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Topic 7
Compensation and Benefits
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 2
Learning Outcomes
Detect strategies companies use to develop benefits
plans that are cost effective
Identify and explain the employee benefits required by
law
Describe the types of work/life benefits that employers
may provide
Describe the different types of retirement programs
and pension plans and the regulations related to them
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 3
Selecting Benefits
When designing benefit programs, company can:
Purchase detailed compensation data
Hire outside firms to aid in the designing process
Involve employees’ participation
Conduct opinion survey
Establish committees to over look the program
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 4
Flexible Benefits
Flexible benefits plans
Enable individual employees to choose benefits best
suited to their particular needs
Prevent certain benefits from being wasted on
employees who have no need for them
Employees are offered core benefits package of life and
health insurance, sick leave, and vacation
Give certain amount of funds to purchase other benefits
needed through the plan
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 5
Designing Benefits Information
Avoid complex language when describing benefits
Explain purpose of a benefit, its value for employees,
and pros and cons of different benefit plans
Use graphics to make information understandable at a
glance
Provide numerous examples illustrating how a benefit
choice might affect different types of employees
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 5
Social Security Insurance
Protect workers against the loss of earnings resulting
from old age and unemployment
Amended to include disability or dependents, incase
of death of the worker supporting them
Together known as Old Age, Survivors, and Disability
Insurance (OASDI)
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Social Security Insurance
Supported by tax levied against an employee’s earnings
Matched by employer in each pay period
Tax revenues are used to pay major benefits
Retirement
Disability
Survivors’
Medicare
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 8
Unemployment Insurance
Protects workers who lose their jobs through no fault
of their own
Eligible workers:
Submit an application for unemployment compensation
with state employment agencies
Register for available work
Willing to accept any suitable employment that may be
offered to them
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 9
Workers’ Compensation Insurance
State-mandated insurance provided to workers to
defray the loss of income and cost of treatment due to
work-related injuries or illness
Covers
Injuries on the job
Work-related illnesses
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 10
Work-Life Discretionary Benefits
Organizations seek to create a work/life organizational
climate that allows employees to balance work with
personal needs
Organization are adapting work-life programs to
accommodate the entrance of Generation Y employees
into the workplace
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 11
Child and Elder Care
Child care - Provided to a child by an employee who
remains actively at work
Elder care: Provided to an elderly relative by an
employee who remains actively at work
Backup care program: Employer provides or
subsidizes temporary care for its employee’s elders or
children when their regular arrangements fall through
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Payment for Time Not Worked
Vacations with pay
Paid holidays
Sick leave
Sabbaticals
Severance pay
Supplemental unemployment benefits (SUBs)
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 13
Retirement Programs
No law mandating retirement age in United States
Factors that influences an employee to retire
Personal/financial condition
Health
Family obligations
Satisfaction from work
Ability to meet changing job demands
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Preretirement and Phased Retirement
Programs
Requires major financial lifestyle adjustment
Seminars are conducted to create awareness of kinds
of adjustments required when employees retire
Phased retirement: Program that allows its
employees to gradually cut their hours before retiring
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 15
Pension Plans
Reward employees for their years of service by
providing them with income when they retire
Categorized based on
Contributions made by employer
Amount of pension benefits to be paid
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Types of Pension Plans
Contributory plan
Noncontributory plan
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1617
Pension Protection Act
Allows employers to automatically enroll employees in
defined contribution plans
Permits higher contribution limits for 401(k) plans
Enables workers to build larger retirement holdings
Gives workers greater control over how their accounts
are invested
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 18
Cash Balance Pension Plans
Allows employer to make yearly contribution into
employee’s retirement savings account
Based on percentage of employee’s pay, typically four
percent
Benefits depend on employee’s age and years of service
with the company
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 19
Federal Regulation of Pension Plans
Private pension plans are subject to federal regulation
under Employee Retirement Income Security Act
(ERISA)
Vesting: Guarantee of accrued pension benefits to
participants at retirement age, regardless of their
employment status at that time
Prevents companies from laying off employees before
they retire, so they are unable to collect their pensions
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 20
Federal Regulation of Pension Plans
According to ERISA
Pension plans must provide employees with vested
rights to their accrued benefits after they meet a certain
minimum years of service
Minimum funding standards should be followed to
ensure availability of pension benefits to employees
upon retiring
Pension Benefit Guaranty Corporation (PBGC) was
created
Ensures that if a plan is terminated, guaranteed
minimum benefits are paid to participants
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 21