Unit 14

SUPPLEMENTARY COMPENSATION FRINGE -BENEFITS

The primary effect of fringe-benefit type of compensation is to retain the

employee in the organization on a long-term basis. There is little or no evidence that the
tremendous variety of supplementary pay plans, often termed “fringe benefit”, serve to
motivate employees to higher productivity.

In a study of 550 white-collar employees, it was concluded that the average

employee was aware of about ½ of the supplementary pay program features---this despite
an unusually comprehensive and active program of communication with respect to
employee benefits available. One of this firm’s most costly and widely publicized
benefits, a disability wage plan, was essentially unheard of by 60% of those responding to
the questionnaire. When asked if they felt that they knew enough about this program,
over 3 quarters replied that they did. In a second study in another company, 249 new
hires were queried concerning their knowledge of benefits explained during a
comprehensive induction program. A correlation between knowledge and attitudes
toward the company’s fringe-benefit program proved to be quite low. The conclusion of
researcher was that an attempt to motivate employees to a fringe-benefit program is
probably futile.

Despite the absence of motivational effects, employee benefits programs make up

a significant portion of mostly personnel department budget. Currently, they amount to
over 1/3 as much money as pay roll earnings. According to a series of surveys by the US
chamber of commerce, total benefit costs have doubled in the last 30 years. Practical
operational value to the employing organization include maintenance of work force and
competition with other organization, preservation of some degree of labor management
peace in collective bargaining arrangements, and maintenance of acceptable of labels of
general morale. Many observers are highly concerned with the markedly increased
demands for hygiene and pain-avoidance measures as compared with the laser concern
for attitudes dealing with employee motivation to contribute to productivity.

Nature Of Supplementary Compensation

Different forms of supplementary compensation have a variety of titles in

industry. Some refer to them as “service program”; still others emphasize them as
“nonwage payments”, or “employee benefits”; still others emphasize the cost and label
them “hidden payroll.” Typically, they have been most often referred to as fringe benefit.
In the broadest sense, such “fringes” can be construed to include all expenditures
designed to benefit employees over and above regular base pay and the direct variable
compensation related to output as major categories, such benefits can include the
following:
 1. Payment for time not worked. Examples in this area would include paid rest
periods, paid lunch periods, wash-up time, clothes-change time, get-ready
time, vacations, holidays, sick leave, personal leave, voting time, and jury
duty. There is seemingly no end to the innovative determination of new
reasons for not working for pay. Perhaps the ultimate is a newly negotiated
“to-hell-with-it” benefit: a certain number of days are provided for the
occasion when the employee simply doesn’t feel like going to work.

2. Hazard protection. There are a certain number of hazard that must be

commonly faced by all. Income maintenance during these periods is the
purpose of fringes designed to protect against the hazards of illness, injury,
debt, unemployment, permanent disability, old age, and death.

3. Employee services. All people must have certain services available on a

continuing basis, such as housing, food, advice, recreation, and so on. The
trend toward the organizations providing such routine and ordinary services is
exemplified by such fringe-benefit programs as cafeterias, paid legal services,
career counseling, educational tuition, aid in housing, medical services, low-
cost loans, used of organization vehicles for personal reasons, day-care centers
for children, and paid memberships in certain private organizations.

4. Legally required payments. Our society, through its government, has decreed
that certain minimum level of company expenditures will be made in the area
of protecting employees against the major hazards of life. Thus, regardless of
company policy, organizations covered by federal and state laws must pay for
unemployment compensation, workers’ compensation insurance, old-age and
survivors’ insurance under social security and Medicare.

In view of the above listings, it is little wonder that the term “fringe” is deemed
no longer appropriate. The total employee benefits as a percent of payroll have moved
from 18.7% in 1951 to 36.6% in 1979. The figure continues to move upward, with a
reported 37.1% in 1980. During this period, wages and salaries have increase only half as
fast. The most expensive categories are public and private pensions, insurance programs
of all types, and paid vacations. Fringe-benefits have also exceeded the rise in the cost of
living. During the 20-year period 1955 to 1975, benefit costs per employee rose by 387%
as compared with a 98.6% rise in the Consumer Price Index. Currently, the average dollar
expenditure per employee is somewhat in excess of $4000 per year. Prediction for the
future indicate greater expenditures and efforts in such fields as group purchasing of all
types (for example, group automobile insurance and legal services), longer vacations, no
employee expense for major medical coverage, increased dental coverage, increased
coverage for psychiatric difficulties, pension portability, cost-of-living adjustments of
pension after retirement, annual physical examinations, earlier retirement ages, and
possible retraining when severed from the organizations. We appear to be limited only by
our ingenuity; one firm provides a free jet flight anywhere in the world on the 10 th
anniversary of service with the firm. Unusual benefits have been noted such as facelifts
for executives and spouses, off-track-betting breaks, adoption fees, no-smoking pay,
paternity leave, will pay, weight-loss pay, and self-defense training. When provided for
executives, benefits are usually referred to as perquisites or “perks”. Among such “perks”
are corporate aircraft and yachts, tax assistance, financial counseling, company apartment
or hotel room near the office, club membership, company credit card, home
entertainment expenses, kidnap and ransom insurance, and no-interest loans.

