Milkovich/Newman: Compensation, Ninth Edition

Chapter 13
Benefit Options

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
 Ex. 13.2: Categorization
of Employee Benefits
1 Legally required payments

2 Retirement and savings plan payments

3 Life insurance and death benefits

4 Medical and medical-related benefit payments

5 Paid rest periods, coffee breaks, lunch periods, . . .

6 Payments for time not worked

7 Miscellaneous benefit payments

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 Workers’ Compensation
 Form of no-fault insurance
– Employer liable for providing benefits to employees
that result from occupational disabilities or injuries,
regardless of fault
– Disability must be work-related
 Covered by State, not Federal laws
– Employers pay premium to insurance company or
state fund

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Workers’ Compensation: Benefits and
Laws
 Types of benefits:
– Permanent total disability and temporary total
disability
– Permanent partial disability - loss of use of a
body member
– Survivor benefits for fatal injuries
– Medical expenses
– Rehabilitation

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 Social Security(USA)
for Guyana-NIS
 Provides a basic foundation of security for
American workers and their families
 For tax purposes, system is split into two
programs:
– Social Security - 6.2%
– NIS 8.4% of salary (employer) 5.6% employee

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 Unemployment Compensation
Denial of Benefits (review)
 Voluntarily quit without a good cause
 Discharged for misconduct (not incompetence)
 Discharged for fraud
 Failed to seek or accept suitable employment
 Received certain other unemployment benefits (e.g., severance pay)
 Unemployment was caused by labor disputes resulting in work stoppages
(some limited exceptions, distinction between strike and lockout, between
strikers and those involuntarily idled)

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 Defined Benefit Plans
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

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 Defined Benefit Plans (Cont.)
 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

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 Defined Contribution Plans
 Require specific contributions by employer
 Final benefit received by employees is unknown
– Dependent on investment success of plan manager
 Three popular forms of these plans
– 401 (k) plan
 Savings plan in which ees allowed to defer income up to max
amount, commonly matched by Er (e.g., 50 cents on the dollar)
– Employee Stock Ownership Plan (ESOP)
 Ees receive cash at retirement based on value of stock
 Lack of diversification is disadvantage
– Profit sharing
 Can be considered a defined contribution plan if distribution of
profits is delayed until retirement
 Cash balance plans hybrid of defined benefit and
defined contribution plans
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Exhibit. 13.10: Relative Advantages of
Different Pension Alternatives

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 Life Insurance
 One of the most common employee benefits
 87% of medium and large companies offer life
insurance
 Most companies offer term policies
– Value of one to two times an employee’s salary
– Most plan premiums paid completely by employer
– Varying amounts of additional coverage often an option

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 Types of Health Care Systems
Traditional Coverage (73% in 1988, 3% in 2005)
– Community-based system, such as Blue Cross
– Commercial insurance plan
– Self-insurance
Health maintenance organization (HMO)
Preferred provider organization (PPO) (11% in 1988,
61% in 2005)
Point-of-service plan (POS)
– Hybrid combining HMO and PPO elements

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 Controlling Health Care Costs: Three
Strategies
Motivate employees to change their demand for
health care via changes in either design or
administration of policies
Change structure of health care delivery systems
and participate in business coalitions
– HMOs
– PPOs

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 Controlling Health Care Costs: Three
Strategies (cont.)
 Promote preventive health programs
– No-smoking policies
– Healthy food in cafeterias and vending machines

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 Controlling Health Care Costs:
Strategy One
Practices related to design and administration of
health plan
– Increase deductibles

– Change coinsurance rates

– Reduce maximum benefits

– Coordinate benefits with employees and spouses

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Controlling Health Care Costs: Strategy
One (cont.)
– Audit health care charges

– Require preauthorization for visits to facilities

– Require mandatory second opinion for procedures

– Use intranet technology to allow employees access

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 “One Cure for High Health Costs: In-House
Clinics at Companies”
 Others considering building in-house clinics
include Toyota
– Need to have large number of ees concentrated in a
few places to make economic sense
 Also need harmonious relations w/ ees
 Source: Wall Street Journal, 2/11/05

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 Short- and Long-Term Disability
 Workers’ compensation covers disabilities that
are work-related
 Social security (NIS) has provisions for
disability income to those who qualify
 Private sources of disability income:
– Employee salary continuation plans
– Long-term disability plans

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 Miscellaneous Benefits
Paid Time Off
During Working Payment for Time
Hours Not Worked

Child Care

Elder Care

Domestic Partner
Benefits
Legal Insurance
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Questions

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