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9Benefits and Benefit Administration

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Learning Outcomes After reading this chapter, you should be able to do the following:

• List and describe the types of benefits that organizations offer.

• Apply psychological motivation perspectives to benefits and benefits administration.

• Describe a systematic process for designing and implementing an effective benefits program.

• Position benefits so that they are a strategic, competitive advantage to be leveraged, rather than a mere expense.

• Integrate the full impact of an organization’s pay and benefits as a package.

• Link benefits with other functions within the HRM process.

• Discuss opportunities, challenges, and recent developments in benefits and their administration.

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Section 9.1 The Strategic Importance of Benefits

Introduction Benefits, also commonly referred to as fringe benefits or perks, are compensation that is not a wage or salary and goes beyond either form of compensation. Examples of benefits include health insurance, retirement plans, and paid time off. According to the Bureau of Labor Statis- tics (2015), average benefits constitute about 31% of total compensation in the private sector, and about 36% in local and state government organizations—making benefits huge expendi- tures that amount to billions of dollars a year. Only about six to eight percent of benefits expenditures are legally required, yet employers often voluntarily provide their employees with numerous additional benefits in the hope of gaining a competitive advantage in attract- ing, retaining, and motivating the right talent. However, in practice, the relative advantages of various benefits are difficult to quantify, and tightened margins, weak product/service mar- kets, and an intense focus on cost cutting are often roadblocks to considering more robust benefits for employees (Custers, 2013). This difficulty has led many organizations to adopt simpler approaches such as imitating other employers within their community or their indus- try, or basing benefit decisions on resources such as available funding, space, time, or infor- mation. This chapter makes the case for the strategic importance of benefits and offers a systematic approach to their design, implementation, and evaluation.

Opening Case Study Statistical Analysis Software (SAS) Is One of the

Best Companies to Work For

The links below describe SAS—a company that excels in using a generous benefits package as a source of human-based competitive advantage through attracting, motivating, and retaining talent. SAS has consistently received one of the top rankings in Fortune magazine’s 100 Best Companies to Work For. While not all organizations can provide the wide range of benefits for which SAS is known, decisions about which benefits to provide, to whom, and how they are administered, should be made strategically. This is because benefits can play a strategic role in attracting and retaining talent, and in motivating employees to meet organizational goals. This chapter discusses this strategic role of benefits.

Web Links Working the good life: http://www.cbsnews.com/stories/2003/04/18/60minutes/ main550102.shtml

SAS website: http://www.sas.com

9.1 The Strategic Importance of Benefits Benefits are a crucial way to attract the right talent to an organization. Employees consider benefits when they decide which employer to work for, decide whether to work for a different employer, and decide when to retire. All these decisions depend on the benefits an employer offers, the extent to which the employee values these benefits, and how well the benefits com- pare to the benefits offered by other employers. Employers gain a significant competitive advantage when they are able to strategically design their benefit packages to appeal to the

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Section 9.1 The Strategic Importance of Benefits

types of talent they hope to attract. However, as workplace diversity increases, the needs of different groups of employees grow increasingly varied. Organizations should offer a wide range of benefits that cater to the needs of diverse groups of workers and that each employee or group of employees can customize, based on their needs. Leopold (2010) argues that employers must move away from the traditional notion of benefits (e.g., medical coverage, retirement accounts, time-off policies, etc.) and toward strategies of health/wellness, financial security, life balance, and the totality of an employee experience.

Furthermore, benefits are critical for employee motivation and morale. Chap- ter 8 includes three major perspectives on human motivation: content, process and equity, and behavioral perspec- tives. Like pay and other financial incen- tives, benefits help motivate employees and satisfy such basic needs as Maslow’s physiological and safety needs, Alderfer’s exis- tence needs, and Herzberg’s hygiene factors. In terms of motivational processes, Vroom’s expectancy theory implies that high-valence benefits can have a significant motivational power, as can benefits’ high expectancy and instrumentality. Equity and justice in benefits and their administration are also crucial for motivation and morale. Finally, benefits can be contingent on performance and other specific, desirable workplace behaviors, which make benefits more likely to boost performance dimensions and result in other desirable employee behaviors.

These different motivational perspectives may yield contradictory information regarding various benefits’ uses and administration. Consider the following examples:

• Traditionally, health insurance has been an extremely desirable benefit, and employees were attracted to employers who provide health insurance benefits because these benefits satisfy safety and security needs. The lack of health insur- ance benefits has frequently been cited as a hygiene factor contributing to job dis- satisfaction. Yet, both the percentage of workers with employment-based health benefits and the comprehensiveness of that coverage have been declining in the past decade (Fronstin, 2012). Further, the Patient Protection and Affordable Care Act (PPACA) of 2010, commonly known as Obamacare or the Affordable Care Act (ACA), has had a substantial impact on employer provided health care cover- age. As discussed in Chapter 2, the ACA increases the responsibilities of employ- ers, employees, and insurance companies to expand coverage, accessibility, and affordability of healthcare benefits, and progressively penalizes them for failing to do so. More specifically, the two most prominent reforms are the individual man- date and the employer mandate. The individual mandate requires U.S. citizens and legal residents to have qualifying health care coverage, and imposes penalties on those who do not. The employer mandate, also referred to as the pay-or-play mandate, requires employers with 50 or more employees to subsidize health

Rawpixel Ltd/iStock/Thinkstock

As workplace diversity increases, organizations need to diversify benefits as well.

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Section 9.1 The Strategic Importance of Benefits

insurance premiums for low-income employees, to pay a fee for every employee who receives a tax credit for health insurance coverage, or to offer subsidies and also pay a fee. This act also sets higher standards for care improvement, pro- vides subsidies for small businesses and low-income individuals and families to increase the affordability of coverage, and provides incentives for participation in wellness programs. The act exempts more health care services and preventative care from co-pay, co-insurance, and deductible requirements; it also prohibits the exclusion of pre-existing conditions. To date, there continue to be many gaps and unknowns regarding the rules and regulations of the ACA. Employer-provided health insurance is generally administered as a group benefit regardless of indi- vidual performance, seniority, or health condition; therefore, many employees do not perceive this benefit to be equitable. For example, two employees would receive the same benefit and would pay the same premium even though one of them is healthy and rarely goes to the doctor and the other has a chronic condi- tion and undergoes multiple surgeries a year. In fact, under ACA, health insurance companies can no longer deny coverage or charge more based on pre-existing health conditions, which was a common practice prior to 2014. Nor is health insurance linked to performance outcomes, a fact that makes it impossible to use this benefit to build instrumentality or use it as a behavioral management tool.