Particular employee benefits will produce varying values. Paid vacations are
presume to provide a mental and physical respite that generates increase interest and
activity on the job. Life insurance reduces worry about one’s family security and thus
leads to greater concentration upon work. Company cafeterias promote the eating of
balanced meals, thus reducing fatigue in the late afternoon. Medical services help to keep
the employee in good health, thereby reducing absenteeism. All of this are logical, but
cost or benefit analysis of fringe-benefits are rare indeed.

A Philosophy Of Employee Benefits

The growth of employee benefits has been rampant, particularly since World War
II, and apparently no end is in sight. It will be recalled that the period of the 1920s,
labeled the “era of paternalism,” saw a widespread adoption of such benefits as company
housing and company stores. The paternalistic approach fell into disrepute, supposedly as
a result of the employee’s desire for “industrial adulthood.” The Depression of the 1930s
also served to eliminate many employer-financed services. Since World War II ,we have
entered the era of the “new paternalism.” The services of the 1920s pale into
insignificance when compared with those of the present. The attitudes of both employees
and the general public toward service programs have changed considerably. the
tremendous amount of social legislatio0n of the 1930s, particularly the Social Security
Act, has led many to believe that the private firm is morally responsible for the lives of its
employees. It is no longer a service initiated by a fatherly, benevolent employer, but a
requirement by government, competition, or the labor union.

In summary, the rapid growth of such programs can be traced to such sources as:
(1) a changed employee attitude, (2) labor union demands, (3) governmental
requirements,(4) competition that forces other employer s to much benefits to attract and
kept labor, and (5) periodic wage controls that freeze wages but permit the offering of
services as a substitute for wage increases. High company income tax rates have also
stimulated the offering of services, since they can bring with cheap dollars.

What should be the philosophy of the manager in the realm of employee services
in a private-enterprise economic, the basic guiding principle should be that no employee
benefit should be undertaken unless there is some return to the organization that is at least
equal to its cost. This is not to say that government should not have the right and the
obligation to impose employee services upon a private company if society feels that it is
for general interest and welfare. The manager must, however, make decisions in the area
of freedom that is left, and the basic guide must be a comparison of cost of service with
possible tangible and intangible returns to the company.
 The returns of the employee benefits to the company can take various forms,
many of which are not subject to quantification. Among the values often cited are:

1. More effective recruitment

2. Improve morale and loyalty
3. Lower turn over and absenteeism
4. Good public relations
5. Reduced influence of unions, either present or potential
6. Reduced threat of further government intervention

The dollar return from employee benefits is almost impossible to measure. It is

safe to state that the overwhelming majority of all employee benefits are taken on faith,
rather than justified in dollars and cents. The correct management philosophy should
have an economic orientation, modified by the influences of government and labor
unions. We cannot deny that fear of present or potential unions and of possible
governmental interference has led many managers further into the area of employee
benefit programs.

Principles Of Employee Benefit Programs

The cardinal principle of employee benefit programs has been set forth above;
that is the benefit must make a contribution to the organization at least equal in amount to
its cost. In addition to this basic guide, there are several generalizations that are
applicable. Among these principles are the following:

1. The employee benefit should satisfy a real need.

2. Benefits should be confined to activities in which the group is more efficient
than the individual.
3. The benefit program should be characterized by sufficient flexibility to enable
adaptation to varying employee needs.
4. If the firm is to receive values from providing employee services, it must
undertake an extensive and well-planned communication program.
5. The cost of the benefit should be calculable, and provision should be made for
sound financing.

The first principle that of satisfying a real need, would appear to be too obvious to
need statement. However, many time benefits have been installed, only to be met with
employee apathy or outright resistance. The ego in some managers has led them to
believe that they know what is best for their employees. In one case, a company manager
who felt that employees needed a sport program budgeted money, purchased facilities,
and hired a company athletic director. When the whistle was blown to play ball nobody
wanted to play. Employee apathy sometimes turns into a demand that monies spent for
employee benefits be given to them in their paycheck.

