Assigment For Researcher_D
lammoralesBenefits, Nonfinancial Compensation, and Other Compensation Issues
Chapter Objectives
After completing this chapter, students should be able to:
1. Define benefits.
2. Describe mandated (legally required) benefits.
3. Explain the various discretionary benefits.
4. Describe customized benefit plans.
5. Explain premium pay.
6. Explain health care legislation.
7. Describe the components of nonfinancial compensation.
8. Describe the job itself as a nonfinancial compensation factor and job characteristics theory.
9. Describe the job environment as a nonfinancial compensation factor.
10. Describe workplace flexibility (work-life balance) factors.
11. Describe the concepts of severance pay, comparable worth, pay secrecy, and pay compression.
HRM in Action: Nontraditional Benefits
Regardless of economic conditions, it seems organizations are continually competing for top caliber employees. Although benefits may not serve as strong motivators of performance, they are obviously important in attracting and retaining these desired individuals. Among numerous unique benefits offered by some firms are the following:
· Lake Zurich–based New Age Transportation, Distribution and Warehousing Inc., handed out pedometers and promised to pay a dollar for every mile employees walked, plus more for losing weight. One employee received a check for $1,200. 1
· Chicago branding agency Bamboo Worldwide Inc., gives employees working vacation days, when they can be out of the office but must check e-mail and voice mail twice during the day. 2
· At Goldman Sachs, employees get 52 hours of paid volunteer time each year.
· At Fannie Mae, employees receive a healthy-living day off and a day of home-purchase leave.
· At Starbucks, even part-timers get health insurance, stock options, and tuition reimbursement as well as a free pound of coffee weekly.
· At AFLAC, the firm’s 32-acre campus has a YMCA fitness center, acute-care clinic, walking trails, child-care center, and a duck pond. Twelve weeks of paid maternity/paternity leave are available for eligible staff.
· At Colgate-Palmolive, new parents get a three-week paid leave on top of regular disability time off. On-site banking, a travel agent, and a film-processing center make errands easier and intramural sports leagues contribute to the fun.
· At Ernst & Young, the company provides a concierge service. 3
· At Communicorp, in Columbus, Georgia, the company has two on-site child-care centers offering infant care, kindergarten programs, after-school programs, and evening services on Saturdays. 4
· At SRP in Arizona, the nation’s third-largest public power and water utility, the company offers its employees identity theft services to educate them about protecting their identity and help them restore their identity and credit after a theft. SRP recently began offering services to its 4,500 employees after noticing workers were contacting its security services weekly for help in dealing with stolen credit cards and lost wallets. Identity theft services cut down on lost productivity and gave employees peace of mind. 5
This chapter begins by describing some nontraditional benefits, and benefits as indirect financial compensation. A discussion of mandated and voluntary benefits follows. Topics related to health care, life insurance, retirement plans, disability protection, employee stock option plans, supplemental unemployment benefits, and employee services are then discussed. Premium pay and legislation concerning benefits are presented next, and the factors involved in nonfinancial compensation are then described. Topics related to the job itself as a total compensation factor, job characteristics theory, and the job environment as a total compensation factor are then presented, followed by a discussion of factors that are involved in workplace flexibility (work-life balance) and concepts regarding severance pay, comparable worth, pay secrecy, and pay compression. This chapter concludes with a Global Perspective entitled “China’s Work Week.”
Benefits (Indirect Financial Compensation)
1 Objective
1. Define benefits.
Most organizations recognize that they have a responsibility to their employees to provide insurance and other programs for their health, safety, security, and general welfare (see Figure 10-1). These programs, called benefits, include all financial rewards not included in direct financial compensation. Benefits generally cost the firm money, but employees usually receive them indirectly. For example, an organization may spend several thousand dollars a year as a contribution to the health insurance premiums for each employee. The employee does not receive the money but does obtain the benefit of health insurance coverage. This type of compensation has two distinct advantages: (1) it is generally nontaxable to the employee and (2) the cost of some benefits may be much less for large groups of employees than for individuals.
Figure 10-1 Benefits in a Total Compensation Program
As a rule, employees receive benefits because of their membership in the organization. Benefits are typically unrelated to employee productivity; therefore, although they may be valuable in recruiting and retaining employees, they do not generally serve as motivation for improved performance. Legislation mandates some benefits, and employers voluntarily provide others.
According to the U.S. Bureau of Labor Statistics, benefits account for nearly 30 percent of employers’ total compensation costs, but over the past decade, the change in benefits costs has outpaced the change in the cost of wages and salaries. 6 U.S. businesses are paying an average of $7.40 in benefits for each hour their employees work. 7 The cost of the health care benefit alone is estimated at $8,424 annually per person. 8 The magnitude of this expenditure no doubt accounts for the less frequent use of the term fringe benefits. In fact, the benefits that employees receive today are significantly different from those of just a few years ago. As benefit dollars compete with financial compensation, some employers are moving away from paternalistic benefits programs. They are shifting more responsibilities to employees as with 401(k) retirement plans (discussed later). However, in a competitive labor market, many firms are careful to provide desired benefits to attract and retain employees with critical skills.
Mandated (Legally Required) Benefits
2 Objective
1. Describe mandated (legally required) benefits.
Employers provide most benefits voluntarily, but the law requires others. These required benefits currently account for about 10 percent of total compensation costs. They include Social Security, workers’ compensation, unemployment insurance, and family and medical leave. The future comparative importance of these benefits will depend on how the United States deals with rising health care costs and with long-term custodial care for elderly citizens.
Ethical Dilemma: A Poor Bid
You are vice president of human resources for a large construction company, and your company is bidding on an estimated $2.5 million public housing project. A local electrical subcontractor submitted a bid that you realize is 20 percent too low because labor costs have been incorrectly calculated. It is obvious to you that compensation benefits amounting to over 30 percent of labor costs have not been included. In fact, the bid was some $30,000 below those of the other four subcontractors. But, accepting it will improve your chance of winning the contract for the big housing project.
What would you do?
The Social Security Act of 1935 created a system of retirement benefits. The Act established a federal payroll tax to fund unemployment and retirement benefits. It also established the Social Security Administration. Employers are required to share equally with employees the cost of old age, survivors’, and disability insurance. Employers are required to pay the full cost of unemployment insurance.
Subsequent amendments to the Act added other forms of protection, such as disability insurance, survivors’ benefits, and, more recently, Medicare. Medicare spending per beneficiary has doubled in real terms in the past two decades and as baby boomers become eligible, the costs will really escalate. Increased costs have resulted from greater use of post–acute care services such as skilled nursing, home health care, and rehabilitation facilities. Medicare’s financial outlook has deteriorated dramatically over the past five years and is now much worse than Social Security’s. 9
Disability insurance protects employees against loss of earnings resulting from total incapacity. Survivors’ benefits are provided to certain members of an employee’s family when the employee dies. These benefits are paid to the widow or widower and unmarried children. Unmarried children may be eligible for survivors’ benefits until they are 18 years old. In some cases, students retain eligibility until they are 19. Medicare provides hospital and medical insurance protection for individuals 65 years of age and older and for those who have become disabled.
Although employees must pay a portion of the cost of Social Security coverage, the employer makes an equal contribution and considers this cost to be a benefit. The present tax rate is 6.2 percent for the Social Security portion and 1.45 percent for Medicare. The total tax rate of 7.65 percent is applied to a maximum taxable wage of $90,000. The rate for Medicare applies to all earnings. Approximately 95 percent of the workers in this country pay into and may draw Social Security benefits. The Social Security program currently is running a surplus but the retirement of the 77-million-member baby-boom generation is looming. Unless Congress makes changes by 2041, the program will have used up its surplus and will no longer be able to pay full benefits. 10
Beginning with employees who reached age 62 in 2000, the retirement age increases gradually until 2009, when it reaches age 66. After stabilizing at this age for a time, it will again increase in 2027, when it reaches age 67. These changes will not affect Medicare, with full eligibility under this program holding at age 65.
Unemployment insurance provides workers whose jobs have been terminated through no fault of their own monetary payments for up to 26 weeks or until they find a new job. The intent of unemployment payments is to provide an unemployed worker time to find a new job equivalent to the one lost without suffering financial distress. Without this benefit, workers might have to take jobs for which they are overqualified or end up on welfare. Unemployment compensation also serves to sustain consumer spending during periods of economic adjustment. In the United States, unemployment insurance is based on both federal and state statutes and, although the federal government provides guidelines, the programs are administered by the states and therefore benefits vary by state. A payroll tax paid solely by employers funds the unemployment compensation program.
Workers’ compensation benefits provide a degree of financial protection for employees who incur expenses resulting from job-related accidents or illnesses. As with unemployment compensation, the various states administer individual programs, which are subject to federal regulations. Employers pay the entire cost of workers’ compensation insurance, and their past experience with job-related accidents and illnesses largely determines their premium expense. These circumstances should provide further encouragement to employers to be proactive with health and safety programs, topics discussed in Chapter 11.
Family and Medical Leave Act of 1993 (FMLA)
The Family and Medical Leave Act applies to private employers with 50 or more employees and to all governmental employers regardless of number. The FMLA provides employees up to 12 weeks a year of unpaid leave in specified situations. The overall intent of the Act was to help employees balance work demands without hindering their ability to attend to personal and family needs. FMLA rights apply only to employees who have worked for the employer for at least 12 months and who have at least 1,250 hours of service during the 12 months immediately preceding the start of the leave. The FMLA guarantees that health insurance coverage is maintained during the leave and also that the employee has the right to return to the same or an equivalent position after a leave.
Discretionary (Voluntary) Benefits
3 Objective
1. Explain the various discretionary benefits.
Although the law requires some benefits, organizations voluntarily provide numerous other benefits. 11 These benefits usually result from unilateral management decisions in some firms and from labor/management negotiations in others. Further, an employee’s desire for a specific benefit may change. For instance, with the soaring gas prices has come a desire for commuter benefits, such as employers paying for employees to use public transit and van pools. 12 Major categories of discretionary benefits include payment for time not worked, health care, life insurance, retirement plans, employee stock option plans, supplemental unemployment benefits, and employee services. An example of the wide range of discretionary corporate benefits may be seen inFigure 10-2.
Figure 10-2 An Example of a Corporation’s Benefit Program
Personal Benefits: |
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Medical Plans: Two options as well as various HMOs are available. |
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Dental Plans: Two options as well as various Dental Maintenance Alternatives (DMAs) and the MetLife Preferred Dentist Program (PDP) are available. |
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Work and Personal Life Balancing: |
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Vacation: 1 to 4 years service—10 days per year |
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5 to 9 years service (or age 50–59)—15 days |
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10 to 19 years service or age 60 and over—20 days |
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20 years or more—25 days |
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Holidays: 12 days per year (6 observed nationally; other 6 vary with at least one personal choice). |
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Life Planning Account: $250 of taxable financial assistance each year, with certain conditions. |
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Flexible Work Schedules, Telecommuting, and Work Week Balancing: (with local management approval). |
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Capital Accumulation, Stock Purchase, and Retirement: |
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401(k) Plan: Employees may contribute up to 12 percent of eligible compensation, which is matched 50 percent on the first 6 percent. |
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Stock Purchase Plan: Employees may contribute up to 10 percent of eligible compensation each pay period for the purchase of company stock (pay 85 percent of average market price per share on date of purchase). |
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Retirement Plan: Competitive, company-paid retirement benefit plan with vesting after 5 years of continuous service. |
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Income and Asset Protection: Some of the plans offered include: |
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Sickness and Accident Income Plans |
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Long-Term Disability Plan |
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Group Life Insurance |
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Travel Accident Insurance |
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Long-Term Care Insurance |
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Skills Development: |
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Tuition Refund: If aligned with business needs and approved. |
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Educational Leaves of Absence: Under appropriate circumstance and approved by management. |
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Additional Employee Programs: |
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Site Offerings: Many sites offer programs including: |
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Fitness Centers |
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Educational Courses |
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Award Programs |
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Career Planning Centers |
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Clubs: These clubs organize recreational leagues, company-sponsored trips, and a variety of classes and programs. |
In providing payment for time not worked, employers recognize that employees need time away from the job for many purposes. Discussed below are paid vacations, sick pay and paid time off, sabbaticals, and other forms of payment for time not worked.
