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Human Resource Management

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Human Resource Management (MGT501)
VU
Lesson 29
BENEFITS
After studying this chapter, students should be able to understand the following:
A. Total Compensation
B. Employee Benefits
LESSON OVERVIEW
We begin the chapter with a discussion of benefits, both mandated and voluntary. Then, legislation related
to benefits and the proper communication of information about benefit packages is discussed. Next, we
present various types of incentive compensation and describe non-financial compensation and the job as a
total compensation factor.
A. Total Compensation
Tottal Compensattiion
To al Compensa on
Total compensation constitutes of
two types of the rewards which are
Direct
Indirect
Direct
Indirect
direct rewards and indirect rewards.
Direct rewards include the salaries
TiimeNottWorrked
Tme No Wo ked
Wages //Sallaries
Wages Saaries
Vacations
wages, commis-sion, bonuses and
Vacations
Brreaks
Beaks
Holida ys
gain sharing all of these rewards are
Holida ys
Commiissions
Commssions
directly  paid  to  employees  in
IInsurancePllans
nsurance Pans
Medicall
Medica
Bonuses
monetary or financial terms, second
Bonuses
Denttal
Denal
Life
Life
type of the rewards are benefits
Gaiinsharing
Gansharing
SecurrityPllans
Secu ity Pans
provided by organization. Benefits are
Pensions
Pensions
not direct payments in financial terms.
EmplloyeeSerrvices
Empoyee Se vices
Educationallassistance
Educationa assistance
Recrreaionallprrograms
Rec eattiona pograms
B. Employee Benefits
Benefits are all financial rewards that generally are not paid directly to an employee. Benefits absorb social
costs for health care and retirement and can influence employee decisions about employers.
I.
Benefits (Indirect Financial Compensation)
Most organizations recognize that they have a responsibility to provide their employees with insurance and
other programs for their health, safety, security, and general welfare. These benefits include all financial
rewards that generally are not paid directly to the employee.
Ii.
Mandated Benefits (Legally Required)
Although most employee benefits are provided at the employer's discretion, others are required by law.
Legally required benefits include Social Security, unemployment compensation, and workers' compensation.
a) Social Security--It is a system of retirement benefits that provides benefits like disability
insurance, survivor's benefits, and, most recently, Medicare.
b) Unemployment Compensation--An individual laid off by an organization covered by the Social
Security Act may receive unemployment compensation for up to 26 weeks. Although the federal
government provides certain guidelines, unemployment compensation programs are administered
by the states, and the benefits vary state by state.
c) Workers' Compensation--Workers' compensation benefits provide a degree of financial
protection for employees who incur expenses resulting from job-related accidents or illnesses.
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d) 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
the number of employees. The act provides for up to 12 workweeks of unpaid leave per year for
absences due to the employee's own serious health condition or the need to care for a newborn or
newly adopted child or a seriously ill child, parent, or spouse.
III.
Discretionary Benefits (Voluntary)
Organizations voluntarily provide numerous benefits. These benefits may be classified as (1) payment for
time not worked, (2) health and security benefits, (3) employee services, and (4) premium pay. Generally
speaking, such benefits are not legally required.
a) Payment For Time Not Worked--In providing payment for time not worked, employers
recognize that employees need time away from the job for many purposes, such as paid vacations,
payment for holidays not worked, paid sick leave, jury duty, national guard or other military reserve
duty, voting time, and bereavement time. Some payments are provided for time off taken during
work hours, such as rest periods, coffee breaks, lunch periods, cleanup time, and travel time.
 Paid Vacations: Payment for time not worked serves important compensation goals. Paid
vacations provide workers with an opportunity to rest, become rejuvenated, and hopefully,
become more productive.
 Sick Leave: Each year many firms allocate, to each employee, a certain number of days of
sick leave, which they can use when ill.
b) Health Benefits--Health benefits are often included as part of an employee's indirect financial
compensation. Specific areas include health, dental, and vision care.
