CHAPTER 12 Providing Benefits and Services
Chapter 12
PROVIDING BENEFITS AND SERVICES
Opening Case: Managing Human Resources at Ultimate
Software
Ultimate Software develops HR software. No employee benefits were cut during
the recent economic recession. Instead, the company helped many of its
employees weather the difficult economic times with new benefits and services
created to help those who were having financial troubles, largely because their
spouses lost their jobs. Ultimate Software provided its employees classes about
personal finance and assistance in exercising stock options, borrowing from their
401(k) plans, and consolidating loans. The company even gave one employee an
interest-free payroll advance when she was about to lose her house. By taking
care of its employees, Ultimate Software has created a family atmosphere.
Employees are appreciative of the support they receive and, in return, are
dedicated to the company, which actually increased profitability during the
recession.
CHAPTER OUTLINE
I. THE STRATEGIC IMPORTANCE OF PROVIDING EMPLOYEE BENEFITS
AND SERVICES
Companies provide benefits and services to attract and retain valued
employees. Employee benefits and services are defined as in-kind payments
to employees for their membership or participation in the organization. These
types of payments provide protection against health and accidents, and
ensure that employees will receive some income when they retire. Benefits
A. Increase Productivity
Employee assistance programs and work–life balance programs may
improve productivity by reducing employee absences and reducing
employee worries, allowing them to focus on their work. Benefits and
services that encourage employees to stay healthy may also translate into
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B. Contain Costs
Costs associated with benefits and services are a major concern to
employers. This is a particularly difficult challenge as some of the costs
cannot be avoided due to government mandates. In 1929, the average
cost of all monetary benefits and services payments was five percent of
C. Improve Retention
Benefits and services are important for attracting and retaining talent.
Employees consider some benefits and services as more important than
D. Support Business Strategies
To capitalize on the money spent on employee benefits and services,
employers must take into account their business objectives. Money spent
II. EMPLOYEE BENEFITS AND SERVICES WITHIN AN INTEGRATED HRM
SYSTEM
Public protection programs are required by law and include Social Security,
unemployment compensation, and workers’ compensation. Private protection
programs are voluntary and include health care, life insurance, log-term
disability insurance, pensions, etc. Exhibit 12.3 provides example of both
public (mandatory) and private (voluntary) programs.
CHAPTER 12 Providing Benefits and Services
A. Other HR Activities
Employee benefits and services are one component of a total
compensation package. Approximately one-third of a company’s total
labor costs are due to benefits and services (See Exhibit 12.4).
B. The External Environment
1. Labor Markets
Employers typically compete for labor based on wages. Health care
2. Unions
Most benefits and services are mandatory bargaining items so
3. Laws and Regulations
Laws that affect the administration of benefits include the Family and
C. The Organizational Environment
The organizational environment plays a role in shaping the design of
employee benefits and services. Size, corporate culture, and strategy all
combine to shape each organization’s specific approach.
1. Size
With the advantage of greater purchasing power, large firms (with at
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2. Company Culture
The culture of an organization provides the foundation for developing a
benefits and services system. The benefits manager must have a
clear understanding of the firm’s strategy and its objectives in order to
make decisions about the best mix of benefits to provide for individuals
in different jobs and at different levels of the firm.
III. THE HR TRIAD
Designing and administering an effective array of benefits and services
requires close cooperation among all players in the HR Triad. The HR
professionals take primary responsibility for ensuring the legality and fairness
of the package of benefits and services offered to employees. Managers
IV. MANDATORY BENEFITS AND SERVICES
The Social Security Act of 1935 mandated benefits to assist employees and
their families with retirement, disability, and unemployment insurance.
Medicare, added in 1996, provides health and hospital insurance; prescription
drug coverage began in 2003.
A. Social Security Insurance
Funding for Social Security and Medicare is provided by equal
contributions from employer and employee under the terms of the Federal
B. Unemployment Compensation
This insurance covers working age employees who lose their employment.
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C. Workers’ Compensation and Disability Insurance
Administered at the state level and fully financed by employers, these
benefits are provided for permanent and temporary disability,
Teaching Note: Heavy drinkers and substance users/abusers have five
times as many compensation claims as the average employee.