In a recent Employee Benefits Trend Study, 64 percent of full-time employees identified paid vacation days as the most important benefit they receive. 13 Payment for time not worked serves important compensation goals. For instance, paid vacations provide workers with an opportunity to rest, become rejuvenated, and thus more productive. They may also encourage employees to remain with the firm. Paid vacation time typically increases with seniority. For example, employees with six months’ service might receive one week of vacation; employees with one year of service, two weeks; ten years’ service, three weeks; and fifteen years’ service, four weeks.
But, some workers are apparently choosing to not take all their vacation. According to a recent survey, American workers are giving back 415 million vacation days a year. 14 In a climate of increased outsourcing and job insecurity, it is not surprising that many Americans do not take full advantage of their vacation benefits. Further, 35 percent of U.S. workers feel stressed about work even while on vacation; CareerBuilder.com found that 39 percent return to work as stressed or more stressed than when they left.15
Vacation time may vary with organizational rank. For instance, an executive, regardless of time with the firm, may be given a month of vacation. With an annual salary of $120,000, this manager would receive a benefit worth approximately $10,000 each year while not working. A junior accountant earning $36,000 a year might receive two weeks of vacation time worth about $1,500.
Each year many firms allocate to each employee a certain number of days of sick leave that they may use when ill. Employees who are too sick to report to work continue to receive their pay up to the maximum number of days accumulated. As with vacation pay, the number of sick leave days often depends on seniority.
Some managers are very critical of sick leave programs. At times, individuals have abused the system by calling in sick when all they really wanted was additional paid vacation. One approach in dealing with the problem of unscheduled absences is to provide more flexibility. In lieu of sick leave, vacation time, and a personal day or two, a growing number of companies are providing paid time off (PTO), a certain number of days off provided each year that employees can use for any purpose. With a PTO plan, all the reasons for time off—sick, vacation, and personal days—are grouped together and no one has to lie. 16 “We had four different time-off programs,” said Paula Mutch, manager of compensation and benefits with Mount Clemens General Hospital in Michigan. “The PTO bank folded them together, and it’s not only much easier for us to administer, it’s easier for employees to understand.”17
According to one survey, up to 27 percent of American firms now have such plans. Maureen Brookband, benefits vice president at Marriott, which has such a plan, says that employees tell her, “It’s very nice, there’s no guilt. You don’t have to use a sick day when you aren’t really sick.” 18 Some critics of the plan feel there is still a need for sick leave. But, as one expert pointed out, a prominent reason for taking sick days is stress, and this factor is not really dealt with. The impact of stress will be discussed in the next chapter.
Sabbaticals are temporary leaves of absence from an organization, usually at reduced pay. Although sabbaticals have been used for years in the academic community, they have only recently entered the private sector. According to a recent survey, only 5 percent of companies provide paid sabbaticals but another 18 percent provide unpaid sabbaticals. 19 Often sabbaticals help to reduce turnover and keep workers from burning out; hopefully they will return revitalized and more committed to their work. 20UPS and Xerox are among the growing number of companies who pay employees’ expenses to participate in extended volunteer sabbaticals. Since 1971, Xerox has maintained its Social Service Leave program, which allows employees to take fully paid leaves from their jobs, ranging from three months to a year, to work full-time on volunteer projects of their own design and choosing. Their jobs are waiting for them upon return. 21 Remember the concept of sequencing moms discussed in Chapter 3.
At Fleishman-Hillard, a global public relations firm, employees with four or more years of service can take a six-week sabbatical. Benefits, such as health insurance, continue throughout. The firm pays for two weeks; the employee uses two weeks of vacation, and then takes more weeks without pay. Or employees can take up to one year of unpaid leave and can pay their share of health insurance. They retain the benefit of lower rates from being in the company’s pool. “We were looking for ways to attract and retain employees,” said Agnes Gioconda, Fleishman-Hillard’s chief talent officer. “We find that it reduces employee burnout. They need new ideas for their clients. And it gives us cross-training and career development for others who are out (on leave).” 22
As another example, every employee who has worked at Arrow Electronics, a New York–based distributor of computer products and electronic components, for seven years is eligible for an 8- to 10-week sabbatical. “Employees can use the time off as they wish,” says Kathy Bernhard, director of management development. “We tend to run people really hard,” she explains. “There’s a lot of travel associated with many of these jobs, and it’s a high-stress, high-change industry, so it’s really just a chance for people to get recharged.” Another benefit of the sabbatical program is that of employee development. Employees showing promise and a willingness to learn are assigned to the vacant positions. The opportunity enhances their careers and increases their understanding of the business. 23
Sabbaticals also help to accommodate workplace needs of the baby boomers. According to a recent survey, boomers are likely to continue working, either part-time or full-time, as consultants or by setting up their own companies. They want a flexibleworkplace that lets them take extended sabbaticals and then work intensely for shorter periods of time. They want to phase-inretirement by working fewer hours as they near 65, or after.
Other Types of Payment for Time Not Worked
Although paid vacations and sick pay comprise the largest portion of payment for time not worked, there are numerous other types that companies use. It is common for organizations to provide payments to assist employees in performing civic duties. For example, companies often give workers time off to work with the United Way. At times an executive may be on loan to work virtually full-time on such an endeavor.
Some companies routinely permit employees to take off during work hours to handle personal affairs without taking vacation time. When a worker is called for jury duty, some organizations continue to pay their salary; others pay the difference between jury pay and their salary. When the National Guard or military reserve are called to duty, as has been the case in Afghanistan and Iraq, some companies pay their employees a portion of their salary while on active duty. Further, during an election, many companies permit employees voting time. Still other firms permit bereavement time for the death of a close relative. Finally, there is the payment for time not worked while at the company such as rest periods, coffee breaks, lunch periods, cleanup time, and travel time.
Benefits for health care represent the most expensive item in the area of indirect financial compensation. In a recent survey of HR professionals, rising health care costs were listed as number one. 24 Currently, employers spend $300 billion annually on health insurance for employees, dependents, and retirees. When provided, health insurance typically constitutes 25 percent of an employer’s benefit costs. Health insurance premiums have outpaced inflation and wage growth by wide margins. According to a recent study issued by The Kaiser Family Foundation, premiums in the past five years have grown by 73 percent, compared with cumulative inflation (14 percent) and wage rates (up 15 percent) during that same time. Premiums for an average family of four now cost about $11,000 a year. 25
A number of factors have combined to create the high cost of health care:
· An aging population
· A growing demand for medical care
· Increasingly expensive medical technology
· Inefficient administrative processes
In 2004, the Canadian province of Ontario surpassed Michigan in car production. However, most of the cars made in Ontario are manufactured by General Motors, Ford, and DaimlerChrysler. These companies are shifting production out of the United States because of enormous health care costs. In Canada, which has a government-funded and government-run health care system, the cost to the employer per worker is just $800. 26 Recently, General Motors and the United Auto Workers agreed to a substantial cut in the medical benefits GM gives its UAW retirees. That deal saves the company an estimated $1 billion a year after taxes and reduces its total medical cost liability by about $15 billion, which is about GM’s total market value. 27
Managed-Care Health Organizations
In addition to self-insurance (in which firms provide benefits directly from their own assets) and traditional commercial insurers (which supply indemnity insurance covering bills from any health care provider), employers may utilize one of several managed-care options. Managed-care systems have been the general response to increased medical costs. These networks are comprised of doctors and hospitals that agree to accept negotiated prices for treating patients. Employees receive financial incentives to use the facilities within the network. Today, many insured American employees participate in some kind of managed-care plan. Approximately 90 percent of the 178 million Americans insured are covered by group plans from employers. 28 However, some believe that health savings accounts (discussed later) will eventually replace managed-care plans. 29 The following are various forms of managed-care health organizations:
· Health maintenance organizations (HMOs) cover all services for a fixed fee but control is exercised over which doctors and health facilities a member may use.
· Preferred provider organizations (PPO) are managed-care health organizations in which incentives are provided to members to use services within the system; out-of-network providers may be utilized at greater cost. Recent HMO data indicate an enrollment shift to PPOs. 30
· Point-of-service (POS) requires a primary care physician and referrals to see specialists, as with HMOs, but permits out-of-network health care access.
· Exclusive provider organizations (EPOs) offer a smaller PPO provider network and usually provides little, if any, benefits when an out-of-network provider is used.
Each of these managed-care systems appears to be losing its uniqueness. For example, HMOs are developing products that are more flexible and many offer POS and PPOs. Large, independent PPO companies are providing programs that resemble HMOs. Regardless of the precise form, managed-care systems strive to control health care costs.
Consumer-Driven Health Care Plans
Companies are increasingly placing the responsibility for health care on employees. A recent study revealed that consumer-driven plans also reduce total health care costs. 31 The assumption is made that they are in the best position to know what is best for their families. Some of these will be discussed next.
Defined Contribution Health Care Plan
In a defined contribution health care plan, companies give each employee a set amount of money annually with which to purchase health care coverage. In this health care system, employees could shop around, probably using online services, for plans that meet their individual needs. Employees may spend the funds on any medical expense they choose and on any doctor they choose. That is why the plan is often referred to as consumer-driven. 32 The defined contribution health care plan is based on the belief that consumers are in the best position to know what kind of health care they need and how much they want to spend for it. They could also add personal funds to the employers’ contribution and purchase more deluxe coverage.
Congress authorized health savings accounts to replace medical savings accounts in 2004. At least 3 million consumers were covered by an HSA in 2006, up from 1 million in 2005. 33 Created by a provision of the Medicare Prescription Drug Improvement and Modernization Act of 2003, the health savings account (HSA) is a tax-sheltered savings account similar to an IRA, but earmarked for medical expenses with high-deductible health plans that have annual deductibles of at least $1,050 for individuals and $2,100 for families.
Individuals can save up to $2,650 a year ($5,250 for families) and withdraw the money tax free for health care expenses, or let it keep growing. Workers do not owe taxes on contributions and if they leave their job, the HSA goes with them. Tax-free money may be used for expected medical costs, such as buying new eyeglasses once a year. 34 Money deposited into HSAs is not owned by an employer and can roll over into the next year. A HSA offers attractive tax breaks, but the HSA program law requires employers who want to offer HSAs to buy high-deductible health insurance and give employees control over the assets in their HSAs. A family’s insurance plan would be used for major medical expenses, whereas the cash in their HSA would go toward out-of-pocket costs, such as prescriptions, co-payments, or special treatments like a CAT scan.
Ted Shannon, equity research analyst for Janus Capital Management, predicts that HSAs will dominate the health care market within 5 to 10 years, eventually replacing managed-care plans. He says HSAs will be 40 percent to 50 percent of the private insurance market by 2010. The reason HSAs will catch on so strongly is that employers will seek to give workers more power over health care choices as they continue to try to lower their costs. The number of employers offering health savings accounts (HSAs) was expected to more than quadruple in 2006, says a Mellon Human Resources & Investor Solutions (HR&IS) survey. 35
A flexible spending account (FSA) is a benefit plan established by employers that allows employees to deposit a certain portion of their salary into an account (before paying income taxes) to be used for eligible expenses. The employee consents to a reduced salary by allowing the employer to contribute a salary portion to an FSA. There are two categories of FSAs. The first is a medical FSA for expenses not reimbursed by a medical, dental, or vision care plan. The second is a dependent care FSA for dependent care expenses for necessary child or adult day-care services. Until recently, employees who funded the plans faced the possibility that they might lose their share of plan assets at the end of the year. However, the IRS now allows companies to amend their plans to permit a grace period of up to two-and-one-half months immediately following the end of each plan year. Unused benefits or contributions may be paid or reimbursed to plan participants for qualified benefit expenses incurred during the grace period. 36
One way of curbing in health care costs and also providing an employee benefit is the use of on-site health care. Businesses are increasingly using an old approach to employer-sponsored health benefits. Today’s trend of providing on-site medical care is growing because it permits employers to better manage and at times reduce the growth of health care costs. On-site health care assists in treating minor illnesses and injuries and provides follow-up care; employers can reduce the number of visits employees make to more costly facilities, such as physicians’ offices and hospital emergency rooms. “I think it’s a modern model that is indeed proving to be cost-effective” says Sean Sullivan, president, CEO, and co-founder of the Institute for Health and Productivity Management, a nonprofit corporation in Scottsdale, Arizona, that works to link employee health to corporate performance. “Not only does it pick up health issues earlier, but it doesn’t require time away from work and at the same time creates a culture of caring.” The approach reduces time spent on doctors’ visits and recovery, and encourages employees to adopt healthier lifestyles.37 Raymond Fabius, president and chief medical officer of I-trax Inc., a workplace health and productivity consulting company, said, “On-site clinics normally produce health care savings in the range of 5 percent to 20 percent.” 38
Many plans provide for major medical benefits to cover extraordinary expenses that result from long-term or serious health problems. The use of deductibles is a common feature of medical benefits. For example, the employee may have to pay the first $500 of medical bills before the insurance takes over payment.