• Some organizations provide access to child care, elder care, and fitness centers at a discount or at no cost to employees. These benefits are important to attract and retain some employee groups. However, employees who do not need these ben- efits, or who are able to obtain them from other sources (e.g., through a spouse’s employer), will not find them motivating. Furthermore, these employees may per- ceive these benefits as inequitable since no additional compensation or alternative benefits are provided to employees who do not utilize them.

• Flexible work arrangements such as flextime, job sharing, and telecommuting are forms of benefits, and they are becoming increasingly common. Many employees find this flexibility attractive because it can help them balance work with other life activities, interests, and commitments. However, these benefits are not appropriate for positions that require physical presence and set working hours. Consequently, most organizations that offer flexible work arrangements offer them to only a subset of their employees, which other employees may find unfair. Furthermore, these arrangements can reduce managers’ ability to directly observe their employees and reward appropriate behaviors or discipline such unacceptable behaviors as procras- tination, working in a noisy or distracting environment, or compromising quality or safety to finish work faster. As a result, high performers may go unnoticed and unre- warded, while low performers may sustain their unacceptable work habits without direction or consequences.

It is understandable that not all benefits will attract the same types of employees or motivate them equally. Benefits also affect retention rates. For example, in a recent survey by the Met- ropolitan Life Insurance Company (2011), employees who were satisfied with the benefits they received from their employers were more than three times as likely to be highly satis- fied with their jobs. Compared to employees who were dissatisfied with their benefits, these employees were also more likely to have a sense of loyalty to their employers, less likely to leave in the next 12 months, and more likely to view benefits as an important reason to stay with their current employers.

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Section 9.2 Types of Benefits

Finally, benefits can enhance employee productivity by improving employees’ physical and psychological health. For example, when employees experience physical health problems, they do not report to work. The result is unscheduled absenteeism that can disrupt work flow. Even when an organization does not provide employees with sick-leave benefits, employ- ees may report to work while sick but have low productivity, a phenomenon referred to as presenteeism (Koopman et al., 2002). Health insurance and paid sick leave are examples of benefits that can alleviate these performance problems. Stress and burnout due to conflict- ing work and life demands can also compromise employees’ psychological health, leading to lower productivity (Maslach, 2005). Work-life benefits can help employees deal with such conflicts—reducing stress and burnout and enhancing productivity. Thus, benefits can yield a significant return in terms of talent attraction, motivation, retention, and increased produc- tivity. These returns make these benefits strategically important and a source of potential competitive advantage.

9.2 Types of Benefits Organizations provide a variety of benefits to their employees. Some benefits are mandatory. Others are provided at the employer’s choice.

Mandatory Benefits In addition to the provisions of ACA described earlier, which require employers to provide means for affordable healthcare coverage or pay penalties on employees who receive health- care government subsidies, employers are required by law to provide the following mandatory benefits:

• Workers’ compensation is a form of insurance that covers situations when a person is injured in the course of employment. It takes the form of financial compensation, medical care, and rehabilitation services. Employers can supply workers’ compensa- tion coverage by purchasing insurance from a private carrier or through self-insurance. This benefit is provided in exchange for the employee relinquishing the right to pursue legal action against the employer for negligence. A study by the National Academy of Social Insurance reported the total cost of workers’ compensa- tion coverage to employers in 2011 was $77.1 billion and benefits paid to employees totaled $60.2 billion with $29.9 billion distributed in medical care and $30.3 billion distributed as wage replacement (Workers’ compen- sation benefits, 2013).

• Social Security benefits were first established through the Social Security Act of 1935, through which employers offer retirement benefits.

Thinkstock Images/Stockbyte/Thinkstock

Workers’ compensation is a form of insurance that covers on-the-job injuries.

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Section 9.2 Types of Benefits

Social Security is considered a social insurance program that provides benefits to previously employed individuals. Its cost is shared between employees and employ- ers through dedicated payroll taxes called Federal Insurance Contributions Act (FICA) tax. FICA taxes currently represent about 15.3% of payroll.

• Employer-provided healthcare benefits are subject to the Consolidated Omnibus Budget Reconciliation Act (COBRA) and the Health Insurance Portability and Accountability Act (HIPAA). Both acts extend health care benefits to employees who leave their employers; only employers with 20 or more employees are sub- ject to COBRA. People are eligible to receive extended health care coverage under COBRA for reasons including voluntary or involuntary job loss and the death of or divorce from the primary insured family member. However, displaced workers or their families are usually required to pay the full cost of the employer’s health insurance plan, and coverage lasts for only 18 months. If an employee changes employers or loses his or her job, HIPAA then grants the employee the right to retain the same health insurance plan or replace the plan, regardless of pre-exist- ing health conditions. In addition, HIPAA also protects the security and privacy of health information.

• The Family and Medical Leave Act (FMLA) of 1993 applies to federal, state, and private employers with 50 or more employees. When employees have been with the employer full time for one year or longer, the act requires employers to allow these workers 12 weeks of unpaid leave every year for such medical and family needs as the birth, adoption, or placement into foster care of a child. These employees must also receive this unpaid leave to attend to a family member who is ill. Employers must also secure the same positions, or other positions with equivalent pay, for employees when they return to work at the end of a leave.

• Unemployment Insurance was established as part of the Social Security Act of 1935 and the Federal Unemployment Tax Act of 1939 to provide a floor of coverage for unemployed individuals. Workers unemployed through no fault of their own (this does not include those who leave a job without good cause), who are actively seeking work, and who meet state requirements for wages earned or time worked during the most recent 12 months are entitled to unemployment benefits. Benefits are typically set at about 50% of the worker’s weekly earnings with minimum and maximums that vary by state, and benefits can typically be drawn for 52 weeks (Kilgour, 2010). In the majority of states, unemployment compensation paid out by a firm is financed by federal and state unemployment taxes deposited into insurance funds managed by the U.S. Treasury Department. Part of the tax amount depends on the employer’s rating, which is based on the amounts paid out to unemployed workers on behalf of the firm in the past.

• Other mandatory benefits include military leave and jury duty leave.

Web Link The FMLA

http://www.dol.gov/whd/fmla/

This website provides more details and updates on the Family and Medical Leave Act.

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Section 9.2 Types of Benefits

Voluntary Benefits Employers offer voluntary benefits to attract, motivate, and reward talent. Offering these benefits also increases employers’ ability to meet the needs of a greater number of diverse employee groups. Here are some examples of voluntary benefits:

• Severance pay is offered to employees upon termination of employment. The amount paid depends on the employee’s length of employment and level of employment at the organization. There is no rule for calculating severance pay; it is usually agreed between employers and employees. In lieu of severance pay or in addition to it, some employers may also pay for continued health insurance and outplacement assistance.