Health care: Benefits for health care represent the most expensive and fastest-growing cost in the
area of indirect financial compensation. Many factors have combined to create this situation: an
aging population, a growing demand for medical care, increasingly expensive medical technology, a
lack of price controls, and inefficient administrative processes. In addition to self-insurance and
traditional commercial insurers, employers may utilize one of several options. Health maintenance
organizations (HMOs) are one option in which all services are covered for a fixed fee; however,
employers control which doctors and health facilities may be used. Point-of-service (POS) permits a
member to select a provider within the network, or, for a lower level of benefits, go outside the
network. Preferred provider organizations (PPOs) are a more flexible managed care system. Although
incentives are provided to members to use services within such a system, out-of-network providers
may be utilized at greater cost. Exclusive provider organizations (EPO) offer a smaller PPO provider
network and usually provide little, if any, benefits when an out-of-network provider is used.
Capitation: Typically, the reimbursement method used by primary care physicians is an approach
to health care where providers negotiate a rate for health care for a covered life over a period of
time. It presumes that doctors have an incentive to keep patients healthy and to avoid costly
procedures when they are paid per patient rather than per service.
Defined-Contribution health care system: Companies give each employee a set amount of money
annually with which to purchase health care coverage.
Utilization Review: A process that scrutinizes medical diagnoses, hospitalization, surgery, and
other medical treatment and care prescribed by doctors.
The Health Insurance Portability and Accountability Act of 1996: Provides new protections
for approximately 25 million Americans who move from one job to another, who are self-
employed, or who have preexisting medical conditions.
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Dental and Vision Care: Relative newcomers to the list of potential health benefits. Both types of
plans are typically paid for entirely by the employers.
c) Security Benefits--Security benefits include retirement plans, disability insurance, life insurance,
and supplemental unemployment benefits.
Retirement Plans: Private retirement plans provide income for employees who retire after
reaching a certain age or having served the firm for a specific period of time. In a defined benefit plan,
the employer agrees to provide a specific level of retirement income that is either a fixed dollar
amount or a percentage of earnings. 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.
A 401(k) plan is a defined contribution plan in which employees may defer income up to a
maximum amount allowed. An employee stock ownership plan (ESOP) is a defined contribution plan in
which a firm makes a tax-deductible contribution of stock shares or cash to a trust.
Disability Protection: Workers' compensation protects employees from job-related accidents and
illnesses. Some firms, however, provide additional protection that is more comprehensive.
Supplemental Unemployment Benefits (SUB): Supplemental unemployment benefits are
designed to provide additional income for employees receiving unemployment benefits.
Life Insurance: Group life insurance is a benefit commonly provided 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.
d) Employee Services--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, and financial services.
Relocation Benefits: Include shipment 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.
Child Care: Another benefit offered by some firms is subsidized child care. Here, the firm may
provide an on-site child care center, support an off-site center, or subsidize the costs of child care.
Educational Assistance: According to a recent benefits survey, 81 percent have educational
benefits that reimburse employees for college tuition and books.
Food Services/ Subsidized Cafeterias: Most firms that offer free or subsidized lunches feel that
they get a high payback in terms of employee relations.
Financial Services: One financial benefit that is growing in popularity permits employees to
purchase different types of insurance policies through payroll deduction.
Unique Benefits: A tight labor market gives birth to creativity in providing benefits.
e) Premium Pay--Compensation paid to employees for working long periods of time or working
under dangerous or undesirable conditions.
Hazard pay: Additional pay provided to employees who work under extremely dangerous
conditions.
Shift differentials: Paid to employees for the inconvenience of working undesirable hours.
f) Benefits for Part-Time Employees--Recent studies indicate that employers are offering this
group more benefits than ever. Growth in the number of part-timers is due to the aging of the
workforce and also to an increased desire by more employees to balance their lives between work
and home.
IV.
