CH-13 Employee Benefits – Human Resource Management : Book Guide

Chapter 13 - Employee Benefits Please click here to access the new HRM Failures case associated with this chapter. HRM Failures features real-life situations in which an HR conflict ended up in court. Each case includes a discussion questions and possible answers for easy use in the classroom. HRM Failures are not included in the text so that you can provide your students with additional real-life content that helps engrain chapter concepts. Chapter Summary Effective management of benefits is crucial for organizations to be competitive, since benefits are a substantial portion of labor costs. In addition, another concern is the rapid increase in the cost of health care. Benefits are used to attract and retain employees, and communication regarding the value of benefits is important. Many organizations are allowing employees to tailor their own benefits packages in flexible benefits plans. Since organizations are typically the major source of economic security for employees, any changes made to benefits plans can have a significant impact on employees and retirees. In the future it is likely that employees must become more educated and better consumers relative to such issues as health care and planning for retirement. Learning Objectives After studying this chapter, the student should be able to: 1. Discuss the growth in benefits costs and the underlying reasons for that growth. 2. Explain the major provisions of employee benefits programs. 3. Discuss how employee benefits in the United States compare with those in other countries. 4. Describe the effects of benefits management on cost and workforce quality. 5. Explain the importance of effectively communicating the nature and value of benefits to employees. 6. Describe the regulatory constraints that affect the way employee benefits are designed and administered. Extended Chapter Outline Note: Key terms appear in boldface and are listed in the "Chapter Vocabulary" section. Opening Vignette: Controlling Health Care Costs: Employers Turn to ‘Carrots and Sticks’ Employers are beginning to look at differential cost contributions for employees who do not live a healthy lifestyle. Michelin North America is one such company – who has employees paying as much as an extra $1,000 per year if their blood pressure, blood sugar, or waist size exceeds targets. With the average cost to employers of healthcare premiums being $11,000 per worker, polling data indicating that overweight workers miss 450 million more days per year than other workers, and data that suggests that lost productivity costs $153 million per year, employers are taking notice. Michelin is using wellness plans and adding monetary consequences in attempts to get employees to be healthy. Questions concerning whether or not these practices might be a form of “legal discrimination” are beginning to arise. Current law allows a penalty of up to 20% of the cost of the employee’s healthcare coverage (employees with conditions making it impossible for them to meet the employer’s goals are exempt from these penalties). Discussion Question 1. What are some of the reasons that companies are requiring employees to contribute more and more to the cost of their own healthcare coverage and using penalties for not being healthy? Answer: The fundamental reason that companies are requiring employees to contribute more and more to the cost of their own health coverage is to keep costs contained. Companies are using penalties in an attempt to incentivize healthy lifestyles – healthcare costs continually go up concurrently with data suggesting that unhealthy lifestyles contribute to that cost. Additionally, under the new health care laws, employers anticipate that they will be required to provide more benefits like coverage for preventive care. Employers sense that they may not be able to keep up, and that they may not be able to afford to pay for these changes. Employers are changing their view of providing health benefits, moving toward contributing only a fixed amount rather than maintaining certain levels of coverage. I. Introduction A. The cost of benefits adds an average of 44.5% to every dollar of payroll, thus accounting for about 30.8% percent of the total compensation package. Controlling benefits is crucial for competitiveness. B. Although it makes sense to think of benefits as part of total compensation, benefits have unique aspects. 1. There is a question of legal compliance. Although direct compensation is subject to government regulation, the scope and impact of regulation on benefits is far greater. 2. Organizations so typically offer them that they have come to be institutionalized. Providing medical and retirement benefits of some sort has become almost obligatory for many employers. 