• A pension plan is a retirement plan offered by an employer and funded by both the employer and employee. The employer’s contributions go toward the employees’ pension pool of funds. The two most common pension plans are defined-benefit and defined-contribution plans. In a defined-benefit pension plan, the employee receives a fixed amount of benefit at retirement, based on the amounts invested by the employer, employee, or both. This type of pension plan does not depend on the performance of the investment pool. In a defined-contribution pension plan, com- monly known as 401(k), fixed contributions are made by the employer, employee, or both. The amount the employee receives at retirement depends on the investment’s performance. Defined-contribution plans are more common in today’s workplace than defined-benefit plans, which used to be common but which many employers are now phasing out. Defined-contribution plans can realize substantial wealth to their holders, but can also lead to major wealth losses, as evidenced by the 2008 financial markets crash, which has wiped out many retirees’ lifetime savings, forc- ing them back into the workforce (Floyd, 2010). However, defined-benefit plans are not without risks, because many of them are underfunded, and some have declared bankruptcy and defaulted on their promised payouts (Miller, 2012; Schieber, 2012).

• Health, dental, and vision insurance and prescription plans are also among the most common voluntary benefits that employers provide. Preferred provider organiza- tion (PPO) and health maintenance organization (HMO) are two types of health care plans that employers offer. In a PPO, a managed care organization of doctors, hospitals, and other health care providers makes a covenant with an insurer to pro- vide health care services to employees or members at reduced rates. Employees are not restricted to preferred providers. However, if employees choose other providers, the employees pay the cost differences.

In contrast, HMOs connect employees with contracted primary care physicians who provide most of the care and treatment needed; HMOs refer patients to contracted specialists only as needed. Receiving services from providers who are not contracted or without a referral usually results in the employee’s bearing the full costs. HMOs tend to be less expensive than PPOs, but they tend to be more restrictive and to have a higher deductible and co-pay. The costs of these plans are usually shared by the employer and the employee. However, they can be paid using pretax dollars. Further- more, out-of-pocket expenses can be paid using pretax dollars if the employer allows employees to set aside a portion of their pay into a flexible spending account.

• Paid time off is another voluntary benefit that is offered by many employers but not legally required. The number of paid time off days or hours offered by an employer depends on the employer’s policies and union contracts; no federal or state laws or statutes govern these benefits. In the United States, most organizations offer fewer

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Section 9.2 Types of Benefits

paid holidays per year than organizations offer in other countries. The amount of paid time off may also vary depending on an employee’s length of employment within an organization. Vacation, sick, and bereavement leave can sometimes be accumulated from year to year, but some employers have a “use it or lose it” policy.

• Other voluntary benefits include short- and long-term disability insurance, life insurance, and domestic partner benefits; tuition assistance or reimbursement for employees pursuing further education; employee assistance programs (EAPs) to confidentially help employees who may have alcohol abuse, substance abuse, or psychological problems; financial services such as credit unions and financial counseling; on-site or discounted memberships in fitness facilities; child-care refer- rals, on-site child care services, or other child care assistance; elder care referrals or assistance; and social and recreational benefits such as tennis courts, bowling leagues, and employer-sponsored athletic teams.

Legal Considerations in Offering and Administering Benefits In addition to the legally required and highly regulated mandatory benefits, voluntary ben- efits are also subject to legal and regulatory considerations that should be taken into account when those benefits are offered and administered. Some of these considerations are related to taxes; others relate to accounting practices; and others relate to discrimination laws. Here are some examples of these legal and regulatory considerations:

• To qualify for certain tax benefits, pension plans should meet specific criteria—e.g., vesting. Plans should also meet nondiscrimination rules that encourage all employ- ees, and not just highly compensated employees, to participate.

• In addition, nondiscrimination rules also prohibit retirement benefits being based on gender. Women tend to live longer than men do, but female employees must not be offered limited benefits or be required to contribute more than male employees toward defined benefit plans.

• Disability benefits are also subject to nondiscrimination laws. For example, the Pregnancy Discrimination Act is a nondiscrimination law; it requires that pregnant employees be offered benefits as if they were disabled.

• According to the Financial Accounting Standards Boards (FASB), benefits funds are to be set aside and paid after retirement. They are to appear on financial statements as future cost obligations—reducing reported annual income.

To add to these complexities, benefits design and administration are governed by laws and regulations that change continually. This fact challenges organizations to stay up to date on all the developments that can have an impact on how they run their benefits programs. The costs of running benefits programs may also include hiring specialists and lawyers to ensure legal compliance.

Flexible Benefits An increasing number of employers grant employees the freedom to choose their benefits. Especially in today’s diverse workforce, employees’ needs differ by their ages, family statuses, and lifestyles. Employers are coming to realize that they need to offer different groups of ben- efits, or flexible benefits. A flexible benefits plan, which is also called a cafeteria plan, allows employees to select a combination of benefits from a pool of choices within some overall limits.

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Section 9.2 Types of Benefits

Flexible plans have grown in popularity, and they have many advantages. For example, a study by Lee and Too (2008) suggests that employees experience greater satisfaction with flex- ible benefits than administration of traditional benefits because of greater decision control in determining the benefits they desire. Further, employees satisfied with their flexible ben- efits demonstrated greater commitment to their employer and lower intentions to quit. How- ever, flexible benefit plans also have some drawbacks; one is that these plans have become extremely complicated. Organizations need to invest much time and effort into designing these plans, and sophisticated information systems are needed to keep track of the various choices employees make. Another drawback is that as employees opt in and out based on changing needs, the organization can lose its economies of scale for some benefits, and employees who opt in may have to pay higher rates. For example, an organization may offer an on-site fitness or child care facility, but only a small number of employees may end up using it. In that case, the cost per employee could be prohibitively expensive and the facility could therefore be dif- ficult to justify.

Work-Life Benefits and Flexible Work Arrangements Increasing numbers of employees are looking for ways to balance their work with their per- sonal and social interests and responsibilities (Leibow, 2010). Offering work-life benefits and flexible work arrangements can enable employees to have healthier, less stressful, and more enjoyable lives by helping them fit family, community, and social commitments into their schedules. Therefore, employers can use these benefits strategically to attract, motivate, and retain talented employees (Flex work heads, 2010). Unfortunately, many employers overlook the strategic importance of designing jobs and work arrangements in ways that give their employees the flexibility to balance their overall life needs with their work demands (Testa, 2010). Examples of work-life benefits include:

• Child care • Elder care • Health and fitness initiatives • Arrangements with various vendors to

provide these and other services (e.g., laundry, dry cleaning, car detailing, or catering) at a discount or no cost to employees

Here are some examples of flexible work arrange- ments, which are discussed in more detail in Chapter 3:

• Flextime • A compressed workweek • Job sharing • Telecommuting • Part-time work

Work-life benefits and flexible work arrangements can contribute to greater employee job sat- isfaction and lower employee stress levels, which in turn positively influence productivity and

Siri Stafford/DigitalVision/Thinkstock

Working from home, or telecommuting, is one example of a flexible work arrangement that can lead to greater employee job satisfaction.

