Transcript Pay for Performance

SESSION 7 - Employees Benefits
Expatriate Compensation
Employees Benefits
p. 1
Reward System
Reward System
SESSION 7 - Employees Benefits
Expatriate Compensation
Job Analysis
Benefits
Job Description
Managing Base
Pay
Jpb Evaluation
Variable Pay
Recruitment
Selection & Hiring
Training & Dev’mt
Career planning
Working
conditions
Long-term
Incentives
Recognition
Awards
Perf. evaluation
HR Planning
p. 2
Definition
SESSION 7 - Employees Benefits
Expatriate Compensation
Employee benefits are that part of the total compensation package, other
than pay for the time worked, provided to employees in whole or part by
employer
e.g.
Life insurance
Pension
Workers’ compensation
Working hours
Vacation
Holidays
...
p. 3
Changes in Benefit Costs over Time
 From 1955 to 1975
SESSION 7 - Employees Benefits
Expatriate Compensation
– Benefit costs rose at a rate almost 4 times greater than
employee wages or the consumer price index
 From 1963 to 1987
– The rate of growth had slowed to 2 times greater than
employee wages
 From 1993 to 1999
– Cost of benefits has stabilized
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The Benefits Picture Today
 Most full-time employees in the
Western World receive
benefits.
SESSION 7 - Employees Benefits
Expatriate Compensation
 Virtually all employers offer
some health insurance
coverage.
 Benefits are a major expense
(about one-third of wages and
salaries) for employers. Could
go up to two-third in some
countries.
p. 5
Benefit Costs Perspective
SESSION 7 - Employees Benefits
Expatriate Compensation
 Even though the cost of benefits is rising more
slowly, some serious issues at the horizon
– Health care costs alone are raising more than 6-8 times the
rate of general inflation in the US and EU
– Pension financed with companies stocks in deep trouble with
the declining stock market
– Growing rate of retirees
p. 6
(US figures)
SESSION 7 - Employees Benefits
Expatriate Compensation
Annual Health Care Cost Increases
Source: Eric Parmenter, “Controlling Health-Care Costs,”
Compensation and Benefits Review, September/ October 2002, p. 44
Figure 13–1
p. 7
Why the Growth in Employee Benefits ?
SESSION 7 - Employees Benefits
Expatriate Compensation
 The Unions played a strong role after 2nd World War
– Some strong unions such as Metal or Steelworkers have set a number of
benefits due to little freedom to raise wages during the War
– Pension plans
– Supplementary unemployment compensation
– Extended vacation plans
 The Employers
–
–
–
–
–
Many of the benefits in existence today were provided at employer initiative
Longer working hours triggered health as well as motivation issues
Management was genuinely concerned for their welfare
Employer had a major play in the social environment
Human capital (labor) was crucial for the main industries until the computer
age (1980)
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Why the Growth in Employee Benefits ?
SESSION 7 - Employees Benefits
Expatriate Compensation
 Government in most countries has played an
important role in the growth of employee benefits
• Mandatory plans mostly found in western world:
– Social Security Coverage
– Workers’ Compensation
– Unemployment Insurances
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Cost Effectiveness of Benefits
SESSION 7 - Employees Benefits
Expatriate Compensation
 Most employee benefits are not taxable
– Provision of a benefit in lieu of pay increase avoids (or at
least defer) taxes for both the employee and the employer
– Due to governmental endless debts, more an more threats of
taxing a number of benefits
 Group based benefits
– Can be obtained at lower rate
– Easy qualification standards
p. 10
Benefit Administration Issues
SESSION 7 - Employees Benefits
Expatriate Compensation
 Four major administration issues in setting up a
benefit package
– Who should be protected?
– How much choice should employees have among an array of
benefits?
– How should benefits be financed?
– Are your benefits legally defensible?
p. 11
SESSION 7 - Employees Benefits
Expatriate Compensation
Who should be protected?

What probationary periods should be used for various types of benefits?

Which dependents of active employees should be covered?

Should retirees (as well as spouses and perhaps other dependents) be covered?

Should survivors or deceased employees (and/or retirees) be covered? If so, for which
benefits?

What coverage, if any, should be extended to disable employees?

What coverage, if any, during layoffs, leaves of absence, strikes, and so forth?