3. Compared with other forms of compensation, it is complex. It is relatively easy to understand the value of a dollar as part of a salary, but not as part of a benefits package. II. Reasons for Benefits Growth—Figure 13.1 gives an indication of overall growth in benefits. Although cash is preferred by most people, since it is less restrictive, the following factors have contributed to less emphasis on cash and more on benefits: A. Several laws were passed during and after the Great Depression that mandated benefits (such as Social Security and unemployment insurance). B. Wage and price controls instituted during World War II and labor shortages forced employers to add benefits to attract workers. C. The tax treatment of benefits is often more favorable for employees than that of wages and salaries; therefore, benefits are perceived as being of value. The marginal tax rate is the percentage of an additional dollar of earnings that goes to taxes (Table 13.1 shows the impact of a $1,000 increase on a worker). Employers realize tax advan¬tages from certain benefits. For example, Social Security and Medicare taxes are paid on wages and salaries, but most benefits are tax free. Also, for employees, pension plans accrue investment returns tax free until retirement. D. There is a cost advantage in buying insurance in a group rather than as an individual. E. Organized labor, which grew from the 1930s to the 1950s, often had benefits as a key objective (in 1990’s, it is estimated that one half of striking employees were striking because of health care issues). Acquiring benefits represented a tangible success for unions and was often seen as more important than a small wage increase. F. Employers may differentiate themselves to become unique in the eyes of current or prospective employees (Table 13.2 shows some examples). This way, employees can set themselves apart from the rest of the pack. III. Benefits programs usually fall into the following categories: social insurance, private group insurance, retirement, pay for time not worked, and family-friendly policies. Table 13.3 provides a listing of the prevalence of benefits based on Bureau of Labor Statistics data. A. Social Insurance (Legally Required) 1. Social Security includes provision for old age insurance, unemployment insurance, survivors' insurance, disability insurance, hospital insurance, and supplementary medical insurance. Having begun with the Social Security Act of 1935, which only implemented the first two listed, the combined list is now the federal Old Age, Survivors, Disability, and Health Insurance (OASDHI) program. Over 90% of American workers are covered; exceptions are railroad and federal, state, and local government employees who often have their own plans. a. Social Security retirement benefits are free from federal tax and free from state tax in about one half of the states. Currently, full benefits begin at age 65 years and 6 months or a reduced benefit can begin at age 62. b. Both employers and employees are assessed a payroll tax of 7.65% (a total of 15.3%) on the first $106,800 of an employee's earnings. The 1.45% Medicare tax is assessed on all earnings. c. The eligibility age for benefits and any tax penalty for earnings influence retirement decisions. The elimination of the tax penalty on earnings for those at full retirement age should mean a larger pool of older workers in the labor force for employers to tap into. 2. Unemployment insurance (established by the Social Security Act of 1935) has the following objectives: to offset lost income during involuntary unemployment, to help unemployed workers find new jobs, to provide an incentive for employers to stabilize employment, and to preserve investments in worker skills by providing income during short-term layoffs (which allows workers to return to their employer rather than start over with another employer). a. The program is financed through federal and state taxes on employers. - The size of the state tax for employers depends on an experi¬ence rating, which is set by the organization's history with layoffs. Those who have laid off more workers in the past pay higher taxes. Management must try to keep this rating low. b. Unemployed workers are eligible for benefits if they have worked steadily in the past (often 52 weeks or four quarters of a work at a minimum level of pay), are available for and are seeking work, were not discharged for cause, were not discharged for cause, did not quit voluntarily, and are not out of work because of a labor dispute. - Benefits vary by state, but are usually about 50% of a person's earnings in his or her last 26 weeks—some states with high employment rates may fund longer, and some¬times Congress passes emergency legislation to extend bene¬fits. Unemployment benefits are taxed as ordinary income. 3. Workers' compensation laws protect employees who are involved in job related injuries and death. The system is based on no fault liability, which means that an employee does not have to establish gross negligence of the employer, and the employer is protected from lawsuits, unless the employer contributed to a dangerous work¬place. About 90% of U.S. workers are covered. a. Workers' compensation benefits are related to disability income, medical care, death benefits, and rehabilitative services. b. Benefits vary by state, but are usually about two thirds of predictability earnings and are tax free. Funding is either through a state fund, private insurance companies, or self-funding by the organization. Rates are based on the nature and risk of occupations, state law, and the organizations experience rating. c. Many actions can be taken to reduce claims—making the workplace safer, work redesign, training, and to speed the return to health, and thus to work. B. Private group insurance is offered at the discretion of employers, and plans are not legally required. Group rates are lower because of economies of scale, the ability to pool risks, and the greater bargaining power of a group. 