Employee Benfit & Services

8/9/2019 Employee Benfit & Services

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MB584

StrategicCompensationStrategicCompensation

andEmployee

and

Employee

BenefitsBenefits

(Week2)(Week2)

Lecturer:MOSEST.MACALINAOLecturer:MOSEST.MACALINAOProfessorProfessor

[email protected]@yahoo.com.ph

4/6/2010 1MTMacalinaoSLSUTNU

EmployeeBenefitsandServices

ExpectedLearningActivities:

1. Learntheprinciplesgoverningbenefits.

2. Knowthedifferentbenefitsandservices.

3. Knowthelegalbasisofgivingsalariesand

benefits.


II. EmployeeBenefitsandServices

Businessfirmsprovidetheiremployeeswith

benefitsandservicesinadditiontodirect

wagesorsalaries.Thesebenefitsand

servicesare

also

known

as

fringe

benefits.

Sinceemployeebenefitscostsomefirms

between15%to50%oftheirpayroll. There

havebeenlistedasmanyas127kindsof

employeebenefitsgivenbycommercialand

industrialfirmsinthePhilippines.



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WhatisEmployeeBenefits?

Definition:

Fringe asaborderoranouteredge.

Benefit isdefined

as

anything

contributing

to

an

improvementinconditions;todogoodtoorfor,or

toreceiveanadvantage.

Fringebenefit .Thisisanythingontheedge,or

addedtotheregularwageandsalaryofthe

employeeinordertoimprovehiseconomic

condition.


WhatAretheEmployeeBenefits?

Supplementalcompensationwhichemployeereceives,

otherthandirectwagesorincentivepay.

Notsubstitutesforwagesorsalaries.

Representlaborcostsoverandabovestraighttimeearning.

Grantedtoemployeestoprovidethemwithfacilitateand

Eithervoluntarilygrantedbythecompanyorapartofthe

collectivebargainingagreementorrequiredbylaw.

Giventoemployeesregardlessofdifferencesinindividual

performance.


OriginofFringeBenefits

OriginatedduringWorldWarIIwhentheU.S.Wage

StabilizationBoardimposedcontrolsonwagesin

ordertopreventarunawayinflationthatcould

havehaddisastrouseffectsduringwartime.

Afterthe

War

the

benefits

granted

were

continued

becausetheemployerscouldnotwithdrawit

withoutcausinglaborproblems.Sincethen,more

fringebenefitsweregrantedbycompaniestokeep

employeessatisfiedintheirjobsorasa

paternalisticgesture,togainemployeeloyalty.



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OriginofFringeBenefits

Thegovernmentthroughlegislationrequired

privatefirmstogivecertainbenefitstotheir

employees.Sincethe1950s,employeebenefits,

servingas

motivating

factor,

have

been

found

valuableinmaintainingthemoraleandloyaltyof

.

Today,fringebenefitsfallundertwocategories:

a. Thosegrantedbymanagementatitsown

initiativeorthroughcollectivebargaining

negotiations and

b. Thoserequiredbygovernmentlegislation.


PRINCIPLESGOVERNINGFRINGEBENEFITS

1. Thebenefitshouldhavemutualvaluetothe

employerandtheemployee. Theemployerspendsamountforbenefits,heshouldreceivesomethingofvalueinreturn.

Ex.vacationdayseachyeartoenjoysomerestfromtheirworkroutine

andtohavesometimeforrecreation,toreinvigoratethemselves.

2. Thefringebenefitshouldnotinterferewiththe

operationofthebusiness.Forinstancethesmeltingofironinafoundryshop.Themomentonestartafoundry

operation,oneshouldcompletetheprocesswithout

interruptionanddelay.Anystoppageinthecourseofthe

operationwillhardenthemetalandmakeitnecessaryto

startalloveragain.



