, K. (2014). The most popular employee perks of 2014. Fortune (February 19). Available:
S
http://www.fortune.com, accessed March 12, 2015.
25. Society for Human Resource Management (2013). 2013 Employee Benefits: An Overview of
Employee Benefits Offerings in the U.S. Available: http://www.shrm, accessed February 5, 2015.
26. Halzack, S. (2013). Paid time off for volunteering gains traction as a way to retain employees. The
Washington Post (August 11). Available: http:/www.washingtonpost.com, accessed February 26,
2015.
27. U.S. Bureau of Labor Statistics. (2014). National Compensation Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
28. Thomas, K. (2013). Companies get strict on health of workers. The New York Times (March 25).
Available: www.NYTimes.com, accessed February 7, 2015.
29. Wieczner, J. (2013). Your company wants to make you healthy. The Wall Street Journal (April 8).
Available: www.wsj.com, accessed January 15, 2015.
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
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226
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30. U.S. Equal Employment Opportunity Commission (2014). EEOC Lawsuit Challenges Orion
Energy Wellness Program and Related Firing of Employee (Press release, August 20). Available:
www.1.eeoc.gov, accessed March 12, 2015.
31. I.R.C. §§410(a)(1), 410(a)(4); Treas. Reg. §1.410(a)-3T(b); ERISA §202(a).
32. I.R.C. §410(a)(3), Treas. Reg. §1.410(a)-5, 29 C.F.R. §2530.200b-2(a), ERISA §202(a)(3).
33. I.R.C. §414(q).
34. I.R.C. §§411(a)(2), 411(a)(5); Treas. Reg. §1.411(a)-3T; ERISA §203(a).
35. I.R.C. §401(a)(4).
36. U.S. Bureau of Labor Statistics. (2014). National Compensation Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
37. U.S. Bureau of Labor Statistics. (2014). National Compensation Survey: Employee Benefits in the
United States, March 2014 (Bulletin 2779). Available: www.bls.gov, accessed March 11, 2015.
38. Barber, A. E., Dunham, R. B., & Formisano, R. (1990). The Impact of Flexible Benefit Plans
on Employee Satisfaction. Paper presented at the Fiftieth annual meeting of the Academy of
Management, San Francisco, CA. G
39. Martocchio, Employee Benefits (5th ed.).
40. U.S. Department of Labor (DecemberA10, 2014). Employer costs for employee compensation,
September 2014 (USDL: 14-2208). Available:
www.bls.gov/ect/htm, accessed February 1, 2015.
T
41. Martocchio, Employee Benefits (5th ed.).
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D
E
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1
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ISBN 1-323-59381-0
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
Legally Required Benefits
10
Learning Objectives
G
When you finish studying this chapter, you should be A
able to:
10-1. Discuss the origins of legall...
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