CH-12-13 Pay for Performance and Financial Incentives – Human Resource Management : Book Guide

This Document Contains Chapters 12 to 13 LEARNING OUTCOMES 1. Explain how you would apply five motivation theories in formulating an incentive plan. 2. Discuss the main incentives for individual employees. 3. Discuss the pros and cons of commissions versus straight pay incentives for salespeople. 4. Describe the main incentives for managers and executives. 5. Name and define the most popular organization-wide variable pay plans 6. Outline the steps in designing effective incentive plans. ANNOTATED OUTLINE I. Money and Motivation Frederick Taylor made three contributions in the late 1800s: standards of output defining a fair day’s work, the scientific management approach, which emphasized improvement of work methods, and the use of financial incentives for those whose output exceeded standards. A. Linking Strategy, Performance, and Incentive Pay – Compensation, shareholder value, and turbulence are factors that characterize business today, and they have produced a renaissance for financial incentive/pay-for-performance plans. B. Motivation and Incentives – The law of individual differences means that people differ in personality, abilities, values, and needs. They therefore react to different incentives in different ways. Several theorists have contributed relevance to designing incentive plans. The Hierarchy of Needs and Abraham Maslow – This hierarchy includes five types of needs: physiological, security, social, self-esteem, and self-actualization. According to Maslow, people are motivated to satisfy lower-order needs first and then work their way up the hierarchy in sequence, 2. Motivators and Frederick Herzberg – Hygiene-motivator theory divides needs into two factors. Hygiene factors include such things as working conditions, salary, and incentives. Motivators include those factors that make the job more intrinsically motivating, like challenge, feedback, and recognition. 3. Demotivators and Edward Deci – Deci found that extrinsic rewards could at times actually detract from a person’s intrinsic motivation. 4. Expectancy Theory and Victor Vroom – The theory suggests that a person’s motivation to exert some level of effort is a function of three things: the person’s expectancy (in terms of probability) that his or her effort will lead to performance; instrumentality, or the perceived connection (if any) between successful performance and actually obtaining the rewards; and valence, which represents the perceived value the person attaches to the reward. 5. Behavior Modification/Reinforcement and B. F. Skinner – Psychologist B.F. Skinner proposed that to understand behavior, one must understand the consequences of that behavior. Behavior modification means changing behavior through rewards or punishments that are contingent upon performance. C. Incentive Pay Terminology – Variable pay is usually an incentive plan that ties pay to some measure of the firm’s overall profitbaility. D. Employee Incentive and the Law – The employer must comply with the overtime provisions of the Fair Labor Standards Act when designing and administering its incentive plans. Certain bonuses are excludable from overtime pay calculations. The problem is that many other types of incentive pay must be included. * NOTES Educational Materials to Use II. Individual Employee Incentive and Recognition Programs A. Piecework Plans – Piecework involves paying the worker a sum (piece rate) for each unit he/she produces. Straight piecework entails a strict proportionality between results and rewards regardless of output. With a standard hour plan, the worker gets a premium equal to the percent by which his/her performance exceeds the standard. B. Merit Pay as an Incentive – Merit pay or a merit raise is any salary increase the firm awards to an employee based on his/her individual performance. It is different from a bonus in that it usually becomes part of the employee’s base salary, whereas a bonus is a one-time payment. C. Incentives for Professional Employees – Professional employees are those whose work involves the application of learned knowledge to the solution of the employer’s problems, such as lawyers, doctors, economists, and engineers. Making incentive pay decisions for professional employees can be challenging because such employees are usually paid well anyway. D. Nonfinancial and Recognition-Based Awards – Recognition programs usually refer to formal programs such as employee-of-the-month programs. Social recognition programs are more informal manager-employee exchanges, including praise and approval. Performance feedback is similar but provides quantitative or qualitative information on performance in order to change the performance or maintain it. Most employers combine both financial and non-financial incentives to motivate employees. E. Online and IT-Supported Awards – There are many reasons to use Internet sites to manage awards programs. The sites can offer a much broader range of products than most employers could catalog and offer by themselves. And perhaps most importantly, the whole process is expedited, so it’s much easier to bestow and deliver the awards. F. Job Designs – Research has shown that job design is a primary driver of employee engagement. * NOTES Educational Materials to Use III. Incentives for Salespeople A. Salary Plan – Fixed salaries are offered by some firms. Straight salary makes it simple to switch territories or to reassign salespeople, and it can foster loyalty among the sales staff. A disadvantage is that it can constrict sales and de-motivate potentially high-performing salespeople. B. Commission Plan – Salespeople are paid for results, and only for results; thus, such plans tend to attract high-performing salespeople who see that effort clearly leads to rewards. But it may cause them to neglect non-selling duties like servicing small accounts, cultivating dedicated customers, and pushing hard-to-sell items. C. Combination Plan – Most companies pay salespeople a combination of salary and commissions, usually with a sizable salary component. Combination plans give salespeople a floor to their earnings and still provide an incentive for superior performance. But they can become complicated, and misunderstandings can result. D. Maximizing Sales Force Results – Setting effective quotas is an art. In today’s fast-changing business scene, sales quotas must become more flexible than they have been in the past. There is a tendency to set commission rates informally, without considering how much each sale must contribute to covering expenses. E. Evidence-Based HR: How Effective Are Your Incentives? To maximize performance, the sales manager typically needs evidence, such as the following: Do the sales team members understand the compensation plans? Do they know how we measure and reward performance? Are quotas set fairly? Is there a positive correlation between performance and commission earnings? Are commissions more than covering total salespersons expenses? And, does our commission plan maximize sales of our most profitable products? IV. Incentives for Managers and Executives A. Strategy and the Executive’s Long-Term and Total Rewards Package – Few HR practices have as profound or obvious an impact on strategic success as the company’s long-term incentives. In creating the compensation package, you should: 1) define the strategic context for the executive compensation program, including the internal and external issues that face the company, and the firm’s business objectives; 2) shape each component of the executive compensation package based on your strategic aims, and then group the components into a balanced plan that makes sense in terms of these aims; 3) create a stock option plan that gives the executive compensation package the special character it needs to meet the unique needs of the executives, the company, and the firm’s strategy; 4) check the executive compensation plan for compliance with all legal and regulatory requirements and for tax effectiveness; and 5) install a process for reviewing and evaluating the executive compensation plan whenever a major business change occurs. B. Sarbanes-Oxley – The law affects how employers formulate their executive incentive programs and injects a higher level of responsibility into executives’ and board members’ decisions. C. Short-Term Incentives: The Annual Bonus – is aimed at motivating the short-term performance of managers and executives. 1. Eligibility usually includes both top and lower-level managers. 2. Fund size refers to the total amount of bonus money the firm makes available. A nondeductible formula is where employers use a straight percentage (usually of the company’s net income) to create the short-term incentive fund. A deductible formula assumes that the fund should start to accumulate only after the firm has met a specified level of earnings. Individual Performance – Typically, a target bonus (as well as maximum amount) is set for each eligible position, and the actual award reflects the person’s performance. Formula – The employer may use a formula to base the bonus system on specific measures that are identified as critical to the company. Strategic Long-Term Incentives – These are used to inject a long-term perspective into executives’ decisions. 