1. Medical Insurance a. Medical insurance tends to be the most important benefit for people. Most organizations offer this benefit (Text Table 13.3). Types of medical expenses typically covered are hospital expenses, surgical expenses, and physicians' visits. Other plans may include dental and vision care, birthing centers, and prescription drug programs. b. The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires employers to permit employees to extend their health insurance coverage at group rates for up to 36 months following a "qualifying event" such as termination (except for gross misconduct), death, and other events. Competing Through Technology Controlling Health Care Costs by Fighting Painkiller Abuse: Prescribing a Dose of High-Tech Algorithms The cost of painkiller abuse is in the rise, and an analysis of data provided by insurers and medical-bill review consultants might aid in the creation of guidelines for physicians to use in deciding when and if they plan to prescribe painkillers and to whom. Rising Medical Solutions, Inc. is a data analytics company that is working on developing algorithms to assess whether an individual is low, medium or high risk for prescription painkiller abuse. Employers can also use this data to benchmark worker’s compensation cases. Doctors have expressed concern that using algorithms could result in for some people in legitimate need of painkillers. Discussion Question 1. Would you recommend that other companies follow a similar approach? Answer: It would seem that this new use of “big data” is a win-win for everyone – employers, medical care providers, and employees/patients! 2. Do you feel that the rights and needs of workers are adequately addressed? Answer: Student’s answers may vary here – but inclusion of a fair and objective review and appeal procedure would seem to address these concerns. Using algorithms to assess prescription painkiller abuse risks helps control costs but may overlook individual patient needs. While these tools can identify high-risk patterns, they might not fully account for legitimate medical needs and personal circumstances. It's crucial to balance data-driven guidelines with clinical judgment to ensure that patients who genuinely require pain management are not unfairly denied access. Ongoing review and adjustments are needed to address both the risk of abuse and the rights of those in genuine need. 2. Disability insurance includes short term plans that provide coverage for six months or less, at which point long term plans take over (often for life). Salary replacement is most often between 50 and 70%. Benefits based on employer contri¬butions are taxed. C. Retirement—Employers have no obligation to provide retirement plans, although most do. If provided, the plan must meet the standards of Employee Retirement Income Security Act (ERISA). Social Security generally composes approximately 39% of retirees' income, the combination of private pensions (18%), earning from assets (16%), elderly’s income comes from earnings (24%), and other sources (3%). 1. Defined Benefit Plan—Guarantees a specified retirement benefit level to employees, usually based on a combination of age and service as well the employee's earnings (usually the five highest earning years). a. Defined benefit plans insulate employees from investment risk, which is borne by the company. The Pension Benefit Guaranty Corporation (PBGC) guarantees to pay employees a basic retirement benefit in the event that financial difficulties force a company to terminate or reduce employee pension benefits. This agency was established by the Employee Retirement Income Security Act (ERISA) of 1974, which increased the fiduciary responsibilities of pension plan trustees, and established vesting rights and portability provisions. PBGC guarantees a basic benefit, not full replacement. 2. Defined Contribution Plan—Do not promise employees a specific benefit level upon retirement. Rather, an individual account is set up for each employee with a guaranteed size of contribution. Employers therefore shift investment risk to the employee. They do not have to calculate payments based on age and service, and there is no need to make payments to PBGC. In small companies, this plan is more prevalent (Text Table 13.3). A few types of defined contribution plans are: a. A Money Purchase Plan—An employer specifies a level of annual contribution, and at retirement the employee receives the contribution and investment returns. Employees typically purchase an annuity rather than taking the money as a lump sum. b. Profit sharing plans and employee stock ownership plans are often used as a retirement vehicle. c. Section 401(k) plans (the term comes from the tax code section) permit employees to defer compensation on a pretax basis. Annual contributions in 2004 are limited to $13,000 and are adjusted each year according to the Consumer Price Index. 