Dental and vision care are popular benefits in the health care area. Employers typically pay the entire costs for both types of plans except for a deductible, which may amount to $50 or more per year. Dental plans may cover, for example, 70 to 100 percent of the cost of preventive procedures (including semiannual examinations) and 50 to 80 percent of restorative procedures (including crowns, bridgework, etc.). Some plans also include orthodontic care. Vision care plans may cover all or part of the cost of eye examinations and glasses.
Recently, national spending on long-term care totaled $183 billion, and nearly half of that was paid for by the Medicaid program. Private insurance paid a small portion of long-term care expenditures, about $16 billion or 9 percent. 39 The increasing costs of 24-hour home health care for elderly relatives have given rise to LTC programs. 40 LTC insurance picks up most or all of the expenses for skilled and custodial care for people in their own homes, in adult day-care centers, in assisted-living facilities, and in nursing homes. It typically covers medically prescribed diagnostic, preventive, therapeutic, and rehabilitative services for patients who are chronically ill or who have severe mental impairment, such as Alzheimer’s disease. Employers’ role in LTC typically involves establishing and maintaining a payroll deduction program. Employees pay all the costs in most employer-sponsored group policies. Employers that contribute to premiums generally offer a basic plan that employees can enrich by paying more.
Group life insurance is a benefit provided by virtually all firms to protect the employee’s family in the event of his or her death. Although the cost of group life insurance is relatively low, some plans call for the employee to pay part of the premium. Coverage may be a flat amount (for instance, $50,000) or based on the employee’s annual earnings. For example, workers earning $40,000 per year may have $80,000, twice their annual earnings, worth of group life coverage.
Retirement is currently a hot topic because of the aging baby-boomer generation. Employers are in the middle of this challenge since they are one of our society’s primary providers of retirement income. Various types of retirement plans will be discussed next.
HR Web Wisdom: Types of Retirement Plans
http://www.dol.gov/dol/topic/retirement/typesofplans.htm
Retirement information from the U.S. Department of Labor.
Retirement plans are generally either defined benefit or defined contribution. A defined benefit plan is a formal retirement plan that provides the participant with a fixed benefit upon retirement. Although benefit formulas vary, they are typically based on the participant’s final years’ average salary and years of service. Plans that are considered generous provide pensions equivalent to 50 to 80 percent of an employee’s final earnings. This type of retirement plan has declined in recent years although older workers tend to prefer them. What do Verizon, Lockheed Martin, Motorola, and IBM have in common? 41 They have all decided to eliminate the defined benefit form of retirement plan. Verizon Communications froze its $39 billion cash balance plan for management employees. This action was described as “the latest nail in the coffin” for defined benefit plans. 42
A defined contribution plan is a retirement plan that requires specific contributions by an employer to a retirement or savings fund established for the employee. One of the most significant changes in the composition of individual household retirement savings over the past 25 years has been the shift from defined benefits to defined contribution pension plans. 43 Although employees will know in advance how much their retirement income will be under a defined benefit plan, the amount of retirement income from a defined contribution plan will depend upon the investment success of the pension fund.
A 401(k) plan is a defined contribution plan in which employees may defer income up to a maximum amount allowed. Some employers match employee contributions 50 cents for each dollar deferred. Although employers typically pay the expenses for their defined benefit pension plans, there is a wide variety of payment arrangements for 401(k) plans. Some plan sponsors pay for everything, including investment fees and costs. Others pay for virtually nothing with the result that nearly all fees are paid out of the plan’s assets. In the middle are those plans where the sponsor and participants share the expenses.
As 401(k)s become the primary retirement plans, sponsoring firms are making them more flexible by permitting employees to make more frequent transfers between investment accounts. They are also providing more investment choices for employees. In addition, more firms are starting to provide financial planning for all their employees, not just their top executives. The explosion of 401(k) retirement plans has required about 42 million employees to become investment managers, shifting the burden of retirement planning from employers to employees. Employees then often look to their employers for help. Federal law requires employers to give guidance on these plans but forbids their recommending specific investments. The employers’ role is to get financial planners from firms such as Fidelity and Charles Schwab to provide this advice.
Many Americans are not saving enough for retirement. A recent survey found that 32 percent of respondents believe that between half and nearly three-quarters of their employees will not have sufficient income to retire between ages 62 and 65. 44 The percentage of salary that participants are deferring into their defined contribution plans declined by 20 percent from 1999 to 2005.45 Additionally, employers are skeptical about whether employees adequately understand how to invest 401(k) savings plan assets. This problem becomes a critical issue as Americans are living longer and as confidence in Social Security wanes. If the trend continues, workers will either have to work longer, live on less in retirement, or significantly boost their savings in their later years to catch up. However, the recently passed Pension Protection Act (discussed later) is designed to get more workers enrolled in 401(k) savings plans because companies can now automatically enroll them.
In designing an appropriate retirement system, some sources suggest ignoring the terms defined benefit and defined contribution. Instead, they maintain that the focus should be on a plan that meets specific objectives. In other words, for some organizations, a hybrid fund may be the desired approach to retirement plans. A cash balance plan is such a plan, with elements of both defined benefit and defined contribution plans.
It resembles a defined contribution plan in that it uses an account balance to communicate the benefit amount. 46 However, it is closer to being a defined benefit plan because the employer normally bears the responsibility for and the risks of managing the assets. Also, in contrast to defined contribution plans, the Pension Benefit Guaranty Corporation usually insures cash balance plans. Normally, the employer contributes to each participant’s account annually, and investment earnings are at a set amount. If the fund’s investment earnings exceed this set amount, the plan sponsor benefits from the performance. If the trust fund does not perform well, the plan sponsor funds the shortfall. A survey by the U.S. General Accounting Office indicated that 19 percent ofFortune 1000 firms sponsored cash balance plans at the end of the last decade. 47
Workers’ compensation protects employees from job-related accidents and illnesses. Some firms, however, provide additional protection that is more comprehensive. A firm’s sick leave policy may provide full salary for short-term health problems; when these benefits expire, a short-term disability plan may provide pay equivalent to 50 to 100 percent of pretax pay. Short-term disability plans may cover periods of up to six months.
When the short-term plan runs out, a firm’s long-term plan may become active; such a plan may provide 50 to 70 percent of an employee’s pretax pay. Long-term disability provides a monthly benefit to employees who due to illness or injury are unable to work for an extended period. Payments of long-term disability benefits usually begin after three to six months of disability and continue until retirement or for a specified number of months.
Employee Stock Option Plan (ESOP)
An employee stock option plan (ESOP) is a plan in which a firm contributes stock shares to a trust. The trust then allocates the stock to participating employee accounts according to employee earnings. ESOP advocates have promoted employee ownership plans as a means to align the interests of workers and their companies to stimulate productivity. This practice, long reserved for executives, now often includes employees working at lower levels in the firm. 48
Although the potential benefits of ESOPs are attractive, some employees want the ability to sell their shares prior to retirement, which ESOPs do not allow. Many people do not want to take the chance that the stock is going to be less valuable when they retire. Periods of wild rides in the stock market also dampen worker enthusiasm for ESOPs. Although the potential advantages of ESOPs are impressive, the other side of the coin is the danger of having all your eggs in one basket. The Enron experience makes this point only too well.
Supplemental Unemployment Benefits (SUB)
Supplemental unemployment benefits provide additional income for employees receiving unemployment insurance benefits. They first appeared in auto industry labor agreements in 1955 and have spread to many industries; they are usually financed by the company. They tend to benefit newer employees since seniority normally determines layoffs. For this reason, employees with considerable seniority are often not enthusiastic about these benefits.
Organizations offer a variety of benefits that can be termed employee services. These benefits encompass a number of areas including relocation benefits, child care, educational assistance, food services/subsidized cafeterias, financial services, legal services, and scholarships for dependents.
Relocation benefits are company-paid shipments of household goods and temporary living expenses, covering all or a portion of the real estate costs associated with buying a new home and selling the previously occupied home. Although employees once viewed a transfer as a step up, they are now taking a closer look at not only the economic impact of the move, but also what it does to quality of life. This concern has broadened the scope of relocation services to include providing information about crime statistics, children’s sports teams, tutors, churches, and doctors. Relocation can be as stressful for employees as a death in the family, divorce, or loss of a job. Not only are job-related factors considered, but also the disruption of the familiar patterns of daily life, such as commuting, cultural and recreational opportunities, and school and church affiliations. 49
Another benefit offered by some firms is subsidized child care. According to the National Conference of State Legislatures, an estimated 80 percent of employees miss work due to unexpected child-care coverage issues. It is estimated that every $1 invested in backup child care yields $3 to $4 in returned productivity and benefit. 50 At Abbott Laboratories headquarters campus 30 miles north of Chicago, the company has built a $10 million state-of-the-art child-care center for more than 400 preschool children of Abbott workers. For parents who prefer a different arrangement if an employee’s babysitter is sick, Abbott provides emergency backup service. 51 Company child-care arrangements tend to reduce absenteeism, protect employee productivity, enhance retention and recruiting, promote the advancement of women, and make the firm an employer of choice. 52 Remember that in Chapter 3, the importance of child care for single parents and working mothers was discussed.
Some companies reimburse employees after they have completed a course with a grade of “C” or above whereas others provide for advance payment of these expenses. Other employers provide half the reimbursement up front and the rest upon satisfactory completion of the course. United Technologies Corporation pays for an employee’s entire tuition and books up front. It also offers paid time off—as much as three hours a week, depending on the course load—to study. 53 Internal Revenue Service regulations allow for educational assistance benefits to be nontaxable up to $5,250 per year, although the average educational reimbursement by employers is $1,600 per year.
Food Services/Subsidized Cafeterias
There is generally no such thing as a free lunch. However, firms that supply food services or subsidized cafeterias provide an exception to this rule. What they hope to gain in return is increased productivity, less wasted time, enhanced employee morale, and, in some instances, a healthier workforce. Most firms that offer free or subsidized lunches feel that they get a high payback in terms of employee relations. Northwestern Mutual is one such company. Free lunches are available in its cafeterias, where the menus list calories instead of prices. 54 Keeping the lunch hour to a minimum is an obvious advantage, but employees also appreciate the opportunity to meet and mix with people they work with. Making one entree a heart-healthy choice and listing the calories, fat, cholesterol, and sodium content in food is also appealing to a large number of employees.
Some firms offer various types of financial services. One financial benefit that is growing in popularity permits employees to purchase different types of insurance policies through payroll deduction. Using this approach, the employer can offer a benefit at almost no cost and employees can save money by receiving a deeply discounted rate. Firms can offer discounts to employers because the plans usually eliminate the middlemen. Administrative costs are also drastically reduced. For example, the insurance company sends one statement to the business and receives one premium check. Otherwise, this business might involve dozens or even hundreds of individual transactions. It is also possible for employers to offer employees discounted policies on automobile or homeowner’s insurance. In fact, a company may offer many other benefits through payroll deduction plans.
A recent survey found that the number of Americans covered by some type of legal services plan has increased by almost 20 percent since 2000. An estimated 3 million employees are currently enrolled in plans sponsored by employers and funded through employee payroll deductions. 55
According to the 2005 Benefits Survey Report by the Society for Human Resource Management, about 27 percent of companies provide scholarships for dependents. Moreover, 50 percent of all companies with more than 500 employees offer scholarships for employees’ dependents. Scholarship programs can help boost employee recruitment and retention. Franciscan Health Systems, a nonprofit health care provider in Tacoma, Washington, targets its awards primarily to employees’ children who are interested in entering the health care field, although it also awards scholarships for study in other areas. 56
Customized Benefit Plans (Cafeteria Compensation)
4 Objective
1. Describe customized benefit plans.
An emerging trend in the area of benefits is customization, whereby employees are permitted to tailor their benefits to fit their individual needs.Customized benefit plans permit employees to make yearly selections to largely determine their benefit package by choosing between taxable cash and numerous benefits.