1. Stock Options – These account for over half of executives’ compensation. A stock option is the right to purchase a specific number of shares of company stock at a specific price during a specific period of time; the executive thus hopes to profit by exercising his/her option to buy the shares in the future but at today’s price. Stock Option Problems – There are several issues with stock options: they can reward managers who experience a less than stellar performance and can encourage executives to take riskier ventures to increase profits. Other Stock Plans – Stock appreciation rights permit the recipient to exercise the stock option (by buying the stock) or to take any appreciation in the stock price in cash, stock, or some combination of these. A performance achievement plan awards shares of stock for the achievement of predetermined financial targets. In a restricted stock plan, shares are usually awarded without cost to the executive, but selling the stock is restricted for a specified time period. Ethics and Incentives - Simplistic, financial-performance-oriented incentives, in the absence of strong ethical standards may breed unethical behavior. The solution is to foster an ethical culture. E. Other Executive Incentives – Companies provide various incentives to persuade executives to remain with the firm, such as golden parachutes and loans. V. Team and Organization-Wide Incentive Plans A. How to Design Team Incentives – There are three approaches: 1. Members are paid based on one of three formulas – all members receive the pay (a) earned by the highest producer, (b) earned by the lowest producer, or (c) equal to the average pay earned by the group. 2. Set a production standard based on the final output of the group as a whole. 3. Tie rewards to goals based on some overall standard of group performance. B. Pros and Cons of Team Incentives – A lot of our work today is organized around teams, so team incentives make sense to encourage cooperation and training. But exceptionally hard-working employees do not get paid according to their efforts, which may reduce motivation. C. Evidence-Based HR: HR Inequities that Undercut Team Incentives – Research suggests that team incentives are often counterproductive. * NOTES Educational Materials to Use Teaching Tip – Discuss: If college classes were more like business, what kinds of group incentives could be used to improve student performance in the classroom? What kinds of measures would be needed to implement such incentives? D. Profit-sharing plans involve employees receiving a share of the company’s annual profits. There are several types of profit-sharing plans: cash plans, Lincoln Incentive system, and deferred profit-sharing plans. E. Scanlon Plans – This is an incentive plan developed in 1937 by Joseph Scanlon. The basic features of the plan include: philosophy of cooperation, identity, competence, involvement system, and sharing of benefits formula. Other gainsharing plans are incentive plans that engage many or all employees in a common effort to achieve a company’s productivity objectives, with any resulting cost-savings gains shared among employees and the company. Implementing a Plan – The basic eight steps are: 1) establish general plan objectives; 2) define specific performance measures; 3) decide on a funding formula; 4) decide on a method for dividing and distributing the employees’ share of the gains; 5) choose the form of payment; 6) decide how often bonuses are to be paid; 7) develop the involvement system; and 8) implement the plan. E. At-risk pay plans put some portion of the employee’s weekly pay at risk, subject to the firm meeting its financial goals. F. Employee stock ownership plans (ESOP) are company-wide plans in which a firm contributes shares of its own stock (or cash to purchase the stock) to a trust established to purchase shares of the firm’s stock for employees. * NOTES Educational Materials to Use VI. Designing Effective Incentive Plans The Five Building Blocks of Effective Incentive Plans – Follow these guidelines to make your plan more effective: use common sense; link the incentive with your strategy; make sure effort and rewards are directly related; set effective standards; view the standard as a contract with your employees; and use good measurement systems. Incentive Plans in Practice: Nucor – Most companies have several incentive plans. Nucor, the largest steel producer in the United States has the highest productivity, highest wages, and lowest labor cost per ton of steel in the American steel industry. * NOTES Educational Materials to Use DISCUSSION QUESTIONS 1. Compare and contrast six types of incentive plans. Answer: Various types of incentive plans were presented in the text, including piecework plans, straight and guaranteed plans, standard hour plans, plans for salespersons (commissions and combination plans), and group incentive plans. With the piecework plans, earnings are tied directly to what the individual worker produces and are more appropriate in a manufacturing organization. Commissions are more appropriate for salespeople in situations where they are largely unsupervised. In group incentive plans like the Scanlon Plan, all workers involved in developing and implementing cost savings share in the benefits of the suggestions. 2. Explain five reasons why incentive plans fail. Answer: When incentive plans fail, it can be for a variety of reasons like: employees do not believe that effort will obtain the reward, bad management overrides the plan, rewards are tied to the wrong measures, the plan is complicated and difficult for employees to understand, or standards are too high or too low 3. Describe the nature of some important management incentives. Answer: Two widely used management incentive plans are merit pay and profit-sharing plans. Merit pay is any salary increase that is awarded to an employee on his or her individual performance. Advocates argue that only pay tied directly to performance can motivate improved performance. Profit-sharing plans distribute a portion of the company's profits to employees in the form of a bonus. Research shows that benefits are more subtle than increased productivity—benefits are possibly in the form of better worker commitment. There might also include long-term incentives 4. When and why would you pay a salesperson a combined salary and commission? Answer: Salary plans work well when your objective is prospecting work or when the salesperson is primarily involved in account servicing. They are often found in industries that sell technical products. A commission plan is appropriate when sales costs are proportional to sales. This can reduce the selling investment for fixed costs. The straight commission also provides salespeople with the greatest possible incentive, and there is a tendency to attract high-performing people. Combination plans are used when the firm wants to direct its salespeople's activities by detailing what services the salary component is being paid for while the commission component provides a built-in incentive. 5. What is merit pay? Do you think it's a good idea to award employees merit raises? Why or why not? Answer: Merit pay is a salary increase that is awarded to an employee based on his or her individual performance. It is a good idea to award merit raises when you have a good performance appraisal system and employees' individual effort can be fairly and accurately evaluated or measured. 6. In this chapter, we listed a number of guidelines for not instituting a pay-for-performance plan. Do you think these points make sense in terms of motivation theory? Why or why not? Answer: All of these reasons are, or can be, valid. There will also be organizational situations where one or more of them will not be valid. Students should describe situations in which the reason is (or is not) valid Yes, the guidelines for not instituting a pay-for-performance plan align with motivation theory. Pay-for-performance can undermine intrinsic motivation, foster unhealthy competition, and focus solely on short-term goals. These guidelines emphasize the importance of fairness, equity, and long-term motivation, aligning with theories like Maslow's Hierarchy of Needs and Herzberg's Two-Factor Theory, which stress the need for recognition, job satisfaction, and a sense of achievement. 