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Section 9.2 Types of Benefits

overall employee health. These arrangements can also help align employee and organizational goals by allowing employees to pursue further education, training, and other growth and devel- opment opportunities. However, these benefits must be carefully monitored and coordinated; otherwise, they can be misused, abused, or used ineffectively. For example, underutilized work- life benefits can be very costly. Compressed workweeks may negatively impact product qual- ity if employees become fatigued because of the longer workdays. Job sharing is not effective without compatibility and communication between partners. In telecommuting, keeping good records to ensure payment for overtime and minimum wage can be complicated. There is a possibility of overstating or understating the telecommuting hours worked, which means that there is a possibility of violating the FLSA’s record keeping provisions (Guiler & Kelly, 2009).

Special Benefits for Unique Assignments Some organizations offer special benefits to reward employees who accept unique assign- ments that require, for instance, relocation, excessive working hours, unpredictable work schedules, challenging working conditions, learning new skill sets, or dealing with unique customer groups. Some organizations help transferred employees buy new homes and sell previously occupied ones. Organizations may also provide employees and their families with information or assistance regarding such life matters as churches, medical facilities, school- ing, and sports. Other organizations help relocated workers’ spouses find jobs. Some employ- ers provide special benefits to reward those who undertake special assignments; examples of these benefits include company owned and furnished housing; company jets and vehicles; and cooks, nannies, and cleaning crews paid for by the organization.

Eye on the Goal Benefits: A Cost-Benefit Approach

There is now significant evidence that investing in benefits can substantially increase perfor- mance and decrease costs. For example, a study of Fortune 500 companies introducing work- life initiatives has shown that simply announcing those initiatives was followed by a 0.39% increase in average share prices (Arthur, 2003). Another study of the 100 Best Companies for Working Mothers found that the total returns on common stock among those companies con- sistently outperformed market benchmarks over an eight year period (Cascio & Young, 2005). A third study showed that employers who contributed more to the costs of their employees’ health and wellness outperformed employers who simply passed the increasing costs of health care to their employees (Towers Watson, 2010). General Motors has found that obesity costs the company an additional $1,000 to $3,000 per year per obese employee in health services, which adds up to about $300 million in additional costs (Hawkins, 2005). In general, workplace initiatives targeting increased physical activity have been shown to significantly reduce illness and health care costs and increase employee productivity (World Health Organization, 2003).

An important question is whether organizations that provide superior benefits outperform others because of the benefits they provide, or whether better performing organizations sim- ply have the means to provide superior benefits. These studies do not prove that a company’s benefits package is the cause of higher performance. However, these studies and many others definitely indicate that it is beneficial for organizations to pay respectful attention to workers and accommodate their needs. A whole-person perspective is necessary in the design and implementation of workplace benefits.

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Section 9.3 Benefits Program Design and Administration

9.3 Benefits Program Design and Administration Just because a particular benefits package is successful at one organization does not mean that the same package can be readily applied to another organization with the same effective- ness. However, success stories such as SAS, discussed in the opening case study, offer impor- tant lessons for other organizations as they optimize the design and implementation of their own benefits programs. Regardless of an organization’s type, size, and industry, an effective benefits program should:

• Provide employees with services they truly need and desire • Be affordable for both the employer and the employee so that the program can

achieve its goals and objectives in a cost-effective way • Give employees a range of plans and options • Boost employee morale and enhance organizational productivity through motiva-

tional content, process, equity, and linkages to employee behavior • Improve the effectiveness of the recruitment process by attracting and retaining

quality talent

The rest of this section discusses some of the most critical steps in designing and implement- ing an effective benefits plan. Figure 9.1 outlines these steps.

Program Goals For its benefits program to be effective, an organization should start by setting program goals. According to the strategic HRM model, these goals should align with the strategic, tactical, and operational goals and objectives of both the organization and the HR department. For example, longevity benefits such as retirement plans are consistent with the HR goal of reducing turnover and increasing commitment, which in turn is consistent with the organizational goal of stability. As another example, work-life benefits are consistent with the HR goal of increasing diversity—a goal that is consistent with organizational goals of expanding into new markets. Setting specific goals for benefits programs can therefore help organizations achieve all these goals.

Setting goals also helps employers monitor a benefits program to assess whether it accom- plishes its purposes. For example, goals such as increasing talent retention or controlling health care costs have important, relevant, and quantifiable outcomes; measuring these out- comes makes it possible to assess the success of a benefits program. Indications of success can be used to justify maintaining or expanding the program, while indications that the program is not meeting its goals signal the need for change. This change may take the form of further communication to boost awareness of the program (e.g., in the case of underutilization), of adapting the program to better meet needs (e.g., switching to a cafeteria plan), or of eliminat- ing some unnecessary benefits (e.g., switching from on-site child care or fitness facilities to discounted memberships with third-party providers). Unfortunately, many organizations fail to set program goals, despite their importance.

Participants A benefits program’s main purposes are to attract, motivate, and retain talent. Employees appre- ciate benefits that they are likely to use and that are beneficial for them. Accordingly, it can be useful to consult employees to determine whether a certain benefit is needed and would meet their expectations. In fact, many organizations allow employees to be part of committees that

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Monitoring utilization

Monitoring costs

Assessment Participants

Communication

Program goals

Strategic HR planning

Job analysis and job design

Attraction and recruitment of

talent

Selection and job fit

Performance appraisal/

management

Training and development

Compensation and incentives

Benefits and benefit

administration

Section 9.3 Benefits Program Design and Administration

administer, interpret, and oversee benefits policies. Another way to support this participation is to gather employee input through opinion surveys. Whatever method is used to encourage employee participation in designing the benefits program, this participation enables organiza- tions to satisfy employees’ wishes and needs and improve employee satisfaction.

