Assignment 1_HR

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Compensation and Benefits

Chapter Objectives

After reading this chapter, readers will be able to:

• Describe the role that human resources and department managers have in matters of compensation

• Understand the roles of human resources and department managers regarding benefits

• Discuss statutory benefits such as Workers’ Compensation and short-term disability

• Have a better understanding of a manager’s role in the employment process and what occurs behind the scenes in human resources

• Understand human resources’ role in performance appraisals • Be familiar with basic guidelines for managers who become

involved in legal actions • Know about human resources’ involvement in external agency

investigations and how these involve department line managers

■ CHAPTER SUMMARY

Compensation and benefits are two significant human resources (HR) activities. All employees expect their compensation to be fair and expect HR to collect information related to compensation in a regular and sys- tematic manner. Managers should be familiar with compensation scales for their employees. Exchanging pay scale information with professional colleagues in different organizations is essentially illegal.

Next after their pay, most employees are vitally interested in their ben- efits. Benefits fall into two broad categories: those that are mandated by law, and those that are voluntarily offered by the employer. Organizational

C H A P T E R

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policies surrounding benefits have been changing. Currently many organi- zations are changing from defined benefit to defined contribution pension plans, and organizations that for years have offered the same benefits to all are adopting flexible or “cafeteria” plans that allow a range of employee choices. Statutory benefits include Workers’ Compensation, unemploy- ment compensation and insurance, and disability insurance. Government agencies investigating claims may involve an organization’s employees, and inquiries from external agencies should be referred to HR.

Case Study: First Impressions Can Be Wrong

Ben Baldwin, CEO of the Westside Health Consortium, summoned Rob Jameson, vice president for Human Resources, and Pat Collier, chief financial officer, to his office.

He told them, “Rob, I agree with your suggestion to change the structure of our benefits package. Pat has supplied financial data to support your suggestion. The costs for benefits continue to rise, with no end in sight. I am asking both of you to work together to develop options for a new plan to replace our existing approach that gives all employees the same benefits. I know that individual and family needs change with time. Westside must institute changes to control costs as well as to attract and retain skilled employees.”

What steps should Rob and Pat take? What suggestions would you of- fer to them at this point in time? Why? Should Ben provide any additional guidance? If so, what information should he give? Why?

■ INTRODUCTION

Not all of the activities of HR are visible to department managers. Many of the activities discussed in this chapter are hidden in the sense that they occur within HR and elsewhere and are rarely the responsibility of a de- partment manager. Compensation and benefits are matters of concern for most employees. This chapter is intended to provide a basic understanding of compensation and benefits.

■ COMPENSATION

One of HR’s primary responsibilities is to maintain an organization’s com- pensation structure. Human resources ordinarily strives to remain current and competitive with compensation levels in the healthcare industry and the local labor market. On a predetermined basis, usually annually, HR is expected to make recommendations for changes in compensation. These recommendations are usually reviewed by an organization’s board of direc- tors before being implemented.

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Annual compensation recommendations often include suggestions related to the timing of changes and the rationale for the suggested dis- tribution of increases. Recommendations usually include the basis for the changes being proposed. These are typically related to prevailing industry or area compensation practices. Proposed wage increases may include all employees, often referred to as cost-of-living adjustments, or they may be restricted to employees in specific professional groups.

Knowing the Compensation System Supervisors and department managers are usually the first persons to receive questions regarding compensation and benefits from their employees. To respond adequately to such inquiries, a department manager should be knowledgeable about how pay increases are related to performance and the general level of performance required for receiving merit-based increases. A supervisor should know the differences between merit pay increases and increases provided through pay-scale changes, also sometimes referred to as cost-of-living increases. A manager should know when merit increases or scale increases can usually be expected to occur and how and when other types of pay increases, such as probationary increases, are granted.

A manager should be familiar with current pay scales for all positions in the department, and should maintain current pay scale data on file for reference. When pay scales are changed, HR usually supplies up-to-date published pay scales to department managers. Current pay-scale informa- tion is needed when addressing particular employee questions, but the dis- semination of this information should be selective, based on an individual’s need or right to know.

Strategic planning figures prominently in compensation administration. Organizations must make decisions about the nature and extent of the com- pensation and benefits that they will offer to their employees. Will they de- cide to pay their employees at the regional median, similar to others in their region? Some consciously decide to pay less than the prevailing wage; they know that they will be saving some money but will be accepting a higher than normal degree of employee turnover as a consequence of their decision. Others decide to pay at a rate or level greater than that of other organiza- tions, accepting the higher wage costs in exchange for more highly skilled or reliable employees and a lower than usual level of employee turnover.