7. What is a Scanlon plan? Based on what you've read in this chapter, what features of an effective incentive program does the Scanlon plan include? Answer: This is an incentive plan that was developed in 1937 by Joseph Scanlon. It includes features such as a philosophy of cooperation, identity, competence, involvement, and sharing of benefits. All these are features of a commitment-building program. The Scanlon plan is actually an early version of what today is known as a gainsharing plan. 8. Give four examples of when you would suggest using team or group incentive programs rather than individual incentive programs. Answer: Students should review the sections in the chapter on team or group incentive programs and individual incentive programs, and think about situations where they would prefer one incentive plan over the other. 1. Collaborative Projects: When tasks require extensive teamwork, such as product development or marketing campaigns, group incentives encourage cooperation and shared responsibility. 2. Cross-Departmental Initiatives: For initiatives that involve multiple departments, like company-wide process improvements, team incentives ensure aligned goals and collective effort. 3. Customer Service Teams: In environments where customer satisfaction is a group effort, such as call centers or hospitality, team incentives can enhance overall service quality. 4. Manufacturing and Production: When production targets depend on the collective output of a team, such as in assembly lines, group incentives can motivate efficiency and quality control. INDIVIDUAL AND GROUP ACTIVITIES 1. Working individually or in groups, develop an incentive plan for the following positions: chemical engineer, plant manager, used-car salesperson. What factors did you have to consider in reaching your conclusions? Answer: I would give the chemical engineer a merit raise system because he or she has little perceived control or impact over the production or profitability of the company. The plant manager should receive an annual bonus tied to the profitability of the plant, as well as a stock option plan to encourage long-term planning as well. The used-car salesperson would likely receive a straight commission plan because sales are more directly dependent on his or her ability to sell those cars to prospective customers. 2. A state university system in the southeast recently instituted a "Teacher Incentive Program" (TIP) for its faculty. Basically, faculty committees within each university’s college were told to award $5,000 raises (not bonuses) to about 40% of their faculty members based on how good a job they did teaching undergraduates and how many they taught per year. What are the potential advantages and pitfalls of such an incentive program? How well do you think it was accepted by the faculty? Do you think it had the desired effect? Answer: This program would put a premium on undergraduate teaching as opposed to research or graduate teaching. If it were to work, the best teachers would be motivated to teach at the undergraduate level in order to increase their earnings. The pitfalls are many. Some research or graduate faculty may actually earn more through consulting or other outside means, thus they will not be motivated by this system. If research is important to this organization, or the graduate programs are vital, this incentive plan could damage those programs. The awarding of the moneys is likely to be inconsistent because specific guidelines have not been spelled out. More likely, the rewarding of the raises may become more political as the committees who have other values determine the awards. It is very likely that the system was met with great opposition by the faculty. 3. The HRCI “Test Specifications” appendix at the end of this book lists the knowledge someone studying for the HRCI certification exam needs to have in each area of human resource management (such as in Strategic Management, Workforce Planning, and Human Resource Development). In groups of four to five students, do four things: (1) review that appendix now; (2) identify the material in this chapter that relates to the required knowledge the appendix lists; (3) write four multiple-choice exam questions on this material that you believe would be suitable for inclusion in the HRCI exam; and (4) if time permits, have someone from your team post your team’s questions in front of the class, so the students in other teams can take each other’s exam questions. Answer: 1. Review the Appendix: Examine the HRCI "Test Specifications" for required HR knowledge areas. 2. Identify Relevant Material: Match chapter content with the listed knowledge areas, such as Strategic Management and Workforce Planning. 3. Create Questions: Develop four multiple-choice questions based on the identified material. 4. Class Activity: Share and discuss the questions with the class for peer evaluation and feedback. 4. Several years ago, the pension plan of the Utility Workers Union of America proposed changing the corporate bylaws of Dominion Resources, Inc., so that in the future, management had to get shareholder approval of executive pay exceeding $1 million, as well as detailed information about the firm’s executive incentive plans. Many unions—most of which have pension funds with huge investments in U.S. companies—are taking similar steps. They point out that, usually, under Internal Revenue Service regulations, corporations can’t deduct more than $1 million in pay for any of a company’s top five paid executives. Under the new rules the unions are pushing, boards of directors will no longer be able to approve executive pay above $1 million; instead, shareholders would have to vote on it. In terms of effectively running a company, what do you think are the pros and cons of the unions’ recommendations? Would you vote for or against the unions’ recommendation? Why or why not? Answer: Most students may support this recommendation, but they need to be able to clearly state rational reasoning as to why. Hopefully, you will have some students who oppose it in order to clearly give both sides to the argument. You may want to make sure both sides are well represented. Pros of the Unions' Recommendations: 1. Increased Accountability: Requiring shareholder approval for high executive pay ensures greater transparency and accountability. 2. Alignment with Shareholders' Interests: Helps align executive compensation with company performance and shareholder value. 3. Reduced Excessive Pay: Limits potential for excessive executive compensation, which can divert resources from other areas of the company. Cons of the Unions' Recommendations: 1. Bureaucratic Hurdles: Requiring shareholder approval can slow decision-making processes. 2. Risk of Short-Term Focus: Shareholders may prioritize short-term gains, potentially influencing executive decisions detrimentally. 3. Attraction and Retention: Could hinder the company's ability to attract and retain top talent by limiting compensation flexibility. Vote Decision: I would vote for the unions' recommendation because it promotes transparency, aligns compensation with company performance, and encourages responsible use of corporate resources, ensuring that executive pay is justified and equitable. EXPERIENTIAL EXERCISES & CASES Experiential Exercise: Motivating the Sales Force at Express Auto This exercise presents a fictional auto dealership and problems that they are experiencing with customer satisfaction and quality. Students are to analyze the current compensation system to see if it contributes to the problem. 1. In what ways might your group’s compensation plan contribute to the customer service problems? Answer: Sales force: pay is based almost entirely on commission. The salesperson has no motivation to assist customers who they do not believe will result in a sale. Finance office: bonuses for getting customers to use the company financing encourage finance employees to coerce customers into making that choice. Detailing: pay is based entirely on the number of cars detailed per day. There is no measure of quality, nor requirement of it regarding pay. Mechanics: pay is based almost entirely on number of cars serviced as well as servicing them faster than the standard estimated repair time. There is no measurement of quality or accuracy of repairs. Receptionist/phone service people: straight hourly rate does not have any performance rewards 2. What recommendations would you make to improve the compensation system in a way that would likely improve customer satisfaction? Answer: The dealership already has a customer satisfaction survey in place. They need to link results from quality measures to the incentives that their employees receive. Examples are: Sales force: one might decrease the commission somewhat and place that amount in a pool that is distributed based on customer comments about specific sales personnel. Finance office: bonuses for using company financing should be no more than bonuses based on customer satisfaction ratings. Detailing: there must be a measure of quality and detailers should be docked for any problem that results from their lack of attention to detail. Mechanics: re-works should dock a mechanics pay and mechanics whose work results in no complaints should receive a significant bonus. Receptionist/phone service people: those who answer the phone should be able to gain either performance increases in pay, or bonuses based on customer satisfaction ratings. In general, the approach should be like “teaching to the test.” If you want test scores to improve, you teach what will be on the test. If you want measures of customer satisfaction to improve, you reward (or punish) people for those measures. Application Case: Inserting the Team Concept into Compensation – Or Not Sandy Caldwell, the new Human Resources Manager for Hathaway Manufacturing, wanted to improve teamwork at every level of the organization. As part of the process of implementing cultural change, Sandy introduced a new pay-for-performance system. The reaction to the change was immediate and “100 % negative.” 