Figure 9.1: Benefits and benefit administration

Monitoring utilization

Monitoring costs

Assessment Participants

Communication

Program goals

Strategic HR planning

Job analysis and job design

Attraction and recruitment of

talent

Selection and job fit

Performance appraisal/

management

Training and development

Compensation and incentives

Benefits and benefit

administration

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Section 9.3 Benefits Program Design and Administration

Communication Every benefits plan requires a well-designed communication plan: a benefits package will be able to attract, motivate, and retain talent only if its recipients perceive its quality and usefulness. If employees are unaware of the benefits available to them, or if the benefits’ administration processes are too compli- cated, then many benefits will go unnoticed or unused and, therefore, be of no value to employees. To realize the strategic value of benefits, employers should, proactively and carefully design and implement their benefits package and then make sure that current and potential employees understand the package and the value it adds.

For example, in 2002, Prudential Financial Services Group rebranded and reorganized its offerings to its customers. That year, it also launched a new, flexible benefits package for its employees—a package that reflected the company’s offerings to its customers. The communication strategy for this program was to give employees control over their financial futures through teaching them the same step-by-step financial planning process that Pruden- tial customers would use. The organization’s goal was to offer this program to better meet customer needs, and the parallel HR goal was to get employees on board by educating them about the company’s offerings and by also training employees to use these offerings for their own financial planning. The result was that employees were able to draw on their own first- hand knowledge to inform customers about the company’s financial planning process. Thus, organizational, HR, and benefit goals were aligned and integrated through a robust communi- cation strategy (Salkey & Thatcher, 2004).

Generally speaking, employees do not recognize the cost of the benefits they receive unless employers communicate this information to them (Hennessey, Perrewe, & Hochwarter, 1992; Wilson, Northcraft, & Neale, 1985). Clear communication enables employees to appreciate their employers’ substantial investments to meet their needs, and this appreciation helps employers attract, motivate, and retain talent. These are the reasons many employers now offer their employees benefits statements, which translate the benefits an employee receives into dollar amounts. Adding these dollar amounts to the employee’s pay and other financial rewards in a visible, easy-to-comprehend format presents an accurate picture of the value of the organization’s compensation and investment in the employee.

Many kinds of communication can be used to inform employees about their benefits, including:

• Face-to-face training • One-on-one coaching • Videos • Newsletters • Electronic alerts

monkeybusinessimages/iStock/Thinkstock

Many organizations allow employees to participate in committees that administer, interpret, and oversee benefits policies.

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Section 9.3 Benefits Program Design and Administration

When employers design a benefits communication plan, among the factors to consider are the available resources and the content, timing, and frequency of the messages (Kisilevitz, Deb- gupta, & Metz, 2006). The following feature illustrates the importance of another essential aspect of communication about benefits: the supervisor’s support for the benefits’ use.

A Moment in the Life of an HR Manager Your Support Is the Most Important Component of the Benefit Package Jenny, Tom, Ryan, and Sarah have known one another for years. They went to high school together, went to the same local college, and met up every Saturday until their successful careers took them to different cities. However, they still lived within driving distance of one another, and they maintained contact and initially made a point of getting together at least once a month at their favorite local restaurant in their hometown. They promised one another that they’d continue to get together even as their families and careers developed.

However, over time, these promises seemed to get harder and harder to keep as family, work, and hectic schedules took up more of their time. After several years of being unable to get together, they finally reunited one Thanksgiving and brought all their families back to their hometown. With the children tucked into bed at their grandparents’ houses, Jenny, Tom, Ryan, Sarah, and their weary spouses were able to sneak out for a few late-night drinks. It was their first time all together as couples. They were extremely excited to pick up where they’d left off. However, as their conversation progressed, the four old friends began to realize how their work-life imbalances had caused them to drift apart.

Ryan: I’m willing to bet you everything I’ve got that I have the worst boss in the world.

Tom: You’re on. No boss can compare to mine when it comes to making sure everyone’s life is as miserable as his.

Tom’s It’s true. Tom’s boss makes sure everyone’s spouses and kids are miserable, too. wife: The guy doesn’t have a life: he’s practically married to his job and wants everyone

around him to be just like him.

Jenny: At least you both have a boss. You know what you’re supposed to be doing. Some- times I wonder if it would have been easier to work for somebody than to be my own boss.

Sarah: It is hard to work for a small business, whether it’s yours or someone else’s. The other day, I had to vacuum the whole office myself because it was so filthy and the owner can’t afford to hire a professional cleaning crew. That’s definitely not on my job description as a sales manager, but I just couldn’t keep looking at those dust bunnies in every corner. They were unbearable.

Sarah’s But your boss is so appreciative for everything you do; she practically treats husband: you like family. Even though the business can’t afford to give you a lot of the perks

that large companies give, at least she’s really understanding and accommodat- ing. Remember when Emma was at the hospital? She let you work from home that whole month. She came to check on you every night after work and even brought us a few meals. You’d never get that from my boss. He’s always reluctant to give me time off. He gave me a hard time even on the day of Emma’s surgery, and he made sure he reminded me the next day to take it out of my vacation balance. I’d do anything to have a boss as understanding and considerate as yours.

(continued)

A Moment in the Life of an HR Manager (continued) Sarah: True. I know I shouldn’t complain. Sometimes it’s just hard to watch my friends

who work for big successful companies fly all over the place, stay at fancy hotels, and go to amazing business functions without paying a penny for it, while I have to buy my own office supplies sometimes.

Tom: Sarah, none of those perks are worth anything if you don’t have a supportive man- ager. I work at one of those dream companies you’re talking about. Do you know how many days of vacation I’ve accumulated so far? A hundred and fifty-five! That’s over five months of vacation! And you know why? Because every time I submit a request for a vacation, my boss turns it down, saying I’m needed at the office. The single time he did approve my vacation—a time I’d submitted the request months in advance—he canceled it the day before with some dumb excuse about a crisis situation at one of our sites that he could have handled himself. We had to waste all our nonrefundable reservations for our family dream vacation. My boss feels like he owns me somehow. He’ll call me in the middle of the night and schedule meetings on weekends and holidays. So far, I’ve missed my sister’s wedding and several of my kids’ birthdays. I have to sneak out if I want to eat my lunch in peace, because he’ll call me into his office the minute he sees me heading for the cafeteria. He even made fun of me when I applied for paternity leave under FMLA when Billy was born. Is that even legal? My wife was on bed rest, and we had two other kids to take care of.

Ryan: You win, Tom. My boss isn’t that bad, but he’s still not as supportive as a lot of other managers in the company. For example, he wants to know where you are every min- ute of the day, and he micromanages everyone like we’re in kindergarten. It’s like he doesn’t trust us at all. But you know, we get back at him all the time. I’ve been sub- mitting the same route every day for the last three months in a row, and he hasn’t even realized it. I don’t have time to keep accurate records of where I am, and I’m not paid to do that. All of us cover for each other when we have to. I know it’s not right, but the work does get done, and the company stays profitable. I do a good job, but I’d never go out of my way to do anything extra. My boss wouldn’t appreciate it anyway, and he might even ask me why I did a good job without checking with him first! He’s incapable of treating anyone as a responsible adult.