Twenty years ago or so firms offered a uniform package that generally reflected a typical employee. Today, the workforce has become considerably more heterogeneous, and this prototype is no longer representative. According to the Society for Human Resources Management, 38 percent of companies are offering customized benefits packages. 57 Workers have considerable latitude in determining how much they will take in the form of salary, life insurance, pension contributions, and other benefits. Customized plans permit flexibility in allowing each employee to determine the compensation components that best satisfy his or her particular needs.
The rationale behind customized plans is that employees have individual needs and preferences. A 60-year-old woman would not need maternity benefits in an insurance plan. At the same time, a 25-year-old single man would not likely place a high value on home health care. Some of the possible alternatives available in a customized approach are shown in Table 10-1.
Table 10-1 Possible Alternatives Available in a Customized Approach
Accidental death, dismemberment insurance Birthdays (vacation) Bonus eligibility Business and professional membership Cash profit sharing Club memberships Commissions Company medical assistance Company-provided automobile Company-provided housing Company-provided or -subsidized travel Day-care centers Deferred bonus Deferred compensation plan Dental and eye care insurance Discount on company products Educational activities (time off) Free checking account Free or subsidized lunches Group automobile insurance Group homeowners’ insurance Group life insurance Health maintenance organization fees Home health care Hospital-surgical-medical insurance Incentive growth fund Interest-free loans Long-term disability benefit Matching educational donations Nurseries Nursing home care Outside medical services Personal accident insurance Price discount plan Recreation facilities Resort facilities Sabbatical leaves Salary continuation Scholarships for dependents Severance pay Sickness and accident insurance Stock appreciation rights Stock bonus plan Stock purchase plan |
Obviously, organizations cannot permit employees to select all their benefits. For one thing, firms must provide the benefits required by law. In addition, it is probably wise to require that each employee have core benefits, especially in areas such as retirement and medical insurance. Some guidelines would likely be helpful for most employees in the long run. However, the freedom to select highly desired benefits would seem to maximize the value of an individual’s compensation. Employees’ involvement in designing their own benefit plans would also effectively communicate to them the cost of their benefits.
The downside to customized compensation plans is that they are costly. Development and administrative costs for these plans exceed those for traditional plans. Even though customized benefit plans add to the organization’s administrative burden, some firms apparently find that the advantages outweigh shortcomings.
5 Objective
1. Explain premium pay.
Premium pay is compensation paid to employees for working long periods of time or working under dangerous or undesirable conditions. As mentioned in Chapter 9, payment for overtime is legally required for nonexempt employees who work more than 40 hours in a given week. However, some firms voluntarily pay overtime for hours worked beyond eight in a given day and pay double time, or even more, for work on Sundays and holidays.
Additional pay provided to employees who work under extremely dangerous conditions is called hazard pay. A window washer for skyscrapers in New York City might receive extra compensation because of precarious working conditions. Military pilots collect extra money in the form of flight pay because of the risks involved in the job.
Some employees receive shift differential pay for the inconvenience of working less-desirable hours. This type of pay may be provided as additional cents per hour. For example, employees who work the second shift (swing shift), from 4:00 p.m. until midnight, might receive $2.00 per hour above the base rate for that job. The third shift (graveyard shift) often warrants an even greater differential; for example, an extra $3.00 per hour may be paid for the same job. Shift differentials are sometimes based on a percentage of the employee’s base rate.
6 Objective
1. Explain health care legislation.
Five pieces of federal legislation related to health care are discussed in the next sections.
Consolidated Omnibus Budget Reconciliation Act
With the high cost of medical care, an individual without health care insurance is vulnerable. The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 was enacted to give employees the opportunity to temporarily continue their coverage, which they would otherwise lose because of termination, layoff, or other changes in employment status. The Act applies to employers with 20 or more employees. Under COBRA, individuals may keep their coverage, as well as coverage for their spouses and dependents, for up to 18 months after their employment ceases. Certain qualifying events can extend this coverage for up to 36 months. The individual, however, must pay for this health insurance and it is expensive.
Health Insurance Portability and Accountability Act
The Health Insurance Portability and Accountability Act (HIPAA) of 1996 provides protection for approximately 25 million Americans who move from one job to another, who are self-employed, or who have pre-existing medical conditions. The prime objective of this legislation is to make health insurance portable and continuous for employees, and to eliminate the ability of insurance companies to reject coverage for individuals because of a pre-existing condition. As an element of HIPAA, there is now a regulation designed to protect the privacy of personal health information.
Employee Retirement Income Security Act
The Employee Retirement Income Security Act (ERISA) of 1974 strengthens existing and future retirement programs. Mismanagement of retirement funds was the primary spur for this legislation. Many employees were entering retirement only to find that the retirement income they had counted on was not available. The Act’s intent was to ensure that when employees retire, they receive deserved pensions. The purpose of the Act is described here:
It is hereby declared to be the policy of this Act to protect . . . the interests of participants in employee benefit plans and their beneficiaries . . . by establishing standards of conduct, responsibility and obligations for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the federal courts. 58
Note that the word protect is used here because the Act does not force employers to create employee retirement plans. It does set standards in the areas of participation, vesting of benefits, and funding for existing and new plans. Numerous existing retirement plans have been altered in order to conform to this legislation.
Older Workers Benefit Protection Act
The Older Workers Benefit Protection Act of 1990 (OWBPA), an amendment to the Age Discrimination in Employment Act, prohibits discrimination in the administration of benefits on the basis of age, but also permits early retirement incentive plans as long as they are voluntary. Employers must offer benefits to older workers that are equal to or greater than the benefits given to younger workers, with one exception. The Act does not require employers to provide equal or greater benefits to older workers when the cost to do so is greater than for younger workers. The Act establishes wrongful termination waiver requirements as a means of protecting older employees by ensuring that fully informed and willful personnel make that waiver acceptance. 59 In a recent decision, the Supreme Court, in General Dynamics Land Systems, Inc. v Cline, permitted an employer to establish minimum age requirements for some employee benefits, and to treat older members of a protected class more favorably with respect to the provision of certain benefits. 60
Some say that the Pension Protection Act (PPA) of 2006 is the most sweeping reform of America’s pension laws in over 30 years. The bill contains a variety of provisions designed to strengthen the funding rules for defined benefit pension plans. The bill seeks to ensure that employers make greater contributions to their pension funds, ensuring their solvency, and avoiding a potential multibillion-dollar taxpayer bailout of the Pension Benefit Guaranty Corporation (PBGC), which already has a $23 billion deficit because more than 300 companies have dumped their defined benefit pension plans on the federal insurer. Companies such as US Airways and United Airlines have terminated their pension plans and turned them over to the PBGC. The bill establishes increased liabilities for plans that are defined as “at risk.” The legislation makes it easier for employers to automatically enroll workers in their 401(k). The new rules generally apply to plan years beginning after 2007. 61
HR Web Wisdom: Pension Protection Act
http://www.whitehouse.gov/news/releases/2006/08/20060817-1.html
President Bush signing ceremony for the Pension Protection Act.
Communicating Information about the Benefits Package
Employee benefits can help a firm recruit and retain a top-quality workforce. In keeping the program current, management depends on an upward flow of information from employees to determine when benefit changes are needed. In addition, because employee awareness of benefits is often limited, the program information must be communicated downward. Many times organizations do not have to improve benefits to keep their best employees; rather, workers need to fully understand the benefits that are provided them. For example, a survey of 22,000 MedStar employees found that only 30 percent were satisfied with the firm’s compensation and benefits program and they did not believe them to be competitive. However, research indicated otherwise. Marjory Zylich, assistant vice president of operational communications and special projects, said, “That’s discouraging when half our expenses are on pay and benefits. For a health system our size, that’s more than a billion dollars on total compensation.” Based on the survey, MedStar began a campaign to educate the workforce regarding their compensation and benefits, resulting in much greater satisfaction in the firm’s total compensation program. 62
The Employee Retirement Income Security Act (previously discussed) provides still another reason for communicating information about a firm’s benefits program. This Act requires organizations with a pension or profit-sharing plan to provide employees with specific data at specified times. The Act further mandates that the information be presented in an understandable manner. With the advent of the Internet and individual intranets, many firms will have little difficulty in achieving the desired communication with employees about anything, including their benefits.
7 Objective
1. Describe the components of nonfinancial compensation.
Historically, compensation departments in organizations have not dealt with nonfinancial factors. However, as indicated in the previous chapter, the new model of WorldatWork indicates that this is changing. The components of nonfinancial compensation consist of the job itself and the job environment (see Figure 10-3). A number of work arrangements are included in this environment. These arrangements provide for greater work-life balance resulting in a more desirable life for employees.
Figure 10-3 Nonfinancial Compensation in a Total Compensation Program
Job Itself as a Nonfinancial Compensation Factor
8 Objective
1. Describe the job itself as a nonfinancial compensation factor and job characteristics theory.
The job itself can be a very powerful factor in the compensation equation. Answering the following questions can provide considerable insight into the value of the job itself:
1. Is the job meaningful and challenging?
2. Is there recognition for accomplishment?
3. Do I get a feeling of achievement from doing the job?
4. Is there a possibility for increased responsibility?
5. Is there an opportunity for growth and advancement?
6. Do I enjoy doing the job itself? 63
Consider this situation:
The workplace atmosphere is highly invigorating. Roy, Ann, Jack, Sandra, Britt, and Patsy are excited as they try to keep up with double-digit growth in sales orders. They do whatever it takes to get the job done, wearing multiple hats that would be difficult to cover in a job description. Their jobs have no salary grades, and no one ever formally reviews their performance. This doesn’t worry them, however, because they enjoy the camaraderie and teamwork at their firm. They have complete trust in the firm’s highly visible management, and they have total confidence their leaders will do what’s right for them and the company. Believe it or not, it is a real-life scene from a real-life company. 64
As the situation above suggests, some jobs can be so stimulating that the incumbent is anxious to get to work each day. At the evening meal, details of what happened on the job may be shared with family or friends. Given the prospect of getting a generous raise by leaving this job, this worker may quickly say “No” to the opportunity. Unwillingness to change jobs for additional financial compensation suggests that the job itself is indeed an important reward. Such jobs are often meaningful and challenging, workers are recognized for their accomplishments, there is a feeling of achievement, and there is the opportunity for growth and development.
On the other hand, a job may be so boring or distasteful that an individual dreads going to work. This condition is sad considering the time a person devotes to his or her job. Most of us spend a large part of our lives working. When work is a drag, life may not be very pleasant and, as discussed in Chapter 11, if a boring job creates excessive and prolonged stress, the person involved may eventually become emotionally or physically ill. The job itself is a central issue in many theories of motivation. It is also a vital component in a total compensation program. Job characteristics theory goes a long way in explaining the importance of the job itself in determining compensation. As long as employees exist in organizations, a major management challenge will be to match job requirements with employee abilities and aspirations. Without question, as the scope of many jobs expands and they become more complex, this challenge will also increase in difficulty.
Developed by J. Richard Hackman and Greg Oldham, job characteristics theory provides a comprehensive approach to work redesign and how the job itself is a part of the total compensation factor. The model has three basic components, which include core job characteristics, critical psychological stages, and expected outcomes. 65 According to job characteristics theory, employees experience intrinsic compensation when their jobs rate high on five core job dimensions: skill variety, task identity, task significance, autonomy, and feedback. These characteristics create the potential for increased performance, lower absenteeism and turnover, and higher employee satisfaction.
Skill variety is the extent to which work requires a number of different activities for successful completion. This factor is similar to the concept of job enlargement discussed previously in Chapter 4. Some workers enjoy variety in their jobs, and if so, it serves as compensation. One only has to visualize work on an assembly line, where an individual is more like a machine, to realize the importance of skill variety. Expanding the number of job activities is quite important to some workers. When this is the case, skill variety becomes a form of compensation.