3. Cash balance plans – An employer sets up an individual account for each employee and contributes a percentage of the employee’s salary; the account earns interest at a predefined rate. 4. Funding, Communication, and Vesting Requirements—Besides specifying termination procedures as mentioned, ERISA requires certain guidelines to be met on management and funding. Employers are required to fund future obligations sufficiently. There are a number of reporting and disclosure requirements to the IRS, to the Department of Labor, and to employees. For example, employees must receive within 90 days after entering a plan a summary plan description (SPD) which obligates employers to describe the plan's funding, eligibility requirements, risks, and so on. a. ERISA also guarantees that employees, after working a certain number of years, earn the right to a pension at retirement. These are referred to as vesting rights. Even if an employee leaves the organization before retirement, the contributions are vested. Employee contributions are always vested. These requirements were designed to prevent orga¬nizations from terminating employees right before retire¬ment or before they vest in the plan. Vesting schedules that may be used are as follows: (1) Employees are vested after five years of service. (2) Employers may vest employees over a three to seven-year period, with at least 20 percent vesting in the third year and each year thereafter. b. In recent, many companies have sought to reduce their work forces through early retirement programs is also consistent with the notion that pensions are used to retain certain employees while encouraging others to leave. c. Greater mobility from employer to employer may tend to encourage defined contribution plans, since they tend to be more portable (transfer of funds) across employers. d. D. Pay for Time Not Worked 1. Some employers may see little advantage to paid vacation, holidays, sick leave, and so on, since employers pays the employee for time not spent working, receiving no tangible production value in return. In the United States, there is no legal minimum, although 10 days is common. Workers may have to have 20 to 25 years of tenure before receiving as much paid vacation as their western European friends. A comparison of hours worked by employees in several other countries relative to the US can be seen in Figure 13.3. 2. Sick leave programs often provide full salary replacement for a limited period of time, usually not exceeding 26 weeks. The amount of sick leave is often based on length of service, accu¬mulating with service. If employees still have designated "sick leave" days at the end of each year, they may develop a "use it or lose it" mentality. Organizations try to avoid this by encour¬aging employees to accumulate sick days or pay employees (often a portion) for unused sick days. E. Family-friendly Policies-Organizations are more frequently taking steps beyond work schedules to ease the family-work conflicts. These include child care and family leave policies. 1. Family Leave – The Family and Medical Leave Act requires organiza¬tions with 50 or more employees within a 75 mile radius to provide as much as 12 weeks of unpaid leave after childbirth or adoption; to care for a seriously ill child, spouse, or parent; or for an employee's own serious illness. Employees are guaranteed the same or comparable job when they return to work. Employers have to continue providing medical benefits while the employee is on FMLA leave. Employees with less than a year of service or those who work less than 25 hours a week or who are the 10 percent highest paid are not covered. 2. Child Care—Employers may provide some type of child care support to employees: child-care information, vouchers or discounts for existing child care services, or child care at or near their worksites. Matching the work force needs to the program should choose the appropriate alternative. IV. Managing Benefits: Employer Objectives and Strategies – although some constraints are imposed legally, organizations have a great deal of latitude and need to evaluate the payoff of benefits. If organizations do not meet the expectations of employees, however, they violate an "implicit contract" between employer and employees. If employees do not feel that employers are committed to their welfare, they will not commit themselves to the company's success. Many organizations do not have written objectives (see Table 13.5 for an example of one company's objectives). A. Surveys and Benchmarking—The company should know what the competition is doing. Surveys are available from private consultants, U.S. Chamber of Commerce, and the Bureau of Labor Statistics (BLS). Costs data are available from the BLS (Table 13.3). B. Cost Control—The larger the cost of a benefit, the greater the possibility for savings. The rate growth must also be monitored since there may be future problems. Cost containment is possible only if the employer has discretion in revising benefits. Some legally required benefits can be controlled by experience ratings (see the example under workers' compensation). 