Organizations must make similar deliberate decisions concerning ben- efits. Will their benefits package be similar to or different from the packages of other organizations? A common question reflects the nature of the local pool of prospective employees and the extent to which they will have to compete for employees.

Yet another strategic decision reflects the nature of benefits that will be offered. Traditionally, organizations have offered all employees a simi- lar package of benefits that typically differs only in reflection of years of

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service. Many contemporary organizations are making strategic decisions to allow individuals to select benefits from a menu of options. Such an ap- proach is referred to as a flexible benefits plan or a cafeteria benefits plan, under which employees are allotted a certain amount of benefits credits to distribute as they see fit among available benefits. Employees appreciate being able to select options that are relevant to them, and organizations are able to better contain their benefit expenses.

Historically, benefits were paid to provide incentives for individuals to choose one organization over another. After employment began, benefits provided incentives to continue employment. Thus, companies were able to attract and retain desired employees. Funding for benefits reflects a financial commitment by employers. The ability to pay for benefits must be periodically reviewed as budgets are developed, as new employees are hired, and as collective bargaining agreements are negotiated.

Organizations maintain a mix of employees at differing wage levels. The variety and extent of benefits that are offered broadly reflect the wage mix of an organization. Phrased differently, benefits are usually propor- tionate to wages. Some benefits are mandated; Workers’ Compensation and unemployment insurance are common examples. All benefits other than those required by law are provided at the discretion of the employer.

Individual employees have the right to know the hourly rate minimum and maximums for their pay scales as well as their own actual rates of pay. However, individual employees are not entitled to know other employees’ pay scales or any other individual employee’s rate of pay. Department managers have the responsibility to safeguard this aspect of employee privacy. A man- ager can exercise no control over those occasional employees who voluntarily share their pay information with one another, although this practice should be discouraged when the manager has the opportunity to do so.

When Compensation Challenges Arise A department manager is often the initial target when employees challenge the compensation system. Some individuals challenge the equity of their own rates of pay; they compare their pay with that of others who have similar positions. The perceived similarity may be based on occupation, job title, or another means of comparison. A typical claim is that they are underpaid for performing the same or comparable work. Their information is often secondhand, inaccurate, or outdated.

A department manager should recognize several responsibilities related to possible pay inequities. First, a manager should know enough about the pay level for each person being supervised to recognize pay inequities within the group when or before they surface. In a relatively small group, substantial pay inequities are uncommon. A manager who has a small group of employees should be well aware of how these people stack up against each other in terms of pay. In a larger department, the cumulative effects of several years of hiring at differing levels as well as merit and probationary

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and annual pay increases may mask inequity until an employee raises the issue. When this occurs, the manager should do some preliminary research concerning the inequity. If warranted, the problem should be referred to HR for further analysis and a recommendation for change or correction.

A manager’s other responsibility related to alleged pay inequities is to work with HR when the challenges involve claims of underpayment in comparison with what persons of comparable skills are supposedly receiving at other local facilities. Employees will sometimes approach the department manager with such challenges looking for the manager’s sup- port and advocacy. They want the manager to champion their cause and seek to have one or more pay scales increased and corresponding pay raises granted for individuals. Such claims must be addressed with care; in some instances individuals have offered “proof” of higher wages paid by local competition by producing actual paycheck stubs bearing hourly rates clearly more generous than what their home organization is paying. However, investigation usually reveals that these more generous payments are the rates paid to per diem employees who receive a higher amount per hour for limited hours because they receive no benefits.

Although conscientious and caring managers are probably inclined to be advocates for their employees, claims of pay inequity relative to other organizations should always be referred to HR. This action should be taken before agreeing to take on any employee’s cause. Assessing such claims of inequity requires detailed information about wages paid in the immediate area. There are legal and practical restrictions on how such information may be obtained. It is no longer safe to do as many HR departments once did and simply survey wage rates around one’s local area to obtain infor- mation that might help in adjusting rates for equity and competitiveness.

In the early 1990s, the United States Justice Department put a stop to the direct sharing of wage and salary information. As part of a consent decree involving the settlement of a civil antitrust complaint, the Justice Department laid down some rules for surveying rates of pay, specifically:

• Surveys must be designed, conducted, and published without the involvement of participating organizations (accomplished, for example, by a hospital association or neutral third party).