Should coverage be limited to full-time employees?
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Choice Flexibility
SESSION 7 - Employees Benefits
Expatriate Compensation
 Cafeteria style or flexible benefit plan
– Employees permitted great flexibility in choosing the benefit
options of greatest value to them
– Even companies that are not considering a flexible benefit
program are offering greater flexibility and choice, e.g.
– Optional levels of group term life insurance
– Availability of death or disability benefits under pension or
profit-sharing plans
– Choices of covering dependents under group medical
expense coverage
p. 13
SESSION 7 - Employees Benefits
Expatriate Compensation
Administering the Benefits Program
p. 14
SESSION 7 - Employees Benefits
Expatriate Compensation
Flexible Benefits: How Does it Work?
1.
Employer: Your Benefits package is worth £25’000
2.
Employee: Some of it is fixed
25k
14K
3.
Employer: The rest is flexible -how would you like it spent?
25k
4.
Employee: Like this
5.
Employer: OK
25k
11k
p. 15
Flexible Benefit Programs
SESSION 7 - Employees Benefits
Expatriate Compensation
 Advantages
– Employees choose package that best satisfy their unique
needs
– Flexible benefits help firms meet the changing needs of a
changing work force
– Increased involvement of employees and families improves
understanding of benefits
– Flexible plans make introduction of new benefits less costly
– Cost containment: Organization sets spending ceiling;
employee chooses within that constraint
p. 16
Flexible Benefit Programs
SESSION 7 - Employees Benefits
Expatriate Compensation
 Disadvantages
– Employees make bad choice and find themselves not covered
for predictable emergencies
– Young employees might undervalue the need for a decent
retirement plan and neglect contributions to such plan
– Adverse selection: Employees pick only benefits they will use;
the subsequent high-benefits utilization increases its cost
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How should benefits be financed?
SESSION 7 - Employees Benefits
Expatriate Compensation
 Alternatives include :
– Non-contributory (employer pays total costs)
– Contributory (costs are shared between employer and
employee)
– Employee financed (employee pays total costs for some
benefits - by law the organization must bear the cost for
certain benefits)
 Usually benefit options are contributory
– With the cost of benefits rising considerably, employers are
increasingly turning to ways for cutting their costs
p. 18
Are your benefits legally defensible?
SESSION 7 - Employees Benefits
Expatriate Compensation
 Benefits have to comply with hundreds of complex
sections of the tax code and other “devils”.
 Because there are so many rules and regulations,
benefits have to be administrated through a benefit
administrator who is often a certified actuary
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Attraction, Retention, & Motivation
 Employee benefits are widely claimed to help in the retention of
workers as benefits increase with years of service.
SESSION 7 - Employees Benefits
Expatriate Compensation
 Equally, the amount of vacation time increases with years of service.
 Decrease of employee satisfaction over the last 20 years especially
regarding disability, life and health insurance.
– Why: employers shifting costs to employees or reducing coverage to stabilize
expenses
 Increase perception of a company’s caring attitude
– When: introducing day care, elder care, on-site fitness centers,weight loss
program, health program (alcohol and drug treatment programs for
employees), etc…
p. 20
Cost Containment
 Most prevalent practices include:
SESSION 7 - Employees Benefits
Expatriate Compensation
• Probationary period
– Excluding new employees from benefit coverage during
probation period
• Benefit limitations
– Limit disability income payments to a maximum % of income
and to limit medical/dental coverage to s certain fixed amount
• Copay
– Requiring that employees pay a fixed or percentage amount
for coverage
• Administrative cost containment
– Controlling costs through policies such as seeking competitive
bids for program delivery
p. 21
SESSION 7 - Employees Benefits
Expatriate Compensation
Cost Containment Terminology
p. 22
SESSION 7 - Employees Benefits
Expatriate Compensation
US Private-Sector Employer Compensation Costs, June 2003
Source: “Total Employer Costs Rose to 22.61 in Second Quarter,”
BNA Bulletin to Management, September 11, 2003, p. 293
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Types of Employee Benefits
 Pay for time not worked
SESSION 7 - Employees Benefits
Expatriate Compensation
•
Vacations, holidays, unemployment
insurance, sick leave, parental leave,
severance pay, Supplemental
unemployment benefits (lay-offs)
 Insurance benefits
•
Workers compensation, Hospitalization,
health, and disability insurance, HMOs,
PPOs, mental health, COBRA, life insurance,
part-time worker benefits, pregnancy
benefits
 Retirement benefits
•
Social Security, Medicare, 401(k), Employee
stock ownership plans,
 Services
•
Credit unions, Employee assistance
