Chapter 01 – Introducing Employee Benefits
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Chapter 01 Introducing Employee Benefits
I. Learning Objectives (use PP 1.2)
2. Various legally required and discretionary benefits
4. The strategic importance of benefits and approaches to strategically planning a
benefits program
5. Various types of information used to develop strategic benefits plans
II. Defining and Exploring Employee Benefits
A. Defining Employee Benefits
2. Compensation other than hourly wages or salary, including:
3. Benefits seen as a central strategy for attracting and retaining employees
4. Organized using two dimensions:
a. The role that the benefits serve the employees
b. The funding source of the benefit
B. Three fundamental roles (use PP 1.5)
1. Protection Programs that help guard against loss caused by such things as
3. Accommodation and enhancement benefits that promote healthful living opportunities
for employees and their families, including:
4. Two broad sources
a. Legally required benefits
i. Mandated by the federal government like the Social Security Act of
1935
C. Employee Benefits in the Total Compensation Scheme
1. Total compensation includes monetary plus non-monetary rewards
a. Monetary compensation includes:
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2. Core Compensation (use PP 1.7 & 1.8)
a. Six types of monetary rewards
i. Base Pay
ii. Cost-of-living-adjustments (COLAs)
iii. Seniority pay
acquisition of job-related knowledge or skills
c. Five core compensation elements
i. COLAs
ii. Seniority pay
iii. Merit pay
ii. Based on the human capital theory which states that employees’
knowledge and skills generate capital known as human capital
f. Merit-pay
i. Increases are determined by differences in job performance
ii. Reward employees for excellent effort or results
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i. Rewards employees for partially or completely attaining a
predetermined work objective
h. Person-focused pay
i. Rewards employees for acquiring new knowledge and skills though
designated curricula sponsored by an employer
III. The Field of Employee Benefits Practice
A. Why Important
1. Most companies offer benefits
2. Employee-benefits managers and specialists insure:
4. The complexity of the benefits packages offered is increasing
B. Professional Development for Managers
2. Offer ideas for new innovative practices
3. Organizations include:
a. International Foundation of Employee Benefits Plans
C. Legally Required Benefits (use PP 1.10)
1. Are mandated by federal laws
2. Social Security Act of 1935 (use PP 1.11)
a. Was enacted due to economic devastation of the Great Depression
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b. Employees had no rights or economic protections from work related accidents
or illnesses
f. The program has six basic objectives
i. Provide income and medical benefits to employees
ii. Reduce legal hassles for employees
iii. Provided employees financial support during time-off work
4. Family and Medical Leave Act of 1993 (use PP 1.13)
D. Discretionary Benefits
1. Companies can choose to offer a wide variety of discretionary benefits
2. These benefits fulfill three main roles: (use PP 1.14)
a. Give employees income and health protections
6)
b. Life insurance to provide a deceased employee’s family members financial
4. Health protection programs (use PP 1.16) (more in chapter 5)
a. Health and wellness programs to help promote sound health
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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
iv. Consumer-driven health care
5. Paid time-off (more in chapter 8) (use PP 1.17)
a. Provides income to employees when not working
6. Accommodation and Enhancement Programs include (more in chapter 9) (use PP 1.18)
a. Mental and physical well-being
E. Basic Designs of Discretionary Benefits Plans (more in chapter 2) (use PP 1.19)
1. Two main considerations
a. Are they cost effective?
b. Will they promote recruitment and retention of highly qualified workers?
2. Common features of benefits plan
a. Eligibility provisions – companies must decide whether to limit participation to
current employees, their dependent family members, and survivors of deceased
current or retired employees
e. Financing options – companies choose from one of four options
i. Noncontributory (company pays it all)
ii. Contributory (company and employee share the costs)
iii. Employee-financed (employee pays it all)
f. Employee choice – companies can offer flexible benefits or cafeteria plans to
enable employees to choose from among a set of benefits and different levels of
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IV. Origins of Employee Benefits (use PP 1.22)
1. Different forces led to rise of legally required and discretionary benefits in US
3. Historically, legally required benefits provided a form of social insurance
4. Industrialization during late 19th and early 20th centuries and Great Depression led to
design of initial social insurance programs, aimed at:
5. Contemporary discretionary benefits evident in late 1800s
a. American Express offered pension plans
7. National Labor Relations Act legitimized bargaining for benefits
8. Employees typically view benefits as entitlements
V. Legal and Regulatory Influences on Discretionary Benefits Practices (use PP 1.23)
1. Necessary to distinguish between “private sector” employers and governmental
2. In 2011, private-sector companies employed 109 million US civilian employees,
mostly for-profit
4. Prior to 1930, employees had no rights
6. Regulations such as Social Security Act of 1935 and ERISA of 1974 protect
employees from this today
8. Approximately 22 million employees in this sector in three braches – executive,
judicial, legislative
10. ERISA does not apply to public sector retirement plans
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VI. Strategic Planning for Benefits Programs (use PP 1.24)
A. Basic Strategic Planning Concepts
2. Two kinds of decisions:
3. Tactical decisions are implemented to carry out strategic decisions
5. Business objectives are part of the company’s competitive strategy on how to best use
company resources to sustain competitive advantage
7. Types of strategies include:
a. Human resource strategies – which includes all HR activities
8. Strategic benefit plans use information from internal and external environments to
9. Benefits tactics answer these two questions
a. Does offering particular benefits support the company’s benefits strategy?
b. What is the optimal design?