1. Does the pay-for-performance plan seem like a good idea? Why or why not? Answer: Management wants to provide incentive for team performance. Their motives are fine. Properly crafted (and with employee involvement), a pay-for-performance system may add value at Hathaway. 2. What advice would you give Regina and Sandy as they consider their decision? Answer: Most scholars suggest that pay for performance works best (in the U.S.), when it has both an individual and a team component. Further, Regina and Sandy need to consider ways of engaging the workforce in the design/decision process. This involvement will likely provide better ideas, identify potential problem areas with proposed systems before they are implemented, and aid in the implementation process. 3. What mistakes did they make in adopting and communicating the new salary plan? How might Sandy have approached this major compensation change a little differently? Answer: Sandy failed to involve significant stakeholders in the process. Their input would likely have identified potential weaknesses in her system. Further, by not involving others, the change in pay came largely as a surprise. Employees take their pay seriously; surprises are not welcome. Sandy already had agreement on some issues, like the mission and the vision. She could have used that agreement to begin a dialog on linking compensation more directly to effectively accomplishing the mission. 4. Assuming the new pay plan was eventually accepted, how would you address the fact that in the new performance evaluation system, employees’ input affects their peers’ pay levels? Answer: Typically, plans have two levels – a team component and an individual component. It is important for the team to realize that the company does best when the whole team succeeds, and that team success also requires individual performance. Continuing Case: Carter Cleaning Company – The Incentive Plan 1. Should this plan be extended to pressers in the other stores? Answer: No, not in its present form. While the piece-rate plan does make more effective use of Walt’s time and saves the company energy money, the quality control issue is a problem. An incentive for quality needs to be included. 2. Should other employees (cleaner/spotters, counter people) be put on a similar plan? Why? Why not? If so, how, exactly? Answer: It makes sense for some positions but not for others. Cleaner-spotters are production employees who could also benefit from a similar plan. It would have to have a quality incentive that makes sure they actually get the garments cleaned correctly! An incentive plan that focuses on customer satisfaction makes more sense for the counter people 3. Is there another incentive plan you think would work better for the pressers? Describe it. Answer: Some ideas might include combination plans (salary plus piece-rate), profit-sharing, or merit pay (higher pay for those who produce more A piece-rate incentive plan could work better for the pressers, where they are paid based on the number of garments they press. This approach directly ties earnings to productivity, motivating employees to work efficiently. It also provides clear and immediate rewards for increased output, potentially boosting overall performance and job satisfaction. 4. A store manager’s job is to keep total wages to no more than 30% of sales and to maintain the fuel bill and the supply bill at about 9% of sales each. Managers can also directly affect sales by ensuring courteous customer service and by ensuring that the work is done properly. What suggestions would you make to Jennifer and her father for an incentive plan for store managers or front-desk clerks? Answer: Profit-sharing, gainsharing, performance plans, annual bonus, recognition, and merit pay are all options Translating Strategy into HR Policies and Practice Case: The Hotel Paris The New Incentive Plan – The continuing case study of Hotel Paris is discussed here. In this segment HR manager Lisa Cruz must find a way to link pay to performance. 1. Discuss what you think of the measurable criteria Lisa and the CFO set for their new incentive plan. Answer: Having a large percentage of employees eligible for merit increases or incentive pay is good, but will also be expensive. A 10% difference in reward level will likely motivate improved performance. In order to justify the expense there should be some proof that the behaviors which will be rewarded are linked to improved organizational financial performance. Lisa will need to track and communicate these connections. It is also important that the Hotel Paris find ways to measure what they plan to reward. 2. Given what you know about the Hotel Paris’ strategic goals, list 3-4 specific behaviors you would incentivize for each of the following groups of employees: front desk clerks, hotel managers, valets, and housekeepers. Answer: Answers will vary but may include: Front desk clerks – speed of check-in, number of positive comments by guests, decrease in number of complaints Hotel managers – decrease in absenteeism, process improvements Valets – time taken to deliver luggage from curb to room, decrease in number of wrong deliveries, positive feedback received Housekeepers – decrease in number of complaints, decrease in number of deliveries to room of forgotten items, increase in number of rooms available for early check-in Front Desk Clerks: 1. Exceptional Customer Service: Greet guests warmly and handle inquiries efficiently. 2. Accuracy in Reservations: Ensure accurate booking and billing processes. 3. Upselling Services: Promote hotel services and upgrades to guests. Hotel Managers: 1. Operational Efficiency: Optimize daily operations to meet budget and quality standards. 2. Leadership and Team Development: Foster a positive work environment and mentor staff. 3. Guest Satisfaction: Maintain high guest satisfaction scores. Valets: 1. Timely Service: Provide prompt vehicle retrieval and parking. 2. Vehicle Care: Ensure guests' vehicles are handled with care. 3. Professionalism: Exhibit courteous and professional behavior. Housekeepers: 1. Cleanliness and Attention to Detail: Maintain high standards of room cleanliness. 2. Efficiency: Complete tasks in a timely and efficient manner. 3. Guest Privacy and Respect: Respect guests' privacy and personal belongings. 3. Lay out a complete incentive plan (including all long- and short-term incentives) for the Hotel Paris’ hotel managers. Answer: The Hotel Paris has placed outstanding customer service as a major goal for all employees especially the management staff. Unfortunately, the current pay plan does not link pay to performance. Therefore, both short and long term incentives should be considered to help support management staff to in modeling the importance of provide outstanding customer service to the entire hotel staff. Also an incentive plan should be implemented to recognize and reward the accomplishment of organizational goals. Short-term incentives should include periodic recognition and reward programs to all staff who demonstrate outstanding customer service on a routine basis. In addition, an annual bonus based on performance and goal accomplishments could be implemented to those key staff responsible for front line customer service as well as the accomplishment of other goals which advance the mission of the organization. The organization should also consider implementing a merit pay program that would link pay to effective job performance. Long-term bonuses could include profit sharing based on hotel occupancy and customer service reviews. KEY TERMS PART FOUR COMPENSATION CHAPTER T Thirteen Benefits And Services 13 Lecture Outline Strategic Overview The Benefits Picture Today Policy Issues Pay for Time Not Worked Unemployment Insurance Vacations and Holidays Sick Leave Evidence-Based HR Parental Leave and the FMLA Severance Pay Supplemental Unemployment Benefits Insurance Benefits Workers’ Compensation Hospitalization, Health, and Disability Insurance The Legal Side of Health Benefits Trends in Health Care Cost Control Long-Term Care Life Insurance Benefits for Part-Time and Contingent Workers Retirement Benefits Social Security Pension Plans Pension Planning and the Law Pensions and Early Retirement Improved Productivity Through HRIS Personal Services and Family-Friendly Benefits Personal Services Family-Friendly (Work-Life) Benefits Other Job-Related Benefits Executive Perquisites Flexible Benefits Programs The Cafeteria Approach Benefits and Employee Leasing Flexible Work Schedules In Brief: This chapter discusses the benefits and services that companies might offer to employees. These benefits and services are offered to attract employees, retain employees, and to help make employees more productive during their service. Often benefits address employee needs, such as security in old age. Interesting Issues: Though direct compensation (salary) is important, a company’s indirect compensation (benefits) is often the “tipping point” in a decision to accept or reject an employer’s job offer. It is interesting to reflect about the relative merits of increased pay as opposed to increased quality of life. LEARNING OUTCOMES 1. Name and define each of the main pay for time not worked benefits. 