The manager takes a step forward when realizing that one must go to the
employee to determine the latter’s real needs. Even here, there is danger. When
questioned about certain proposed services, employees almost always show a favorable
reaction. Managers have interpreted this, as evidence of real need, when often the
employee meant only that it would be “nice” to have such a service. Extreme care and
serious research should go into the decision of whether or not to offer a particular
employee service.

The benefits selected should be those that can be best handled by a group
approach. For example, life insurance purchased as a group can be obtained at a
significantly lower price than the same insurance purchased by the individual. Thus,
group life insurance meets the requirements of principle 2. On the other hand, there is a
serious question as to whether the needs of employees in the recreational field could not
better be left to the individuals. This is particularly true if the firm is located in a
metropolitan area where numerous private facilities are available. The philosophy behind
this principle is a desire to preserve some of the individualism and freedom pf our
society.

The third concept listed above suggests that not all employees are alike in terms
of age, family status, and financial requirements. Whereas the typical benefit offering
assumes that it is for a male employee who has a family with a nonworking wife, the
continuing changes in our society make this concept obsolete. Today, fewer males are the
sole support of their families, and more couples are remaining childless. In 1970, 70
percent of all households were maintained by married couples; today the figure is just
about 60 percent. Rather the one standard benefit program, it has been suggested that at
least five are needed: (1) single worker, (2) married workers with no children, (3) married
with one dependents, (4) married with dependents in college, and (5) “empty nesters.”

One technique that can be utilized to inject this needed flexibility is the
“cafeteria” style program. Though relatively few firms have undertaken this new
approach. The system adheres to the principle of individual differences in that it allows
the employee to choose from a varied offering those benefits that are most valuable to her
or him. In the System Group of Thompson Ramo Wooldridge, minimum coverage is
assured each employee in all the major benefits categories. However, the employee is
given a choice of three levels of each. If less-than-average coverage is chosen, paper
credit is provided to be spent on some other benefits such as health. For example, a 32-
year-old man, married with no children, chose the lowest medical plan and used the credit
to buy extra accidental death insurance at no extra cost. In the American Can Company
program, the benefit program was reduced to a core, with the difference in costs between
the old plan and the new core being given to the employees in the form of dollars or
flexible benefits. Thus the employees may have the option of choosing cash as well. The
company has found that older employees with working spouses who have medical
coverage elsewhere will take the medical credit and placed it in a savings plan for
retirement. Younger employees in a similar situation are more inclined to buy extra
vacation days.

It is not unusual for fringe-benefit program costing hundreds of thousands of

dollar to be accompanied by an educational publicity program costing only a few
thousand dollars. If the employee is unaware of a benefit, there is little or no return to the
organization. One survey of 354 organization revealed that two-thirds spent less than 10
dollar per employee in benefit communication. Among the techniques utilized were
booklets and brochures, manuals, word of mouth, pay-envelope inserts, computerized
statements, posters, bulletin-board notices, and annual reports.
The last principle is that the costs of the employee benefit must be calculable and
its financing be established on sound basis. This is particularly important in the matter of
employee pensions. Sound actuarial estimates must be made, and adequate provisions for
financing must be established before conceding the service over the collective bargaining
table. These services are not cheap to administer, as is revealed by surveys of personnel
management budgets. This is one of the highest single costs of the entire budget of
expenditures.

Payment For The Time Not Worked

The two most costly types of payments for time not worked are vacations and
holidays. There has been constant trend toward lengthening the annual vacation in most
organizations. A typical schedule would be as follows:

 One week after 6 months to 1 year of service

 Two weeks after1 to 5 years of service
 Three weeks after 5 to 15 years of service
 Four weeks after 15 years of service
 Five weeks after 25 years of service

Some firms give as much as 6 weeks of vacation for certain groups. Just as some
universities provided for employees with an approved project that will contribute in some
manner to improving society.

Most organizations provide 7 to 12 holidays with pay to their employees. The

most commonly observed holidays are new years day, Good Friday, Washington’s
birthday, memorial day, independence day, labor day, veterans day, thanksgiving, and
Christmas. A few permit the employee to take a paid holiday on her or his birthday.
Many firms now grant “floating” holidays taken either at the employee’s option or
designated for all employees by management, such as an extra day at Christmas time to
make a longer “weekend.” In most firms, eligibility for holiday pay for those working is
contingent on having worked scheduled days before and after the holiday. Most pay time
and a half for holiday work, though a few will award double time.

There are also a number of miscellaneous types of non working times that
companies sometimes underwrite. This would include jury duty, death in family, civic
duty. Military obligations, and marriage. It is quite common to pay for a minimum of 4
hours if the employee reports in and finds no work available. Employees engaged in
grievance processing are also paid their usual salaries for the time so spent. There are also
paid rest periods, lunch periods and wash up time.