• Surveys can include only historical or current pay information (that is, they cannot ask for intended increases).

• Surveys cannot request actual pay rates, only ranges and averages for specific job titles.

• Surveys must disseminate data of 10 or more organizations if current information is involved, or five or more if the data are more than three months old.

• No one organization’s data may represent more than 25% of the weighted value of any statistic (this way, the data from one large facility cannot dominate the results).

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• Data must be presented in such a manner that no individual participating organization can be identified.

Data from McCareins, R. Mark, Information Exchanges in the Health Care Field, Winston & Strawn LP: January 1994.

Managers should never give in to the temptation to conduct a personal wage survey by calling on contacts or colleagues throughout the community to determine what other organizations are paying for the specific kinds of skills in question. Since the early 1990s, the free exchange of wage informa- tion has been legally regarded as price fixing under antitrust regulations. The Justice Department eventually decided that not-for-profit healthcare organizations should be held to the same standards as other industries. Therefore, department managers who solicit or exchange wage information with colleagues at other institutions are technically engaging in an illegal activity. Rather than attempting to verify the validity of employees’ claims of wage inequity relative to other organizations, a department manager should take the issue to HR to conduct the appropriate investigation.

Wage surveys are permitted, but only when conducted according to established guidelines. They must be done by a third-party organization, such as a membership association of hospitals or other providers. Further, they must include a sufficient number of organizations surveyed and have their data arranged in such a way that no participating institutions can be readily identified. Generally, five or six organizations are enough for an appropriate survey, provided that none can be readily identified. For example, a survey cannot have separate categories for “university medical centers” or “hospitals of 100 to 200 beds” if only one of each is included in the survey’s sample or area of coverage.

Interviewing Prospective Employees The department manager is expected to be conversant with all pay scales used in the department. Thus, in most organizations a manager may cite the appropriate pay range for a job during an interview. However, a manager should not make a specific financial offer during an interview. Having made a decision to offer a position to a particular applicant, the manager should collaborate with the HR recruiter to determine the starting pay that will be offered. The official offer will flow from HR to the applicant.

There are several reasons for making formal offers only through HR. First, all offers of employment are conditional pending successful refer- ence checks, passing a pre-employment physical examination and passing any drug or substance screening tests that are in use by the hiring orga- nization. Second, it is the responsibility of the HR department to protect an organization’s compensation system against inequities. This can best be accomplished if all offers emanate from a single office. Third, some organizational policies for determining starting pay offers may state, for example, that people with a given amount of experience may be offered a

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starting pay at a specified percentage of the pay grade. This is also most easily controlled if all offers emanate from a single point.

A department manager should have a voice in recommending starting pay if there is any flexibility in so doing. This input should be made in conjunction with HR, remembering that HR always extends the formal offer of employment.

■ BENEFITS

A department manager should have basic benefits information available for employees. At a minimum, this should include information in the personnel policy and procedure manual and the employee handbook. No matter how strongly employees are urged to become familiar with their benefits, many of them show no interest in doing so until a specific need arises. When a specific need does arise, they do not read about the benefit. Rather, they choose to ask a person, usually their department manager or someone in HR. This is espe- cially true concerning health and dental insurance benefits, about which many employees remain nearly completely ignorant until a specific need emerges.

Department managers are not expected to be experts in the interpretation of employee benefits. However, managers should be sufficiently conversant with the benefits structure to answer simple questions and to know the appropriate person in HR to refer employees for inquiries about benefits. Some areas of employee benefits can become complex. For example, a large hospital may carry five or six different health insurance plans, each having hundreds of details. Questions about them are best addressed by a person who is qualified and knowledgeable about the different plans.

Flexible Benefits Plans Flexible benefits plans proliferated through the 1980s and 1990s. They are commonly referred to as cafeteria plans, and their use recognizes that the majority of workers prefer to have some control over their benefits. The array of options available is often a consideration for an applicant in determining whether to accept a position with a particular employer.

The three benefits most preferred by the majority of employees, in order of their preference, are health insurance, a pension plan, and paid vacation. Despite the fact that these have formed the core of most organizational benefit plans, they are not of equal importance to everyone.