D. Family and Medical Leave
The Family and Medical Leave Act requires employers with 50 or more
employees to grant an employee up to 12 weeks of unpaid leave annually
V. VOLUNTARY BENEFITS AND SERVICES: RETIREMENT SAVINGS
PLANS AND PENSIONS
These programs are not required by law but many employers offer them.
They are intended to ensure that employees and their families have a safety
net that protects them. They include retirement income plans, capital
A. Defined Benefit Plans
Actual benefits received at retirement vary with the age and length of
service of the employee. With a defined benefit plan, funds are put aside
and usually managed by the employer until they are paid out to retirees.
Given the difficulty of funding the rising cost of funding these plans, many
employers are phasing them out and replacing them with defined
contribution plans.
CHAPTER 12 Providing Benefits and Services
Teaching Note: Discuss the relative benefits of staying with one company
for your career and participating in their retirement plan vs. being mobile
but not having a retirement plan. Given the mobility of today’s workers,
should companies even offer defined benefit plans?
B. Defined Contribution Plans
Each employee has a separate account to which contributions are made,
1. 401(k)s and 403 (b)s
With a 401(k) plan, or (403(b) for government workers, both employee
2. Employee Stock Option and Profit Sharing Plans
C. Cash Balance Plans
An alternative to the defined benefit plan is cash balance, where an
employer makes annual deposits to an employee account and then pays a
lump sum of cash to an employee upon departure from the firm.
D. Legal Considerations
1. ERISA
The Employee Retirement Income Security Act (ERISA) of 1974 was
designed to protect the interests of workers covered by private
retirement plans. ERISA also established provisions regarding vesting,
12.9), there is some fear that the PBGC may become insolvent. The
2. Other Laws Related to Retirement Plans
The Economic Recovery Tax Act of 1981 was designed to encourage
VI. VOLUNTARY BENEFITS AND SERVICES: HEALTH CARE BENEFITS
AND SERVICES
One fourth of every benefits and services dollar is spent on health care.
Employees view health care as an entitlement and underestimate the cost of
health care benefits to their employers. U.S. companies have been very
aggressive at reducing health care expenses.
A. Medical Care
1. Conventional Insurance Plans
This traditional method of financing health care benefits has become
2. Health Maintenance Organization
3. Preferred Provider Organizations
PPOs serve about 60% of all employees with healthcare coverage.
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4. Point of Service Plans
5. Consumer Driven Plans
Consumer-driven plans require employees to be more proactive in
B. Wellness Programs
This is a proactive approach to managing health care costs. These
C. Employee Assistance Programs
EAPs are designed to help employees with personal problems, such as
VII. VOLUNTARY BENEFITS AND SERVICES: PAID LEAVE
Not complex to administer but expensive, it is 7% of total compensation.
A. Off the Job Paid Leave
1. Holidays and Vacations
Vacations give employees time to recuperate from the physical and
mental demands of work. It is viewed as an appropriate reward for
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2. Other Paid Leaves
Employers grant many other off-the-job leaves as benefits
3. Paid Time-Off Plans
Paid-time-off (PTO) plans combine vacation, sick, and personal days
(and sometimes holidays) into one bank, allowing employees to take a
specific number of days off for any reason. Exhibit 12.11 shows the
B. On the Job Paid Leave
VIII. VOLUNTARY BENEFITS AND SERVICES: WORK-LIFE BENEFITS AND
SERVICES
Exhibit 12.12 shows the percentage of U.S. firms offering several types of
work/life benefits and services. Companies offer these benefits because they
help to improve morale, enhance recruitment and make the company more
competitive.
A. Flexible Work Arrangements
Some of the most popular work/life benefits and services involve
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B. Child Care Services
Many firms offered benefit options or services relating to childcare. By
Teaching Note: Have students debate the merits of the arguments put forth
by The Childfree Network? Does their opinion vary depending on whether
or not they are planning on having children themselves?
C. Elder Care Services
With the continued “graying” of the U.S. population, more employers are
D. Domestic Partner Benefits and Services
With demographic and value shifts, companies are redesigning their
IX. VOLUNTARY BENEFITS AND SERVICES: OTHER BENEFITS AND
SERVICES
In addition to protection, health care, leave, and work/life benefits and
services, employers may offer numerous other benefits and services to their
employees. Exhibit 12.13 shows the most popular ones.
