MHR 523 Lecture Notes - Adverse Selection, Life Insurance, Pension

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Published on 18 Apr 2013
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March 28, 2013
Chapter 10: Employee Benefits and Services
Total Compensation
Direct Compensation
Pay
Based on critical job factors or performance
Base salary, pay for performance
Indirect Compensation
Benefits and services extended as a condition of employment
Not related to performance or job roles (except for executives who get stock options,
coverage for medical and dental)
Slowly approaching 50% of annual payroll expenses (ie you make $60,000, it costs the
company $120,000 after benefits are paid for)
Indirect Compensation Objectives
Societal
To solve social problems and provide security for wage earners
Financial security against illness, disability, and retirement
Prior to employment insurance people did not have security for income if job was lost
Trouble for people with only one bread winner in the house
Government and company contribution
Organizational
Reduce fatigue
Discourage labour unrest
Aid recruitment and reduce turnover
Labour Unrest: people fighting for benefits, higher wages, strike
Satisfy employee objectives
o Employee wanting MBA, company will pay for education
Aid Recruitment
o Get talented employees
o Reduce number of people leaving company
Employee
Lower costs i.e. company benefits are usually less expensive
Availability i.e. to obtain benefits and services
Company covers dental, medical etc. organization will spend less than employee would
individually
Group plans that include spouse and children
Emerging Services and Trends
Increased Medical
o Organizations will cover more and more things covered under employee plans
Increased Vacations
o More days off
Pension Coverage
o CPP is not enough
Pension Liability
o Work for a single organization until retirement you get more pension than if you moved
around
o Benefit to thouse who worked for less organizations
Pension Portability
o Pensions are now transferable to another company if employee chooses to leave
Paid Leaves
o education
Child & Elder Care
o Daycare on site at company
Same-sex Provisions
o Allow rights of benefits to same sex partners
Benefits for Part-time
Current Trends
Indirect compensation will form a greater proportion of total compensation offered
Employer share of contributions will rise
Employees may be able to make choices
Flexible benefit plans
Choose which benefits you want
Need to adopt a total compensation approach
Changes in the labour force will impact workforce demands
Old people will want pension benefits
Young people will want tuition reimbursed
Increase in women in workforce, will want child benefits
Management of Voluntary Programs
Problems in Administration
Lack of employee involvement
People don’t know about what benefits are included until you need one
Failing to recognize individual differences and wishes
Google brought in psychologist to determine what benefits people want
Recommended an aquarium to relax mind
Recommended a library to give employees feeling they’ve left the workplace
Traditional remedy has been to increase employee awareness
Traditional company would just increase everyone’s pay to satisfy employees
Proactive solution involves implementing flexible benefits (cafeteria) programs
********Flexible Benefits Advantages
Allows employees to select benefits and services that match their individual needs
Employees are able to select which benefits they’d like to include in their package
Based on credit system (e.g. credit limit = 35 credits given in total, 6 credits used for life
insurance)
Older people want to put more credits towards pension plan, young people apply it to
their educational needs
Results in employee participation
Lack of awareness is eliminated because employee has to select the benefits they want
Flexible plans make introduction of new benefits less costly
Less costly than fixed benefit plan because not everyone will want the new benefit
introduced. Only way a new benefit can be obtained is by getting rid of another
Cost containment organization sets dollar maximum; employee chooses within the constraint
Maximum is set
***********Flexible Benefits Disadvantages
Employees make bad choices and find themselves not covered for predictable emergencies
Choose a benefit that they anticipate using. Sometimes if you don’t apply credits, you
may not have coverage, you cannot change your benefit plan at that moment.
Administrative burdens and expenses increase
Annoying to track and record benefit plan for each and every employee
Adverse selection employees pick only the benefits they will use; the subsequent high benefit
utilization increases its costs
Company benefits from people not using benefits. Employees select benefits that will be
used frequently causing high costs to company.
Implications for HRM
Comply with all legal requirements and maintain accurate employee records
Avoid duplication of benefits
Benefits provided by government and company. Benefits are duplicated. Unnecessary
expenses.
Should be concerned about reducing accidents to lower the cost of workers’ compensation
Google gyms make healthy employees causing less accidents.
Challenge all unjustified claims for employment compensation
Employee claiming to have been laid off rather than fired causing the company to lose
more money
Take measures to control health costs
Doctors on company site, rather than prolonging injuries, they are dealt with
immediately.
Retention of key employees
Innovative and flexible benefit plans are effective tools to attract and retain highly
skilled employees
Benefits & Strategy Implications
Define the objectives of the organization
Link HR & organizational objectives
Assess the needs of employees
Assess & comply with all legal requirements
Compare benefits with competitors
Ensure benefits are valued by employees
Conduct an annual benefits audit