Chapter 10

BENEFITS, NONFINANCIAL
COMPENSATION, AND OTHER
COMPENSATION ISSUES
 HRM in Action: Nontraditional
Benefits

• Organizations are continually competing

for top caliber employees
• Benefits may not serve as strong
motivators of performance
• They are obviously important in attracting
and retaining these desired individuals
Benefits (Indirect Financial
Compensation)

All financial rewards

that are not paid
directly to the
employee
 Benefits in a Total Compensation Program
External Environment
Internal Environment
Compensation
Financial Nonfinancial
Direct Indirect (Benefits) The Job Job Environment

Legally Required Benefits

Social Security
Unemployment Compensation Workers’
Compensation Family &
Medical Leave
Voluntary Benefits
Payment for Time Not Worked
Health Care
Life Insurance
Retirement Plans
Disability Protection
Employee Stock Option Plans
Supplemental Unemployment Benefits
Employee Services
Premium Pay
Customized Benefit Plans
 Social Security
• Created system of retirement benefits
• Federal payroll tax to fund
unemployment and retirement
benefits
• Amendments included disability
insurance, survivors’ benefits, and
Medicare
Unemployment Compensation

• Laid off individual receives

this compensation
• Administered by SSS
Worker’s Compensation
• Expenses resulting from
job-related accidents or
illnesses
• Administered by states
• Program paid for by
employers
• Premium expense
directly tied to past
experience
Discretionary Benefits (Voluntary)
• Payment for time not worked
• Health care
• Life Insurance
• Retirement plans
• Disability protection
• Employee Stock Option Plans (ESOP)
• Supplemental Unemployment Benefits (SUB)
• Employee services
• Premium pay
 Payment for Time Not Worked -
Paid Vacations
• Provide workers with opportunity to rest,
become rejuvenated, and more productive
• Encourage employees to remain with the firm
• Increases with seniority
 Payment for Time Not Worked -
Sick Pay and Paid Time Off

• Many firms allocate each employee a

certain number of days of sick leave
• Some managers are very critical of sick
leave programs
 Payment for Time Not Worked -
Sabbaticals

• Temporary leaves of absence from

organization, usually at reduced pay
• Used for years in academic community
• Some companies are now using
• Helps reduce turnover and prevents
burnout
 Health Care
• Employers spend billions annually on
health insurance for employees,
dependents, and retirees
• Health insurance typically constitutes 25%
of employer’s benefit costs
 Factors Contributing to the High
Cost of Health Care

• Aging population
• Growing demand for medical care
• Increasingly expensive medical
technology
• Inefficient administrative processes
 On-Site Health Care
• Trend of providing on-site medical care
growing because it permits employers to
better manage and reduce growth of
health care costs
• Assists in treating minor illnesses and
injuries and provides follow-up care
Major Medical Benefits
Plans provide for
major medical
benefits to cover
extraordinary
expenses that result
from long-term or
serious health
problems
Life Insurance

Group life insurance

commonly provided
benefit to protect
employee’s family
in event of death
Retirement Plans
• Defined benefits plans
• Defined contribution plan
• Cash balance plan -

© 2008 by Prentice Hall 10-17

Disability Protection

Provides
monthly benefit
to employees
who, due to
illness or injury,
are unable to
work for an
extended period
Employee Stock Option Plan (ESOPs)
• Firm contributes stock shares to a trust
• Trust allocates stock to participating
employee accounts according to
employee earnings
• Some employees want ability to sell
their shares prior to retirement, which
ESOPs do not allow
• Enron experience
Supplemental Unemployment
Benefits (SUB)

• Provide additional income for

employees receiving unemployment
insurance benefits
• Usually financed by company
• Tend to benefit newer employees
Employee Services
• Relocation
• Child care
• Educational assistance
• Food service/subsidized
cafeterias
• Financial services
• Legal services
• Scholarships for Dependents
 Customized Benefit Plans
(Cafeteria Compensation)
• Employees make yearly elections to
largely determine benefit package by
choosing between taxable cash and
numerous benefits
• Twenty years ago or so firms offered a
uniform package that generally reflected a
typical employee
• Today, the workforce has become
considerably more heterogeneous
 Compensation Vehicles Utilized in a
Customized Benefit Plans Compensation Approach
• Accidental death, dismemberment insurance • Health maintenance organization fees
• Birthdays (vacation) • Home health care
• Bonus eligibility • Hospital-surgical-medical insurance
• Business and professional membership • Incentive growth fund
• Cash profit sharing • Interest-free loans
• Club memberships • Long-term disability benefit
• Commissions • Matching educational donations
• Company medical assistance • Nurseries
• Company-provided automobile • Nursing home care
• Company-provided housing • Outside medical services
• Company-provided or –subsidized travel • Personal accident insurance
• Day care centers • Price discount plan
• Deferred bonus • Recreation facilities
• Deferred compensation plan • Resort facilities
• Dental and eye care insurance • Sabbatical leaves
• Discount on company products • Salary continuation
• Education costs • Savings plan
• Educational activities (time off) • Scholarships for dependents
• Free checking account • Severance pay
• Free or subsidized lunches • Sickness and accident insurance
• Group automobile insurance • Stock appreciation rights
• Group homeowners’ insurance • Stock bonus plan
• Group life insurance • Stock purchase plan
 Premium Pay
• Compensation paid to employees for
working long periods of time or working
under dangerous or undesirable conditions
• Hazard Pay - Pay for work under
extremely dangerous conditions
• Shift Differentials - Pay for inconvenience
of working less desirable hours
Communicating Information
about Benefits Package

• Workers need to fully understand

benefits that are provided them
• Many times organizations do not
have to improve benefits to keep
their best employees
Job Environment as a Nonfinancial
Compensation Factor
• Sound policies
• Capable managers
• Competent employees
• Congenial coworkers
• Appropriate status
symbols
• Working conditions
Workplace Flexibility
(Work-Life Balance)
• Flextime
• Compressed workweek
• Job sharing
• Telecommuting
• Part-time work
• More work, fewer hours
 Flextime

• Practice of permitting employees to

choose, with certain limitations, their
own working hours
• Work same number of hours per day as
they would on standard schedule
• Many firms are using
 Illustration of Flextime

Flexible
Flexible Time Core Time Time Core Time Flexible Time
(Lunch)
6 a.m. 9 a.m. Noon 3 p.m. 6 p.m.

Bandwidth
 Compressed Work Week

• Arrangement of work hours that

permits employees to fulfill their
work obligation in fewer days than
typical 5-day workweek
• Four 10-hour days
• Often greater job satisfaction
 Job Sharing
• Two part-time people split duties of one
job in some agreed-on manner and are
paid according to contributions
• Partners must be compatible, have good
communication skills and trust must exist
between job sharers and their manager
Telecommuting

• Work arrangement
whereby employees,
called teleworkers or
telecommuters, are able
to remain at home, or
otherwise away from
office, and perform work
using computers and
other electronic devices
that connect them with
office
 Part-time Work
• Some people do not either want or need
full-time employment
• Part-time work was listed as the most
important flexible work option
• Adds many highly qualified individuals to
labor market by permitting both
employment and personal needs to be
addressed
 More Work, Fewer Hours
• Variation of part-time work where
employees receive full-time pay and get
more done in fewer hours
• Corporate athlete paradigm - One training
habit of world-class athletes is that they
have short periods of very demanding
work, but then “when they rest, they really
rest.”