Employee benefits are available in many different forms and variations. This variety is useful when not all employees want or need the same benefits. Even pension benefits, which will ultimately be a concern for everyone, are not a consistent choice for all employees at all times. Younger employees often pay less attention to pension plans than do older workers. Younger employees prefer to have cash or additional paid vacation time. Older workers tend to prefer pension benefits. Choices were introduced into

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benefits programs as employers endeavored to stretch benefits budgets as much as possible while giving employees options for the benefits that they perceived were most needed. Flexibility and choice will be increasingly important features of benefits programs in the future.

Flexible benefits plans have proven their appeal to many employees. An increasing number of employers are offering plans that are either entirely flexible or partly flexible around a small number of core benefits. Programs that allow an employee to waive medical coverage after establishing that coverage is provided by other means—for example, through a working spouse’s medical insurance plan—and applying the value of that benefit elsewhere have been especially successful. Plans that permit buying or sell- ing some vacation time by trading it off for other benefits are quite popular.

A logical progression beyond flexible benefits is the use of benefits vouch- ers. These provide employees with the equivalent of a set amount of money to apply outside of an organization as they choose. Stated differently, such a plan allows employees to spend an organization’s contribution toward their benefits on whatever is most meaningful to them. Vouchers have proven to be especially advantageous to some employees during layoffs and downsizing. Many employer-furnished benefits end when employment is terminated, but benefits secured externally with vouchers are purchased for a fixed period of time and do not necessarily end when employment ceases.

Another emerging trend is the use of voluntary benefits. This approach allows employees to purchase specified insurance coverage and financial products for savings and retirement at their place of employment. Voluntary benefits have been used in work organizations for many years in the form of supplemental insurance programs. The concept appears to be spreading to include some products or options formerly regarded as core benefits.

Portable benefits are becoming more common in benefits administration. This concept has been advanced by many as the solution to maintaining ben- efits for workers in a mobile society. It recognizes that individuals may work for several different organizations during the course of a normal career and therefore may be best served by benefit products that can move with them. Defined benefit pension plans are being replaced by defined contribution plans. Because defined contribution plans limit liability exposure, they result in savings for employers. They also allow organizations that formerly offered defined benefit plans to escape the hassle of government reporting, avoid annual funding of plans, and get out from under the constantly increasing premiums charged by the Pension Benefit Guarantee Corporation (PBGC). Commonly defined contribution products include 401(k) plans for invest- ments and savings and 403(b) plans for tax-deferred annuities. Individuals who have either plan can transfer the funds to subsequent employers.

The Health Insurance Portability and Accountability Act (HIPAA) addresses an aspect of benefits portability by providing for continuity of coverage when workers change employers.

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Some experts have predicted that the ultimate development in benefits administration is to offer no benefits at all other than those required by law, such as those required by the Federal Insurance Contributions Act (FICA—that is, Social Security), Workers’ Compensation coverage, and unemployment insurance. Employers will simply pay their employees the value of the organization’s benefits contribution as a part of their salary and allow them to spend the money as they choose. This is in conflict with the direction and philosophy established by the government in employment legislation that encourages employers to assume greater social responsibility for their employees. Many workers in the lower tiers of the economy currently receive no benefits other than those required by law. The government has been trying to address and improve the situation of these people, especially with regard to health insurance.

Statutory Benefits Statutory benefits programs exist by virtue of legal requirements. These pro- grams are usually administered by HR. Foremost among these are Workers’ Compensation and unemployment compensation in all states. A number of states also have a legal requirement for short-term disability compensation. Human resources usually coordinates these programs, although there are implications for a department manager.

Workers’ Compensation laws are in effect in all 50 states, American Samoa, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands. Including both medical benefits and compensation for lost income, billions of dollars in Workers’ Compensation benefits are paid to American employees every year.

The medical benefits paid under Workers’ Compensation laws gener- ally equal full actual medical expenses. The amount of benefits paid for lost wages varies considerably from state to state. Nationwide, the most common benefit paid amounts to two-thirds of wages up to a specified maximum. Most states place limits on both maximum and minimum weekly benefits, the total number of weeks that benefits can be received, and the total dollar amount of benefit eligibility. Most states also provide lifetime payment for permanent disability. Some states pay additional amounts for dependents, rehabilitation services, and other benefits.