It is customary in governmental jobs and white-collar jobs in industry to provide

10 or 12 days a year of sick leave. A few organizations have started “sick-leave banks”
where each employee contributes one day per year to the bank. If one has used up the
authorized amount, a loan or a grant can be awarded from the bank. To avoid
conscientious workers’ supporting sick-leave spendthrifts, a committee typically passes
on each request. In one bank, no future loan will be made until the old one has been paid
up.
A few firms had began no experiment with the concept of extending sick leave to
blue-collar employees as well. The Gillette, Polaroid, Kinetic Dispersion, Avon products,
and Black and Decker companies provide for 10 to 15 days of sick leave per year for all
employees. in Each case, the absence rate went up immediately after inauguration of the
plan, but in time decrease to a label slightly higher than under the previous system. The
major reasons for change were to minimize the differences among employee groups and
to encourage greater identification with the company and its management.

Economic Protection Against Hazards

In addition to old age and survivors insurance and unemployment compensation

required by the social security act, and workers compensation required by 50 state laws,
most organizations voluntarily provide a number of other programs designed to help
employees when faced with adversity. Among these are (1) guaranteed annual wage (2)
life insurance (3) health insurance (4) medical services and (5) credit unions.

Guaranteed Annual Wage

Some progressive management has a long been aware of the value of stable
operations and steady employee earnings. The number of managements that have been
willing and able to create and administer a private plan to stabilize employment and or
earnings is relatively few.

Most of the private annual wage plans have 3 basic characteristics: (1) they
guarantee a certain number of weeks of employment and / or wages, (2) they restrict the
number of employees who are covered, and (3) they suspend the operation of the plan
under conditions of extreme emergency, such as fire, flood, explosion, and strikes. The
Procter and Gamble plan, for example, guarantees employment for 48 weeks each year to
employees who have 2 or more years of service. There is no guarantee that the wage rate
will not be lowered in the event that an employee must be transferred to another job.
Stability of operations and employment has been affected by educating the consumer to
buy more steadily, producing to stock during slack sales period, and transferring
personnel from job to job as operations fluctuates. The Hormel plan guarantees a certain
amount of wages rather than employment. Fifty-two paychecks a year will be paid to
eligible employees, with a minimum weekly pay for 38 hours. Total wages for the year
are established on the basis of the sales forecast. This total pay is divided into 52 equal
amounts. Actual working hours frequently vary from week to week, but the pay received
does not. Overages and under ages of time worked relative to pay received are balanced
periodically. The Nunn-Bush plan is similar to that of Hormel, providing for a guarantee
of 52 paychecks. The guarantee to employees is based on the concept that labor will
receive 20% of the value of the products sold. Thus, the percentage of sales is guaranteed
to labor but the dollar amount is not.

Two organizations are well known for a policy commitment to no layoff. The
IBM Corporation has had no layoffs in 35 years, in the Lincoln Electric Company,
manufacturer of Arc welding machines and Electrodes, formally guaranteed that no
employees with a minimum of 2 years of service will be layed off. Though the Lincoln
commitment is practically devoid of loopholes and can only be changed on 6 months’
notice, no covered employee has been layed off since 1958. the returns of the company
are flexibility in job assignments, employee acceptance of technological changes, a
monthly turn over rate at 1/6 the competitive level, and compounded annual increases in
productivity of 7.73%. The company also utilizes individual incentive pay plans,
employee stock ownership, and employee profit sharing with shares based on merit. Total
annual compensation per employee is typically double that of competitors.

Life Insurance

Life insurance is provably the oldest company-sponsored employee benefit.

Group life premiums are considerably smaller than those of insurance purchased by the
individual. The return to the company of this particular economic service comes from
relieving the employee of worry the security of his or her dependents. Relief from worry
should enable a person to devote greater attention to the job and company. Most life
insurance plan include all employees regardless of physical condition and provide for
conversion to individual policies without physical examination when leaving the
organization.

Health Insurance

Accidents and industrial diseases growing out of the job are compensable under
state workers’ compensation laws. Illnesses and accident that are not industrially caused
are a source of worry and financial strains upon the employee. Various of health and
accident insurance are provided, some completely financed, and others whose cost are
shared with the employee. Showing again the tremendous variety of fringe benefits the
following types of insurance are provided by various firms.