Task identity is the extent to which the job includes an identifiable unit of work performed from start to finish. As a product rolls off the assembly line, the worker might say, “I made that widget.” Some individuals enjoy the added responsibility provided by a project that permits involvement to its completion. For example, an author reviewing her recently published book and recognizing the sentences and paragraphs she wrote as her own, provides an example of task identity. No one else can claim responsibility, or take the blame, for the content of the book. Task identity is an element of job enrichment, also previously discussed.
The impact that the job has on other people constitutes task significance, another component of job enrichment. When performance of a person’s job influences the life of others, the employee often realizes a real sense of achievement. Jim Stahl, director of wellness for a regional university, designed hundreds of exercise and diet regimens for clients over several decades. When these clients later achieved their personal goals, such as weight loss or a reduction in cholesterol level, they were grateful and Jim knew he had performed important work. His success in changing lifestyles for the better emphasized that his job was truly significant.
Autonomy is the extent of individual freedom and discretion employees have in performing their jobs. Jobs that provide autonomy often lead employees to feel responsible for outcomes of work. Most workers do not want someone standing over their shoulders all day long just waiting for them to make the slightest error. These individuals know what needs to be done and, within reason, want the freedom to get the job done their way. Autonomy is at the very heart of self-directed work teams, discussed in Chapter 7. Some of these groups have the authority to make decisions such as whom to hire and promote, work scheduling, and methods to follow. This freedom of action creates a sense of responsibility that is probably unachievable in any other manner.
Feedback is the information employees receive about how well they have performed the job. For some, it is exhilarating to hear the boss or a respected co-worker say, “You did an excellent job.” In fact, most people have a strong need to know how they are doing in their jobs. Top salespersons, for example, want and obtain rapid feedback from securing a sale. When they make a sale, one way they get tangible feedback is in the form of a commission check.
Job Environment as a Nonfinancial Compensation Factor
9 Objective
1. Describe the job environment as a nonfinancial compensation factor.
Performing a challenging, responsible job in a pigsty would not be rewarding to most people. The physical environment of the job must also be satisfactory. Employees can draw satisfaction from their work through several nonfinancial factors, discussed next.
A policy is a predetermined guide established to provide direction in decision making. Human resource policies and practices reflecting management’s concern for its employees can serve as positive rewards. Consider how the following policies would contribute to the satisfaction of a worker.
· To provide realistic and practical incentives as a means of encouraging the highest standard of individual performance and to assure increased quality and quantity of performance.
· To create and maintain good working conditions, to provide the best possible equipment and facilities, and plants and offices that are clean, orderly, and safe.
· To employ people without regard to race, sex, color, national origin, or age. To encourage employees to improve their skills by participating in available educational or training programs. To provide every possible opportunity for advancement so that each individual may reach his or her highest potential.
If a firm’s policies show consideration rather than disrespect, fear, doubt, or lack of confidence, the result can be rewarding to both the employees and the organization. Policies that are arbitrary and too restrictive turn people off.
Anyone who has worked under a manager who does not possess the managerial skills needed to successfully lead the unit understands the importance of having a capable individual in charge. Many workers quit their jobs because of the way the unit is being managed. Just being around an incompetent boss every day may provide the motivation to call in sick when you are not ill. There may be the bull-of-the-woods manager who only wants it done his or her way. Then, there is the manager who can seemingly never make a decision. There are endless examples of supervisors who are incapable of performing their jobs, thus making the job environment of their employees less than desirable.
Working with individuals who are capable and knowledgeable can often create a synergistic environment. Synergism is the cooperative action of two or more persons working together to accomplish more than they could working separately. Synergy implies the possibility of accomplishing tasks that could not even be done by people working separately. Solving problems together is often exhilarating when a co-worker is also competent. Successful organizations emphasize continuous development and assure employment of competent managers and nonmanagers. Competitive environments and the requirement for teamwork will not permit otherwise. Bad apples can disrupt any organization.
Although a few individuals in this world may be quite self-sufficient and prefer to be left alone, they will likely be unsuccessful in the team-oriented organizations that exist today. The American culture has historically embraced individualism, yet most people possess, in varying degrees, a desire for acceptance by their workgroup. It is very important that management develop and maintain congenial workgroups. A workgroup’s need for creativity may require individuals with diverse backgrounds. However, to be effective, they must be compatible in terms of sharing common values and goals.
Status symbols are organizational rewards that take many forms such as office size and location, desk size and quality, how close one’s private parking space is to the office, floor covering, and job title. Status symbols vary from company to company and sometimes are understood only by persons within the company. Some firms make liberal use of these types of rewards; others tend to minimize them. This latter approach reflects a concern about the adverse effect they may have on creating and maintaining a team spirit among members at various levels in the firm. This is true within many workplaces where the corner office and private washroom have given way to more democratic arrangements.
The definition of working conditions has broadened considerably over the years. Today, an air-conditioned and reasonably safe and healthy workplace is considered necessary. Another factor of increasing importance is the flexibility or work-life balance employees have in their work situations. These factors will be discussed in the following sections.
Workplace Flexibility (Work-Life Balance)
10 Objective
1. Describe workplace flexibility (work-life balance) factors.
According to Maria Morris, MetLife executive vice president for institutional business, “To retain top talent in today’s competitive job market, employers need to do more than loosen their purse strings. They must create a work environment that reflects their employees’ life-stage needs and values.” 66 The primary purpose of achieving work-life balance is to minimize stress. For stressed employees (both men and women) 67 seeking to balance work and personal lives, time is nearly as important as money; more important for some. A report by the Families and Work Institute found that 45 percent of employees say work and family responsibilities interfere with each other, and 67 percent of working parents say they do not have enough time with their children.68 That is why more employees are requesting workplace flexible benefits to achieve a better work and life balance. 69 Ellen Galinsky, president of the New York City–based Families and Work Institute, said, “Employers used to think, if you gave employees an inch they’d take a mile. But in fact, if people have some say in how they do their work, it’s more likely that the work will get done.” Flexible work arrangements comprise an aspect of nonfinancial compensation that allows families to manage a stressful work/home-juggling act. CEO Roy Krause of Sphericon Corporation, a staffing and recruiting firm, said, “Employers that choose to ignore or discount [the importance to employees of work/life balance] expose themselves to a greater chance of employee burnout, lower productivity and eventual turnover.” 70 But that is exactly what may be occurring. A recent Emerging Workforce Study found a gap between what employers and employees find important. The survey found that 60 percent of the workers but only 35 percent of employers rate time and flexibility as very important in retention. 71
For employers, creating a balanced work-life environment can be a key strategic factor in attracting and retaining the most talented employees. 72 By providing such an environment, employees are better able to fit family, community, and social commitments into their schedules and they appreciate that. 73 Some of the key programs that provide a work-life balance are discussed in the following sections.
Flextime is the practice of permitting employees to choose their own working hours, within certain limitations. For many old economy managers who think they must see their employees every minute to make sure they are working, this may be difficult. However, today, approximately 27.4 million employees have a flextime schedule. 74 According to the annual survey conducted by the Society of Human Resource Management, 57 percent of companies now offer flextime to some of their employees. 75 If you wonder why this is such an important benefit, consider the recent Harvard study that asked employees to list their most important job components. Number one on the list was, “having a work schedule that allows me to spend time with my family.” 76
In a flextime system, employees work the same number of hours per day as they would on a standard schedule. However, they work these hours within what is called a bandwidth, which is the maximum length of the workday (see Figure 10-4). Core time is that part of the day when all employees must be present. Flexible time is the period within which employees may vary their schedules. A typical schedule permits employees to begin work between 6:00 a.m. and 9:00 a.m. and to complete their workday between 3:00 p.m. and 6:00 p.m. Andy Brimble, head of IT at the Adult Learning Inspectorate, which won Best Place to Work in the central and local government sector, said, “We ensure that we have generous flexible hours, so staff work their 37 hours within a daily core. It has panned out well—for every person who needs to come in late after school drop-off, there is someone who wants to get in early to beat the traffic.” 77
Figure 10-4 Illustration of Flextime
Because flexible hours are highly valued in today’s society, a flexible work schedule gives employers an edge in recruiting new employees and retaining highly qualified employees. Also, flextime allows employees to expand their opportunities. For example, it may be easier for them to continue their education than if they were on a traditional work schedule. The public also seems to reap benefits from flextime. Transportation services, recreational facilities, medical clinics, and other services can be better utilized by reducing competition for service at conventional peak times. Yet, flextime is not suitable for all types of organizations. For example, its use may be severely limited in assembly-line operations and companies utilizing multiple shifts.
The compressed work week is an arrangement of work hours that permits employees to fulfill their work obligation in fewer days than the typical five-day work week. A common compressed work week is four 10-hour days. Of the 100 Best Companies to Work For, 81 used this form of the compressed work week, which is up from 25 in 1999. 78 Another form of the compressed work week is four nine-hour days and a half day on Friday. Some hospitals permit their registered nurses to work three 12-hour days.
Working under this arrangement, employees have reported greater job satisfaction. In addition, the compressed work week offers the potential for better use of leisure time for family life, personal business, and recreation. Employers in some instances have cited advantages such as increased productivity and reduced turnover and absenteeism. Other firms, however, have encountered difficulty in scheduling worker’s hours and at times employees become fatigued from working longer hours. In some cases, these problems have resulted in lower product quality and reduced customer service.
Job sharing is an approach to work that is attractive to people who want to work fewer than 40 hours per week. It can also assist with child-care responsibilities. In job sharing, two part-time people split the duties of one job in some agreed-on manner and are paid according to their contributions.
Some have equated job sharing to running a marathon. Given an equal athletic ability, two runners running half a marathon back to back will invariably outrun one runner going the entire distance alone. 79 Today, job sharing is offered by 19 percent of employers, according to the Society for Human Resource Management’s Benefits Survey Report. 80 Pat Katepoo, founder of WorkOptions.com, an online resource that helps professionals arrange flexible work schedules, says that “although the arrangements vary, the outcome is the same: Job sharing provides the flexibility to enjoy life.” 81 As a means of encouraging older workers to remain on the job past retirement age, many companies are offering job sharing. 82 Sharing jobs has potential benefits that include the broader range of skills the partners bring to the job. For job sharing to work, however, the partners must be compatible, have good communication skills, and have a bond of trust with their manager. Job sharing also can pose challenges, including the need for additional oversight—such as conducting administrative tasks and performance reviews for two employees rather than one. 83
Trends & Innovations: Two in a Box
Companies such as Intel Corporation and Goldman Sachs Group Inc., are giving two managers the same responsibilities and the same title and letting them decide how the work is to be divided (Two in a Box). Unlike job sharing, it is a full-time job for both managers. It certainly has some risk, as in the case of the 1998 DaimlerChrysler Corporation disaster of executive job sharing when one executives was unwilling to share authority resulting in the resignation of the other executive. A major advantage of this approach is that it can ease transition, permitting a manager to learn from a more experienced manager. It is also useful as managers confront the requirement of global traveling. One manager could be at the home office taking care of regular business while the other is traveling. Problems certainly can occur as the egos of two executives meet, but it has proven successful in certain instances; for example with Cisco Inc., a computer network equipment manufacturer. For two-and-a-half years, two executives shared a job as heads of Cisco’s routing group. The two had complementary skills and each gained experience from the other. Intel typically combines a technically oriented manager with a business-oriented one. Certainly, the Two in a Box approach requires work and constant communication, but for the right two executives, the benefits derived are worth it. 84
Another Two in a Box example occurred when Peter Chernin, the president of NewsCorp., and head of its Fox subsidiary, appointed Gary Newman and Dana Walden as presidents of 20th Century Fox Television. Both are responsible for the performance of the entire company. “What I was really thinking was where to find the skill set to manage these businesses,” Chernin says. “I came to believe that, because of the complexity, if I could find two people with complementary skills, it would probably be better.” Gary Newman said, “Because there are two of us, we’re capable of getting involved in many more things. There’s more productivity here than at any other company like this where there’s only one person in charge,” The arrangement has been great for their family lives. “There’s no meeting that I can’t cover or that Gary can’t cover,” Walden says. 85
Examples of Executive Job Sharing
Job sharing normally occurs below executive ranks. However, this is not always the case. If job sharing were a category in the collection of Guinness World Records, top honors might go to Charlotte Schutzman and Sue Manix. The two women have shared many jobs during 16 years, surviving two corporate mergers and a relocation while earning two promotions in the process. Currently, Schutzman and Manix share the post of vice president of public affairs and communications at New York–based Verizon Communications Inc. Each works two days a week and on alternate Wednesdays. They talk by phone at least twice a week, and their close partnership has enabled them to stay on track professionally while raising their children—Manix has three, Schutzman has two. “It’s been good for us, it’s been good for the company,” says Schutzman. “If we didn’t job-share,” she says, “we might have left.” 86
As another example, Sue Osborn and Susan Williams share the chief executive role at the National Patient Safety Agency (NPSA). They have been there since 2001, but they have been job-share partners since 1986. Before joining the NPSA, they were joint chief executives at Barking and Havering Authority. Each of them works three days a week, including Wednesdays, when they overlap. They talk to each other on the phone quite a lot and also leave detailed notes for each other. 87
Telecommuting is a work arrangement whereby employees, called teleworkers or telecommuters, are able to remain at home (or otherwise away from the office) and perform their work using computers and other electronic devices that connect them with their offices.