3.Thecostofthebenefitsmustbecalculableandits

financingwithinthecapacityofthefirm. Thefirmgrantingthemmustbeabletoaffordtheexpensiveinvolved.If

itcannot,fringebenefitscanmeanacripplingfinanciallossand

possiblebusinessclosureforthecompany.

4.The

benefit

must

be

capable

of

being

uniformly

andequitablyadministered.Therulesandproceduresfollowedinadministeringfringebenefitsshouldbeuniformand

equitabletoalltopreventdiscriminatingorabuse.Apoorly

administeredbenefitprogramcanbeasourceofserious

employeremployeerelationsproblemsandadrainoncompany

financesaswell.



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5. Benefitsshouldbebasedonsomething

measurable.Grantingoffringebenefitsonameasurable

basis,

such

as

employee

earning

or

length

or

service.

Take

vacationleavesforinstance.basedonthenumberofyears

ofservice.

6. mp oyeess ou ta epart nt ea m n strat on

ofcertainfringebenefitprograms. Itisgreathelptomanagementbecauseanyparticipationofatleastone

employeeismoreacceptablebyotheremployeesthan

madeunilaterallybymanagement.



7. Employeesmustbemadeawareofthecostof

thefringebenefits.Employeesseldomrealizehowmuchitcoststhecompanytoprovidefringebenefitsand

service.

8.Employeebenefitsandservicesmustsuit

emp oyeenee san pre erences nor erto

providemaximumincentives.Acompanywithapredominantlyyoungandsingleworkforcewouldhavea

differentsetofbenefitsandservicescomparedtoonewith

employeeswhoaremarriedandmatured.


ReasonsforGrantingFringeBenefits

1. Provisionfortheneedofemployees.Employersstartedgivingbenefitswhentheyrealizedthattheir

workershadcertainhumanneedsthattheycouldnot

satisfywiththeirwagesaloneandwithouthelpfromthe

firm.

.

.

protectionoflaborunions,employeesarenowableto

demand,throughcollectivebargaining,variouskindsof

benefits.Whatusedtobeconsideredwelfareprograms

givenbyemployerstotheirworkersasvoluntaryassistance

arenowbeingThedemandoflaborunionsisworkers

rights.



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3. Maintainingtheworkerslivingstandards. Astheworkers

standardsoflivingimprove,suchbasicnecessitiesasfood,

shelter,clothes,andrecreationalsoincrease.Theimportanceof

leisure

time

has

been

gaining

attention

in

recent

years.4. Managementswillingnesstograntfringebenefits.

Managerswouldnotwanttobeleftbehindbyothercompanies,

.

whereintheynaturearefoundinisolatedareasandinindustrial

plantslocatedfarfromsettledcommunities,theemployershave

learnedtoprovidecertainfacilities,notavailabletoemployees

offirmsinotherindustries.Amongthesearesuchfacilitiesas

housing,medicalandhospitalservices,transportationand

companystores.



5. Increasedgovernmentregulationofbusinessand

industry.Thestatehasinrecentyearstakenanincreasinglyactivepartinregulatingtherelationshipbetweenemployeesand

industrialfirmsthroughlaborandsociallegislation.Courtshave

rendereddecisionsoncasesaffectinglabormanagement

relations,tendingtofavorworkersdemandsforfringebenefits.

6. Boosting employeemorale.Fringebenefitshelpboostemployeemoraleandwinforthefirmthecontinuedsupportof

itsemployeeinitsefforttoachieveitsgoals.Whenemployees

workunderagreeableconditions,theycanbemoreefficientand

thusbringdownproductioncosts.Theexpenditureforfringe

benefitsisthereforeasoundinvestmentinemployeegoodwill

andefficiency.



7. EffectsofWorldWarII.DuringWorldWarII,theU.S.WageStabilizationBoardsetapatternforgrantingworkers

certainbenefitswhichlateronwasadoptedbyprivate

industry.Thereishardlyanycompanytodaythatdoesnot

grantsomekindoffringebenefitstoitsemployees.