Department supervisors cannot exert much influence over Workers’ Compensation costs, because managers are members of a group of people in an organization who have separate but not well-defined roles in controlling Workers’ Compensation costs. The best approach to controlling such costs is to have an effective accident prevention program. Here, a manager’s role is to be constantly aware of the requirements of the program and ensure that all employees observe those requirements. Specifically, it is up to managers to ensure that employees are thoroughly educated in safe work practices, including, in the healthcare setting, safe handling of needles and other sharp

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objects and safe lifting techniques. Puncture wounds have always been a concern in health care, and back strain resulting from improper lifting remains one of the most common on-the-job injuries experienced by health- care personnel. Managers must enforce compliance with organizational safety procedures that have been mandated by governmental entities. They must also ensure that their employees are trained and appropriately use all required safety equipment as they perform their jobs.

When pursuing an effective accident prevention program, a manager is clearly responsible for encouraging a high level of consciousness about the need for safety among employees. Managers must discipline their employees for unsafe practices. Ignoring a safety procedure is no different from violating any other work rule or policy. Violators must be appropriately counseled. Continued violations must be handled through progressive discipline.

A department manager should assist HR in monitoring Workers’ Compensation claims and challenging those that appear to be inappropri- ate. To monitor claims properly, a manager must be thorough and timely in providing all documentation that may have a bearing on a claim. This includes all necessary incident and accident reports. These should be pro- vided as soon after the fact as possible. They must be clear and detailed.

Questions arise about whether a particular injury occurred during work- ing time or on an organization’s property. It may be necessary to determine whether Workers’ Compensation is appropriate or whether the case should be processed as a short-term disability resulting from an off-the-job occur- rence. Employees may report off-the-job accidents as occurring on the job, especially in states and organizations that lack a short-term disability benefit or where Workers’ Compensation benefits are more generous than short- term disability benefits. After an injured employee’s personal physician, the employee’s supervisor is often the next most important person in determining whether a given occurrence legitimately falls under Workers’ Compensation.

Unemployment Compensation The Social Security Act of 1935 made the individual states responsible for their own unemployment compensation insurance programs. A federal tax was imposed on employers, but most of this tax could be offset by state taxes. All programs were to be controlled at the state level.

Unemployment insurance programs are in effect in all 50 states, the District of Columbia, and Puerto Rico. These programs are continually undergoing change. The majority of these changes lead to increased benefits for employees and increased costs for employers.

Although differences exist throughout the country, employers are gener- ally subject to experience rating. This means that they are taxed according to their past records. An employer that decreases its unemployment claims by employees will also decrease its unemployment tax costs. The majority of

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business organizations, and virtually all profit-making businesses, are taxed directly using experience-based rates established by each state. In a number of states, not-for-profit organizations, including most healthcare organiza- tions, pay for their unemployment on a dollar-for-dollar basis rather than paying a tax based on a percentage of their payroll. This means that such organizations pay their actual unemployment costs as they are incurred.

Because unemployment compensation is intended to make up for wages lost due to periods of unemployment beyond an employee’s control, unemployment compensation is not ordinarily made available to people who voluntarily resign their employment or who are discharged for cause. Rather, unemployment compensation is intended primarily for employees who are laid off through no fault of their own or who otherwise find that their services are no longer required. Individuals who have been dismissed because of their apparent inability to meet the requirements of their positions generally qualify for unemployment compensation. In a few states, employees who are on strike can receive unemployment compensation after a specified waiting period, usually six or more weeks from the start of the strike.

To the extent that it is possible for a department manager to influence some forms of employee turnover, a supervisor can have an effect on an organization’s unemployment compensation costs. Care and thoroughness in hiring will help limit the likelihood of acquiring an employee who may turn out to be unable to succeed on the job. It is not possible to refine the hiring process to the point where the right choices will always be made. Nevertheless, if a manager sticks to minimum education and experience requirements and does not rush a decision based on insufficient information or an insufficient number of candidates, it is often possible to minimize or avoid performance problems before they begin. This also minimizes potential unemployment costs.

A manager should scrupulously follow all of an organization’s poli- cies regarding hiring, orientation, disciplinary action, and applicable legal processes. Disciplinary actions, especially those taken in a series that could eventually result in termination, are especially important. All such actions must be thoroughly documented and should be taken strictly in accordance with policy and Equal Employment Opportunity guidelines. It is frequently necessary to use records of disciplinary actions to refute nonlegitimate claims for unemployment compensation. Because the primary purpose of disciplinary action is the correction of behavior, it is often necessary to produce documentation of a series of related actions to demonstrate that an employee had the opportunity to correct errant behavior but failed to do so.

