Part

Part 4:
4: Compensating
Compensating Human
Human
Resources
Resources

Chapter 7: Managing Employee Benefits

Prepared by Linda Eligh, University of Western Ontario

12–1
Copyright © 2008 by Nelson, a division of Thomson Canada Limited.
 Learning
Learning Objectives
Objectives
After you have read this chapter, you should be able to:
1. Define a benefit and identify four strategic benefit considerations.
2. Distinguish between mandated and voluntary benefits.
3. Discuss the shift of retirement plans from defined-benefit to
defined-contribution plans.
4. Explain the importance of managing the costs of health benefits
and identify some methods of doing so.
5. Describe the growth of financial, family-oriented, and time-off
benefits and their importance to many employees.
6. Summarize benefits communication and flexible benefits as
considerations in benefits administration.

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–2

 Long-Term
Long-Term Issues
Issues for
for CEOs
CEOs Fig.
Fig.12-1
12-1

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 Strategic
Strategic Perspective
Perspective on
on Benefits
Benefits
• Benefit
 An indirect reward given to an employee or group of
employees for organizational membership.
• Strategic Perspectives on Benefits
 Benefits absorb social costs for health care and
retirement.
 Benefits influence employee decisions about
employers (e.g., recruitment and retirement).
 Benefits are increasingly seen as entitlements.
 Benefit costs average over 40% of total payroll costs.

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–4

 Strategic
Strategic Benefits
Benefits Considerations
Considerations Fig.
Fig.12-2
12-2

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 Benefit
Benefit Design
Design
• Decisions Affecting Benefit Design:
 How much total compensation should be provided?
 What part of total compensation should benefits
comprise?
 What expense levels are acceptable for each benefit?
 Which employees should get which benefits?
 What are we getting in return for the benefit?
 How will offering benefits affect turnover, recruiting,
and retention of employees?
 How flexible should the benefits package be?

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–6

 Common
Common Measurements
Measurements of of
Benefits
Benefits Effectiveness
Effectiveness Fig.
Fig.12-3
12-3

 Benefits as a percentage of payroll (pattern over a

multi-year period)
 Benefits expenditures per full-time equivalent (FTE)
employee
 Benefits costs by employee group (full-time vs. part-time,
union vs. non-union, office, management, professional,
technical, etc.)
 Benefits administration costs (including staff time
multiplied by the staff pay and benefits costs per hour)
 Health-care benefits costs per participating employee

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–7

 Government
Government Security
Security Benefits
Benefits (cont’d)
(cont’d)

• Employment Insurance (EI)

 Provides temporary financial assistance for
unemployed Canadians while they look for work or
upgrade their skills. Eligibility is based on work
record.
 Basic Benefits
 Compassionate Care Benefits
– Maternity Benefits
– Parental Benefits
– Sickness Benefits
– Supplemental Unemployment Benefits (SUB)

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–8

 Retirement
Retirement Benefits
Benefits
• Retirements Benefits and Age Discrimination
 Forcing retirement because of age is a human rights
issue covered by human rights legislation and in
Quebec by labour standards legislation.
 Elimination of mandatory retirement in Canada
presents challenges to employers on what if any
benefits post 65 workers should receive.
 The age of retirement continues to decline in Canada
 Early Retirement – providing workers voluntary opportunities
to leave their jobs.
 Retiree Benefits – benefits provided to employees after
retirement. Increasing costs and underfunded liabilities are
undermining benefits for retirees.

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 Employer
Employer Sponsored
Sponsored Pension
Pension Plans
Plans
• Pension Plans
 Retirement program established and funded by the
employer and employees.
• Traditional Benefit Plans
 Defined-benefit plans
 Employees are promised a pension amount based on age
and length of service.
 Defined-contribution plans
 Employer makes an annual payment to an employee’s
pension account.
 Benefit payout is determined by the financial performance of
the previous contributions and can vary.