8. Effectsof

inflation

and

other

economic

causes.

Inflationhasbroughtdownthepurchasingpowerofthe

moneyverylow.Inordertohelpemployeesmeetthe

increasesinthecostofliving,privatefirmsstartedgiving

additionalbenefitstotheiremployees.Thegovernment,

throughlegislationmadesomeofthesebenefits

compulsorylikethe13th monthpay,theserviceincentive

leave,legalholidaypay,etc.



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9. Toattractandretainemployees.Benefitsandservicesareimportantcomponentsofthetotalincentive

packageof

the

firm.

Generally,

employees

want

to

receive

taxexemptbenefits.Theyareespeciallyattractedtothe

welfarebenefit


PlanningandAdministeringBenefitsandServices

Maintainingafringebenefitsprogramcanbebothanadministrative

andafinancialproblemtoaemployer.Programforemployeefringe

benefitsshouldbecarefullyplannedbytopmanagement,fully

appreciatedandsupportedbytheemployees,andwiselyadministered

byacompetentstaff.

Benefitsandservicescanbefullyappreciatedbytheworkersonlywhen

thewages,hoursofwork,andworkingconditionsinthefirmare

satisfactorytothem.Thefringebenefitprogramshouldbeoperated

withaminimumoffinancialexpendituretoavoidemployeesuspicion

thatthebenefitsandservicesarebeinggrantedasasubstitutefor

higherwages.

Thegrantofthesebenefitsandservicesmustbewellstudied,especially

itseffectsonthecostofproduction,becauseonceabenefitorserviceis

granted,withdrawingitwillbeanextremelydifficulttask,often

resultingincomplaints,grievancesandlawsuits.


TYPESOFEMPLOYEEBENEFITSANDSERVICES

1. EconomicorFinancialBenefits

Theseareintendedtoprovidefinancialassistancetothe

employeesandtheirfamilies,especiallyintimesofsickness,

accidents,oldage,andunemployment.TheseincludeChristmas

bonusandotherbonuses(exceptproductionandincentive

bonus),

insurance,

retirement

and

pension

plans,

profit

sharing

p an,t oseprov e ysoc a secur ty awsan mutua ene t

associations,savingsandloanfacilities,creditunions,housing

projects,homefinancing,cooperativepurchasing,service

awards,andtransportation.

2. Recreational, Social,andAthleticServices.Theaimisto

provideemployeeswithopportunitiesforthefruitfuluseof

theirleisurehours.Theactivitiescreatefriendly, personal,

informalrelationshipsamongemployees.



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TYPESOFEMPLOYEEBENEFITSANDSERVICES

3. ProfessionalServices. Employeeeducationalandvocationalguidance, counseling,legalaid,andtaxaid,are

renderedtotheemployeesbytheprofessionalstaff.Some

firmseven

provide

areligious

minister

to

assist

employees

whosepersonalproblemscanbebetterservedby

churchmen.

4. ServicesforEmployeesFamilyWelfareand

Convenience. Somecompaniesprovidecertainservicesforthewelfareandconvenienceofthefamiliesof

theiremployees,suchashealthandmedicalservices,

commissary, housing,etc.Insomefirms,theseservices

areextendedtothecommunity.


COMPANYBENEFITSANDSERVICES

1. VacationandSickLeavewithPay

Vacationleavewithpaymeansbeingawayfromworkwith

theauthorizationandconsentoftheemployer.Theperiod

spentforvacationleavedoesnotinterrupttheservice

seniorityoftheemployee.

Thethreeconcepts:

a. Itistheemployersinvestmentonthehealthofits

workerswhichbenefitsproductionasaresultof

improvedefficiencyofhisemployees;

b. Itistheemployersmeansofrecognizingemployee

loyaltyandlengthofservice;

c. Itisagoodemployeremployeerelationspolicyin

promotingsound

employee

morale.