A manager should remove a substandard performer during the proba- tionary period. An organization’s probationary period may be too short to be able to make a definite decision concerning an individual’s ability, especially in the case of a marginal employee. However, the probationary period is usually sufficient to give a manager a fairly clear indication of

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an employee’s potential. Separation for reasons related to performance is usually easier to justify if it occurs during a probationary period. Because unemployment costs are related to the length of time an employee has worked for an organization, separation by the end of the probationary period serves to hold costs down.

Working in conjunction with HR, a manager should challenge all unem- ployment claims that appear inappropriate. Many people automatically file for unemployment regardless of why or how they left their positions. They have nothing to lose by trying to collect benefits. Many former employees will state their reasons for termination clearly in their favor. The former employer then has the responsibility to dispute such claims to avoid unem- ployment costs. If a claim goes undisputed, then a former employee, deserv- ing or not, will automatically collect unemployment compensation. Thus, every effort should be made to dispute claims that appear inappropriate.

A manager should consider the use of temporary help when it will be needed for only a short period of time. Hiring a regular employee to cover a given need and then laying the person off when the need has passed increases unemployment costs. Using temporary help for particular tasks or for brief periods of time will avoid such costs. In most parts of the country, 26 weeks of work are required for an employee to become eligible for unemployment benefits. Thus, any need that is less than six months long and can be met by using temporary help will reduce an organization’s unemployment costs.

Short-Term Disability Unlike Workers’ Compensation and unemployment compensation, which are statutory requirements throughout the country, short-term disability is not a universal legal requirement. But if one’s state requires short-term disability coverage, this becomes another cost-control concern for the department manager.

The premium for disability insurance is linked to usage. Technically, this is called an experience rating. The claims actually paid in a given year are reflected in the subsequent year’s premium rates. Therefore, most organizations pay dollar-for-dollar. They eventually pay the total actual costs for all claims plus administrative expenses.

The single action that can have the greatest impact on an organization’s overall disability costs is a corporate decision to become self-insured. Such a policy is typically coupled with a comprehensive employee health and safety program. At the level of an individual department, a manager can pass along information to employees concerning personal health and safety in general and particular hazards or illnesses that are germane to an orga- nization. Supervisors should urge employees to take advantage of annual physical examinations or health assessments and should always be prepared to refer employees to the employee health office when questions arise or problems become apparent. Finally, managers should scrupulously fulfill

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all departmental responsibilities related to disability procedures by ensuring that all necessary forms are completed and submitted in a timely fashion.

Legal Actions From a department manager’s perspective, involvement in a legal action may take the form of brief periods of extremely intense and demanding activity, interspersed with lengthy stretches characterized by little or no visible activity. A department manager who may become involved in a legal action against the organization must be patient. Attorneys’ schedules, court calendars, and official waiting times all extend the time that is required to resolve legal actions. There is little point in allowing the suspense of a situation to impact the routines of employees when the timing of events lies well beyond their control.

Supervisors must accept the normal sequence of events. During long quiet periods, nothing may seem to occur. Many activities such as motions, depositions of various individuals, and settlement conferences that do not involve a manager may be transpiring. Managers should simply accept the apparently slow pace of resolution. Managers should not be overly concerned about being called for deposition or trial testimony. Expert preparation and support will be provided.

Individuals who are named in a suit or summoned in a case must appear in court. Because there is no way to avoid such an appearance, worrying about doing so is a waste of time and energy. Resigning one’s employment will not remove the legal obligation. When completing any form, a manager should offer only what is necessary and always do so objectively and with- out personal bias or name-calling. The manager should complete all forms, being attentive to dates and signatures. Managers should remain sensitive to the implications of a case in their day-to-day dealings with employees. Words as well as actions have the potential to create problems. In response to direct questioning, managers should not discuss an open case with oth- ers in the organization except for those few who are actively managing the organization’s involvement. Smart managers avoid the temptation to make predictions concerning the eventual outcome.

External Agency Investigations Human resources staff members often spend a considerable amount of time interacting with representatives of different government agencies. Following is an overview of the agencies commonly encountered by an organization.

Equal Employment Opportunity Commission (EEOC) and the State Division of Human Rights (DHR) These two agencies address allegations of employment discrimination. Filing a complaint with one is essentially filing with both of them. In many states a complaint reaching EEOC first is automatically referred to DHR for

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initial processing. The initial point of contact for both agencies is usually human resources. HR typically gathers the requested information and re- sponds formally to a complaint. The manager of a complaining employee’s department will often be contacted for information to help in developing the organization’s response. That manager is likely to be interviewed dur- ing investigation of the complaint.