1. Hospitalization
2. Surgical expense
3. Accident and sickness insurance to cover periods beyond regular sick
leave
4. Maternity benefits
 5. Vision care
6. Dental care
7. Psychiatric care, including alcohol and drug addiction
8. Chiropractic coverage
9. Major medical

The last item is of increasing importance since ordinary medical insurance

adequately covers illnesses and injuries whose cost run under $ 1000. Major medical plan
are designed to cover illnesses whose cost can be as catastrophic as the illness itself.

Though health benefits insurance used to be viewed as an inexpensive fringe,

such is no longer the case. In 1980, private businesses paid 27 % of the nation’s personal
health costs of $ 217 million. Health costs have moved from 5.9& of the Gross National
Product in 1965 to a projected 10% by 1990. General Motor spends more on medical
benefits than it does for the steel to make automobiles.

Because of this acceleration of cost, benefits manager are taking an increasing

interest in monitoring insurance claims. Inaugurating a hospitalization review program by
a third party resulted in a drop in kennecott copper’s hospital bill of 12%, in hospital
surgery of 11%, and in the use of assistance surgeons of 22%. Other attempts to contain
costs have included publication of several hundred procedures that can be accomplished
on an outpatient basis, paying a higher percentage of out costs than hospital costs, paying
higher coverage when second opinions are secured, and reimbursement for health
services provided in the home. Private companies can no longer afford to play the passive
role of merely providing financing.

Medical Services

Another approach used by some companies to deal with mounting health costs is
to provide some of the services directly rather than just financing their provision by
others. One vehicle that has been used is the “health maintenance organization” (HMO).

Whether or not a company sponsors one itself, the Health Maintenance

Organization Act of 1973 requires employers covered by the Fair Labor Standards Act to
offer an HMO as an alternative option to health insurance if one is available in the
community. The HMO provides clinical and hospital services for a fixed monthly fee.
Henry J. Kaiser pioneered the HMO concept during the 1940’s when he established
prepaid comprehensive health care for employees in his shipbuilding firm.

It is estimated that there now approximately 180 HMOs in the nation, covering
some 6 million people. The Kaiser plan alone accounts for almost half of the membership
.In one comparative analysis, it was determined that for HMO members the number of
hospital days each year was 450 per 1,000 people; the rate for nonmembers was 1,100 to
1,200 hospital days per 1,000. The accent is on preventive medicine: One is free to go the
clinic at any time at little or no charge per visit.
 As a second approach, over 50,000 firms have provided a physical fitness
programs for their employees. These can vary from simply organizing after-hours athletic
teams to the $2.5 million physical fitness center of Kimberly Clark, which has
gymnasium, weight-lifting rooms, swimming pool, sauna, and racquetball and handball
courts. Though little concrete evidence exists concerning proved values to the firm. The
ultimate hopes are for lower medical costs, greater productivity, and reduced
absenteeism.

Credit Union

A credit union is an organized group of people who pool their money and agree to
make loans to one another. Thus one value of fosye3ring a credit union is the relief from
worry over shor4t-term financial insecurity. A second value is the reduction in employee
compensation garnishment by loan agencies when the employee fails to meet loan
obligation. Garnishments preceding are always objectionable to the employer and in
some cowponies constitute grounds
For discharge. However federal legislation enacted in 1970 prohibits discharge
because of garnishment for any one indebtedness: some states prohibit discharge for
reasons of garnishments regardless of number. In addition, the federal law stipulates that
the portion of wages available for garnishments must exceed 25% or an amount related
to current minimum – wage levels, whichever is less.

This type of employee service illustrates well the principle cited earlier, that
employee services should be offered only when a group rather an individual can best
execute them. If an individual sought a short-term unsecured loan, he or she would pay
interest rates in excess of 30%. If that same individual joined a credit union and sought a
short-term unsecured loan from this union, the annual interest rate would be no more than
18 percent. Thus, in this instance, the group is more effective than the individual.

Facilitative Employee Services

Facilitative services are activities that employees must normally take care of
themselves in everyday living. Just as executives have certain perquisites, the trend is in
the direction of providing regular employees with special assistance in some of the
routine portions of life. Each facilitative service proposes to meet some continuing need.
The justifications for the services will be given briefly below.

Recreational Programs

Recreational programs may be divided into two types, (1) sports and (2) social
events. In the sports category, activities can be further classified into “varsity” and
“intramural” sports. Varsity sports are those in which a team is selected to represent the
firm in competition with other institutions. This type of activity violates the principle of
establishing a broad base of participation, but it may return values in improved public
relations and in employee pride, particularly if the team is successful. Intramural sports,
participated in by a greater number of employees, are the more desirable activity to
undertake. Various firms have provided facilities and/or organization for golf, bowling,
softball, tennis, swimming pools, and tennis courts. Such recreational facilities are of
great value in employee recruitment.