2. LeaveofAbsenceWithoutPay

Somecompaniesgranttheiremployeesleaveofabsence

withoutpayforspecialpurposes,suchasforfurther

education;extendedmaternityleave;extendedillness;and

sicknessordeathinthefamily.

.

Althoughnotfallingundercompanybenefitsprogram,

someemployeeassociationsarebeneficialtoemployees,

suchasmutualbenefitassociations,creditunions,andloan

andsavingassociations.



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4. CreditUnion,LoanandSavingsAssociation. Creditunionsareselfhelpcooperativesformedbyemployeesto

helpsolvesomeoftheirpersonalfinancialproblemsby

makingloan

available

at

low

rates

of

interest.

5. ServiceAwards. Manycompaniesgiverecognitiontoemp oyeesw o averen ere acerta nnum ero yearso

servicetothecompanythroughspecialawardsofsome

kind,suchastestimonialluncheonordinner,gifts,cash

awards,etc.Awardsaregenerallygivenattheendofevery

5th yearofserviceorafter5,10,15,20,25,30,etc.yearsof

service.Usuallyaspecialrecognitionawardisgivenupon

completionof25,30,or40yearsofservice.



6. Retirement. Agingisanaturalprocessinamanslife.Mostcompanies,awareoftheinevitabilityofoldage,provideforthe

retirementoftheiremployees.Thereareseveralkindsof

employeeretirementplans,themostcommonofwhichisone

thatgivestotheretiringemployeessumsofmoneyequivalentto

onehalfmonthoronemonthpayforeveryyearofservicewith

Company.

7. CoffeeBreak. Coffeebreakalsoaffordsafewminutesofrestperiodforemployeeswhichisclaimedtoincreaseefficiency.

Manycompaniesprovidecanteenservicewhichtheiremployees

canavailthemselvesofduringtheirbreakorlunchperiod.

Vendingmachinesareinstalledinconvenientplaceswhere

employeescanavailofsuchservice.Inthelargercompanies,

snackitemsaredelivereddirectlytotheworkareaduringcoffee

break.



8. GroupInsurance. Thisisaprotectionagainstunforeseeneconomiclossduetoillness,accident,or

death.Thepremiumpaymentsareeithersharedbythe

employeeandtheemployerorbornebytheemployer

alone.

. .toworkersandtheirfamiliesincasethesourceof

theirincomeisterminated,reduced,or

interruptedbecauseofsickness,disability,death,

oroldage.



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10. CoverageforSelfEmployed.

Thelawdefinesaselfemployedpersonasonewho

has

no

employer

other

than

himself

and

derives

incomefromhisphysicalandmentalefforts.

11.BenefitsfromMedicare.

Thebenefitsunderthisareintheformofhospitalization,

surgical,andmedicalexpenses.Inordertobeentitledto

thebenefitsofMedicalCarelaw,anemployeemusthave

paidatleastthreemonthlycontributionsbeforehis

confinementinahospital.



12. Pension. Pensionmaybebroadlydefinedastheperiodicpaymenttoworkerswhoareretiredfromthe

companybecauseofadvancedage,illnessinfirmity,orfor

otherreasonsasdeterminedbytheemployerandas

providedforintheplan.Pensionplansaim(1)toprovidea

deferredcompensationforemployees,payableupon

re remen ue oo ageor sa y; ore re rom e

company,inanorderlyandconsideratemanner,employees

whohaveoutlivedtheirusefulnesstothefirm;(3)toreward

employeeswhohaverenderedlongservicetothefirm;(4)

torelieveworkersofuncertaintyofthefuturewhenthey

reacholdage;and(5)toprovideopeningsforyounger

employees.