Occupational Safety and Health Administration (OSHA) Using no particular schedule or set frequency, this agency may send rep- resentatives to perform routine surveys of safety practices or to investi- gate specific complaints or allegations of unsafe practices that have been received. Human resources is often an organization’s point of contact. The initial contact may be a particular administrator, a risk manager, or a safety manager. Engineering may also be involved because many safety issues or violations involve the physical plant. The manager of a depart- ment where a potential unsafe practice is observed or alleged can expect to become involved.

State Employment Service Human resources is heavily involved in every claim for unemployment compensation. Since an employee’s level of compensation is based on in- come, information about earnings must be provided. Human resources must supply the reason for termination and must indicate whether or not the claim will be protested. A protested claim usually results in a hearing before an administrative law judge. A hearing usually involves the former employee’s immediate supervisor as well as an HR representative.

Immigration and Customs Enforcement (ICE) Under the provisions of the Homeland Security Act of 2002, the Immigration and Naturalization Service (INS) was dismantled in 2003 and separated into three components: the U.S. Citizenship and Immigration Service (USCIS), Immigration and Customs Enforcement (ICE), and Customs and Border Protection (CBP). Completed Employee Eligibility Verification I-9 Forms verifying individuals’ status as legally employable in the United States and retained in employees’ personnel files are subject to inspection and audit by ICE. Forms may also be inspected by the Department of Labor and certain immigration-related branches of the Department of Homeland Security other than ICE. Financial penalties are imposed for missing or incomplete I-9s. Also, there can be significant legal repercussions should illegal aliens be discovered in the workforce. Usually the department manager will have no involvement in an I-9 audit, except perhaps as the channel for an I-9 related question from HR to an employee.

Department of Labor (DOL) The Department of Labor monitors compliance with wage-and-hour laws. Since both states and the federal government have wage-and-hour laws, an

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organization may be visited by either state or federal DOL representatives. Their interest may be a routine audit of selected wage payment practices. Overtime payments are often the subjects of investigation. The DOL also investigates employment practices such as compliance with child labor laws. DOL investigators occasionally investigate irregularities in wage payments. The primary points of contact in such investigations are usually human resources and payroll departments. Department managers can become involved in providing information to determine whether an employee is properly classified as exempt or nonexempt, or whether time worked has been appropriately reported.

Few people look forward to an investigation by an external agency. However, such contacts are inevitable. Most human resources depart- ments regard external agency inquiries as opportunities to review selected practices for possible violations and determine how these practices can be improved. Even though an external investigator may appear to be unnec- essarily forceful, nothing is accomplished when HR personnel or others respond by being defensive or uncooperative.

A considerable part of human resources’ role regarding external agen- cies is knowing the law as well as an agency’s guidelines and procedures. When internally investigating a specific complaint, HR should first deter- mine whether it is valid. If it is, HR can recommend corrective action in addition to formulating the organization’s response to an external agency. There is no gain in resisting a complaint if an organization appears to be in the wrong. However, HR professionals are usually well aware that an external investigator who is acting on an individual’s complaint has heard only one side of the story. Unless the particular complaint to be addressed is a discrimination charge from EEOC or DHR that cannot be disposed of at an early stage, human resources is usually able to keep a department manager’s involvement with external agency representatives to a minimum.

■ CONCLUSION

Compensation and benefits are important aspects of employment for most people. Compensation information is coordinated by HR. Benefits policies are changing. Organizations are trying to reduce expenses associated with benefits. Flexible benefit plans have evolved as organizations try to provide meaningful and relevant benefits to employees with a wide range of ages and interests. Rather than simply paying for a standard benefits plan for all, organizations are allowing individuals to make their own decisions regarding benefits. Benefit programs are usually administered by an HR department. Workers’ Compensation, unemployment compensation, and insurance and disability insurance are required by law. All other benefits are offered at the discretion of an employing organization.

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Case Study Resolution

Returning to the initial case study, Ben should either provide a general dollar amount to offer to each Westside employee or instruct Pat to de- velop such an amount. Rob and Pat should contact other organizations in the area that compete for employees to ascertain what components their benefits packages include. They should consider obtaining the opinions of a sample of Westside employees as to the desirability of the benefits under consideration. Once the fundamental questions of dollar amount and plan elements are addressed, Rob and Pat can develop a plan for Ben to consider. Based on employees’ years of service and relative position within the organization, the plan should define the dollar amounts Westside will provide for its employees and the options from which they can choose for their benefits. Because they are thorough, Rob and Pat should develop a range of options for Ben to review. Ultimately, Westside’s board of direc- tors will have to approve the proposed changes in benefits.