2. Describe each of the main insurance benefits. 3. Discuss the main retirement benefits. 4. Outline the main employees’ services benefits. 5. Explain the main flexible benefit programs. ANNOTATED OUTLINE I. The Benefits Picture Today – Benefits are indirect financial and nonfinancial payments. Policy Issues - The list of policy issues includes what benefits to offer, who receives coverage, whether to include retirees in the plan, whether to deny benefits to employees during initial “probationary” periods, how to finance benefits, cost-containment procedures, and how to communicate benefits options to employees. Benefits can be classified by 1) pay for time not worked; 2) insurance benefits; 3) retirement benefits; and 4) services. Some benefits are required by law, while others are discretionary. Table 13-1 lists benefits. II. Pay for Time Not Worked A. Unemployment Insurance – All states have unemployment insurance or compensation acts (that follow federal guidelines), which provide for weekly benefits if a person is unable to work through some fault other than his/her own. The benefits derive from an unemployment tax on employers that can range from 0.1% to 5% of taxable payroll in most states. An employer’s unemployment tax rate reflects its rate of personnel terminations. Vacations and Holidays – The number of paid employee vacation days and holidays varies considerably from employer to employer. Firms have to address several holiday- and vacation-related policy issues. There are a myriad of laws that affect benefits. Vacation and holiday pay legal issues are discussed. Sick leave provides pay to employees when they’re out of work due to illness. Most sick leave policies grant full pay for a specified number of permissible sick days. To minimize employees using their sick leave as extensions to their vacations, some employers are repurchasing unused sick leave at the end of the year by paying their employees a daily equivalent sum for each sick leave day not used or creating a leave bank or paid time off (PTO). Evidence-Based HR: Tracking Sick Leave – Most employers do not know what sick leave costs the company. Before making changes, a company must be able to monitor and track sick leave costs. Parental Leave and the Family Medical Leave Act – The law stipulates that: 1) private employers of 50 or more employees must provide eligible employees up to 12 weeks of unpaid leave for their own serious illness, the birth or adoption of a child, or the care of a seriously ill child, spouse, or parent; 2) employers may require employees to take any unused paid sick leave as part of the 12-week leave provided in the law; 3) employees taking leave are entitled to receive health benefits while they are on unpaid leave, and 4) employers must guarantee employees the right to return to their previous or equivalent position with no loss of benefits at the end of the leave; however, the law provides a limited exception from this provision. Vague interpretations of the law have resulted in leaves sometimes being approved even when they were not legitimate. Employers have been enriching their parental leave plans to make it more attractive for mothers to return from maternity leave. E. Severance Pay – As a one-time payment when terminating an employee, severance is considered a humanitarian gesture and good public relations. Most managers expect employees to give them at least one or two weeks’ notice if they plan to quit; it therefore seems appropriate to provide at least one or two weeks’ severance if an employee is being dismissed. A severance plan may be subject to ERISA if the employer has a legal obligation to make severance payments, as is the case under some union contracts. Even voluntary plans could become subject to ERISA if the employer identifies it as a plan established or maintained by the employer in employee handbooks. F. Supplemental Unemployment Benefits – These benefits supplement the employee’s unemployment compensation and help the person maintain his/her standard of living for a time while he/she is out of work due to layoffs, reduced workweeks, and relocations. They are becoming more prevalent in union agreements. * NOTES Educational Materials to Use III. Insurance Benefits A. Workers’ compensation refers to the sure, prompt income and medical benefits provided in work-related accidents to the victims or their dependents, regardless of fault. Every state has its own workers’ compensation law and administrative commission, and some run their own insurance programs. Most states require employers to carry workers’ compensation insurance. Neither the state nor the federal government contributes any funds for workers’ compensation. How Benefits are Determined – Workers’ Compensation can be monetary or medical. Monetary awards are based on a formula regarding the disability involved and the worker’s average weekly wages. Some disabilities or losses also receive monetary awards based on a schedule of those losses. Controlling Workers’ Compensation Costs – The costs of insurance premiums depend on the number and dollar amount of claims, thus minimizing such claims is important. Some ways to reduce such claims is to screen out accident-prone workers, reduce accident-causing conditions in facilities, institute effective safety and health programs, and comply with government standards on these matters. Many firms institute rehabilitation programs to get injured employees back on the job as fast as possible, since workers’ compensation costs accumulate as long as the person is out of work. B. Hospitalization, Health, and Disability Insurance – These benefits are aimed at providing protection against hospitalization costs and loss of income arising from accidents or illness occurring from off-the-job causes. They are offered by most employers because medical care and insurance are so expensive. Employer health and hospitalization plans must comply with the Americans with Disabilities Act. Accidental death and dismemberment coverage provides a lump-sum benefit in addition to life insurance benefits when death is accidental. Disability insurance provides income protection for loss of salary due to illness or accident. A health maintenance organization (HMO) is a medical organization consisting of several specialists operating out of a community-based health care center. Preferred provider organizations (PPOs), a cross between HMOs and the traditional doctor/patient arrangement, are groups of health care providers that contract to provide medical care services at a reduced fee. The costs of mental health treatment are rising because of widespread drug and alcohol problems. There is an increase in the number of states requiring employers to offer a minimum package of mental health benefits. The Mental Health Parity Act of 1996 sets minimum mental health care benefits at the national level. The Legal Side of Health Benefits – Various laws affect employeebenefits. The Protection and Affordable Care Act of 2010 requires a number of changes for employers. The Employee Retirement Income Security Act (ERISA) sets minimum standards for health and pension plans. Other laws are discussed, including HIPAA and COBRA, both amendments to ERISA. COBRA (Comprehensive Omnibus Budget Reconciliation Act) requirements are that most private employers must make continued health benefits available to terminated or retired employees and their families for a period of time, generally 18 months. The former employee must pay for the coverage, if desired, as well as a small fee for administrative costs. Trends in Health Care Cost Control – Many employers are changing their medical plans and using cost-containment specialists to reduce health care costs. Also, consumer education is among the most important initiatives in health administration. Employees must know the costs of health choices in order to make better decisions. More employers are requiring employees to pay higher premiums and co-payments. Clinical prevention programs include mammograms, immunizations, and routine checkups. Wellness programs, claim audits, as well as other options are discussed. Long-term