For self-motivated workers telecommuting can increase worker productivity and improve job satisfaction and loyalty. 88 Of the 100 Best Companies to Work For, 79 allow employees to telecommute or work at home on a regular basis at least 20 percent of their time. Only 18 companies on the list permitted telecommuting in 1999. 89 Modern communications and information technologies permit people to work just about anywhere. According to Kevin Shannon, executive director of the Association of Commuter Transportation in Atlanta, telecommuting has become more popular in recent years, thanks to traffic congestion, frustration with commuting, and more sophisticated broadband Internet and cell phone communication. 90 It is estimated that about 45 million American workers telecommute regularly, with about half working at home at least one day. 91
Some companies have made parts of their workforce virtual. JetBlue broke new ground with its call center made up primarily of stay-at-home mothers. According to a case study by Blue Pumpkin, a workforce optimization supplier, JetBlue saw performance improvements that resulted in $1.2 million in benefits the first year. 92
Telecommuters generally are information workers. They accomplish jobs that require, for example, analysis, research, writing, budgeting, data entry, or computer programming. Teleworkers also include illustrators, loan executives, architects, attorneys, and publishers. Employees can accomplish both training and job duties without losing either efficiency or quality by using the Internet. Thanks largely to telecommuting, when the New York City transit union went on strike in 2005, knowledge workers were able to work from home, which greatly lessened the effect of the strike. 93
Another advantage of telecommuting is that it eliminates the need for office space. As one manager put it, “The expense of an employee is not just the person, it’s also the fact that I pay $90,000 a year for the office that person sits in.” Also, commuting distances are not a factor for teleworkers. The average time it takes to get to work continues to increase, which often contributes to tardiness and lost work hours. 94 Therefore, firms may hire the best available employees located virtually anywhere in the world for many jobs. The ability to utilize disabled workers and workers with small children further broadens the labor market.
Although telecommuting has many advantages, it also has some potential pitfalls. For example, it may weaken the ties between employees and their firms. In one survey, telecommuters reported feeling a time crunch and believed that the best assignments went to regular employees who were able to collaborate with colleagues face-to-face. 95 In addition, managers have to learn how to manage remotely, which is at times resisted. Also, some workers may be taking advantage of being out of sight to the boss. In a recent survey conducted by CareerBuilder.com, a large number confessed to working less than the normal eight-hour day; 25 percent disclosed that they spend less than one hour on company work with telecommuting. 96
Firms considering telecommuting will need to think about changes in other policy areas as well. Questions such as the following should be addressed:
· Will compensation and benefits be affected? If so, how?
· Who will be responsible for workers injured at home?
· What about the responsibility for purchasing and providing insurance coverage for equipment?
· How will taxes be affected by telecommuting?
· Will overtime be allowed?
· Will security be provided for the telecommuter’s work? How?
· Will the firm have safety requirements for the home? Will OSHA be involved?
These kinds of questions seem to suggest that telecommuting poses insurmountable problems. Yet, there are sufficient examples of successful telecommuting to suggest that it can work effectively in certain environments.
HR Web Wisdom: Telecommuting
Governmental Website for employees who think they might like to telecommute (or are already doing so), for managers and supervisors who supervise teleworkers, and for agency telework coordinators.
In an HRFocus study, part-time work was listed as the most important flexible work option. 97 Part-time employees currently comprise 13.6 percent of the workforce, or about 19 million people. Workers in part-time jobs often receive substantially lower wages and benefits than workers in full-time jobs. 98 For example, Labor Department statistics show that part-time employees earn, on average, a 45 percent lower rate of pay than their equivalent full-time counterparts. 99 For some, however, the lower pay does not matter. In a recent survey, 89 percent of current workers said they expected to work part-time after they retire. Having a part-time job helps workers to make the transition from full-time employment, and part-time employment adds many highly qualified individuals to the labor market by permitting employees to address both job and personal needs.
For some organizations, the availability of part-time work provides a plus. According to research by the University of Chicago’s Sloan Center on Parents, Children and Work, two-thirds of mothers who work full-time would prefer part-time employment, and about half of at-home mothers would prefer to be working part-time rather than staying out of the workforce. Both parties benefit when part-time employment does work out. Companies that offer part-time employment show increased rates of productivity and less employee turnover than other companies. 100
KPMG and Ernst & Young are two companies with successful reduced workload models. Their programs are designed to take the stigma out of part-time work. At KPMG, the program ensures that part-time employees have the same opportunities for pay and career progression as their full-time counterparts. At Ernst & Young, all employees receive a laptop computer with 24/7 technical support so they can work whenever or wherever. 101
Liza Warner, a financial advisor with Jefferson Wells International, works 30 hours a week in order to spend time with her two young sons. Of Wells’s 2,000 employees, 10 percent work a flexible schedule, with benefits, like Warner. A further 20 percent work even fewer hours, project by project, without benefits. The remaining 70 percent are full-time, but still have a lot more control over their lives. 102
A variation of part-time work is where companies permit selected workers who are typically older to split their work locations. Often professionals want to spend time in a better climate, or perhaps have a second home in Florida where they spend six months of the year. Rather than lose a valuable employee who has made a decision to relocate for the winter, companies are finding places for them at both locations. For example, a pharmacist working for a major company might work for six months in New York and six months in Cocoa Beach. Stephen Wing, who oversees the CVS stores, said, “Our older workers tend to be great at customer service and at teaching our younger folks. So it makes sense for us to be flexible and keep them on the job. Home Depot has set up “snowbird” employment programs to retain valuable employees. 103
A variation of part-time work is where employees receive full-time pay and get more done in fewer hours. Sandy Burud, author of the book Leveraging the New Human Capital, did a case study of a Tennessee bank. The bank had an innovative arrangement where the employees got to set their own hours. By working more at busy times of the month, and less during the off periods, “they generated twice as much work with the same number of employees,” she says. Plus, employees got extra days off during the down time—which, understandably, markedly increased their job satisfaction. That bank is a prime example of what is called the corporate athlete paradigm. One training habit of world-class athletes is that they have short periods of very demanding work, but “when they rest, they really rest.” 104
A Exemplary Work-Life Balance Program
Software giant SAS Institute Inc., has a culture that gives it a powerful competitive edge. The environment and benefits provided for employees are outstanding. To begin, the company’s main campus offers day care as inexpensively as $250 per month; free access to a 36,000-square-foot gym; a putting green; sky-lit meditation rooms; and the services of a full-time, in-house elder-care consultant. The café also has a pianist at noon and baby seats so children in day care can lunch with their parents. Also available is free juice and soda for employees. There are subsidized cafeterias, casual dress every day, profit sharing (which has been 15 percent every year for 23 years), domestic partner benefits, unlimited sick days, free health insurance, an on-site medical clinic staffed by doctors and nurse practitioners, and free laundering of sweaty gym clothes overnight. There are soccer fields, baseball diamonds, co-ed workout areas, separate workout areas for men and women, and pool tables. Every white-collar employee has a private office and flexible work schedule with a standard 35-hour work week. All employees have three weeks’ paid vacation plus the week off from Christmas to New Year’s Day. After 10 years with the firm, employees get an additional week of paid vacation. What does all this amount to? SAS has a turnover rate that is never more than 5 percent a year compared to the industry average of over 20 percent. Harvard Business Review figured that SAS’s low turnover saves the company $75 million a year. 105
11 Objective
1. Describe the concepts of severance pay, comparable worth, pay secrecy, and pay compression.
Several issues related to compensation deserve mention. These topics are examined next.
Severance pay is compensation designed to assist laid-off employees as they search for new employment. This factor is especially prominent during periods of downsizing. Although some firms are trimming the amount of severance pay offered, they typically offer one to two weeks of severance pay for every year of service, up to some predetermined maximum. The employee’s organizational level generally determines the amount of severance pay. For example, nonmanagers may get eight or nine weeks of pay even if their length of service is greater than eight or nine years. Middle managers may receive 12 to 16 weeks. 106
In spite of headlines describing executives leaving corporations with multimillion-dollar payouts, most companies send departing CEOs out the door with far less. For example, a recent survey found that most severance calculations still use the traditional measure of years of service. A little more than half (54 percent) of U.S. companies give two or more weeks of severance pay per year of service for senior executives. 107
The comparable worth, or pay equity, theory extends the concept of the Equal Pay Act. While the Act requires equal pay for equal work, comparable worth advocates prefer a broader interpretation of requiring equal pay for comparable worth, even if market rates vary and job duties are considerably different. Comparable worth requires determination of the values of dissimilar jobs (such as company nurse and welder) by comparing them under some form of job evaluation, and the assignment of pay rates according to their evaluated worth. Although the Supreme Court has ruled the law does not require comparable worth, a number of state and local governments, along with some jurisdictions in Canada, have passed legislation mandating this version of pay fairness.
Comparable worth advocates argue the gap between male and female pay is the result of gender bias. Historically, they claim, employers set wages in various occupations based on mistaken stereotypes about women that have stuck over time, leaving the 60 percent of women who work in female-dominated occupations at a disadvantage. 108 Former Congressional Budget Office Director June O’Neill rebuts this notion because, she says, “it conveys the message that women cannot compete in nontraditional jobs and can only be helped through the patronage of a job evaluation.” 109
In the business world, comparable worth would create numerous difficulties. To implement such a system, it would require a reliable way to determine when completely different jobs have a comparable value. Experts cannot agree on any system that would intelligently do this. Remember that in the point system of job evaluation, separate job clusters were considered necessary because of the difficulty in relating dissimilar jobs in the same company. Comparable worth advocates envision comparing dissimilar jobs not only between job clusters in one firm but jobs between industries.
In addition, the concept of comparable worth is antithetical to our nation’s free-market economic system. In this system, the market allocates scarce resources according to supply and demand. To implement comparable worth, a bureaucratic government would artificially establish pay levels for jobs it deems comparable. If the wages for scarce male-dominated jobs were artificially set below the level that the market would demand, labor shortages would result.
The goal of nondiscriminatory pay practices is one that every organization should seek to achieve for ethical and legal reasons. Whether comparable worth is an appropriate solution remains to be seen. If the past is any indication, the debate will continue as long as there is a disparity between the compensation of men and women.
Approximately one-third of organizations in the private sector have specific rules prohibiting employees from discussing their wages with co-workers, known as pay secrecy/confidentiality rules (PSC). 110 The legal use of such rules is questionable, however, since the National Labor Relations Act protects workers’ rights to engage in “concerted activity for the purpose of . . . mutual aid or protection.” The NLRB has routinely found PSC rules unlawful. 111 If a firm’s compensation plan is illogical, secrecy may indeed be appropriate because only a well-designed system can stand careful scrutiny. An open system would almost certainly require managers to explain the rationale for pay decisions to subordinates. Secrecy, however, can have some negative side effects, including a distortion of the actual rewards people receive. Secrecy also spawns a low-trust environment in which people have trouble understanding the relationship between pay and performance. In such an environment, an otherwise sound program loses its effectiveness.