programs
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SESSION 7 - Employees Benefits
Expatriate Compensation
Other Benefits
 On-site or subsidized child
care
 Elder care
 Fitness and medical facilities
 Food services
 Flexible work scheduling
 Telecommuting
 Educational subsidies
 Sabbaticals
 Loan programs for home
office equipment
 Concierge services
 Trauma counseling
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Pension Plan
SESSION 7 - Employees Benefits
Expatriate Compensation
 What is a Pension Plan
– An arrangement between an employer and employee for the
payment of post- employment income, hereafter called
pension benefits
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Types of Pensions Plans
 Defined Benefit Plans
SESSION 7 - Employees Benefits
Expatriate Compensation
– Specifies the benefit workers will get at retirement
– Employer contributes annually an amount into a trust fund
– Guaranteed annuity or lump sum upon retirement
 Defined Contribution Plans
– Specifies the employer’s contribution
– Cannot predetermine the employee’s actual pension benefit
– Contributions are invested and projected benefits are offered
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Types of Pensions Plans
 Defined Benefit Plans
SESSION 7 - Employees Benefits
Expatriate Compensation
• Employer provides a specific pension level defined in terms
of
– Fixed dollar amount or
– Percentage-of-earnings amount that may vary with years of
seniority
• Employer finances this obligation by
– Following an actuarially determined benefits formula and
– Making current payments that will yield the future pension
benefit for a retiring employee
• Determination of benefit levels
– Average earnings at end of tenure (last 3-5 years) or
– Average career earnings or
– Fixed dollar amount not dependent on earnings benefits are
offered
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Types of Pensions Plans
SESSION 7 - Employees Benefits
Expatriate Compensation
 Defined Contribution Plans
• Benefit is defined as the future value of pension fund
contributions made on an employee’s behalf
• Exact value is unknown prior to retirement ;
– depends on future earnings of fund investments
• Benefits are solely a function of accumulated contributions;
– therefore, the term defined contribution
• Value of benefits is variable, dependent on contribution
levels and earnings made on invested contributions
– Example in the US: 401 (k) plan
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Pension Alternatives
SESSION 7 - Employees Benefits
Expatriate Compensation
Defined Benefit Plan
Defined Contribution Plan
1.
Provides an explicit benefit which
is easily communicated
Unknown benefit level is difficult to
communicate
2.
Company absorbs risk associated
with changes in inflation and
interest rates which affect costs
Employees assume these risks
3.
More favorable to long-service
employees
More favorable to short-term
employees
4.
Employer costs unknown
Employer costs known up front
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Pension: Demographic Evolution
SESSION 7 - Employees Benefits
Expatriate Compensation
When Bismarck invented the state pension, with a
retirement age of 65, average life expectancy was
only 45.
Now, in the OECD, life expectancy is 76 and
rising--yet state pensions can still be claimed at 65
or even less.
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Trends Affecting Retirement
SESSION 7 - Employees Benefits
Expatriate Compensation
• The number of people age 65 and older tripled to about 34 million
between 1940 and 1995.
• According to U.S. census projections, people age 65 and older
are expected to number 80 million by 2050.
• In 1960, 45.4 percent of male workers over age 65 were still in the
labor force; in 1990, only 27.4 percent were still working.While the
labor force participation rates of women between ages 55 and 64
have been rising, further increases are not expected.
• Eight baby boomers turn 50 every ten minutes.
• The U.S. net national savings rate was relatively stable at about 7
percent of GDP from 1951 to 1980. It has collapsed since 1980,
most recently dropping to less than 1 percent of GDP. Although to
a lesser extent in Europe, the trend still affect EU countries.
• In 1940, a 65-year-old had a normal life expectancy of 12.7 more
years. Currently, it is about 17 more years.
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Value of Employee Benefits
 Expect benefits as part of their total compensation
SESSION 7 - Employees Benefits
Expatriate Compensation
 Do not understand true value of benefits
 Often undervalue their benefits
 Often take benefits for granted
 Often cannot list all benefits received
 Have preferences regarding types of benefits they want
p. 33
Creating a Relationship Organization
Why would a talented person want to work and stay here?
SESSION 7 - Employees Benefits
Expatriate Compensation
Great Company
Great Job
Great
Manager
Great Comp
& Ben
Your Employment Brand
Sources:
McKinsey: The War for Talent
& Gallup: First Break All The Rules
p. 34