Sarah: I guess I’m lucky to have a boss who supports me and appreciates me as a person. I just hope we can afford to hire a cleaning crew next year!

Studies show that the simple availability of benefits does not determine their use or value, which lie instead in employees’ perceptions that their supervisors acknowledge that a work- life balance is important for psychological well-being. Employees must also perceive this value in their organization’s culture (O’Driscoll et al., 2003). Thus, it is better for an employee to work for a supportive supervisor and organization, even if the organization offers limited ben- efits, than to work for an organization that has a wide range of benefits but a supervisor who does not support the employees’ choices to utilize those benefits. In fact, over time, perceived support from supervisors has been shown to directly influence employees’ perceptions of organizational support, which in turn predicts employee retention (Eisenberger, Stinglham- ber, Vandenberghe, Sucharski, & Rhoades, 2002).

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Section 9.3 Benefits Program Design and Administration

Ryan: I’m willing to bet you everything I’ve got that I have the worst boss in the world.

Tom: You’re on. No boss can compare to mine when it comes to making sure everyone’s life is as miserable as his.

Tom’s It’s true. Tom’s boss makes sure everyone’s spouses and kids are miserable, too. wife: The guy doesn’t have a life: he’s practically married to his job and wants everyone

around him to be just like him.

Jenny: At least you both have a boss. You know what you’re supposed to be doing. Some- times I wonder if it would have been easier to work for somebody than to be my own boss.

Sarah’s But your boss is so appreciative for everything you do; she practically treats husband: you like family. Even though the business can’t afford to give you a lot of the perks

(continued)

A Moment in the Life of an HR Manager (continued) Sarah: True. I know I shouldn’t complain. Sometimes it’s just hard to watch my friends

Sarah: I guess I’m lucky to have a boss who supports me and appreciates me as a person. I just hope we can afford to hire a cleaning crew next year!

Monitoring Costs To be successful, a benefits program should be affordable for both the employer and the employee. Thus, cost containment is crucial for any benefits program’s success and sustain- ability. Costs should be constantly measured and monitored. It’s also critical to select and

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Section 9.3 Benefits Program Design and Administration

apply the right strategies for cost containment. For example, the costs of health care have been increasing exponentially, and many employers have therefore reduced expenses by reducing their benefits or shifting most of the cost increases to their employees. However, research shows that these strategies are counterproductive and can have negative effects on organizational performance (Towers Watson, 2010).

There are more effective ways to reduce costs. For example, Safeway, a U.S. based supermarket chain, has been able to maintain its health care costs for several years—as U.S. organizations have experienced an average 40% cost increase. Safeway accomplished this cost containment through emphasizing health, wellness, and preventive care. Four specific health conditions—cardiovas- cular disease, cancer, diabetes, and obesity—have been recognized to account for 75% of health care costs. Safeway focused its energy and resources on monitoring, preventing, or managing the root causes of those four health conditions through health promotion initiatives such as smoking cessation and weight control. As a result, the company was able to significantly reduce insurance premiums, rather than reducing coverage or passing costs on to employees (Strassel, 2009).

Monitoring Utilization For a benefits program to be successful and cost effective, it needs to realize economies of scale; the cost per participant will therefore be lower than if employees independently purchased the benefits. When employers negotiate with providers, they are able to secure discounted group rates for their employees. Furthermore, offering some benefits in-house, such as a discounted meal plan at the company cafeteria, may reduce costs by using existing facilities and resources. Some benefits increase in quality and effectiveness the more they are used. For example, on-site child care may not be conducive to a quality developmental experience if only a few employees enroll in the program, resulting in limited social interac- tion for the children. Similarly, on-site fitness classes may not be as motivational if only a few employees attend them.

Some benefits can also result in tax consequences for the employer or employee; these con- sequences can affect the cost, affordability, and utilization of various benefits. For example, health insurance premiums and retirement plan contributions are deducted on a pretax basis, which is advantageous for both the employer and the employee. On the other hand, if this tuition reimbursement exceeds certain limits, it is considered additional compensation for tax purposes, which can significantly reduce the employee’s income after taxes.

Monitoring the utilization of each benefit can be complicated and time consuming, but tech- nology can facilitate this process. For instance, Internet-based systems have real-time track- ing as employees sign up for, change, or update their benefits options. It is crucial to monitor and analyze trends and changes in utilization: these processes ensure that a benefits package continues to meet diverse and changing employee needs.

Assessment Due to benefits’ skyrocketing costs, organizations need to periodically assess and evaluate their benefits programs to be able to determine the programs’ payoffs. Various HR metrics can be used for this purpose, including:

• Benefits as a percentage of payroll • Benefits expenditures per full-time equivalent (FTE)

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Section 9.4 Linking Benefits to the HRM Process

• Benefits costs by employee group • The return on expenditures, which can be applied to different programs that an

employer offers (Fitz-enz & Davidson, 2002)

It is crucial that benefits be assessed not only in terms of costs, but also in terms of their returns such as improved attraction, motivation, and retention of talent. It is also crucial to gauge increases over time in employee productivity and organizational performance and effectiveness. The immediate costs may be high, but a long-term assessment of the returns can help reveal which costs are conducive to the highest returns.

Moreover, benefits should be evaluated on the general as well as the specific levels. Individu- ally, the emphasis should be on the benefits that yield the most strategic outcomes consistent with the organization’s goals and objectives. However, some benefits may also yield synergies. For example, as Safeway discovered in the example above, health promotion initiatives can result in lower health insurance premiums. Therefore, even if health promotion programs are costly, the returns on these investments should be assessed in conjunction with the reduced health insurance costs. On the other hand, some benefits may render other benefits redun- dant or may at least make it necessary to revise or adapt them. For example, telecommuting and other flexible work arrangements may reduce the utilization and cost-effectiveness of on-site child care or fitness facilities. Instead, the organization may want to consider partially or fully reimbursing employees for the costs of obtaining these services on their own through a more convenient provider of their choice.

9.4 Linking Benefits to the HRM Process Benefits should be integrated with the overall HRM process so that they serve as a strate- gic source of competitive advantage. This integration should in turn be aligned with the organization’s goals and objectives, as well as the realities of its industry and the market in general. For example, the benefits an organization offers should be selected in light of the benefits competitors offer, and this comparison should be a component of the HR planning process. Similar to compensation, an organization makes a strategic choice to offer more, fewer, or the same benefits as its competitors. Each of these approaches has its advantages and limitations.

