STRATEGIC

COMPENSATION
A Human Resource Management Approach

Chapter 9:
Discretionary Benefits

© Pearson Education Limited 2015 9-1

 Learning Objectives
1. Give an overview of discretionary benefits.
2. List the three broad components of
discretionary benefits.
3. Identify and define one example of income
protection programs, paid time off, and
services.
4. Explain the benefits and costs of
discretionary benefits.
© Pearson Education Limited 2015 9-2
 Learning Objective 1

Give an overview of discretionary

benefits.

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Discretionary Benefits Overview

As of March 2012:

• $13,000 per employee, on average

• 21.5% of total payroll costs, on average

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Discretionary Benefits Overview

Discretionary benefits
• Are offered at the will of each company
• Employees view them as entitlements
• Employers reinforce the entitlement
mentality by awarding them regardless of
performance

© Pearson Education Limited 2015 9-5

 Learning Objective 2

List the three broad components of

discretionary benefits.

© Pearson Education Limited 2015 9-6

 Discretionary Benefit Types
• Protection programs: provide family benefits,
promote health, and guard against income loss
caused by such catastrophic factors as
unemployment, disability, or serious illnesses
• Paid time-off: provides employees time off with
pay for such events as vacation

• Services: provide enhancements such as tuition

reimbursement and day care assistance to
employees and their families
© Pearson Education Limited 2015 9-7
 Learning Objective 3

Identify and define one example of

income protection programs, paid time
off, and services.

© Pearson Education Limited 2015 9-8

 Income Protection Programs
• Disability insurance: includes both short-
and long-term disability care
• Life insurance: protects employees’ families
by paying a specified amount to an
employee’s beneficiaries upon the
employee’s death
• Pension programs: income to employees
and their beneficiaries during some or all of
their retirement
© Pearson Education Limited 2015 9-9
 Short-Term Disability
• Less than six months duration
• Unable to perform job
• Benefit: 50% to 100% of pretax income
• Conditions
– Recovery from injuries
– Recovery from surgery
– Treatment of an illness requiring any
hospitalization
– Pregnancy
© Pearson Education Limited 2015 9-10
 Long-Term Disability
• Six months to life
• Unable to perform any job qualified for
• Benefit: 50% to 70% of pretax pay
• 6 to12 month waiting period
• Other benefits used first

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 Life Insurance

• Pays employees’ beneficiaries upon

employees’ death

• May also include

– Accidental death
– Dismemberment benefits

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 Life Insurance Types
• Term life insurance: provides protection to
employees’ beneficiaries only during a limited
period based on a specified number of years

• Whole life insurance: does not terminate until

payment is made to beneficiaries
• Universal life insurance: provides protection to
employees’ beneficiaries based on the insurance
feature of term life insurance

© Pearson Education Limited 2015 9-13

 Retirement Programs

• Provide income to employees and

their beneficiaries during some or all
of their retirement

© Pearson Education Limited 2015 9-14

 Paid Time Off Policies
• Holidays • Clean-up,
• Vacation preparation, or
• Sick leave travel time
• Personal leave • Rest period
“break”
• Jury duty
• Lunch period
• Funeral leave
• Integrated time off
• Military leave policies
• Sabbatical leave
• Volunteerism
© Pearson Education Limited 2015 9-15
 Integrated Paid Time Off
Policies
• Combine holiday, vacation, sick leave, and
personal leave policies into a single paid
time off policy

• Provide individuals the freedom to

schedule time off without justifying the
reasons

© Pearson Education Limited 2015 9-16

 Sabbatical Leaves
• Paid time off for professional activities
• Common in college and university settings
– Faculty members who meet minimum service
requirements
• Outside academia  Usually limited to
professional and managerial employees

© Pearson Education Limited 2015 9-17

 Volunteerism Causes
• Improving literacy
• Providing comfort to terminally ill patients
• Serving food at shelters for individuals who
cannot afford to feed themselves
• Serving as a mentor to children who do not
have one or more parents
• Spending time with elderly or disabled
residents of nursing homes who may no
longer have living friends or family
© Pearson Education Limited 2015 9-18
 Services
• Employee assistance programs
• Family assistance programs
• Flexible scheduling and leave
• Day care
• Tuition reimbursement
• Transportation services
• Outplacement assistance
• Wellness programs
• Smoking cessation
• Stress management
• Weight control and nutrition programs
• Financial education
© Pearson Education Limited 2015 9-19
 Employee Assistance
Programs
• Provided for:
- Alcohol or drug abuse
- Domestic violence
- Emotional impact of AIDS and other
diseases
- Clinical depression
- Eating disorders

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 Advantages of EAPs for
Employer
Reduced costs:
- Turnover
- Absenteeism
- Medical costs
- Unemployment insurance rates
- Workers’ compensation rates
- Accidents
- Disability insurance
© Pearson Education Limited 2015 9-21
 Family Assistance Programs

• Help employees provide elder care and

child care
• Making referrals to on-site child or elder
care centers
• Company-sponsored day care programs

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 Flexible Scheduling

• Compressed work weeks (e.g., 10-hour

days or 12-hour days)
• Flextime
• Job sharing

© Pearson Education Limited 2015 9-23

 Day Care
• Companies subsidize child or elder day
care in community-based centers
• Elder care: self-help, meals, and
entertainment activities for the participants
• Child care: supervision, preschool
preparation, and meals

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 Tuition Reimbursement

• Promotes employee education

• Full or partial

• Not the same as pay for knowledge

© Pearson Education Limited 2015 9-25

 Outplacement Assistance
Programs
Required due to:
• Layoffs due to economic hardship
• Mergers and acquisitions
• Company reorganizations
• Changes in management
• Plant closings or relocation
• Elimination of specific positions, often the
result of changes in technology
© Pearson Education Limited 2015 9-26
 Outplacement Assistance
Services
• Personal counseling
• Career assessments and evaluations
• Training in job search techniques
• Resume and cover letter preparation
• Interviewing techniques
• Training in the use of basic workplace
technology

© Pearson Education Limited 2015 9-27

 Wellness Programs

Emphasize, in order to keep health costs

low:
• Weight loss and nutrition
• Stress management
• Smoking cessation
• Cardiovascular fitness

© Pearson Education Limited 2015 9-28

 Learning Objective 4

Explain the benefits and costs of

discretionary benefits.

© Pearson Education Limited 2015 9-29

 Discretionary Benefits Costs
and Benefits
• Promotes competitive advantage
• Promotes employee behaviors with
strategic value
• Attracts quality employees
• Meets the needs of a diverse workforce
• Discretionary benefits can distinguish a
company from its competition
© Pearson Education Limited 2015 9-30
 Discretionary Benefits Costs
and Benefits
• Discretionary benefits have tax
advantages
– Can translate into cost savings
– Companies pursuing differentiation strategies
might invest more in research and
development
– Companies pursuing lowest cost strategies
might be able to lower prices

© Pearson Education Limited 2015 9-31