Organisationspsychologie Philipps-Universit

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MOS 342B Section 002 Winter 2007 Compensation
and Benefits Management Designing Indirect
Pay Plans
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MOS 342B Designing Indirect Pay

• Overview
• Types of Indirect Pay
• Mandatory benefits
• Retirement income pension plans
• Health life insurance
• Pay for time not worked
• Employee services
• Other benefits
• Fixed vs. Flexible Benefit Plans
• Designing the Benefit System

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MOS 342B Designing Indirect Pay

• Mandatory Benefits
• Canada/Quebec Pension Plan
• 4.95 of pensionable earning (max. 42,100
  /year in 2006) contributed by employee
• Matched by the employer
• Employment Insurance
• Temporary financial assistance in cases of
  unemployment, pregnancy, childcare, illness, care
  for severely ill family members
• Workers Compensation
• Covers the risk of work injuries

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MOS 342B Designing Indirect Pay

• Retirement Plans
• Defined Benefit Plans
• Provide retirement income based on a proportion
  of the employees pay at the time of retirement
• Financial risk is on part of the employer (e.g.,
  inflation, life expectancy)
• Defined Contribution Plans
• Provide retirement income based on the accrued
  value of employer and employee contributions on
  the plan
• Shifts the financial risk to the employee
• Hybrid Plans Combine both elements

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MOS 342B Designing Indirect Pay

• Effects of Retirement Plans
• No impact on profitability
• No impact on productivity
• But higher in non-unionized and lower in
  unionized firms
• Lower turnover and earlier retirement
• But fosters mainly continuance commitment

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MOS 342B Designing Indirect Pay

• Health Benefits
• Supplemental Health Insurance
• Dental Insurance
• Disability Insurance
• Life Insurance
• Health Care Expense Accounts
• Employee benefit that allows employees to utilize
  employer-provided health care credits to purchase
  a wide array of health care services
• Tax-deductible for employer, non-taxable for
  employee

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MOS 342B Designing Indirect Pay

• Reasons for Pension and Health Benefits
• Economies of scale
• Taxation (see below)
• Fostering commitment (but primarily continuance)
• Being an attractive employer
• Fit with Human Relations strategy

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MOS 342B Designing Indirect Pay

• Tax Status of Pension and Health Benefits

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MOS 342B Designing Indirect Pay

• Pay for Time Not Worked
• Vacations, Holidays, Breaks
• Mandatory 2 to 3 weeks, 9 statutory holidays
• Voluntary paid rest breaks, additional days off,
  flexible plans (vacation buying and selling)
• Sickness and Other Absences
• Paid leaves due to illness, compassionate reasons
• Can be combined with vacation to overall
  personal leave allowance
• Unpaid compassionate care leave (mandatory under
  federal legislation)
• Parental Leaves
• Employment Insurance pays up to 35 weeks for one
  parent

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MOS 342B Designing Indirect Pay

• Pay for Time Not Worked
• Educational Leaves
• Paid long-term leaves for job-related education
• Paid or unpaid sabbaticals
• Supplemental Unemployment Benefits
• Severance Pay, increases with
• Age and seniority
• Hierarchical status
• Non-availability of similar employment
• Enticement of (later) terminated employee

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MOS 342B Designing Indirect Pay

• Employee Services
• Do you know employee services at Western?

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MOS 342B Designing Indirect Pay

• Employee Services
• Do you know employee services at Western?

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MOS 342B Designing Indirect Pay

• Employee Services
• Employee Assistance Programs
• Aimed at counselling employees with individual
  problems affecting work (e.g., addictions)
• Wellness and Recreational Services
• May include services for increasing fitness
  (e.g., gyms), or reducing stress (e.g.,
  biofeedback)
• Financial or Legal Services
• Outplacement

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MOS 342B Designing Indirect Pay

• Employee Services
• Work-Life Balance Programs Aimed at
  preventing/reducing stress due to conflicting
  responsibilities at work and in private life
• May combine
• Flextime arrangements
• Childcare services
• Eldercare services
• Food and other convenience services
• Trainings and wellness programs

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MOS 342B Designing Indirect Pay

• Additional Services
• Company cars
• Discounts
• Reimbursement of work-related expenses
• Tuitions
• Clothing and equipment
• Housing and travelling

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MOS 342B Designing Indirect Pay

• Fixed vs. Flexible Benefit Systems
• Fixed Systems An employee benefit plan that
  provides a standard set of benefits to all those
  covered by the plan
• Flexible Systems An employee benefit plan that
  allows employees to allocate employer-provided
  credits to purchase the benefits of most value to
  them
• Semi-Flexible Systems May combine a fixed core
  component with additional credits, or give the
  choice between several fixed modules

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MOS 342B Designing Indirect Pay

• Pros and Cons of Flexible Benefit Systems
• Reasons for flexible systems
• Containing escalating benefits costs
• Providing employees with benefits tailored to
  their needs
• Fostering the perception that benefits are costly
  and valuable
• Reasons against flexible systems
• High set-up and administration costs
• Complexity may make plan incomprehensible
• May be received as a hidden pay-cut
• Little evidence of actual cost reductions

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MOS 342B Designing Indirect Pay

• Designing the Benefit System
• Determine the strategic role of indirect pay
• Identifying desired behaviours and objectives
• Linking benefits to behaviours/objectives (cf.
  strategy formulation)
• Determine who designs the plan
• Internal staff specialists and managers
• External consultants
• Participation of employees
• Better understanding of employee needs
• Better acceptance
• Helps communicating the plan

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MOS 342B Designing Indirect Pay

• Designing the Benefit System
• Determine flexibility and types benefits
• Determine structure of each benefit
• Coverage of expenses (type, percentage of
  expense, extension to family members), basis for
  calculation (base pay, performance pay)
• Funding (share of contributions)
• Eligibility (full-time, part-time, temporary
  workers)
• Flexibility of single benefits (mandatory and
  optional elements)

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MOS 342B Designing Indirect Pay

• Designing the Benefit System
• Develop administration, communication, and
  evaluation
• Administration (in-house or outsourced)
• Enrol and terminate employees in plan
• Updating changes in individual/overall packages
• Calculating contributions and payouts
• Dealing with tax and investment issues
• And so forth
• Communication (manuals, convocations, mandating
  choices)
• Evaluation (cost analysis, market surveys,
  employee satisfaction surveys)

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ACS 342B Designing Indirect Pay

• Case Study Fit Stop Ltd.
• Develop a benefits plan for Fit Stop Ltd.
• Consider the types of employees you want to
  attract, and the role (particular) benefits may
  play for them, given the managerial strategy
• Select the types of benefits based on the
  strategic considerations above
• Decide whether the plan should be fixed or
  flexible
• Consider current financial constraints and give a
  brief outlook on benefits that may make sense
  (and be affordable) in the future of Fit Stop