care is a new benefit aimed at supporting people in their old age. The Health Insurance Portability and Accountability Act (HIPAA), enacted in 1996, lets employers and employees deduct the cost of long-term care insurance premiums from their annual income taxes. Life Insurance – Most employers provide group life insurance plans, which usually accept all employees, regardless of health or physical condition. Benefits for Part-time and Contingent Workers – Some firms provide holiday, sick leave, vacation benefits, and some form of health care benefits for employees who work less than 35 hours a week. * NOTES Educational Materials to Use IV. Retirement Benefits A. Social Security provides three types of benefits: retirement benefits, survivor’s (death) benefits, and disability payments. Retirement benefits provide an income if you retire at age 62 or thereafter and are insured under the Social Security Act. Survivor’s (death) benefits provide monthly payments to your dependents regardless of your age at death if you were insured under the Social Security Act. Disability payments provide monthly payments to employees who become totally disabled (and their dependents) if they work and meet certain requirements. The Social Security system also administers the Medicare program, which provides a wide range of health services to people 65 or older. B. Pension Plans – There are a variety of pension plans. Defined contribution plans specify what contributions the employer will make to the employee’s retirement or savings fund. In a 401(k) plan, an employee authorizes the employer to deduct a certain amount of money from his/her paycheck before taxes and to invest in the 401(k) plan. Many federal laws govern pensions. 1. 401(k) Plans – This is a popular defined contribution plan in which the employee can have money deducted from his or her paycheck and deposited in the account before payroll taxes. 2. Other Defined Contribution Plans – In a savings thrift plan, employees contribute a portion of their earnings to a fund. The employer usually matches this contribution in whole or in part. In deferred profit sharing plans, employers contribute a portion of their profits to the pension fund. An employee stock ownership plan (ESOP) is a tax-deductible stock bonus plan. Cash Balance Pension Plans – These are defined benefit plans for federal tax purposes, but have the portability advantages of defined contribution plans. Defined benefit plans are most advantageous to older employees with long service terms. Younger employees, or those who want to change jobs, usually prefer defined contribution plans. The cash balance plan has both portability and predictable benefits. C. Pension Planning and the Law – The Pension Benefit Guarantee Corporation (PBGC) oversees and insures pensions should a plan terminate without sufficient funds. ERISA restricts what companies can, cannot, and must do in regards to pension plans. In developing pension plans, employers must consider: membership requirements, benefit formulas, plan funding, and vesting. Participants in pension plans must have a non-forfeitable right to 100% of their accrued benefits after 3 years of service under cliff vesting, and 100% by the end of 6 years under a graded vesting schedule. Under the Tax Reform Act of 1986, an employer can require that an employee complete a period of no more than 2 years’ service to the company before becoming eligible to participate in the plan. If an employer requires more than 1 year of service before eligibility, the plan must grant employees full and immediate vesting rights at the end of that period. D. Pension and Early Retirement – The company opens up (for a limited time only) the opportunity for employees to retire earlier than usual, with a financial incentive, which is generally a combination of improved or liberalized pension benefits plus a cash payment. E. Improving Productivity through HRIS: Online Benefits Management Systems – Benefits administration can be an enormously labor-intensive and time-consuming activity for an HR department. One of the main ways HR managers are increasing the productivity of their benefits dollars is by increasing the utilization of technology. * NOTES Educational Materials to Use V. Personal Services and Family-Friendly Benefits A. Personal services are being provided by many companies. Options may include credit unions, legal services, and counseling. 1. Employee Assistance Programs – EAPs provide employees with counseling and/or treatment for problems such as alcoholism, gambling, or stress. B. Family-Friendly (Work-Life) Benefits – There are more families in which both adults work, more one-parent households, more women working, and more people over 55 working. On-site child care, fitness and medical facilities, flexible work scheduling, telecommuting, occasional sabbaticals, loan programs for home computers, stock options, concierge services, and even insurance for the family pet are all part of the compensation package in the new workplace. Employers are increasingly granting fathers time off, or flexible schedules, to take care of the kids. 1. Subsidized child care is an increasingly desirable benefit, which tends to improve recruiting results, lower absenteeism, improve morale, garner favorable publicity, and lower turnover. 3. Sick Child Benefits – Unexpected absences due to last-minute child care emergencies can be problematic for employers, who then need to hire temporary help or cope with reduced productivity. Emergency child care benefits are being offered by more employers. Elder Care – Programs are being offered to employers to help employees who must care for elderly who can’t fully care for themselves. Family-Friendly Benefits and the Bottom Line – Evaluating the effectiveness and profitability of these programs is difficult. However, employers are carefully reviewing these services to see if they are contributing monetarily to the organization. C. Other Job-Related Benefits – Employers often provide subsidized employee transportation, food services, and educational subsidies. The offer of time off as a performance reward, or increased vacation and holiday benefits can help employees with quality of life issues. Also, many companies are extending benefits coverage to same-sex domestic partners. Because IRS guidelines do not include such partners in the definition of “dependents,” there is considerable doubt that these benefits will be tax free. D. Executive Perquisites –Perks include management loans, salary guarantees, protection for executives if their firms become targets of acquisitions or mergers, financial counseling, relocation benefits, time off with pay, outplacement assistance, company cars, chauffeured limousines, security systems, company planes and yachts, executive dining rooms, physical fitness programs, legal services, tax assistance, liberal expense accounts, club memberships, season tickets, credit cards, and children’s education. VI. Flexible Benefits Programs – When given the opportunity to choose, employees do prefer flexibility in their benefits plan. A. The Cafeteria Approach – A cafeteria benefits plan, which is generally synonymous with a flexible benefits plan, is where each employee is given a benefits fund budget to spend on whichever benefits he/she wants once the employer limits the total cost for each benefits package and includes certain non-optional items. Flexible spending accounts let employees pay for certain benefits expenses with pretax dollars. Core plus option plans establish a core set of benefits, which are usually mandatory for all employees; then the employees can choose from various benefits options. B. Benefits and Employee Leasing – Many businesses do not have the resources or employee base to support the cost of employee benefits. Employee leasing firms assume all or most of the employee’s human resource functions. C. Flexible Work Schedules 1. Flextime is an arrangement by which employees have flexibility in scheduling their workday around core hours. 2. Compressed workweeks –may consist of four 10-hour days, three 12-hour days, or other such combinations. 3. Effectiveness of Flexible Work Schedule Arrangements – Reviews indicate that they increase employee satisfaction and productivity. Some critics are concerned that fatigue and accidents may increase. 