1. Health Care: Controlling Costs and Improving Quality – in the United States, health care expenditures have gone from 5.3% of the GNP ($27 billion) in 1960 to 18% (approximately $2.7 trillion) recently. Table 13.6 indicates that the United States spends more on health care than any other country in the world, yet there is widespread dissatisfaction. 2. Attempts at cost control have come through employers, since most health care is provided through organizations rather than through national health care as in Western Europe and Canada. These efforts, called managed care, involve plan design, use of alternative providers, use of alternative funding methods, claims review, education and prevention, and external cost control systems. 3. Another trend is to shift costs to employees through the use of deductibles, coinsurance, exclusions and limitations, and maximum benefits. Also, cost reduction is attempted through preadmission testing and second opinions on the need for surgery. 4. The use of alternative providers has increased. Health mainte¬nance organizations (HMO) focus on preventive care and outpatient treatment, requiring employees to use only HMO services and providing benefits on a prepaid basis. HMOs pay physicians and other health care workers on a flat salary basis to reduce incentives to increase patient visits or tests. Preferred provider organizations (PPOs) are groups of health care providers who contract with employers, insurance companies, and so on, to provide health care at reduced fees. They do not provide benefits on a prepaid basis, and employees often are not required to use just the PPOs. Employers will provide incentives to use PPOs. PPOs tend to be less expensive than traditional health care but more expensive than HMOs. Employers may also vary employee contributions based on the employee's health and risk factors. 5. Employee wellness programs (EWPs) focus on changing behaviors both on and off work time that could eventually lead to future health problems. a. There are two broad classes of EWP’s, passive and active. Passive programs use little or no outreach to individuals and provide no ongoing motivational support. Active wellness centers assume that behavior change requires not only awareness and opportunity, but also support and reinforcement. b. Examples of passive programs include health education programs and fitness facilities. Active programs may be similar to the passive programs but include counselors who handle one-on-one outreach, tailored programs, and reinforcement. 6. Health care costs and quality: Ongoing challenges—Two important phenomena are often encountered in cost control efforts: (1) piecemeal programs may not work well, and steps to control one aspect of costs may lead employees to try and use other programs; and (2) there is often a so called Pareto group, which refers to a small percentage of employees being responsible for generating the majority of health care costs. Competing Through Sustainability Google Keeps Employees’ Stomachs Happy, But Fit Too, Using Data Analytics Google provides good food options for employees right in the office. They claim that their employees are never more than “150 feet from food”… The problem is, employees liked it – and gained unwanted pounds. Using data to analyze the problem, Google changed the ordering of food in the line (they found people load up in the first things they see, so they put healthier options first). They also started communicating more information concerning nutrition information about the food and drinks, and changed how various types of food were made available (for example, changed M&M dispensers from clearly visible gravity-feed dispensers to opaque containers) and displayed (moved water to eye level in coolers and soft drinks to the bottom). All of these things resulted in decreases in consumption of the less healthy choices. Discussion Question 1. Why is weight gain by employees a concern for Google? Answer: Evidence seems to suggest that increases in weight translate into increases in healthcare costs and lost work time, and decreases in productivity. Weight gain among employees is a concern for Google because it can impact overall health, productivity, and morale. Healthier employees are typically more productive and less prone to absenteeism. Additionally, promoting well-being aligns with Google’s values and helps maintain a positive work environment. 