Employee Benefits.ppt

Employee Benefits ? Nancy Brown Johnson, 2005 Typical Benefits Applied Signal Technology - Employee Benefits Benefits Are: Driven by tenure entitlement Difficult to reward factors such as teamwork Not flexible Difficult to change to reflect priorities Difficult to use strategically cannot tailor to fit organizations needs Does not tend to motivate So why do firms give benefits? Legal Compliance Tend to become Institutionalized Expected Basic level of Employee Protection Tax advantages Group rate advantages Benefits Growth Reasons for Growth New Deal legislation Wage and price controls -WW II Inflationary Benefit Costs Legally Mandated Benefits Social Security About 8% employer and employee tax on wages Additional Medicaid tax of 1.45% President’s proposal Counter reactions Unemployment Compensation Experienced based tax Eligibility: work 1 year - not on strike, quit or fired for cause Workers Compensation Disability,medical care, death benefit rehabilitation Experienced based tax Family and Medical Leave Act Benefit Planning Issues What is the role of benefits in compensation? Attraction, Retention, Motivation External Competitiveness Cost control Private Insurance Health Cobra must continue Trend is for employers to shift more of cost to employees Life Short Long Term Disability Nursing home Health Care Retirement Defined Benefit Expected Present Value of Pension Assumes Pension=500*years of service 1. Benefit value=0 if quits, the day starts 2. Benefit value=0 if works until death Defined Contribution Expected Present Value of Pension Expected Pensions do not depend upon number of years left in person’s life Benefits keep growing So What is the Incentive to Retire? Defined benefit plan- around 67 in the example where the gains to retirement exceed gains to working Defined contribution plans incentive keeps working How do you encourage workers to retire? cash by out defined benefit plan Vesting Military-no pension until 20 years of service Separations