Managing Employee Performance and Reward Concepts, Practices, Strategies 2nd edition

1. Managing Employee Performance and Reward Concepts, Practices, Strategies 2nd edition

2. Employee benefits • Benefits: nature and purpose • Growth of benefits • Superannuation/pension plans • Personal insurance benefits • Leave benefits • Carer benefits • Other financial (‘fringe’) benefits • Non-financial benefits • Flexible benefits plans

3. ‘Benefits’: nature and purpose Employee benefits are rewards that are: • Supplementary to base pay; but • Not directly performance-linked Two categories: • ‘Indirect pay’ – financial rewards other than direct cash payments, such as employer superannuation and health care fund contributions; also includes $ ‘fringe benefits’ • Non-financial rewards given on a regular/recurrent basis, ranging from special unpaid leave provisions to the provision of wellness programs and advisory services

4. ‘Benefits’: nature and purpose Purpose: • Attraction • Retention • Satisfaction • Commitment/engagement • Employee well-being • Work–life balance • Diversity management, equal employment opportunity and affirmative action • Legal compliance – in Australia 9.5% employer superannuation contribution, four weeks paid leave, unpaid parental leave, sick leave, workers compensation

5. Growing importance of benefits intotal rewards Growing importance: • Australia: benefit programs absorb over 30% of total payroll expenditure • US: benefit costs rose from 10% to almost 30% of total remuneration costs between the mid-1960s and mid-1990s. Unfunded company health and pension plan entitlements now a major concern in the USA Drivers: • Legislative requirements • Tax law changes • Decline of welfare state/social welfare benefits • Union pressure (e.g. unpaid and paid parental leave, long service leave, annual leave loadings, non-contributory superannuation) • Demographic change (e.g. decline of extended family networks; population ageing – baby boomers, Gen X, Gen Y) • ‘War for talent’ • End of job security; greater job mobility

6. Superannuation plans Types: • Contributory vs non-contributory • Defined benefit vs defined contribution • Lump sum vs pension/annuity Defined benefit plans: • Provide a predetermined amount of retirement income either as a lump sum or as a regular pension for the remainder of the person’s life • Actuarial calculations used to ascertain level of funding necessary to meet promised benefits • Dominant type until the 1980s, but now in decline

7. Superannuation plans Defined contribution (or ‘accumulation’) plans • Specify the amount of employer and/or employee contributions but not the actual retirement benefit • Contributions expressed as a percentage of the employee’s annual gross remuneration (typically 5–15%), with employer often contributing an equal or greater amount • Benefit may be paid as a lump sum, or as a pension, where the employee uses the accumulated fund to purchase an annuity • Entitlement calculated on basis of accumulated contributions plus fund earnings over the period of contribution, with the latter determined largely by investment decisions made by the relevant fund managers

8. Personal insurance benefits Health and medical care insurance: • Either supplements or substitutes for health and medical protection provided by the state (USA vs UK, Australia) • Covers employee and his/her nominated dependents/immediate family members May include: • Additional medical and hospital benefits • Full or part reimbursement for dental, optical, chiropractic and other specialised personal care services • Paramedical services

9. Personal insurance benefits Workers compensation, disability and life insurance: • In Australia, workers compensation may provide up to 75% of employee’s current total remuneration until she/he is able to return to work or retires • Workers compensation premiums constitute a significant component of employment on-costs – 3% in Australia • Where injury causes death, the benefits usually flow to the legally recognised partner and/or dependent children • May also include additional insurance to cover total and permanent disability or death arising from non-work-related causes, including vehicle accidents • Also life insurance benefits to provide financial protection for dependents on the employee’s death

10. Leave benefits • Mandatory vs voluntary • Australian mandatory leave benefits: paid annual leave, long service leave, sick leave and unpaid parental leave Payment for time not worked (in Australia): • Annual leave • Long service leave (permanents and casuals) • Public holidays • Paid study leave • Jury duty • Volunteer emergency services work • Sick leave • Bereavement leave • Compassionate leave • Unpaid parental leave • Paid parental leave

11. Leave benefits Paid leave benefits: % of employees covered, Australia, 2013

12. Carer benefits Types: • In-house childcare • Assistance with childcare fees • Elder-care programs Drivers: • Working parents ‘sandwiched’ between child- and elder-care responsibilities • An employee with elder-care responsibilities loses on average three full working days per year, while a further four days are significantly disrupted • In-house childcare reduces employee travel time and stress

13. Other financial (‘fringe’) benefits • Free or discounted grants of company shares • Discount loans • Housing or mortgage subsidies • Discount travel and accommodation • Public transport subsidy • Product or service discounts • Free/subsidised work clothing • Subsidised canteens • Company cars and/or free parking • Club and gym membership • Self-education expenses • School fees for dependent children • Notebook computers • Mobile phones

14. Wellness programs • Free medical check-ups • In-house gyms or subsidised gym membership • Personal trainers • Aerobics, yoga, pilates and tai chi classes • Ergonomic consultations • Office massages • Stress reduction and relaxation sessions • Meditation rooms • Staff health food canteens • Nutrition seminars • Weight control programs • Quit-smoking programs • Work–life balance programs • Career breaks • Staff sabbaticals • Study leave • Employee assistance programs • Counselling for: • Drug and alcohol abuse • Relationship problems • Financial problems and planning • Depression or other mental health problems • Bereavement • Stress management • Work-related trauma Non-financial benefits

15. Flexible (or cafeteria) benefits plans • Each employee receives a benefits credit that can be used to ‘purchase’ benefits from a ‘menu’ made available by the organisation • Typically involves salary sacrifice arrangements • Acknowledges workforce diversity and different benefit valances by employee category and by individual • Increasingly popular since the 1980s, particularly in professional and other white-collar employment • Suits dynamic, internally diverse firms; high involvement organic firms

16. Flexible (or cafeteria) benefits plans • Complex and potentially confusing • High administrative costs • Clear communication requirement • Need to micro-manage each employee’s choices to avoid poor selection (e.g. inadequate health care coverage, insufficient retirement savings)