What values are derived from company picnics, employee country clubs, and
sports programs? The first intangible value is that of improved morale. On occasions,
however, a company has studied the personnel who participate most in the company sport
program and, in one case, discovered a relationship between productivity and
participation. The only difficulty, however, was that the relationship was inverse: the
most enthusiastic sports participants were among the poorer producers. This served to
create grave doubts of the organizational value of such programs. Recreational services
do however; serve as excellent recruiting devices, particularly for certain classes of
employees. Some employers have attempted to rationalize sports on the basis of their
contribution to employee health and consequent indirect benefit to productivity.
However, a case can be made for the opposite, particularly when excessive injuries to
employees result from participation in company sports activities. The values of
recreational services are largely int6angible and are extremely difficult to quantify. Many
feel that such activities are essential to making the company a “good place to work” and
let the analysis drop that point.

Cafeterias

Although morale enters into the analysis, the most important result in the
provision of company cafeterias is improved nutrition. Too often, industrial employees
settle for a hot dog and a soft drink if cafeteria service is not available. Improper eating,
particularly on heavy jobs, will be reflected in greater fatigue and reduced productivity
during the late afternoon. Some firms will practically give away certain foods deemed to
be highly nutritious. One should also note that the cafeteria can also be the cause for
numerous employee complaints; food quality and variety are subjects dear to the heart of
most workers.

Relocation Assistance

The home life of the employee has a considerable effect upon performance at
work. In addition, employers wish to retain the flexibility of moving key employees to
new job assignments to enhance the effectiveness of both the individual and the
organization. The provision of various relocation services will advance both objectives.
Among the various services that maybe provided are: (1) help in sale of present home,
including its possible purchase for resale by the company, (2) shipping household goods,
(3) temporary living and traveling expenses, (4) job-finding assistance for the employee’s
spouse, (5) information and advice concerning the new area, such as medical facilities,
schools, routes to work, and so on, and (6) help in finding and purchasing a new home.
With regard to the last item the acceleration of mortgage financing rates has led to more
refusals to relocate. In some instances, the employer will provide a mortgage interest
differential for a period of 3 years to enable the employee to adjust to the new higher
mortgage rate. Estimates of the cost to the employer of relocating one employee range
from $30,000 to $60,000.

Vanpooling

The rising costs of the gasoline have led some 600 companies to organize and
finance vanpooling programs. It is estimated that some 150,000 persons are active in this
of ride sharing. Prudential Insurance Company has 435 vans in used in some 30 cities,
transporting approximately half of their total employees.

The company derives some investment tax credits in purchasing vans that seat at
least eight adults. The van driver drives free and also has the used of the van for personal
use for a small mileage charge. Vanpoolers typically $2 per day and also benefit from
preferred parking places at work. Extensive used of such a program when require the
provision of less parking space by the company.

Child Care

Approximately half of all women with children under the age of six are in the
work force. For families with both parents working, it is estimated that day care expenses
for children average 10% of gross income, ranking behind only housing, food, and taxes.
In addition, the old family support networks of relatives and neighbors caring for children
are rapidly dissolving. Families moved about and the woman next door who used to care
for children now has a career of her own.

It has been projected that employer provision of some form of child care will be
the benefit of the future. As started by one executive, “by 1990, you’ll see the child care
benefit as often as you see group medical insurance today.” The child care benefit can
vary from the provision of counseling services to the actual provision of the service. Steel
case, Inc., provides counselors who discuss work schedule and the types and cost of
available care facilities. These counselors also act as middlemen between the families and
day care centers in working out various problems. Once snag in the program is
presentment on the part employees who do not have children. This problem could be
solved through the cafeteria benefit program; permitting parents to chose the child care
benefit while the remaining employees can spend their portion on other selected services.
In some instances, voucher allowances are issued, which enables the employee to pay a
portion of child care expenses. The Ford Foundation pays 50% of the costs for employees
earning less than $25,000 per year.

Employee Purchase

The old company store, where the employee redeemed the scrip paid for work,
had very poor reputation In the past. The old type of store is justifiable only when no
private store are available or when the few store that do exist take advantage of a
monopoly situation. Many firms do, however, make available to their employees their
own products at discount prices. This provides returns ion morale and also stimulates the
employee to use and “identify with” the products on which he or she works.

A serious question arises concerning the desirability of a company’s opening its

purchasing department to miscellaneous employee purchase. When a company purchases
consumer goods from other firms, it can obtain them at discount prices for its employees.
The anticipated return to the company is that of improved morale, but the potential
danger often outweigh this value. Among these danger are the following: (1) the
employee holds the company responsible for any deficiency or malfunction in the product
purchased; (2) he or she request installment financing of the purchase; (3) the company
incur4s the ill will of the community retailers who sale the same products bought through
the purchasing agent; and (4) the purchasing agent looks upon the scheme with disfavor,
since the agent is forced to purchased unfamiliar goods from unfamiliar sources.