13. CompanyStoreandCafeteria. Somefirmsoperatestoreswheretheirproductsaresoldatdiscountedprices

andothergoodsatcosttoemployees.Byoperatingastore

atlittleornoprofit,thecompanyisabletodothreethings

foritsemployees:(1)provideaconvenientplacewherethe

employeescanshopafterofficehours;(2)helpthe

em lo eessave

because

oods

are

sold

at

lower

rices

in

thecompanystore;and(3)wherethecompanystoreis

operatedpartlyorwhollybytheemployeesthemselves,

theprofitsrealizedarefruitfullyutilizedforrecreationor

welfareactivities.Sometimestheemployer contributesto

thesefundsbygivinganequivalentamountforagood

varietyofworthwhileactivitiesaimedatpromotingsound

employeremployeerelations.



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14. LibraryandReadingRoom

Therearetwotypesoflibrariesprovidedby

companiesdepending

upon

the

size

and

industry

theyareengagein.ThefirsttypeistheReading

Roomwhichprovidesspaceforfewbooksand

periodicals.



15. TransportationandHousingServices

Transportation canbeanacuteproblemforworkers

especiallywhenthefirmislocatedinanisolatedplace

wheretherearenoregularvehicularfacilities.Insuch

cases,toattractandkeepworkersandreducelabor

turnover,thecompanyoftenprovidesbusservicesforits

em lo ees.Theservicesma bebetweenthecom an

compoundandadesignatedbusterminal.Insomecases

theemployees,especiallythosewhoareonnightduty,are

pickedupfromandreturnedtotheirindividualhomes.

Housingisalsoaproblemamongfirmswhosebaseof

operationtakestheirworkersawayfrompopulation

centers,suchasinthemining,sugar,andlogging

industries.


PROFITSHARINGPLANS

Incentiveplanwhereintheemployeragreestosharewith

hispersonnelaspecifiedportionofthenetprofitsofhis

businessattheendofeachfiscalperiod.

Providespaymentofcurrentordeferredsumsbasedonthe

profitabilityoftheenterpriseasawhole.

Noprofit,

no

sharing

payment.

The

larger

the

profit,

the

largerthepayment.E

Establishedthroughtheinitiativeorbenevolenceof

managementorbyunionmanagementagreement.

Managedeitherbyajointcommitteeofemployeesor

unionrepresentativesandmanagementorbymanagement

alone.



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PurposeofProfitSharing

Tomodifyemployeesattitudestoachievegreater

employeeefficiency,productivity andloyaltyto

thefirm,

and

keener

interest

in

its

welfare.

Toearnmoreprofit,employeesareencouragedto

cooperateinreducingoperatingexpensesinthe

maintenanceofmachinesanditsequipmentas

wellasinpreventingwasteofsupplies,materials,

light,water,etc.

Fortheemployersthesebenefitsaretax

deductible.


TypesofProfitSharingPlans

Threebasictypesofprofitsharingplans

1. TheCashPlan (CurrentDistributionPlan)Thisprogramprovidesforpaymentoftheemployees shareintheprofitincashbasedonhis

salaryorwage.Thisarrangementisgenerallypaidquarterly,semi

annuallyorannually.

2. TheDeferredDistributionPlan. Thisprogramestablishesatrustfundtoprovideemployeeswithfuturepayment.Thedistributionof

profitsiswithhelduntiltheemployees retirement,deathordisability.

Butinmostcases,thereareloansandwithdrawalprovisionswhichthe

employeecanavailhimselfofintimesofneed.

3. StockPurchasePlan.Inthisplan,participatingemployeesarepermittedtopurchase,oftenthroughpayrolldeductions,sharesof

companystock,eitheratlessthantheprevailingmarketpriceoratpar

value.Thisplanwouldtendtoleadtoanexpandedcapitalmarketthus

wideningthe

ownership

base

of

the

corporation.


Tobesuccessfulprofitsharingmustembody

thefollowing:

1. Aspiritofmutualrespectandconfidencebetween

managementandemployees.

2. Awelldesigned,equitableplanthatwillbean

incentive.

3. Dedicatedandinformedadministration.

4. Excellentandcontinuoustwowaycommunications

throughoutthecompany.



