HROB 3010 Chapter 9

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University of Guelph
Human Resources and Organizational Behaviour
HROB 3010
Rhonda Gordon

Chapter 9: Employee Benefits - a first class benefits plan includes some mix of the following benefits: - education reimbursement and employee training; - on site child care services - financial counseling, and concierge services; - retirement benefits; - and no-cost benefits such as casual dress policies o an example from a specific company includes: - RIM in Waterloo- Ontario provides each employee with a free blackberry, and tries to find unique “fun” activities for employess- ice cream on summer Friday nights, private concerts, etc. INTRODUCTION TO EMPLOYEE BENEFITS: - some firms would argue that these extra services are seen as important benefits of employment, perhaps making attraction, retention, and motivation of employees that much easier - employee satisfaction with benefits is positively associated with job satisfaction, but we are not sure about more specific payoffs - there has been a rapid rise in employee benefit costs moving from about 15 percent of payroll costs in 1953 to the 40 percent range today - Employee Benefits: part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments, such as life insurance pension plan, workers’ compensation, vacation and so on o Employees perceive benefits as a right, independent of how well they or the company perform o Efforts to reduce benefit levels or eliminate part of the package all together meet with employee resistance and dissatisfaction o Employee benefits are costly- over one 20 year period, employee benefit costs rose at a much greater rate than employee wages or the consumer price index WHY THE GROWTH IN EMPLOYEE BENEFITS? Government Impetus - the gov’t has played an important role in the growth of employee benefits - the three gov’t mandated employment related benefits are: o workers’ compensation(provincial) o Employment insurance (federal) o Canada/Quebec Pension Plan (federal and Quebec) - in addition, most other employee benefits are affected by laws such as the Income Tax Act, human rights acts, pension benefits acts, and so on - Canadian Human rights laws require the family and survivor benefits be offered to an employers unmarried partner, whether of the same or opposite sex, wherever they are provided to a legal spouse - Mandatory retirement at 65 has been outlawed in most provinces UNIONS - have fought for the introduction of new benefits and the improvement of existing benefits EMPLOYER IMPETUS - many of the benefits in existence today were provided at employee initiative - rest breaks were often implemented in the belief that fatigue increased accidents and lowered productivity - savings and profit sharing plans were implemented to improve performance and provide increased security for worker retirement years - many employer initiated benefits were designed to create a climate in which employees perceived that management was genuinely concerned for their welfare COST EFFECTIVENESS OF BENEFITS - first cost advantage is that most employee benefits are not taxable - provision of a benefit, rather than an equivalent increase in wages avoids payment of personal income tax - second component- arises because many group-based benefits (ex. Life insurance, health insurance) can be obtained at a lower rate than could be obtained by employees acting on their own - benefit premiums and pension contributions are tax deductible up to limits specified in the income tax act THE VALUE OF EMPLOYEE BENEFITS - most important benefits employees receive- medical payments – health care costs are rapidly growing and most difficult to control of all the benefit options offered by employers - there is evidence that employees frequently are unaware of, or undervalue, the benefits provided by their organization - benefits are taken for granted- employees see them as a right with little comprehension of, or concern for, employer costs - employees are not necessarily looking for more benefits, but rather greater choice in the benefits they receive - 70 percent of employees in one study indicated they would be willing to pay more out of pocket for benefits if they were granted greater choice in designing their own benefits package KEY ISSUES IN BENEFITS PLANNING, DESIGN, AND ADMINISTRATION Benefits Planning and Design Issues - competitiveness requires an understanding of what other firms in your product and labour markets offer as benefits - firms conduct benefits surveys much as they conduct salary surveys - ensuring that benefits are adequate is a somewhat more difficult task - most organizations evaluating adequacy consider the financial liability of employees with and without a particular benefit (e.g. employee medical expenses with and without medical benefits) - in part, the answer may lie in the relationship between benefits adequacy and the third plan objective, cost-effectiveness Benefits Administration Issues - three major administration issues arise in setting up a benefits package: 1) who should be protected or benefited? 2) how much choice should employees have among an array of benefits? 3) How should benefits be financed? - who should be covered- employees - companies often differentiate treatment based on employment status - the dollar value of benefits is much lower, even when the difference in hours worked for part-time versus full-time employees is factored in - the second administrative issue concerns choice (flexibility) in plan coverage - in the traditional benefits package, employees typically have not been offered a choice among employee benefits - rather, a package is designed with the average employee in mind, and any deviations in needs simply go unsatisfied - the other extreme (discussed in greater detail later) is represented by flexible benefit plans - companies who are not even offering a flexible benefits program are offering greater flexibility and choice o optional levels of group term life insurance o the availability of death of disability benefits under pension or profit- sharing plans o choices of covering dependents under group medical expense coverage  the level at which an organization finally chooses to operate on this choice/flexibility dimension really depends on its evaluation of the relative advantages and disadvantages of flexible plans - the final administrative issue involves the question of financing benefits plans - alternatives include the following: o 1. Non-contributory (employer pays total costs) o 2. contributory (costs shared between employer and employee) o 3. Employee financed (employee pays total costs for some benefits, e.g. long term disability) FACTORS INFLUENCING CHOICE OF BENEFITS Employer Factors 1. relationship to total compensation costs 2. costs relative to benefits 3. competitor offerings 4. role of benefits in: a. attraction b. retention c. motivation 5. legal requirements Employee Factors 1. equity: fairness historically and in relationship to what others receive 2. personal needs as linked to: a. age b. sex c. martial status d. number of dependents = BENEFITS PACKAGE COSTS RELATIVE TO BENEFITS - too frequently the costs/advantages of a particular benefit inclusion are viewed in isolation, without reference to total package costs or forecasts of rising costs in future years - to control spiraling benefits costs, administrators should adopt a broader, cost central approach - first step- this would require a policy decisions on the level of benefit expenditures that are acceptable both in the short and long run - a cost- centered approach would require benefits administration inc ooperation with insurance carriers and armed with published forecasts of anticipated costs for particular benefits, to determine the cost commitments for the existing benefits package - benefits that top the list of employee preferences should be evaluated in relation to current and future costs - because future costs estimates may be difficult to project, it is imperative that benefits administrators reduce uncertainty COMPETITOR OFFERINGS - benefits may be externally equitable - a policy deicison must be made about the position (that is, market lead, market lag, or competitive) that the organization wants to maintain in its absolute level of benefits relative to the competition - one of the best strategies to determine external equity is to conduct a benefits survey - alternatively many consulting organizations, professional associations, and interest groups collect benefits data that can be purchased ROLE OF BENEFITS IN ATTRACTION, RETENTION, AND MOTIVATION - given the rapid growth in benefits and the staggering cost implications, it seems only logical that employers would expect to derive a fair return on this investment - anecdotal evidence that employee benefits are cost-justified o 1. Employee benefits are widely claimed to help in the retention of workers o benefit schedules are specifically designed to favour long term employees o amount of vacation time increases with years of service; and finally employee’s savings plans, profit sharing plans, and stock purchase plans frequently provide for increased participation or benefits as company seniority increases- by tying these benefits to seniority it is assumed that workers will be more reluctant to change jobs - some employees may stay in a job they want to leave, just because the pension plan is so generous - employers must make fundamental changes in the way they approach the benefits planning process - companies must realize that declining satisfaction with benefits is a result of long term changes in the workforce LEGAL REQUIREMENTS - employers obviously want a benefits package that complies with all aspects of law - Vesting: waiting period for entitlement to the employer-paid portion of pension benefits - this is required by Canadian law after no more than two years of employment - there is an increasingly complex web of legislation in the b
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