Benefits should also be consistent with the nature of an organization’s jobs. For example, danger- ous or hazardous jobs may make it especially necessary for an organization to provide health, life, and disability insurance. A benefits package should also be designed for the particular group of candidates whom an organization aims to attract. The more diverse the group of current and potential employees is, the more diverse and flexible the organization’s benefits should be.

Because benefits then become an integral component of the overall compensation and rewards package that an employee receives, they should be considered in conjunction with other compensation and rewards decisions. Employee motivation will likely be shaped by the perceived rewards package as a whole, rather than by the monetary value of one specific benefit, to the exclusion of others. For example, many employees view training or promotion opportunities as more important than other benefits, or even than the level of compensation they currently receive. Thus, benefits decisions should also be made with the organization’s compensation, training, and promotion processes in mind.

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Section 9.5Opportunities, Challenges, and Recent Developments in Benefits and Benefit Administration

9.5 Opportunities, Challenges, and Recent Developments in Benefits and Benefit Administration

Benefits play an important role in attracting, retaining, and motivating employees. However, selecting and administering the right benefits can be challenging. Also, as explained through- out this chapter, benefits are subject to numerous laws and regulations, many of which change frequently. This section discusses opportunities, challenges, and recent developments in the area of benefits.

Economic Challenges: The Rising Costs of Benefits As mentioned earlier in the chapter, benefits costs are rising rapidly. Health care benefits are rising especially steeply, which causes a huge burden on employers, employees, and the whole nation. These rising costs challenge employers’ ability to build a sustainable human- based competitive advantage. According to a 2007 U.S. Chamber of Commerce study, the cost of employee benefits represented about 42.7% of total payroll. Over 168 million Americans receive health insurance through voluntary benefit plans sponsored by their employers. Unless the costs of those benefits are properly managed, employers may drop those plans, shifting the costs to the employees, who will likely turn to the insurance exchanges estab- lished by ACA, shifting these skyrocketing costs to the already overcommitted and under- funded public resources.

Similarly, the recent economic recession has rendered many employees’ retirement goals and plans unattainable. Employees, their employers, or both would have to invest significantly more toward employees’ retirement if employees are to retire and maintain their current standard of living or reach the standard they aspire to. This shift would leave much less dis- cretionary income and resources to invest toward other benefits. The rising costs of benefits will continue to be a challenge as the market becomes more competitive and the war for tal- ent continues.

Demographic Trends: The Changing Needs of a Diverse Population As the U.S. workforce becomes more diverse, employees have more diverse needs and expec- tations for their benefits. This diversity has led organizations to look for new ways to design benefits programs that attract, motivate, and retain diverse talent. Consider the following trends (Cascio & Boudreau, 2011):

• Younger workers view flexible work arrangements and the opportunity to give back to the community as more important than pay.

• The number of women in the workforce today is almost equal to the number of men, and their aspirations for growth opportunities and increased responsibilities are similar to men’s.

• About 80% of couples are dual-career earners, with women contributing on average almost half the family income.

• 70% of mothers of school-age children are employed, and 55% of mothers of infants younger than one year old are employed.

• One in three children is born to a single mother. • One in five single-parent households is headed by the father.

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Section 9.5Opportunities, Challenges, and Recent Developments in Benefits and Benefit Administration

• Fathers in general, and especially fathers in dual-career couples, are taking more child care responsibilities.

• 70% of men reported that they would take a pay cut to spend more time with family, and 50% reported that they would turn down a promo- tion if it would take away from family time.

Organizations need to be responsive to these trends and to the changing needs of their employees. It is of the utmost importance that organizations tailor benefits pro- grams to a highly diversified workforce. Organizations must also accommodate different lifestyle needs if they are to attract highly capable employees and reduce cur- rent employees’ stress from work-life conflict. However, it is becoming a challenge for organizations to design ben- efits programs that are able to reflect constant societal changes, meet the different needs of different employees, and remain cost efficient.

Unions and Benefits While private sector union membership in the United States has declined from 34% of men and 16% of women in 1973 to less than 8% of men and 6% of women today (Western & Rosenfield, 2011), unions continue their tra- dition of having a considerable impact on benefits. Unions help employees be better informed about benefits; they secure legislated labor protections and rights and also enforce them on the job. These rights include, but are not limited to, the rights to family and medical leave, overtime, safety, and health care (Mishel & Walters, 2003). Unionized employees are also more likely to receive a wider range of benefits than employees outside unions (Buchmueller, DiNardo, & Valletta, 2002; Budd, 2004). These benefits can include better pension plans, with a higher contribution from the employer’s side; health benefits with lower health care deductibles and smaller employee contributions to indi- vidual and family premiums; and more vacation time and paid leave (Mishel & Walters, 2003).

Benefits for Part-Time Employees Benefits for part-time employees are an important consideration when an organization designs a benefits plan. Not all organizations offer benefits to employees who work part- time. In fact, according to the Bureau of Labor Statistics (2011) a small number of part-time employees are eligible for health care benefits, and only about one-fourth are offered retire- ment benefits. Benefits offered to part-time employees are often prorated as a percentage of full-time work, which usually burdens part-time employees with a prohibitively expen- sive share of the costs of those benefits. For example, an employee who works 20 hours a week may be offered health insurance, but the employer would only contribute half of what it would pay for a full-time employee to get coverage. An already low-paid part-time employee may have an unaffordable premium—a situation that often results in the employee’s not sign- ing up for those benefits and, therefore, going without coverage.

Purestock/Thinkstock

With more women, and more mothers, in the workplace than ever before, it is important for companies to expand their benefits programs to attract and retain this growing demographic.

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Section 9.5Opportunities, Challenges, and Recent Developments in Benefits and Benefit Administration

Offering benefits to part-time workers can help organiza- tions attract and retain workers in markets where there is insufficient talent or where the desired talent is not avail- able on a full-time basis. For example, UPS and Wegmans provide health insurance benefits to part-time employees at no cost—attracting mothers, retirees, and others who want to supplement their income or coverage until they are eligible for retirement benefits (Birken, 2015; Demby, 2003).

Outsourcing Benefits Most organizations now outsource some or all of their ben- efits activities due to pressures from the complexity, rising costs, and changing legislative and regulatory rules of ben- efits design and administration. These increasing pressures are added to the ever present pressure to perform with lim- ited resources. Outsourcing some or all benefit functions helps organizations make these processes more efficient, saves time, and reduces administrative costs.