Other Benefit-Related Legislation
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a) Employee Retirement Income Security Act Of 1974 (ERISA)--The Employee Retirement
Income Security Act of 1974 (ERISA) was passed to strengthen existing and future retirement
programs. Mismanagement of retirement funds was the primary factor in the need for this
legislation.
b) Older Workers Benefit Protection Act (OWBPA)--The Older Workers Benefit Protection Act
(OWBPA) is a 1990 amendment to the ADEA and extends its coverage to all employee benefits.
The act has an equal benefit or equal cost principle.
V.
Communicating Information about the Benefits Package
Employee benefits can help a firm recruit and retain a quality workforce. Management depends on an
upward flow of information from employees in order to know when benefit changes are needed, and,
because employee awareness of benefits is often severely limited, the program information must be
communicated downward.
vi.
Incentive Compensation
Compensation programs that relate pay to productivity.
a) Individual Incentive Plans--A specific form of performance-based pay is an individual incentive
plan called piecework. In such a plan, employees are paid for each unit produced.
b) Team-Based Compensation Plans--Team performance consists of individual efforts. Therefore,
individual employees should be recognized and rewarded for their contributions. However, if the
team is to function effectively, a reward based on the overall team performance should be provided
as well.
c) Companywide Plans--Companywide plans offer a feasible alternative to the incentive plans
previously discussed. They may be based on the organization's productivity, cost savings, or
profitability.
Profit Sharing: A compensation plan that results in the distribution of a predetermined
percentage of the firm's profits to employees. There are several variations, but the three
basic forms are current, deferred, and combination. Current plans provide payment to
employees in cash or stock as soon as profits have been determined. Deferred plans involve
placing company contributions in an irrevocable trust to be credited to the account of
individual employees. The funds are normally invested in securities and become available
to the employee (or his/her survivors) at retirement, termination, or death. Combination
plans permit employees to receive payment of part of their share of profits on a current
basis, whereas payment of part of their share is deferred. Profit sharing tends to tie
employees to the economic success of the firm.
Employee Stock Option Plan (ESOP): A defined contribution plan in which a firm
contributes stock shares to a trust.
Gain Sharing: Plans that are designed to bind employees to the firm's performance by
providing an incentive payment based on improved company performance. The first gain
sharing plan was developed by Joseph Scanlon during the Great Depression, and it
continues to be a successful approach to group incentive, especially in smaller firms.
Scanlon Plan: Provides a financial reward to employees for savings in labor costs that
result from their suggestions.
Vii.
Non-financial Compensation
Compensation departments in organizations do not normally deal with non-financial factors. However,
non-financial compensation can be a very powerful factor in the compensation equation.
Viii.
The job
Some jobs can be so exciting that the incumbent can hardly wait to get to work each day.
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IX.
The Job as a Total Compensation Factor
The job itself is a central issue in many theories of motivation, and it is also a vital component of a total
compensation program.
a) Skill Variety--The extent to which work requires a number of different activities for successful
completion.
b) Task Identity--The extent to which the job includes an identifiable unit of work that is carried
out from start to finish.
c) Task Significance--The impact that the job has on other people.
d) Autonomy--The extents of individual freedom and discretion employees have in performing their
jobs.
e) Feedback--The amount of information employees receive about how well they have performed
the job.
f)
Cyber-work--A possibility of a never-ending workday created through the use of technology.
X.
The Job Environment as a Total Compensation Factor
Employees can draw satisfaction from their work through several non-financial factors.
a) Sound Policies--Human resource policies and practices reflecting management's concern for its
employees can serve as positive rewards.
b) Competent Employees--Successful organizations emphasize continuous development and assure
that competent managers and non-managers are employed.
c) Congenial Coworkers--Although the American culture has historically embraced individualism,
most people possess, in varying degrees, a desire to be accepted by their work group.
d) Appropriate Status Symbols--Organizational rewards that take many forms such as office size
and location, desk size and quality, private secretaries, floor covering, and title.
e) Working Conditions--The definition of working conditions has been broadened considerably during
the past decade.
XI.