Educational Tuition

Perhaps the most widely offered and least utilized fringe benefit is employee
educational assistance through tuition refunds. A survey of 283 firms indicated that over
90% of the larger enterprises offer educational assistance. Less than 10% of the
employees, however, take advantage of these plan. Half of the company set dollar
maximums of $500 or less, and about one-fourth graduate the amounts awarded on the
basis of grade received, such as 100% for A or B. 50% for C, 25% for D, and nothing for
failing grade. The most common stipulation for a approval of educational assistance are
(1) the course taken should be related to the job, (2) the course should be applicable
toward a degree, and (3) that worker must still be in the company’s employ at the time of
refund.

Educational tuition is a fringe benefit that rests on a sound foundation of mutual

interests. The employee gains additional knowledge and skills that contribute to personal
development; the organizations gain when these skills are put to use on the job. Such
plans will also contribute to improved morale and reduced turnover.

Employee Assistance Programs

As the final “catch-all” type of service, various firms are providing advice and
assistance for a wide variety of personal troubles. Reponses from some 500 firms
indicated that 20% had some from of an employee assistance program.

Less widely offered assistance programs are in the areas of financial and legal
counseling. If employees become involved in financial trouble, they may have access to
the credit union, employees savings and loan association, or some other similar service
offered in the firm. Not in frequently the trouble is more deeply rooted- a chronic
inability to handle money. The employee is in need of advice as well as financial
assistance. Some predict that prepaid legal insurance will become the “fringe of the
future” since its status was clarified by the Tax Reform Act of 1976. group legal service
usually includes some degree of overage for consultation, office work, judicial
proceedings, and major expenses above maximums provided in the preceding areas. For
example, a plan could provide up to$25 for each visit with an attorney with a maximum
of $100 per year, office work up to $250, judicial proceedings up to $665, and 80 percent
of the next $2, 500 above these maximums. Most legal claims have been in the areas of
domestic relations and automobiles.

Summary

Employee fringe benefits can be compared to the mythological animal that

immediately grew two heads when one was chopped off. There seems to be no end to the
number, variety, and adaptations of such service programs.

One could reason that the forces governing the determination of wages and other
compensation will result in a certain size of compensation package. If the employee
desires to take 30 percent of this package in the form of guaranteed annual wages,
pensions, insurance, and the like, that is her or his privilege. This presumes that the
compensation package can be scientifically determined and that the employee is actually
substituting a fringe for a portion of the base wage. Such a precision of measurement is,
of course, impossible.

The typical approach to the problem of what employee benefits to offer is to

attempt to prove or deduce specific and general values to the organization as well as to
the employee participant. In general, all such plans should conform to such principles as
the following: the benefit should provide organizational value at least equal in amount to
its cost; it should meet a real need; group effort should be more efficient than individual;
maximum employee participation should be engendered; specific efforts should be made
to communicate the value and content of the fringe-benefit package; the costs of the
benefit should be calculable and provision made for sound financing.

Nonwage payments take a variety of forms, including pay for time not worked,
economic benefits to protect against major life hazards, and facilitative services to
improve the quality of life. Society through government appears to be most concerned
about protecting against major economic hazards issuing from interruptions or stoppages
of employment, as judged by passage of such laws as the Social Security Act and the
Employee Retirement Income Security Act. There is obvious great concern with
employee health, as exemplified by workers’ compensation laws, the Occupational Safety
and Health Act, and the Health Maintenance Organization Act. Perhaps the greatest
degree of employer-initiated benefits lies in the facilitative services area, such as child
care, vanpooling, housing, recreation, counseling, tuition, and so on. Labor unions have
been most prominent in steadily increasing the amount of pay for time not worked, such
as holidays, vacations, rest periods, and so on. In sum, the average employee working in
a firm engaged in interstate commerce and organized by a labor union is likely to be on
the receiving end of a multitude of benefits, many of which she or he becomes aware of
only when the need arises. Professional personnel managers should be concerned with
enhancing organizational returns for this major investment in employee attitudes.
BRIEF CASE: Present your analysis using the case analysis format, and answer the
questions following the case.

