Benefits and beyond, chapter 2
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Thomas E. Murphy (Last revised: October 13, 2010 Benefits and Beyond, Chapter 2
description
Transcript of Benefits and beyond, chapter 2
Thomas E. Murphy (Last revised: October 13, 2010
Benefits and Beyond, Chapter 2
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The total reward schemeHow does an employer
allocate these rewards?
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Tournament theory: does this affect internal fairness?
Benefits are not valued by certain workers Is a “cafeteria plan” a possible solution? How can a reward package signal and sort? MBA program? Overtime, two tier wage plans Executive Pay, pay differentials,
supplemental pensions (See page 53 of text)
Internal Fairness
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Why is this relevant? Labor or product/service competitor What are the details? What type of health
care plan do they offer? What are the specifics of the retirement plan?
How do you get this data? Go to Exercise Number 1at page 19 (Start-
up Airlines)
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External Cometition
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Can benefits positively affect employee behaviors?
What about retirement benefits that are calculated based on years of service?
How do health insurance deductibles and co-pays affect patient-employee behaviors?
Benefits and behavior
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Should benefit accruals be based upon company results?
Do equity awards change employee productivity?
What is the impact of vesting on behavior?How is vesting used in a plan design?
Benefits and behavior
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Line of Sight. . How far?
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Can an employee visualize the impact of his work on the shop floor on the price of his company’s stock?
Is the line of sight too long to affect his behavior?
How can an employer shorten the line of sight?
Line of Sight
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What is a gain sharing plan and does it perfectly align with employee interests?
Does a profit sharing retirement plan affect employee behavior?
What about a profit based employer contribution to a 401(k)?
Results based benefits?
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Portability Long or medium
service? Phased retirement Why offer early
retirement? Can benefits
encourage teamwork?
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Other plan design issues
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Agency theory Adverse selection Actuarial principles (see page 47) The Dependency Ratio (# below 18 and above 65 ÷
Population between the ages of 18 and 65)) Longevity, investment, & inflation risks Coordination of benefits Efficiency Wage Theory Reservation Wage
Some other relevant theories
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What is the efficacy of a given benefit? How do we measure its efficiency? Does the retirement plan encourage long
service? Does the health care plan make employees
more healthy? More productive? Does it reduce absenteeism?
Benefits Model . . . Costs?
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How do these affect benefits?
Impact? Processing . . .
Tax Laws Accounting Practices Monetary value of
benefits Theory of
Compensating Differentials
Means testing
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What do actuaries do?
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How much will I need? (Future cost)
When do I need it? What rate of
return? What can I afford? Can others
contribute? Will they all need
it?
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How much to send her to university?
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When will employees retire?
How to calculate the benefit?
Investment return of retirement fund
Life expectancy of retirees and others?
What is inflation rate?
Should employees partially fund?
What can employer afford?
Who has the risks? What if we goof?
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Relationship to Pensions
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Model Provides Balance!
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Are there alternative, less costly designs that can do the same?
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The Benefits Model is an important tool We should use it to evaluate
the effectiveness of our benefit plan designs!
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Remember: Keep Benefits and Strategy on the same track!
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