Pay compression occurs when less experienced employees are paid as much as or more than employees who have been with the organization a long time; this is due to a gradual increase in starting salaries and limited salary adjustment for long-term employees. 112
This situation most likely occurs when labor market pay levels increase more rapidly than current employees’ pay raises. Pay compression may also take place when firms make pay adjustments at the lower end of the job hierarchy without commensurate adjustments at the top. The explanation for this action may be the firm’s need to meet market prices in retaining or hiring people with scarce skills and an inability to make needed adjustments elsewhere in the pay structure. There are numerous problems associated with pay compression. First, those who end up with less because of compression often feel that their tenure, experience, historical knowledge, and contributions have not been taken into account by the organization. Second, the old-timers may resent and refuse to help newcomers who are paid more, taking the attitude that if you pay them more, “let them earn their money.” Finally, existing employees are more likely to leave if they feel unappreciated. 113 Unfortunately, no easy solution is available if a firm lacks the resources to maintain internal equity or believes that external equity should be of primary concern.
A Global Perspective: China’s Work Week
The average worker in China does not have the same average work week as in the United States. Dong Ziaobo is a senior manager at a small, private provider of telecom software services in Beijing whose main client is China Mobile Ltd., the national carrier. Dong, 30 and unmarried, earns almost $2,000 a month, which is nearly twice what the average city worker earns. However, he works 60-hour, six-day weeks and he receives no overtime pay. “I have no choice but to work overtime,” says Dong. “Anyway, it’s my duty to work hard at my job.” 114
Liu Bo, a 31-year-old, has a very different work week. As one of 120 teachers at the Taiyuan Middle School, he works 40 hours over five days a week teaching history. He never works overtime. For this, the married Liu earns just under $200 a month. But he’s happy with his employment. “I just want to keep teaching my students,” says Liu, who adds that as a government-employed teacher he is assured of social welfare benefits such as medical care. “I like my job because I face little stress and can fully enjoy my free time,” he says. 115
According to a study by the International Labor Organization, the Chinese work week averages 44.6 hours. It makes a difference if a person is employed by the state with shorter hours, or in the private sector, where the average work week exceeds 46 hours. “Chinese, especially young people, are facing ever more pressure in their jobs,” says Ma Mingjie, director of the Beijing-based China Youth Daily’s Social Research Center. According to a survey by the center, 65.6 percent are working longer than eight-hour days, with 20 percent putting in more than 10 hours. 116
One study found that over 50 percent of Chinese workers, unlike those in Japan and South Korea, do not get paid for overtime, according to Zeng Xiangquan, dean of the School of Labor & Human Resources at People’s University and one of the authors of the study. “While blue-collar workers work long hours to earn more money, white-collars do so for less tangible goals such as promotion or personal satisfaction,” says Zeng. 117
Constance Thomas, director of the ILO Office for China and Mongolia in Beijing, said, “China’s labor regulations are actually good—and pretty much in keeping with international norms.” The laws mandate a 44-hour, five-day work week; two weeks of annual leave; regular holidays; and a minimum of one-and-a-half times pay for overtime. The mandated work hours are down from close to 50 hours in a six-day week before 1995. However, the law may not always be followed. “It’s a big country with a lot of regions that still need to develop,” Thomas says. “We see differences in how the labor law is applied.” 118
1. Define benefits.
Benefits include all financial rewards that generally are not paid directly to the employee.
2. Describe mandated (legally required) benefits.
Legally required benefits include Social Security retirement benefits, disability insurance, and survivors’ benefits; Medicare; workers’ compensation benefits; and unpaid leave, mandated by the Family and Medical Leave Act.
3. Explain the various discretionary benefits.
Categories of discretionary benefits include: payment for time not worked, health care, life insurance, retirement plans, disability protection, employee stock option plans (ESOPs), supplemental unemployment benefits (SUB), and employee services.
4. Describe customized benefit plans.
Customized benefit plans permit employees to make yearly elections to largely determine their benefit package by choosing between taxable cash and numerous benefits.
5. Explain premium pay.
Premium pay is compensation paid to employees for working long periods of time or working under dangerous or undesirable conditions.
6. Explain health care legislation.
The Consolidated Omnibus Budget Reconciliation Act was enacted to give employees the opportunity to temporarily continue their coverage, which they would otherwise lose because of termination, layoff, or other change in employment status. The Health Insurance Portability and Accountability Act provides protection for Americans who move from one job to another, who are self-employed, or who have pre-existing medical conditions. The Employee Retirement Income Security Act was passed to strengthen existing and future retirement programs. The Older Workers Benefit Protection Act is an amendment to the Age Discrimination in Employment Act and extends its coverage to all employee benefits. The Pension Protection Act (PPA) of 2006 is the most sweeping reform of America’s pension laws in over 30 years.
7. Describe the components of nonfinancial compensation.
The components of nonfinancial compensation consist of the job itself and the job environment.
8. Describe the job itself as a nonfinancial compensation factor and job characteristics theory.
The job itself can be a very powerful factor in the compensation equation. Some jobs can be so stimulating that the incumbent is anxious to get to work each day. On the other hand, a job may be so boring or distasteful that an individual dreads going to work.
According to job characteristics theory, employees experience intrinsic compensation when their jobs rate high on five core job dimensions: skill variety, task identity, task significance, autonomy, and feedback. These characteristics create the potential for increased performance, lower absenteeism and turnover, and higher employee satisfaction.
9. Describe the job environment as a nonfinancial compensation factor.
The physical environment and the psychological climate are important factors. Employees can draw satisfaction from their work through several nonfinancial factors. Sound policies, capable managers, competent employees, congenial co-workers, appropriate status symbols, and working conditions are all important features.
10. Describe workplace flexibility (work-life balance) factors.
Workplace flexibility factors such as flextime; the compressed work week; job sharing; flexible compensation plans; telecommuting; part-time work; and more work, fewer hours are components of nonfinancial compensation.
11. Describe the concepts of severance pay, comparable worth, pay secrecy, and pay compression.
Compensation designed to assist laid-off employees as they search for new employment is referred to as severance pay. Comparable worth requires the value for dissimilar jobs, such as company nurse and welder, to be compared under some form of job evaluation, and pay rates for both jobs to be assigned according to their evaluated worth. With pay secrecy, organizations tend to keep their pay rates secret for various reasons. Pay compression occurs when less experienced employees are paid as much as or more than employees who have been with the organization a long time due to a gradual increase in starting salaries and limited salary adjustment for long-term employees.
· Benefits
· Paid time off (PTO)
· Sabbaticals
· Health maintenance organization (HMO)
· Preferred provider organization (PPO)
· Point-of-service (POS)
· Exclusive provider organization (EPO)
· Defined contribution health care plan
· Health savings account (HSA)
· Flexible spending account (FSA)
· Defined benefit plan
· Defined contribution plan
· 401(k) plan
· Cash balance plan
· Employee stock option plan (ESOP)
· Supplemental unemployment benefits
· Relocation benefits
· Customized benefit plan
· Premium pay
· Hazard pay
· Shift differential
· Job characteristics theory
· Skill variety
· Task identity
· Task significance
· Autonomy
· Feedback
· Flextime
· Compressed work week
· Job sharing
· Telecommuting
· Severance pay
· Comparable worth
· Pay compression
1. |
Define benefits. |
2. |
What are the legally required benefits? Briefly describe each. |
3. |
What are the basic categories of voluntary benefits? Describe each. |
4. |
What items are included in the voluntary benefit of payment for time not worked? |
5. |
Define each of the following: a. Health maintenance organization (HMO) b. Preferred provider organization (PPO) c. Point-of-service (POS) d. Exclusive provider organization (EPO) e. Defined contribution health care system f. Health savings account (HSA) g. Flexible spending account (FSA) |
6. |
There are numerous forms of retirement plans. Describe each of the following: a. Defined benefit plan b. Defined contribution plan c. 401(k) plan d. Cash balance plan |
7. |
What is an employee stock option plan? |
8. |
Distinguish among premium pay, hazard pay, and shift differential pay. |
9. |
Define each of the following benefit laws: a. Consolidated Omnibus Budget Reconciliation Act of 1985 b. Health Insurance Portability and Accountability Act of 1996 c. Employee Retirement Income Security Act of 1974 d. Older Workers Benefit Protection Act |
10. |
What is job characteristics theory? What are the components of job characteristics theory? |
11. |
What nonfinancial compensation factors are related to the job environment? |
12. |
Define each the following workplace flexibility factors: a. Flextime b. Compressed work week c. Job Sharing d. Telecommuting |
13. |
Define each of the following: a. Severance pay b. Comparable worth c. Pay compression |
HRM Incident 1: You’re Doing a Great Job, Though
During a Saturday afternoon golf game with her friend Randy Dean, Ashley Aubert discovered that her department had hired a recent university graduate as a systems analyst at a starting salary almost as high as Ashley’s. Although Ashley was good-natured, she was bewildered and upset. It had taken her five years to become a senior systems analyst and attain her current salary level at Trimark Data Systems. She had been generally pleased with the company and thoroughly enjoyed her job.
The following Monday morning, Ashley confronted Dave Edwards, the human resource director, and asked if what she had heard was true. Dave apologetically admitted that it was and attempted to explain the company’s situation “Ashley, the market for systems analysts is very tight, and in order for the company to attract qualified prospects, we have to offer a premium starting salary. We desperately needed another analyst, and this was the only way we could get one.”
Ashley asked Dave if her salary would be adjusted accordingly. Dave answered, “Your salary will be reevaluated at the regular time. You’re doing a great job, though, and I’m sure the boss will recommend a raise.” Ashley thanked Dave for his time, but left the office shaking her head and wondering about her future.
Questions
1. |
Do you think Dave’s explanation was satisfactory? Discuss. |
2. |
What action do you believe the company should have taken with regard to Ashley? |
HRM Incident 2: A Benefits Package Designed for Whom?
Wayne McGraw greeted Robert Peters, his next interviewee, warmly. Robert had an excellent academic record and appeared to be just the kind of person Wayne’s company, Beco Electric, was seeking. Wayne is the university recruiter for Beco and had already interviewed six graduating seniors at Centenary College.
Based on the application form, Robert appeared to be the most promising candidate to be interviewed that day. He was 22 years old and had a 3.6 grade point average with a 4.0 in his major field, industrial management. Not only was Robert the vice president of the Student Government Association, but he was also activities chairman for Kappa Alpha Psi, a social fraternity. The reference letters in Robert’s file revealed that he was both very active socially and a rather intense and serious student. One of the letters from Robert’s employer during the previous summer expressed satisfaction with Robert’s work habits.
Wayne knew that discussion of benefits could be an important part of the recruiting interview. But he did not know which aspects of Beco’s benefits program would appeal most to Robert. The company has an excellent profit-sharing plan, although 80 percent of profit distributions are deferred and included in each employee’s retirement account. Health benefits are also good. It also has long-term care insurance. The company’s medical and dental plan pays a significant portion of costs. A company lunchroom provides meals at about 70 percent of outside prices, although few managers take advantage of this. Employees get one week of paid vacation after the first year and two weeks after two years with the company. Two weeks are provided each year for sick leave. In addition, there are 12 paid holidays each year. Finally, the company encourages advanced education, paying for tuition and books in full, and, under certain circumstances, allowing time off to attend classes during the day. It also provides scholarships for dependents.
Questions
1. |
What aspects of Beco’s benefits program are likely to appeal to Robert? Explain. |
2. |
In today’s work environment, what additional benefits might be more attractive to Robert? Explain. |
1Sandra Swanson, “Sound Hokey? Employers Trout Out Quirky Perks,” Crain’s Chicago Business 28 (February 14, 2005): 32–33.
2Ibid.
3Ron Scherer, “Now Hiring: The Hot Jobs of the Moment,” Christian Science Monitor 97 (May 19, 2005): 1–2.
4“Juggling Work with Life,” Graphic Arts Monthly (February 2005): S14–S15.
5Kathy Gurchiek, “ID Theft Services Emerge as New Employee Benefit,” HR Magazine 50 (October 2005): 29–32.
6Elka Jones, “An Overview of Employee Benefits,” Occupational Outlook Quarterly 49 (Summer 2005): 12–21.
7Mary Slepicka, “What Employee Benefits Cost You,” Dealernews 41 (October 2005): 46–54.