Workplace Flexibility
Flexible work arrangements do more than just assist new mothers' return to full-time work. They comprise
an aspect of non-financial compensation that allows many families to manage a stressful work/home
juggling act.
a) Flextime--The practice of permitting employees to choose, with certain limitations, their own
working hours.
b) Compressed Workweek--Any arrangement of work hours that permits employees to fulfill their
work obligation in fewer days than the typical five-day workweek.
c) Job Sharing--An approach to work that is attractive to people who want to work fewer than 40
hours per week.
d) Flexible Compensation (Cafeteria Compensation)--Plans that permit employees to choose
from among many alternatives in deciding how their financial compensation will be allocated.
e) Telecommuting--Telecommuting is a work arrangement whereby employees are able to remain
at home, or otherwise away from the office, and perform their work over telephone lines tied to a
computer.
f)
Part-Time Work--Use of part-time workers on a regular basis has begun to gain momentum in
the United States. This approach adds many highly qualified individuals to the labor market by
permitting both employment and family needs to be addressed.
g) Modified Retirement--An option that permits older employees to work fewer than regular hours
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for a certain period of time proceeding retirement. This option allows an employee to avoid an
abrupt change in lifestyle and more gracefully move into retirement.
XII.
Other Compensation Issues
Several issues that relate to compensation deserve mention. These issues include comparable worth, pay
secrecy, and pay compression.
a) Severance Pay--Although some firms are trimming the amount of severance pay offered,
typically, one to two weeks of severance pay is given for every year of service, up to some
predetermined maximum. Severance pay is generally shaped according to the organizational level of
the employee.
b) 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.
c) Pay Secrecy--Organizations tend to keep their pay rates secret for various reasons. 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.
d) Pay Compression--Occurs when workers perceive that the pay differential between their pay and
that of employees in jobs above or below them is too small.
Key Terms
Flextime: The practice of permitting employees to choose, with certain limitations, their own working
hours.
Capitation: Typically, the reimbursement method used by primary care physicians is an approach to health
care where providers negotiate a rate for health care for a covered life over a period of time.
Disability protection: Workers' compensation protects employees from job-related accidents and illnesses.
Some firms, however, provide additional protection that is more comprehensive.
(ESOP):A defined contribution plan in which a firm contributes stock shares to a trust.
Gain sharing: Plans that are designed to bind employees to the firm's performance by providing an
incentive payment based on improved company performance
Scanlon plan: Provides a financial reward to employees for savings in labor costs that result from their
suggestions
Telecommuting: Telecommuting is a work arrangement whereby employees are able to remain at home,
or otherwise away from the office, and perform their work over telephone lines tied to a computer
Autonomy: The extent of individual freedom and discretion employees has in performing their jobs.
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Table of Contents:
  1. INTRODUCTION TO HRM:Growing Importance of HRM, Road Map of the Course
  2. ESSENTIALS OF MANAGEMENT:Concepts and Essential of Management, Managerís Roles
  3. ORGANIZATION AND COMPONENTS OF ORGANIZATION:Open versus Closed Systems, The Hawthorne Studies
  4. PEOPLE AND THEIR BEHAVIOR:Why to work in organizations?, The Goals of Organizational Behavior
