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A Human Resource A Human Resource Management ApproachManagement Approach

STRATEGIC STRATEGIC COMPENSATIONCOMPENSATION

Prepared by David Oakes

Chapter 11Chapter 11

Discretionary BenefitsDiscretionary Benefits

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Discretionary CostsDiscretionary Costs

In 2004 $11,107 per employee

40% of total payroll costs

$15,000 total with legally-required

benefits

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Benefit TypesBenefit Types

Protection programs

Pay for time-not-worked

Services

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Income ProtectionIncome Protection

Disability insurance

Life insurance

Pension programs

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Health ProtectionHealth Protection Self - funded plans Health maintenance organizations (HMOs) Preferred provider organizations (PPOs) Dental insurance

Vision insurance Prescription drug plan

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Short-Term DisabilityShort-Term Disability

Less than 6 months duration

Unable to perform job

Benefit: 50% - 100% of pre-tax income

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Long-Term DisabilityLong-Term Disability

6 months to life

Unable to perform any job qualified for

Benefit 50% - 70% of pre-tax pay

6 - 12 month waiting period

Other benefits used first

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Pension Plan Financing OptionsPension Plan Financing Options

Noncontributory

Contributory

Employee-financed programs

A combination of the three

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Pension Plan Tax Treatment Pension Plan Tax Treatment OptionsOptions

Qualified Employers get tax deductions for contributions Employees taxed less at retirement

Nonqualified Employers & employees receive few tax break

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Qualified PlansQualified Plans

Eligibility Minimum age 21, & 1 year of service

Nondiscrimination Limited preferential treatment

Vesting Usually 3 - 6 years

Payout restrictions Tax penalty if taken before age 59.5

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Defined Contribution PlansDefined Contribution Plans

Profit sharing plans

Employee stock ownership (ESOPs)

401(k)s

Savings & thrift plans

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401(k)s401(k)s

Named after IRS code section Employees invest pre-tax income Plan limits

2006 - $15,000 2007 - $15,500 2008 - $16,000 $500 yearly increases

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ESOPsESOPs The basis for 401 (k) plans

Contributions invested in company securities

Distributions made in company stock

Like stock bonus plans, except stock is purchased with borrowed funds

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Saving & Thrift PlansSaving & Thrift Plans

Employers match employees’ contributions Usually up to 50% of employees’

Tax penalties for early withdrawals

Employees can select investment vehicle Stocks Bonds Money market funds

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Defined Benefit PlansDefined Benefit Plans

Guarantees benefits amount

Amount expressed as a monthly sum % of pre-retirement pay X years of service

Employers’ contributions can vary, but benefit at retirement cannot

Not widely used

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Health Care ProgramsHealth Care Programs

Fee-for-service

Managed care

Point of service

Consumer-driven health care

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Fee-For-Service PlansFee-For-Service Plans

Indemnity plans Cover usual, customary, reasonable charges

Hospital expenses Surgical expenses Physicians’ fees

Deductibles & coinsurance

Out-of-pocket maximums

Individual or group coverage

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HMOsHMOs

Organize, deliver, & finance care

Provides prepaid medical services

May include co-payments

Regulated by Health Maintenance Organization Act of 1973

Prepaid group practices

Individual practice associations

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PPOsPPOs

Select group of health care providers Employees choose from a list Financial incentives to use list

Physicians must Meet quality standards Abides by PPO cost-containment Accepts PPO fee structure

Does not provide prepaid benefits

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Consumer-Driven CareConsumer-Driven Care

Flexible-spending accounts

Health reimbursement arrangements

Health savings accounts

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Flexible-Spending AccountsFlexible-Spending Accounts

Supplemental health coverage

Employee funds account with pre-tax income

Pays for qualified expenses

Unused funds forfeited

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Health Reimbursement Health Reimbursement ArrangementsArrangements

Supplemental health coverage

Employees funded

Unused funds carried over

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Prescription Drug PlansPrescription Drug Plans

Medical reimbursement plans

Prescription card programs

Mail order prescription drug program

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RELEVANT LEGISLATIONRELEVANT LEGISLATION

ERISA

COBRA

FLSA

HIPPA

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ERISAERISA

Regulates fringe compensation Medical Disability Life insurance Pension

Monitors Reporting Disclosure Funding Fiduciary & vesting responsibilities

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COBRACOBRA

Continues health care coverage to 36 months

Can cost up to 102% of premium Employers penalized for noncompliance Exempt employers

Those with less than 20 employees Churches Federal government

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HIPPAHIPPA

Guarantees health coverage Addresses preexisting conditions

Concerns access to health information Transfer Disclosure Use