A. Developmental Benefits and Services
Faced with skills obsolescence, downsizing, and retraining demands, most
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B. Personal Services
The use of personal service benefits is increasing as more firms are trying
C. Business Travel and Relocation Services
Business travel benefits generally pay for services and expenses that
X. ADMINISTRATIVE ISSUES
A. Determine the Benefits and Services Package
The benefits package should be selected on the basis of what is good for
both employer and employees. Knowing employee preferences can be a
B. Determine the Level of Flexibility
A growing number of employers offer flexible benefits in which employees
C. Communication
Communication is key to employee understanding and acceptance. More
than two-thirds of employees do not view their employer’s benefits
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about a third of all employees who did not understand the system thought
it was fair.
XI. CURRENT ISSUES
The main issue today in benefits and services is escalating costs of health
care. Enormous sums are spent providing benefits and services. Employers
do not receive much of a return on the expense. Employers are working hard
to change this, especially for health care and retiree benefits and services.
A. Containing the Escalating Cost of Health Care
Employers are shifting benefit costs to their employees. Exhibit 12.15
shows changes recently made by employers. Other cost controls include:
• Hospital utilization programs.
• Coordination of benefits.
• Data analysis.
B. The Patient Protection and Affordable Care Act of 2010
The Patient Protection and Affordable Care Act of 2010 (PPACA)
mandates health insurance for individuals and changes in insurance
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QUESTIONS FOR DISCUSSION AND REFLECTIVE THINKING
1. Imagine you are the benefits and services manager for a medium-sized
U.S. firm that offers consulting services. Describe how you could use
benefits and services to improve your organization’s productivity.
Benefits and services, when chosen by the employee, becomes a powerful
2. Do you think more companies should establish wellness programs?
Why or why not?
3. As employers strive to offer benefits and services to an increasingly
diverse workforce, they sometimes encounter backlash from employees
who resent their policies. For example, some employees may not
approve of spending on childcare facilities, given that the facilities
benefit some employees and not others. Or some employees may not
approve of policies that give equal treatment to spouses and domestic
partners. Do you think employers should avoid offering a benefit if a
substantial minority of its employees object to it? Explain your
rationale.
Issues such as diversity and attracting qualified candidates must be
considered. You do not want to purposefully exclude a set of potential
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4. List the advantages and disadvantages of providing a broad range of
benefits and services and then letting employees choose a few that fits
their needs. Compare this approach to simply providing standardized,
“bare–bones” benefits and services. Which approach would you
recommend? Why?
The advantages and disadvantages of the “broad range” vs. “bare bones”
approach to benefit are as follows:
Broad-Range Approach
Advantages
Disadvantages
• It can enhance the overall value of the total
• Costs may be very high.
Bare Bones Approach
Advantages
Disadvantages
• It is simpler making it easier to
• It may breed low morale and negative
5. Most employers appreciate the rising costs of health care benefits and
services, but not all employees understand this issue. As a manager,
how could you educate your employees about health care benefits? As
an employee, what benefits and services do you need to learn more
about? Why?
Answers will vary depending on the personal and employment experiences of
students.
• It provides more options from which
• The system is complex making it
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CASE STUDY: WHO’S BENEFITING?
DISCUSSION QUESTIONS:
1. Will the incentive plan to reduce absenteeism succeed? Explain your
opinion.
2. How much absenteeism is really under the employee’s control?
3. Why didn’t the paid absence plan work?
4. What plan would you suggest to USA Motors?
Opinions will vary. The key thing is the thought that went into the answer.
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VIDEO CASE STUDY: BRIGHT HORIZONS
Instructors: The following video case can be found on the companion DVD. The
video can be used in class as an introductory activity or a post-lecture activity, as
well as an online assignment for those students using CourseMate.
DISCUSSION QUESTIONS:
1. Bright Horizons views educational benefits for employees as desirable.
What might be some of the downsides of providing such benefits?
The firm may be spending money to help an employee become qualified to
2. How have the benefits that Bright Horizons has provided to employees
been a benefit to Bright Horizons?
3. Do you work for an organization that provides tuition reimbursement?
To what extent would such a benefit be a decisive issue in accepting a
job if you were to either begin employment or go to work elsewhere?
Answers will vary.
4. Of all the benefits covered in the video and in this chapter, which do you
think would be of the most benefit to you now? Which would be the
least?
Answers will vary.