  5. INDIVIDUAL VS. GROUP BEHAVIOR:What Are Roles?, Problem solving Team
  6. PERSONNEL MANAGEMENT TO HUMAN RESOURCE MANAGEMENT:Records and Administration, Competitive Advantage
  7. HRM IN A CHANGING ENVIRONMENT:Productivity, New Trends at Work Place
  8. How organization Cultivate a Diverse Workforce, STEPS TOWARD MANAGEMENT OF DIVERSITY
  9. FUNCTIONS AND ENVIRONMENT OF HRM:Compensation and Benefits, Safety And Health, Interrelationships of HRM Functions
  10. LINE AND STAFF ASPECTS OF HRM:Authority, Line versus Staff Authority, Staff Manager
  11. LEGAL CONTEXT OF HR DECISIONS:Doing the Right Thing, Affirmative Action, Unintended Consequences
  12. HUMAN RESOURCE PLANNING (HRP):Benefits of HR Planning, Forecasting Human Resource Availability
  13. STRATEGIC PLANNING AND HRIS:HRís Strategic Role, Human Resource Information System, Common HRIS Functions
  14. JOB ANALYSIS:Purposes of the job Analysis, Questions Job Analysis Should Answer
  15. JOB ANALYSIS:Methods of Collecting Job Analysis Information, Observation, Source of Data
  16. JOB ANALYSIS (CONTD.):SURPLUS OF EMPLOYEES FORECASTED, Diversity through Recruiting Efforts
  17. SOURCES OF RECRUITMENT:ALTERNATIVES TO RECRUITMENT, Quantity of the Applicants, Quality of the Applicants
  18. SELECTION:Initial Screening, Advantages of Successful Screening
  19. SELECTION TESTS:Characteristics of Properly Designed Selection Tests, Guidelines for Conducting an Interview
  20. SELECTION PROCESSÖ CONTD:Background Investigations, Physical Exam, Selecting Managers
  21. SOCIALIZATION:Compensation and Benefits, Team Membership, Stages in socialization Process, Training and Development Trends
  22. TRAINING AND DEVELOPMENT:Learning, Phases of Training, Why Transfer of Training Fails
  23. MAXIMIZING LEARNING:Following up on Training, Repetition, Feedback, Purposes of T & D
  24. CAREER MANAGEMENT:Individual career planning, Career Planning and Development Methods
  25. PERFORMANCE:Determinants of Job Performance, Why is performance measured?, Performance Management
  26. PERFORMANCE APPRAISAL:What to Evaluate, The Appraisal Interview, PROBLEMS IN PERFORMANCE APPRAISAL
  27. JOB EVALUATION AND PRICING:THE APPRAISAL PERIOD, Ranking method,
  28. COMPENSATION SYSTEM:Pay, Job Pricing, Compensation: An Overview, Compensation Surveys
  29. BENEFITS:Total Compensation, Discretionary Benefits (Voluntary), Workplace Flexibility
  30. ROLE OF MONEY IN PERFORMANCE OF EMPLOYEES:Types of Pay-for-Performance Plans, Empower Employees
  31. MOTIVATION:The Motivation Process, Motivational Theories, Challenges of motivating employees
  32. OCCUPATION, HEALTH & SAFETY:Physical Conditions, Accident Investigation, Smoking in The work place
  33. STRESS MANAGEMENT:Symptoms of Stress, Managing Stress,
  34. COMMUNICATION IN ORGANIZATION:Burnout, Social Support at Work & Home, Communication in organization, Meetings
  35. TRADE UNIONS:Collective Bargaining, The HRM Department in a Nonunion Setting, Phases of Labor Relations
  36. CONFLICT AND NEGOTIATION:Transitions in Conflict Thought, Individual Conflict Management Styles
  37. POWER AND POLITICS:Sources of Power, Advantages and Disadvantages of PowerPower and Politics in Context
  38. EMPLOYEE RIGHTS AND DISCIPLINE:Contractual Rights, Management Rights, Disciplining Employees,
  39. DISCIPLINE (CONT...):Factors to Consider when Disciplining, Disciplinary Guidelines, Employee Separations
  40. LEADERSHIP:The Leaderís Behavior, Situational Theories of Leadership, Becoming a Leader
  41. REVISION (LESSON 12-21):Plans, Job Specification, Human resource planning, Selection Process, Corporate Culture
  42. REVISION (LESSON 22-26):Training, Case Study Method, Training, Performance
  43. REVISION (LESSON 27-35):Classification Method, Compensation, Empowerment, Mediation
  44. INTERNATIONAL DIMENSIONS OF HRM:Global Corporation, Type of staff members, Approaches to Global Staffing
  45. CONCLUSION & REVIEW:Strategies for Gaining Competitive Advantage, High-performance Work System