4. Workplace flexibility means providing employees with technology so work can be accomplished wherever they are located. Other Flexible Work Arrangements – There are many other arrangements that employers may offer. Job sharing is when two people share one full-time job. Job sharing can be useful for retirement-aged employees, allowing the company to retain the employee, who experiences reduced hours. Work sharing is when a whole group reduces its hours to prevent layoffs. Telecommuters work at home and use phones and the Internet to conduct business. * NOTES Educational Materials to Use DISCUSSION QUESTIONS 1. You are applying for a job as a manager and are at the point of negotiating salary and benefits. What questions would you ask your prospective employer concerning benefits? Describe the benefits package you would try to negotiate for yourself. Answer: You should ask sufficient questions about all aspects of the benefits package such that you will come away knowing exactly what benefits you will and will not have. These can be phrased in many ways, but should cover all areas important to the potential employee. Hopefully, students will be far-sighted enough to understand the importance of benefits that might not appear to be critical at this stage of their lives. For example, if students are young and single, they should realize the importance of a good family medical plan as well as a well-funded retirement plan. 2. What is unemployment insurance? Is an organization required to pay unemployment benefits to all dismissed employees? Explain how you would go about minimizing your organization's unemployment insurance tax. Answer: Unemployment insurance provides benefits to an individual who is unable to work through some fault other than his/her own. An organization is not required to pay unemployment benefits to all dismissed employees. You could minimize your organization’s unemployment insurance tax by making sure that all your managers understand the unemployment insurance code, training managers and supervisors on discipline and discharge, conducting exit interviews, verifying employment claims, filing protests against a former employee's claim on a timely basis, knowing your local unemployment insurance official, and auditing the annual benefit charges statement. 3. Explain how ERISA protects employees’ pension rights. Answer: Under ERISA, pension rights must be vested under one of three formulas. Also, ERISA established the Pension Benefits Guarantee Corporation to help ensure that pensions meet vesting obligations. The PBGC also insures pensions should a plan terminate without sufficient funds to meet its vested obligations. 4. What is "portability"? Why do you think it is (or isn't) important to a recent college graduate? Answer: Portability is the ability of employees to take their retirement income when they leave an organization and roll it over into a new employer's savings plan or IRA. Today's college graduate may not think about it, but it is important to consider the question of portability. Most college graduates can expect to change employers several times during their career. Having portable retirement plans can help ensure that workers end up with a reasonable retirement income. If the plans are not portable, it will take exceptional planning on the employee's part to ensure adequate retirement income. 5. What are the provisions of the FMLA? Answer: The FMLA provides the following: 1) private employers of 50 or more employees must provide eligible employees up to 12 weeks of unpaid leave for their own serious illness, the birth or adoption of a child, or the care of a seriously ill child, spouse, or parent; 2) employers may require employees to take any unused paid sick leave or annual leaves as part of the 12-week leave provided in the law; 3) employees taking leaves are entitled to receive health benefits while they are on unpaid leave, under the same terms and conditions as when they were on the job; 4) employers must guarantee employees the right to return to their previous or equivalent position with no loss of benefits at the end of the leave; however, the law provides a limited exception from this provision to certain highly paid employees. INDIVIDUAL AND GROUP ACTIVITIES 1. Working individually or in groups, research the unemployment rate and laws of your state. Write a summary detailing your state’s unemployment laws. Assuming Company X has a 30% rate of personnel terminations, calculate Company X’s unemployment tax rate in your state. Answer: Suggest that the students use the Internet to research the unemployment rate and laws for your state. To assist you with the unemployment rate and laws specific to your state, I'll need the name of the state you're referring to. Once you provide that, I can offer more precise details. In general, here's an outline of what to consider when researching your state's unemployment laws and calculating Company X's unemployment tax rate: Unemployment Rate and Laws 1. State Unemployment Rate: Look up the most recent unemployment rate for your state. 2. Unemployment Benefits: Research the maximum benefit amount, duration, and eligibility criteria. 3. Employer Responsibilities: Outline the requirements for employers, including reporting and tax obligations. Unemployment Tax Rate Calculation 1. Base Rate: Determine the standard unemployment tax rate for employers in your state. 2. Experience Rating: Find out how the 30% termination rate impacts Company X's experience rating, which may influence the tax rate. 3. Surcharge: Check for any state-specific surcharges or additional taxes. Please provide the name of your state to receive specific information on the laws and tax rate calculations. 2. Assume you run a small business. Working individually or in groups, visit the Web site www.dol.gov/elaws. See the Small Business Retirement Savings Advisor. Write a two-page summary explaining: (1) the various retirement savings programs available to small-business employers, and (2) which retirement savings program you would choose for your small business and why. Answer: Based on what they learned from the chapter and the results of their Internet search, the students should include at a minimum a 401(k) plan that can be assessed online. 1. Retirement Savings Programs for Small Businesses: • Simplified Employee Pension (SEP): Employer contributes to employees' IRAs; simple to set up. • Savings Incentive Match Plan for Employees (SIMPLE IRA): Both employer and employee contribute; suitable for businesses with 100 or fewer employees. • 401(k) Plan: Flexible with high contribution limits; can be traditional or Roth. • Payroll Deduction IRAs: Easy to manage; employees contribute through payroll deductions. 2. Recommended Program: • SIMPLE IRA: Chosen for its ease of administration, low cost, and ability to involve both employer and employee contributions, making it ideal for small businesses with a limited budget and staff size. 3. You are the HR consultant to a small business with about 40 employees. Now the firm offers only five days vacation, five paid holidays, and legally mandated benefits such as unemployment insurance payments. Develop a list of other benefits you believe they should offer, along with your reasons for suggesting them. Answer: The specific ones to recommend would depend partly on the profile of the employees of the firm. In the absence of that information, the least costly addition of benefits would be to add some sick leave (or personal days) and consider additional vacation and/or holidays. The next benefit that they might look to would be to add the availability of some kind of health plan that could include a contributory cost to the employee. This would be less expensive to the company and add real value to the employees because of group discounts. 4. The HRCI “Test Specifications” appendix at the end of this book lists the knowledge someone studying for the HRCI certification exam needs to have in each area of human resource management (such as in Strategic Management, Workforce Planning, and Human Resource Development). In groups of four to five students, do four things: (1) review that appendix now; (2) identify the material in this chapter that relates to the required knowledge the appendix lists; (3) write four multiple-choice exam questions on this material that you believe would be suitable for inclusion in the HRCI exam; and (4) if time permits, have someone from your team post your team’s questions in front of the class, so the students in other teams can take each others’ exam questions. Answer: The material in this chapter that relates to the HRCI certification exam includes: unemployment insurance, vacations and holidays, sick leave, parental leave and FMLA, severance pay, supplemental unemployment benefits, workers’ compensation, hospitalization, health and disability insurance, life insurance, benefits for part-time workers, social security, pension plans, pension planning, pensions and the law, pension trends, executive perquisites, and flexible benefits programs. Multiple-choice questions should reflect material in this chapter and should have answer choices which could appear plausible. EXPERIENTIAL EXERCISES & CASES Experiential Exercise: Revising the Benefits Package Students are given a scenario of a small business and its benefits package. Students are to devise a benefits package “in keeping with the size and requirements for this firm.” This means that they need to carefully balance the costs and the administration requirements with the resources that the small firm has. Application Case: Striking for Benefits 1. Assume you are mediating this dispute. Discuss five creative solutions you would suggest for how the grocers could reduce the health insurance benefits and the cost of their total benefits package without making any employees pay more. Answer: It is suggested that you consider giving this exercise as a group assignment. Finding five creative solutions will be challenging, but things that should be considered include: altering deductibles but providing grandfathered employees extra pay to compensate; altering the pay schedule by increasing the pay for existing employees to compensate for additional health care costs passed on to them, but new employees not getting that pay increase; etc As a mediator in the dispute over reducing health insurance benefits and the cost of the total benefits package, here are five creative solutions: 1. Wellness Programs: Implement company-sponsored wellness initiatives, such as fitness programs, smoking cessation support, and healthy eating workshops. These can improve overall employee health, potentially lowering healthcare costs. 