8“Towers Predicts 2006 Health Benefits Costs at $8,424 per Staffer,” Controller’s Report 2006 (January 2006): 1–3.
9“The 2005 Annual Social Security and Medicare Trust Fund Reports,” Pension Benefits 14 (May 2005): 2–4.
10Ibid.
11Carolyn Hirchman, “Employees’ Choice,” HR Magazine 51 (February 2006): 95–100.
12“Transportation: The Latest ‘Hot’ Benefit,” HR Focus 83 (July 2006): 12.
13“Employees Value Paid Vacation Time More Than Other Benefits, Data Show,” Compensation & Benefits for Law Offices 5 (May 2005): 7.
14Lynn Gresham, “When Employees Give Too Much,” Employee Benefit News 18 (July 2004): 9.
15Kathy Gurchiek, “Workers Find It Hard to Let Go,” HR Magazine 50 (August 2005): 30–34.
16“Recruitment & Retention Strategy: Give Employees the Benefits They Want,” “Contractors Business Management Report” 2006 (January 2006): 1–12.
17Diane Cadrain, “Employers Find Smooth Sailing in PTO Waters,” HR Magazine 50 (September 2005): 29–41.
18 Ibid
19Stephanie Overman, “Sabbaticals Benefit Companies as Well as Employees,” Employee Benefit News 20 (April 2006): 56–58.
20Michael Arndt, “Nice Work If You Can Get It,” Business Week (January 9, 2006): 56–57.
21Kelly M. Butler, “Faced with Worker Burnout Employers Pay Employees to Get Away,” Employee Benefit News 19 (June 1, 2005): 55–56.
22Repps Hudson, “Leaves of Absence Can Recharge a Worker or Drain a Career,” St. Louis Post-Dispatch (February 19, 2002): 1.
23Ibid.
24“Top Trends Cited by HR Pros: Competition, Health Care, Staffing,” HR Focus 83 (August 2006): 8.
25Slepicka, “What Employee Benefits Cost You.”
26Fareed Zakaria, “How We Drive Our Jobs Away,” Newsweek 145 (April 18, 2005): 43.
27Geoffrey Colvin, “The Doctor Is Out,” Fortune (Europe) 152 (October 14, 2005): 44.
28Gina Ruiz, “AOL Founder Champions a Revolution in Health Care,”Workforce Management 85 (February 13, 2006): 51–53.
29“HSA Update: What’s Working, What’s the Prognosis,” HR Focus 82 (October 2005): 5–6.
30Joanne Wojcik, “Enrollment Changes Seen as Undermining NCQA Quality Effort,” Business Insurance 39 (October 10, 2005): 1–41.
31“Good News About Consumer-Directed Health Plans,” HR Focus 83 (June 2006): 6–7.
32Gina Ruiz, “AOL Founder Champions a Revolution in Health Care,” Workforce Management 85 (February 13, 2006): 51–53.
33Leah Carlson Shepherd, “As HSAs Grow, Leaders Debate Accounts’ Effectiveness,” Employee Benefit News 20 (April 2006): 30.
34Dave Willis, “Trends in Health Insurance,” Advisor Today 101 (March 2006): 49–51.
35Kathy Gurchiek, “Explosion of HSAs Foreseen in 2006,” HR Magazine 50 (July 2005): 30.
36Jennifer Pellet, “Savings Grace,” Entrepreneur 34 (January 2006): 56.
37Susan J. Wells, “The Doctor Is In-House,” HR Magazine 51 (April 2006): 48–54.
38Ibid.
39John E. Dicken, “Overview of the Long-Term Care Partnership Program: GAO-05-1021,” GAO Reports (October 11, 2005): 1, 37.
40Kimberly Lankford, “A Fresh Look at Long Term Care,” Kiplinger’s Personal Finance 60 (May 2006): 92–93.
41“IBM Pensions Are the Latest Defined Benefits Plans Casualties,” HR Focus 83 (April 2006): 12.
42Jenna Gottlieb, “Verizon Move Seen as New Blow to DB Funds,” Pensions & Investments 33 (December 12, 2005): 6–41.
43Alan Glickstein and Kevin Wagner, “Reassessing Retirement Plans: Five Aspects to Consider,” Employee Benefit News 20 (August 2006): 56–57.
44Jerry Geisel, “Employers Fear Retiree Funds Lacking,” Business Insurance 40 (April 3, 2006): 16.
45“Workers Contributing Less to 401(k) Plans, Six-Year Study on Participation Rates Show,” Managing 401(k) Plans 2006 (April 2006): 9.
46Eugene C. Gordon and Lance Wallach, “Cash Balance Plans Might Enhance Clients’ Retirement,” Accounting Today 21 (April 3, 2006): 18–19.
47John A. Turner, “Are Cash Balance Plans Defined Benefit or Defined Contribution Plans?” Benefits Quarterly 19 (Second Quarter 2003): 71.
48Ann Pomeroy, “Money Talks,” HR Magazine 50 (July 2005): 46–51.
49“Smooth Moves,” Workforce Management 85 (February 13, 2006): 33–34.
50John Marvin, “Dollars and Sense of Backup Child Care: When Is It the Right Choice?” Employee Benefit News 19 (April 15, 2005): 46–48.
51Patrick J. Kiger, “A Case for Child Care,” Workforce Management 83 (April 2004): 34–40.
52Marvin, “Dollars and Sense of Backup Child Care: When Is It the Right Choice?”
53Matt Bloch, “Bearing Fruit,” HR Magazine 51 (March 2006): 56–60.
54Robert Levering and Milton Moskowitz, “100 Best Companies to Work For,” Fortune 147 (January 20, 2003): 140.
55Charlotte Garvey, “Access to the Law,” HR Magazine 47 (September 2002): 83.
56Nancy Hatch Woodward, “Helping Workers Pay College Costs,” HR Magazine 50 (August 2005): 74–82.
57Ibid.
58 U.S. Statutes at Large 88, Part I, 93rd Congress, 2nd Session, 1974: 833.
59Maria Greco Danaher, “Legalese May Nullify a Release of ADEA Claims,” HR Magazine 50 (August 2005): 117–118.
60Jerry Kinard and Brian R. Kinard, “Who’s Rights Were Trampled?” Supervision 66 (June 2005): 3–5.
61 http://hr.cch.com/pension/protection-act/default.asp?cID=Y5230, August 17, 2006.
62Dagmara Scalise, “Happy Workers,” H&HN: Hospitals & Health Networks 80 (March 2006): 28–30.
63Adapted from Frederick Herzberg, Work and the Nature of Man (Cleveland: World, 1966): 91–106.
64Adapted from Craig J. Cantoni, “Learn to Manage Pay and Performance Like an Entrepreneur,” Compensation & Benefits Review 29 (January/February 1997): 52–58.
65J. R. Hackman and G. R. Oldham, Work Redesign (Reading, MA: Addison-Wesley, 1980).
66Ed Frauenheim, “Studies: More Workers Look to Switch Jobs,” Workforce Management 85 (February 13, 2006): 12.
67“No Surprises, Work/Life Balance Is Not Just a Woman’s Issue,” Compensation & Benefits for Law Offices 6 (May 2006): 4–6.
68Karen Kornbluh, “The Joy of Flex,” Washington Monthly 37 (December 2005): 30–31.
69Nichole L. Torres, “Perking Up,” Entrepreneur 34 (April 2006): 30.
70“‘Emergent’ Workers Make Up One-Third of Workforce,” HR Magazine 51 (January 2006): 16.
71“Employers Work to Retain Staff, Despite Rise in Job Seeking,” HR Focus 84 (January 2006): 8.
72“Retention Takes Center Stage Again as More Employees Plot a Move,” Compensation & Benefits for Law Offices 6 (January 2006): 7.
73Laura Demars, “Finders Keepers,” CFO 22 (February 2006): 8–9.
74Kathy Gurchiek, “Fewer Workers Use Flexible Schedules,” HR Magazine 50 (September 2005): 30–36.
75Chris Taylor, “Life in the Balance,” Incentive 179 (January 2005): 16–19.
76Joel Schettler, “A New Social Contract,” Training 39 (April 2002): 62.
77Julia Vowler, “Flexible Working Makes Everyone a Winner,” Computer Weekly (March 29, 2005): 22.
78“Live a Little!” Fortune 153 (January 23, 2006): 102.
79Steve Davolt, “Lightening Workload Heightens Job Satisfaction, Productivity,” Employee Benefit News 20 (April 2006): 19.
80Carolyn Hirschman, “Share and Share Alike,” HR Magazine 50 (September 2005): 52–57.
81Marcia A. Reed-Woodward, “Share and Share Alike,” Black Enterprise 36 (April 2006): 63.
82Melissa Hennessy, “The Retirement Age,” CFO 20 (February 2006): 42–45.
83Ibid.
84Scott Thurm, “Power-Sharing Prepares Managers,” Wall Street Journal (December 5, 2005): B4.
85Jody Miller and Matt Miller, “Get a Life,” Fortune 152 (November 28, 2005): 109–124.
86Ibid.
87Jane Simms, “Who Job Shares Wins? Director 59 (January 2006): 48–52.
88Barbara Gomolski, “Confessions of a Full-Time Telecommuter,” Computerworld 40 (February 27, 2006): 46.
89“Live a Little!”
90“Telework Seen as Helpful to Employers, Yet Full-Time,” HR Focus 82 (June 2005): 8–9.
91Ed Frauenheim, “Telecommuting Cutbacks at HP Represent Shift,” Workforce Management 85 (June 26, 2006): 4–6.
92“Virtual Work: It’s Not Just for Members of the Jedi Council,” T+D 59 (August 2005): 12–13.
93Coreen Bailor, “NYC Rides with Telecommuting,” CRM Magazine 10 (March 2006): 11–12.
94“Employers That Offer Commuting Options Can Reap Many Benefits,” HR Focus 82 (February 2005): 9.
95Edward Prewitt, “Flextime and Telecommuting,” CIO (April 15, 2002): 130.
96Kelley M. Butler, “Survey Results Report Productivity Lag Among Teleworkers,” Employee Benefit News 20 (March 2006): 56.
97“Flexible Work Grows as a Work/Life Solution,” HR Focus 81 (October 2004): S1–S4.
98Barry T. Hirsch, “Why Do Part-Time Workers Earn Less? The Role of Workers and Job Skills,” Industrial & Labor Relations Review 58 (July 2005): 525–551.
99Beth Joyner Waldron, “Help Mothers by Removing Obstacles to Part-Time Work,” USA Today (February 29, 2004): News, 13a.
100Ibid.
101Ibid.
102Nanette Byrnes, “Treating Part-Timers like Royalty,” Business Week (October 10, 2005): 78.
103“For Some Folks, Where to Work Is a Split Decision,” AARP Bulletin 47 (June 2006): 4.
104Taylor, “Life in the Balance.”
105Charles Fishman, “Moving Toward a Balanced Work Life,” Workforce 79 (March 2000): 39–40.
106Louis Kickhofel “How to Land on Your Own Two Feet,” Money 34 (September 2005): 96.
107“Severance Is Lower Yet Still Exceeds Mid-1990s,” HR Focus 82 (November 2005): 12.
108Amy Gluckman, “Comparable Worth,” Dollars & Sense (September 1, 2002): 42.
109Diana Furchtgoff-Roth, “Comparable Worth Is Back,” The American Spectator 33 (September 2000): 38.
110Leonard Bierman and Rafael Gely, “‘Love, Sex and Politics? Sure. Salary? No Way’: Workplace Social Norms and the Law,” Berkeley Journal of Employment & Labor Law 25 (2004): 168.
111Ibid., 169.
112Susan Ladika, “Decompressing Pay,” HR Magazine (December 2005): 79–81.
113“How to Avoid ‘Fallout’ from Pay Compression,” HR Focus 81 (November 2004): 3–4.
114Dexter Roberts, “A Long March for Workers,” Business Week (October 10, 2005): 66–67.
115Ibid.
116Ibid.
117Ibid.
118Ibid.
Human Resource Management, Tenth Edition
Chapter 10: Benefits, Nonfinancial Compensation, and Other Compensation Issues
ISBN: 9780132225953 Author: R. Wayne Mondy
Copyright © Prentice Hall, Inc. A Pearson Education Company (2008)