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PRODUCTIVITYGAINSHARINGPLANS(PGS)

Thisispreferredbyemployersoverprofitsharing

plans.

These

form

part

of

the

companys

monetary

rewardsystemandarecloselylinkedto

productivity increases.

Thesehaveahighermotivationalvaluethanprofit

sharingplans.

Suchplansallowtheapportioningofsavings

resultingfromtheefficientuseofcompany

resourcestobothlaborandmanagement,evenif

minimalprofitlevelsareattained.


PRODUCTIVITYGAINSHARINGPLANS

Threetypes

1. PGSPlansBasedonProductionorOutputUnderthepiecerateplan(Taylordifferentialpiecerateplan),the

workerisguaranteedhisbaserate,evenifhefailstoearnthatamount

intermsofoutput.Thisplanaimedatencouragingslowerworkerto

quitandfindemploymentelsewherebypayingthemlowrates,and

rewardsthosewhoproducethestandardamountorhigher.Formula

used for com utin incentive rates:

Forlowraters:No.ofPiecesxLowRatePerPiece

Forhighraters:No.ofPiecesxHighRatePerPiecePlusBonus

Taylorsplanwashoweverresentedbyemployeesbecauseofits

punitivecharacter, butitwaseffectiveattaininghighproductivity

levels.



2. PGSPlansBasedonTimeSaved.Theproductivityincreasesbymotivatingemployeestobeefficientinthetimespentfor

producingtheiroutputs.

a. Timerateplansincludethestandardtimeplan,themeasuredday

work.Astandardtimeissetforcompletingajoborunit,andthe

employeeispaidforthestandardtimeathishourlyrateifhe

completesthejobunitisstandardtimeorless.

. . .scaleofempiricearningstobepaidaccordingtoasetscaleof

efficiencies.

c. GanttTaskandBonusPlan.Sharpincreasesinemployeeearnings

aregivenforproductivityincreases.Approximately30%increaseis

givenwhenstandardsarefirstmet.Thereafter, bonusearningsare

givenattherateof1.3%forevery1%increaseinproductivity.Itthus

providesaverystrongincentivetomeetandexceedperformance

standards.



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3. PGSPlansBasedonGroupCooperation

Theseplansrecognizetheeffortsofvariousindividualin

effectingproductivityincreasesforthecompany.

a.

TheScanlon

Plan.

Representslabormanagement

cooperationtoincreaseproductivity.Itusessuggestion

systemsandProductionCommitteestohelptackle

productivityissues.Undertheplan,currentperformanceis

comparedwithabaseperiodperformance.Usually,abase

ratioisderived,forthecompanysnormallaborcost.Thisis

computedas:totalpersonnelcostdividedbysalesvalueof

production.Ifthecurrentperformancefallsbelowthebase

ratio,laborproductivityincreases,leadingtosavings.



3. PGSPlansBasedonGroupCooperation(cont.)

b.TheRuckerPlan.

Itusessuggestionsandproductioncommittees.

Itisalsoknownastheshareofproduction

plan.Financialincentivesaregiven,basedon

direct ro ortion to the increase in roduction

value.Thus,forevery%increaseinproduction

value,workersgetabonusof1%oftheirtotal

payrollcost.Theproponentclaimsthatseasonal

fluctuations donotaffectthisplan.



PGSPlansBasedonGroupCooperation

c.TheImproshare Plan

Improshare isshortforimprovedproductivitythrough

sharing.Itseekstoimproveproductionbytheefficientuse

oflabor

hours.

A

base

period

is

likewise

selected,

to

determinethenumberofhoursneededtoproduceaunitof

workorjob.Workhoursincludeallemployeesworkhours.

Currentperformanceisthencomparedwiththebaseperiod

performancetoarriveatthecomputationofthehours

gained.Thesharingsystemis5050betweenthecompany

andtheemployees.



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THANK YOU VERY MUCH

MOSES T. MACALINAO

[email protected]


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