The Ineffective Incentive. George Morales had worked at the Adams

Company for 8 years in the extrusion press department. He had progressed from his
break-in job of laborer to sawyer, leadout, and the top job of heater and press operator.
The functions of the press operator are to operate the press, act as leadman of the crew,
and arrange his work into an orderly sequence. George had spent most of his time on a
press of 2,500 –ton capacity, although presses of larger capacities were available.
An incentive system had been installed in the press area and was based on the
load and extrusion cycles to determine the standard minutes. The actual time to perform
the job was divided into the standard minutes to determine the efficiency of the crew.

George had performed satisfactorily for a long period of time in all classifications,
particularly in that operator. He was considered a having a pleasing personality and
being an efficient operator with an average efficiency of 116 percent, an excellent
coordinator of his four-man crew, and highly concerned with the quality of the work he
and his crew turned out. He was in good health, and his attendance record was
considered perfect.

The firm’s profit have been decreasing the past 18 months owing to the effects of
stringent competition. Management decided to investigate the methods of performing the
work in each department, the objective being to improve methods wherever possible to
decrease costs. Some layouts in the press area were modified to the extent that crew sizes
could be reduced. George’s crew was reduced by one crew member.

About this time, George’s attitude and performance changed markedly for the
worse. His immediate supervisor found it necessary to caution him several times, first on
the quality of his work, then his grouchy attitude which verged on insubordination, and
finally his attendance. His supervisor could not determine any satisfactory reason for this
situation. It appeared to him that George was not trying or that he was not paying
attention to what he was doing. The supervisor was also unable to determine the reason
for the grouchy attitude, except George saying he “didn’t feel good”.

The supervisor didn’t have much time to let the situation ride because the poor
quality of George’s work was beginning to show up in other process centers. This caused
his own superior to get into the act. When the poor quality began reaching the final
inspection department, “the roof feel in.” The plant superintendent, the general
superintendent, and the department supervisor were now on the supervisor’s neck. An
immediate meeting was held with the supervisor by the plant’s top management where he
unfolded his meager story. Since this was not an adequate explanation, it was decided to
bring George into the meeting. While waiting for him to appear, the general
superintendent convincingly advanced his theory that George was offering resistance to
the change in methods. The department supervisor objected to his theory since no trouble
had been experienced in prior similar situations. When George arrived, he was asked to
state why his production had worsened, but the declined to offer any more information
than that he had given to his supervisor. He was informed that he would have to
improved immediately or be dismissed. He was told he would be given 1 week to make
the transition in recognition of his long period of satisfactory service. The proper union
officials were informed of all the facts and the proposition. The union officers were
perplexed about the change in George but, being aware of his poor performance,
reluctantly went along with the arrangement.

The department supervisor was the sole individual not in agreement with the rest.
He first quizzed the immediate supervisor again and obtained no new information. He
felt somewhat disappointed in him for not being closer to the man and having some idea
of what had caused the sudden change. The department supervisor then talked to several
union leaders and other members of the organization. None had any additional
information. George had been part of the gang up to the time his work performance
changed, since then he had become a lone wolf. The union and informal group leaders
were aware of the seriousness of his situation if he did not change, and felt that they had
let the department foreman down in not being able to shed any light on the case.

The first 3 working days of the week-long waiting period went by with no
change . On the fourth day the department supervisor ran into George in the restroom.
He asked him what he intended to do. George replied that he guessed they would just
have to fire him. The department supervisor looked at his worried, strained face- the
previously happy youth looked as though he had aged many years in a short time. The
department supervisor asked George what he and his wife were doing about this problem.
This question caused George to break down completely; he even cried. A private place
was found, and he and George talked. His wife had left him. This was the man’s
problem. He refrained from telling anyone of this because he had bragged so much of the
good relationship he and his wife had, and now that she had left him, he was ashamed to
mention it. The department head could do little but sympathize with him. Remarkably
enough, George’s performance improved the next day.

The department supervisor informed his superiors of what had happened. The
plant superintendent was elated, but the general superintendent, while saying the
department supervisor had done a good job, was very cool. The recovery for George was
slow but positive. The general supervisor continued to “ride” both the department
foreman and George about the slow recovery. The general supervisor’s attitude was that
this company was in business to make a profit and was not a psychological correctional
institution. The general supervisor persisted in taking some disciplinary action. The
department supervisor resisted and won out at the expense of some lowering of status in
the eyes of his superior.

The operator fully recovered his composure in another few weeks and approached
his jovial former self. He again talked and joked with his fellow workers. His efficiency
returned to his prior average and his quality was again high.

Questions:
1. Why did the general superintendent believe that George’s behavior was caused by
resistance to changes in methods?
2. Should George have received some type of discipline for his declining quality of
work, grouchy attitude, and poor attendance.
3. What do you think of the behavior of the immediate supervisor? If you were his
superintendent, would you have permitted defiance of your wishes in this case?