SPOTLIGHT ON CUSTOMER SERVICE

Customer Service, Compensation, and Benefits

Customer service, compensation, and benefits are fundamentally linked by virtue of the fact that an organization must earn revenues in order to be able to pay its employees. Customer service, if regularly practiced by all employees, usually improves on organization’s chances of not only staying in business but also prospering and expanding. Conversely, ignoring customer service may be an attractive option to persons seeking shortcuts. Such individuals are probably surprised when layoff notices are distributed to employees or an organization fails.

The bottom line in this thought process is to think of customer service as a form of insurance. Providing good customer service on a regular basis is an inexpensive form of insurance premium.

Discussion Points

1. What is meant by the term statutory benefits? Provide several examples. 2. Why should a department manager be thoroughly familiar with pay

scales appropriate to department personnel but refrain from making specific pay offers to potential employees?

3. How should a supervisor reply to a male employee who complains that he is being paid less than another individual who is doing the same work?

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How should a supervisor reply to a female employee making the same complaint about a male colleague? Are the responses different? Why?

4. Why should a department manager avoid comparing employee pay scales with those of other organizations?

5. An employee asks, “What is the difference between a defined benefit pension plan and a defined contribution plan?” How would you re- spond to such a question?

6. Why is interest in portable benefits in health care increasing? 7. In your opinion, what should be a department manager’s primary role

in attempting to control Workers’ Compensation costs? 8. Managers disagree whether a particular instance of time lost due to

injury or illness should be considered under Workers’ Compensation (job-related) or short-term disability (not job-related). Knowing that an employer ultimately pays for both, why is this distinction important?

9. What role should a department manager have in controlling the cost of unemployment compensation?

10. How should managers react if representatives of an external regulatory organization arrive at their departments to audit their activities?

Resources

Books Baker, A. J., Logue, D., & Rader, J. S. (2004). Managing pension and retirement

plans: A guide for employers, administrators, and other fiduciaries. New York: Oxford University Press.

Beam, B. T. (2004). Employee benefits. Chicago, IL: Dearborn Real Estate Education.

Bowey, A. M., & Lupton, L. (2005). Managing salary and wage systems (3rd ed.). London: Ashgate.

Boyett, J. H., & Boyett, J. T. (2004). Skill-based pay design manual. Lincoln, NE: iUniverse.

Bragg, S. (2005). Payroll best practices. New York: John Wiley. Ellison, R., & Jones, G. (2005). Dealing with pensions: The practical impact of

the Pensions Act 2004 on mergers, acquisitions and insolvencies. London: Spiramus.

Fornero, E., & Sestito, P. (2005). Pension systems: Beyond mandatory retirement. London: Edward Elgar.

Henderson, S. (2005). Compensation management in a knowledge-based world (10th ed.). Upper Saddle River, NJ: Prentice Hall.

MacIntyre, A., & Bodmer, B. A. (2004). Executive compensation: A study of corpo- rate excess. Salt Lake City, UT: American Book Publishing Group.

Rosenbloom, J. S. (2005). Handbook of employee benefits (6th ed.). New York: McGraw-Hill.

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Society for Human Resource Management. (2005). SHRM benefits survey report 2004: A study by the Society for Human Resource Management and the SHRM Foundation. Alexandria, VA: Society for Human Resource Management.

Periodicals Baird, M. (2004). Orientations to paid maternity leave: Understanding the

Australian debate. Journal of Industrial Relations, 46(3), 259–274. Clark, I. (2001). Strategic HRM and a budgetary control mechanism in the large

corporation. Critical Perspectives on Accounting, 12, 797–815. Gornick, M. E., & Blair, B. R. (2004). Employee assistance, work–life effectiveness,

and health and productivity: A conceptual framework for integration. Journal of Workplace Behavioral Health, 20(1–2), 1–29.

Ichniowski, C., Shaw, K., & Prennushi, G. (1997). The effects of human resource management practices on productivity. American Economic Review, 86, 291–313.

Michie, J., & Sheehan, M. (2005). Business strategy, human resources, labour market flexibility and competitive advantage. International Journal of Human Resources Management, 16(3), 445–464.

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