Some of the most frequently outsourced benefit activities are medical, dental, and vision claims processing, as well as administrative activities associated with retiree benefits. Employee assistance pro- grams (EAPs) are also often outsourced to help maintain perceptions of confidentiality, which encourages employees to participate in those programs. Cost considerations are important, but they should be balanced with the returns on those decisions and assessed through a strategic perspective. These considerations apply to most HR decisions in gen- eral and to benefits decisions in particular. For example, cost reductions from outsourcing benefits administration should be weighed against reduced quality and control, violations of employee privacy, and other potential risks.

AP Images/Stephan Savoia

Providing health insurance benefits to part-time employees helps companies like UPS attract and retain quality workers.

Web Links Walmart and Healthcare Coverage

https://www.youtube.com/watch?v=FdK3ea8BIv8

Walgreens and Healthcare Coverage https://www.youtube.com/watch?v=K1i_7xuT9Fc

Walmart has been under significant criticism for relying too much on part-time workers and on low pay that keeps eligibility and access to health insurance out of reach. The result was to overburden public assistance health care programs. Walmart’s and Walgreens’ decisions to cut back on healthcare coverage in reaction to the requirements of the new ACA have also been criticized due to being disadvantageous to employees.

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https://www.youtube.com/watch?v=K1i_7xuT9Fc

Summary & Resources

Chapter Summary

• Benefits are crucial to attract, motivate, and retain talent and to cater to the needs of a diverse workforce.

• Mandatory benefits include workers’ compensation, Social Security, COBRA, HIPAA, and FMLA.

• In addition to mandatory benefits, many employers also offer a wide range of voluntary benefits such as severance pay, health insurance, retirement plans, and paid time off. Work-life benefits and flexible work arrangements are also becoming increasingly common. Cafeteria plans give employees flexibility to choose the ben- efits that best fit their needs and lifestyles.

• Organizations make huge investments in benefits programs, and the costs of benefits are increasing exponentially. Thus, the costs and returns on investment of various benefits should be regularly assessed to improve strategic benefits decisions.

• Effective benefits programs should have specific goals that are aligned with orga- nizational objectives. These programs should involve a wide range of participants and should be accompanied by a robust communication plan. Organizations should

The HR Manager’s Bookshelf The End of Employer-Provided Health Insurance: Why It’s Good

for You and Your Company, by Paul Zane Pilzer and Rick Lindquist

http://www.amazon.com/End-Employer-Provided-Health-Insurance-Company/ dp/1119012112/ref=sr_1_14?ie=UTF8&qid=1430029595&sr=8-14&keywords=defined+co

ntribution+plans

The Affordable Care Act, commonly known as Obamacare, has drastically changed the health- care system. This book discusses in detail many of the ways employers and employees can navigate the system and obtain the coverage they need at reasonable costs.

Best Companies to Work For #2: Statistical Analysis Software (SAS)

http://fortune.com/best-companies/2014/SAS-2/

http://us.greatrated.com/sas

As discussed in the opening case study, SAS has truly set a model early on for generosity with benefits as a strategic approach to attract and retain top talent. Over the years, SAS has main- tained its status at or near the top of the best companies to work for list.

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http://www.amazon.com/End-Employer-Provided-Health-Insurance-Company/dp/1119012112/ref=sr_1_14?ie=UTF8&qid=1430029595&sr=8-14&keywords=defined+contribution+plans

Summary & Resources

regularly monitor costs and utilization, periodically assess benefits programs’ effec- tiveness, and adapt benefits to fit changing employee needs.

• Employers and employees rarely consider benefits in isolation. Benefits are intri- cately connected to various HR functions such as HR planning, recruitment, selec- tion, training, and compensation.

• Challenges in the area of benefits and benefit administration include escalating costs, changes in employee needs that result from increasingly diverse workforces, and changing laws and regulations.

benefits Compensation apart from wages and salaries, often provided by employers to employees over and above their normal wages and salaries.

cafeteria plan A flexible benefits plan that allows employees to select a combination of benefits from a pool of choices, according to their own preferences but within some overall limits.

Consolidated Omnibus Budget Reconcili- ation Act (COBRA) A mandatory benefit that extends health care benefits to employ- ees who leave their employers.

defined-benefit pension plan A retire- ment plan in which the employee receives fixed benefits upon retirement, based on the amounts invested by the employer and/or employee and regardless of the performance of the investment pool.

defined-contribution pension plan A retirement plan to which the employee, the employer, or both make fixed contributions; however, the final amount received upon retirement depends on the investment’s performance.

employer/“pay-or-play” mandate The PPACA mandate that requires employers with 50 or more employees to subsidize health insurance premiums for low-income employees, pay a fee for every employee who receives a tax credit for health insur- ance coverage, or do both.

Health Insurance Portability and Accountability Act (HIPAA) A manda- tory benefit that ensures the security and privacy of health information and grants employees the right to replace their health insurance plans after changing employers or losing jobs, regardless of pre-existing health conditions.

health maintenance organization (HMO) A voluntary health care benefit plan offered by employers; the plan connects employees with contracted primary-care physicians who provide most of the care and treatment needed and refer patients to contracted specialists only as needed.

individual mandate The PPACA mandate that requires U.S. citizens and legal residents to have qualifying health care coverage; it imposes penalties on those who do not.

mandatory benefits Benefits that employ- ers are required to provide by law.

pension plan A retirement plan offered vol- untarily by an employer and funded by both the employer and employee; under this plan, the employer’s contributions go toward the employee’s pension pool of funds.

preferred provider organization (PPO) A managed care organization of doctors, hospitals, and other health care providers that makes a covenant with an insurer to provide health care services to employees or members at reduced rates.

Key Terms

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Summary & Resources

presenteeism Employees reporting to work while sick—being present, but unproductive.

severance pay Payment offered voluntarily by employers to employees upon termina- tion of employment.

Social Security Mandatory retirement ben- efits for previously employed individuals, the cost of which is shared between employ- ees and employers.

workers’ compensation A mandatory form of insurance that covers situations when a person is injured in the course of employment.

Critical Thinking Questions

1. In attracting and retaining employees, is it more advantageous for an organization to match the benefits of their industry or focus on unique offerings?

2. Some organizations combine all employee leave days into one paid time off (PTO) category, while others separate it out into sick leave, vacation, holidays, etc. Do you believe one method to be better than the other?

3. What are the possible negatives to allowing employees flextime (i.e., setting their own schedules, as long as they work the required number of hours)?

4. How would you evaluate the effectiveness of an organization’s health care benefits? That is, what different perspectives/metrics should be considered?

5. How do you think employees can have a role in lowering health care costs? How could organizations encourage this?

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