10. Example: Six employee benefits tactics at ExxonMobil:
a. Education Assistance
b. Education Matching Fund
B. Approaches to Strategic Benefits Planning (use PP 1.26)
1. Top-down (see Exhibit 1.4)
2. Backing-in approach (see Exhibit 1.5)
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VII. Information Used in Strategic Benefits Planning (use PP 1.27)
A. Two Main Categories
B. External Environment (use PP 1.28)
1. Factors outside the direct control of a company
2. Some factors include:
a. Industry prospects, economic conditions, forecasts
3. Industry prospects with economic conditions, and forecasts
a. Prospects and conditions set the backdrop for establishing strategic benefits
plans
b. Prospects and forecasts are indicators of the future of the industry
i. Forecasts indicating growth may call for strengthening the benefits plan
c. Regardless of the forecast, employers will continue to sponsor employee
benefits plans because:
d. Every industry will face challenges in coming years as competition rises and
costs of benefits increase
4. Employer costs for compensation and benefits
a. This data can be found on the Bureau of Labor Statistics website
5. Government regulations of employee benefits
a. Four main sources for employer choice of discretionary benefits and its ability
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iv. Economic considerations
b. Spurred by industrialization and Great Depression
6. Changing demographics of the labor force
a. According to BLS statistics, the labor force diversity will continue to increase
based on
i. Gender
ii. Age
b. Benefits needs and wants differ per group, requiring top-down evaluations,
like:
i. Women, of child bearing/raising age might value healthy insurance most
C. Internal Environment (use PP 1.28)
a. Major factors include:
i. Workforce demographics
ii. Collective bargaining agreements
b. Workforce demographics
i. Diversity expected to increase
iii. Top-down evaluations need to attract & retain quality workers
c. Collective bargaining agreements
i. Specify terms of employment for union workers, like:
ii. Pay
Chapter 01 – Introducing Employee Benefits
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Summary
As an introduction to employee benefits, this chapter discusses the origins of employee benefits,
various legally required benefits such as the Social Security Act of 1935, state compulsory
Discussion Questions
1. Describe how employee benefits fit into the total compensation function.
Main Points
• Employee benefits refer to compensation other than an hourly wage or annual salary.
2. Offer some suggestions for how companies might lessen the entitlement mentality among
employees toward employee benefits.
Main Points
• Employees generally view employee benefits as entitlements.
3. Companies possess limited budgets to fund employee benefits. From an employee’s
perspective, which employee benefits practices should be funded? Which are easily dispensable?
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• Employee perspective: The answer would change depending on the preferences and
needs of an employee profile. For instance, a younger employee may prefer to receive
• Company perspective: Offering generous benefits facilitate a company’s attempt to
attract and retain the best qualified employees. For instance, they might offer tuition
4. Describe the differences between strategic benefits plans and benefits tactics. Should strategic
benefits plans be developed before setting benefits tactics? Explain your answer.
Main Points
• Strategic benefit plans detail different scenarios that may affect the company and these
5. Consider the varieties of internal and external information that companies consider when
planning a benefits program. Which piece of information do you believe is most important to this
planning process? Least important? Explain your answers.
Chapter 01 – Introducing Employee Benefits
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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
o government regulation of employee benefits, and
o changing demographics of the labor force
• Internal environmental factors include: workforce demographics and collective
bargaining agreements.
• Student answers will vary. One could argue that changing demographics of the labor
force is the most important information in the planning process since there will be
substantial differences in terms of needs and preferences of different employee profiles.
One could also argue that industry prospects, economic conditions, and forecasts
information is the least important information among others as companies will likely to
offer competitive benefit plans to attract and retain the best qualified employees despite
the economic conditions.
Cases
Instructor Notes
Organizations offer benefits as an important component of the total compensation offered to
employees. While many organizations offer common elements in their benefit plans, the actual
value of the benefits can vary widely. For example, an organization can offer paid time-off as a
benefit, however, a few days of paid time-off is much less valuable than several weeks of paid
time-off. Organizations must provide some benefits based on legal requirements, but most of a
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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Student Responses
1. If two different companies list the same benefits offerings, should you assume the value
of the benefits are the same?
2. What are some benefits offered from this company that you should find more information
about in order to fully understand a job offer from the company? Why?
The legally required benefits such as workers’ compensation are going to be consistent from one
organization to the next. However, most other benefits require more information to fully
3. Why don’t all companies just offer the same benefits?
Strategic Benefit Planning at Makers Crafts
1. What kind of strategic planning approach is Latonya taking for Makers Crafts? Is this an
effective approach?
2. What kind of information does Latonya need for the strategic benefit planning process for
Makers Crafts?
Chapter 01 – Introducing Employee Benefits
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Instructor Notes
Organizations have discretion in how they design benefit plans, tailoring their plans to the needs
and preferences of their workforce. In order for organizations to design a benefit program that
Student Responses
1. What kind of strategic planning approach is Latonya taking for Makers Crafts? Is this an
effective approach?
2. What kind of information does Latonya need for the strategic benefit planning process for
Makers Crafts?