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–10

 Pension
Pension Plans
Plans (cont’d)
(cont’d)
• Group RRSPs
 A collection of individual RRSPs administered by the
employer on behalf of employees of a company
 Flexible – employees have choice of who to invest
funds and how much to contribute
 Deductions at source help employees realize an
immediate tax deduction
 Some employers match contributions
• Deferred Profit-Sharing Plans (DPSP)
 Employees receive a share in the profits of the
company that is paid out as a pension at retirement

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 Pension
Pension Plans
Plans
Contributory Non-Contributory
Non-Contributory
Contributory
Plans Plans
Plans
Plans

Pension
Pension
Terms
Termsand
and
Concepts
Concepts
Vesting
Vesting Locked-In
Locked-In

Portability
Portability

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 Health
Health Care
Care Benefits
Benefits
• Employers provide a variety of health-care and
medical benefits, usually through insurance
coverage
 Extended health care for employees and dependants
 Prescription drugs
 Vision
care
 Dental insurance

 90% of Canadians have some form of drug plan

 Most employees pay a deductible or premium
 Since mid-1990s employer health-care benefits costs
have increased significantly faster than inflation

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–13

 Increases
Increases In
In Health
Health Benefits
Benefits Costs
Costs
More
Morenew
new
drugs
drugs alongwith
along with
more
moreconsumer
consumer
education
education Double
Doubledigit
digit
Wellness
Wellnessprograms
programs inflation
inflation ofdrug
of drug
not embraced
not embraced plans
plans

Aging
AgingPopulation
Population
Shifting
Shiftingcosts
costsfrom
from Increased
Increaseduse
useof
of
public to private
public to private services
services
sector
sector

Change
Changeininthe
themix
mix New
Newtechnology
technology
of
ofservices
services and
andservices
services

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 Controlling
Controlling Health-Care
Health-Care Costs
Costs
• Health Promotion Strategies
 Targeting health promotion strategies towards medical
conditions of employees likely to result in need for treatment.
• Managed Care
 Approaches that monitor and reduce medical costs through
restrictions and market system alternatives.
• Preferred Provider Organization (PPO)
 A health-care provider that contracts with an employer group to
provide health-care services to employees at a competitive rate.
• Health Maintenance Organization (HMO)
 A plan that provides services for a fixed period on a pre-paid
basis.

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 Managed
ManagedHealth
HealthCare
Careand
andaa
Two-Tiered
Two-TieredHealth
HealthSystem
System Fig.
Fig.12-8
12-8

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 Controlling
Controlling Health-Care
Health-Care Costs
Costs (cont’d)
(cont’d)
• Health Spending Account (HSA)
 Also known as defined-contribution health plans.
 Employers contribute a set amount to employees to cover their
own health-related expenses.
 Works like a bank account.
• Advantages
 Improved employee morale. Employees have more control in
making decisions that affect their own health.
 More employee involvement results in better understanding of
benefits costs.
 Facilitates recruitment and retention of high-calibre employees.
 Promotes overall positive view of the employer.
 Lowers turnover.

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–17

 Financial
Financial Benefits
Benefits
Financial
FinancialServices
Services: :
Credit
CreditUnions,
Unions,
Purchase Discounts
Purchase Discounts
Financial
FinancialServices:
Services: Financial
FinancialServices:
Services:
Financial
Financialplanning
planningor
or
Savings
Savingsor
orStock
Stock counselling
counselling
Investment Plans
Investment Plans

Financial
Financial
Benefits
Benefits
Relocation
Relocation
Assistance Insurance
InsuranceBenefits
Benefits
Assistance

Educational
Educational
Assistance
Assistance

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–18

 Family-Oriented
Family-Oriented Benefits
Benefits

Child-Care
Child-CareAssistance
Assistance Eldercare
EldercareAssistance
Assistance

Family-Care
Family-Care
Benefits
Benefits

Measuring
MeasuringEffectiveness
Effectiveness

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–19

 Typical
TypicalDivision
Divisionof
ofHR
HRResponsibilities:
Responsibilities:
Benefits
Benefits Administration
Administration Fig.
Fig.12-10
12-10

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–20

 Flexible
Flexible Benefits
Benefits
• Flexible Benefit Plan
 A plan (flex or cafeteria plan) that allows employees
to select the benefits they prefer from groups of
benefits established by the employer.
• Problems with Flexible Plans
 Inappropriate benefits package choices
 Adverse selection and use of specific benefits by
higher-risk employees
 Complexity leads to higher administrative time and
involvement to track choices

Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 12–21