2. Telemedicine Services: Offer telemedicine options to reduce the need for costly in-person doctor visits, saving both the company and employees money on medical expenses. 3. High-Deductible Health Plans (HDHPs) with Health Savings Accounts (HSAs): Introduce HDHPs with HSAs, allowing employees to save pre-tax dollars for medical expenses, reducing premium costs for the employer while providing a tax-advantaged way to cover healthcare costs. 4. Preventive Care Focus: Increase emphasis on preventive care services that are fully covered, reducing the likelihood of more serious and expensive health issues down the line. 5. Voluntary Benefits and Flexible Spending Accounts (FSAs): Offer voluntary benefits such as dental and vision coverage, or FSAs, where employees can set aside pre-tax dollars for medical expenses, reducing overall benefit costs while still providing valuable coverage options. 2. From the grocery chains’ point of view, what is the downside of having two classes of employees, one of which has superior health insurance benefits? How would you suggest they handle the problem? Answer: Morale is a critical problem. Anytime there are two classes, jealousy and resentment increase and morale decreases. Also, administration costs increase. Some of the suggestions in question #1 might avoid the two classes. The downside of having two classes of employees with differing health insurance benefits includes potential morale issues, perceptions of unfairness, and division within the workforce. This can lead to decreased employee satisfaction, reduced loyalty, and increased turnover. To handle the problem, the grocery chains could offer a more equitable benefits structure by either enhancing benefits for the lower-tier group or providing additional perks and incentives to balance the disparity, ensuring all employees feel valued and fairly treated. 3. Similarly, from the point of view of the union, what are the downsides of having to represent two classes of employees, and how would you suggest handling the situation? Answer: The “lower class” employees will feel that they were “sold out” by the union and may lose faith in the value of the union. Initially the union will be safe because of the larger number of employees in the “better” group, but eventually that will change. Continuing Case: Carter Cleaning Company – The New Benefit Plan 1. Draw up a policy statement regarding vacations, sick leave, and paid days off for Carter Cleaning Centers. Answer: The students are likely to create different policy statements, which will reflect their different preferences for benefits. You should get the students to discuss how LearnInMotion.com might allow for flexibility in their pay for time not worked Carter Cleaning Centers Policy Statement Vacations: • Eligibility: Employees accrue 1.5 days of vacation per month after 6 months of employment. • Accrual: Up to 18 days of vacation can be accrued annually. • Scheduling: Vacation requests must be submitted 30 days in advance and are subject to managerial approval based on business needs. Sick Leave: • Eligibility: Employees earn 1 day of sick leave per month. • Usage: Sick leave may be used for personal illness, medical appointments, or family emergencies. • Notification: Employees must notify their supervisor at least 2 hours before their shift starts if they are unable to work due to illness. Paid Days Off (PTO): • Eligibility: Employees receive 5 paid days off annually, which can be used for personal matters, family obligations, or emergencies. • Accrual: PTO days do not accrue; they are granted at the beginning of each year. • Scheduling: PTO requests must be made at least 2 weeks in advance and are subject to approval based on staffing needs. General Provisions: • Unused vacation days may be carried over to the next year but must be used within 12 months or they will be forfeited. • Sick leave is not payable upon termination. • Employees must use PTO within the calendar year; unused PTO does not carry over. 2. What would you tell Jennifer are the advantages and disadvantages to Carter Cleaning Centers of providing its employees with health, hospitalization, and life insurance programs? Answer: The student should refer to the hospitalization, medical, and disability insurance section of the chapter to develop their lists of advantages and disadvantages. Advantages: 1. Attraction and Retention: Offering comprehensive benefits can attract and retain skilled employees, reducing turnover and recruitment costs. 2. Employee Satisfaction: Health and life insurance contribute to job satisfaction and morale, leading to higher productivity. 3. Reduced Absenteeism: Health insurance can lead to early treatment of health issues, potentially reducing absenteeism. Disadvantages: 1. Cost: Providing insurance programs can significantly increase operational costs for the company. 2. Complexity: Managing and administering insurance plans adds administrative complexity and requires ongoing compliance with regulations. 3. Potential for Increased Expectations: Employees may develop higher expectations for benefits, leading to dissatisfaction if future changes are made. 3. Would you advise establishing some type of day care center for the Carter cleaning employees? Why or why not? Answer: A better approach for a small company such as Carter would be to locate a licensed day care provider that would be willing to give a discount to Carter employees. From that starting point, she could then consider whether to subsidize childcare. Translating Strategy into HR Policies and Practice Case: The Hotel Paris The New Benefit Plan – The continuing case study of Hotel Paris is discussed here. In this segment Lisa Cruz, the HR manager, is working on a new benefit plan. 1. Because employers typically make benefits available to all employees, they may not have the motivational effects of incentive plans. Given this, list five employee behaviors you believe Hotel Paris could try to improve through an enhanced benefits plan, and explain why you chose them. Answer: Answers will vary. Some possible answers include calling in sick, leaving early or coming in late, being short with customers or staff, passing illness to other staff members by coming in sick, and showing a lack of motivation. 1. Customer Service Excellence: Improve through enhanced benefits that promote employee well-being, leading to better interactions with guests. 2. Attendance and Punctuality: Encourage consistent attendance by offering benefits like health programs that reduce absenteeism. 3. Team Collaboration: Boost teamwork with benefits that include group wellness activities, fostering a collaborative environment. 4. Job Satisfaction: Increase satisfaction with comprehensive benefits, reducing turnover and enhancing overall morale. 5. Employee Loyalty: Strengthen loyalty with benefits that offer long-term security, motivating employees to stay with the company. 2. Given your answer to question 1, explain specifically what benefits you would recommend the Hotel Paris implement to achieve these behavioral improvements. Answer: Flexible benefit plans would allow employees in different age groups, with different needs, to adjust their benefits to their situation. An on-site child care facility or voucher system may be a possibility depending on need. 1. Customer Service Excellence: Implement wellness programs and mental health support to ensure employees are healthy and engaged. 2. Attendance and Punctuality: Offer comprehensive health insurance and paid sick leave to reduce absenteeism. 3. Team Collaboration: Introduce team-based wellness challenges and group fitness classes to enhance collaboration. 4. Job Satisfaction: Provide competitive benefits packages, including retirement plans and educational assistance, to boost job satisfaction. 5. Employee Loyalty: Offer long-term incentives such as loyalty bonuses and career development opportunities to foster loyalty. Solution Manual for Human Resource Management Gary Dessler 9780132668217, 9780134235455, 9780135172780