2. How would you evaluate the effectiveness of Google’s approach to addressing this concern? Is there anything you would have done differently? Answer: Student responses will almost certainly vary here. It appears from the information ion the vignette that their program is working, however students will likely be creative in their ideas to add to the program as well. Google’s approach is effective as it uses data-driven strategies to promote healthier eating habits without eliminating food options. Evaluating its effectiveness would involve tracking changes in employee health metrics, food consumption patterns, and weight trends over time. Surveys and feedback from employees can also provide insight into satisfaction and perceived health impacts. If additional adjustments were needed, incorporating more personalized wellness programs or incentives for healthier lifestyle choices could further support employees’ long-term health and engagement. Competing Through Globalization Helping Employees Cope with ‘Airpocalypse’n in China Beijin suffered a winter of serious air pollution which may result in an exodus of expatriates form the city. According to the World Health Organization (WHO), particulate matter such as that in Beijing affects more people than any other pollutant. It contains sulfate, nitrates, ammonia, sodium chloride, carbon, mineral dust and water and is composed of a mix of solid and liquid particles. Levels of pollution in Beijing reached approximately 30 times higher than the levels recommended by the WHO, which according to one study resulted in 1.2 million premature deaths each year in China. These issues have lead to human resource problems for companies with local executives posted in this region to include expatriates requesting reassignment and potential job candidates withdrawing applications. HR departments have tried purchasing air purifiers, face masks, and increasing hardship allowances to combat these issues, but these are costly measures that aren’t fully effective. Discussion Question 1. Would air quality concerns keep you from accepting an expatriate assignment in China? Answer: This will be a very personal response from students. Yes, air quality concerns would influence my decision. Persistent exposure to high levels of air pollution can have serious health implications, such as respiratory and cardiovascular issues. These risks, along with potential long-term health consequences, would make me reconsider the assignment, despite other benefits or career opportunities. 2. Why hasn’t more been done to address air pollution concerns in China? Answer: Answers will likely vary here as well, but a theme of cost is likely to be present. Addressing air pollution in China is challenging due to several factors. Economic growth has prioritized industrial expansion, which contributes significantly to pollution. Regulatory enforcement can be inconsistent, and the scale of the problem requires massive infrastructure changes and substantial investments. Additionally, transitioning to cleaner technologies and practices involves complex socio-economic adjustments and resistance from entrenched industries. Evidence-Based HR Companies have much more data about their employees available to them today than in the past. Used properly, this data can aid in improving company performance. Obstacles, such as changing company culture concerning using data-based decision making rather than intuition remain. Using this data at Caesar’s Entertainment is highlighter in this vignette. Exercise 1. Are there are other health care costs that can be identified and controlled? Answer: Students will likely identify a range of other costs, but two areas that can potentially be identified that were not mentioned in the vignette are lost time due to illness and losses in productivity. Yes, additional health care costs that can be identified and controlled include chronic disease management, preventive care, and high-cost medical treatments. Addressing issues like unnecessary hospital admissions, medication non-compliance, and lifestyle-related health problems can also help manage costs more effectively. 2. What data would you like to have to identify and evaluate such alternatives? Answer: Answers to this question will be based on responses to question 1 above. To identify and evaluate alternatives, useful data includes claims data, patient health records, utilization rates of medical services, and outcomes from preventive care programs. Additionally, data on employee health risk assessments, wellness program participation, and cost-effectiveness of different treatment options would be valuable. 3. Can quality of care be maintained? Answer: It would seem logical that the quality of care would not only be maintained using data-driven decision making, but would potentially improve as well by decreasing the overall costs of waste. Yes, quality of care can be maintained while controlling costs. Implementing data-driven strategies such as personalized care plans, targeted wellness initiatives, and preventive care programs can help manage costs without compromising care quality. Ensuring that cost-control measures are coupled with robust monitoring and evaluation systems will help maintain high standards of care. 7. Staffing Responses to Control Benefit Cost Growth a. Because benefit costs are fixed, the benefits cost per hour can be reduced by having employees work more hours. b. Organizations may try to have their employees classified as exempt, since they can then reduce their benefit costs per hour without having to pay overtime. c. Employers may be more likely to classify workers as independent contractors rather than employees, which eliminates the employer's obligation to provide legally required benefits. C. Nature of the Work Force—Demographics will have consequences for the benefits that employees want; however, it may be misleading to make decisions on demographics alone (see Table 13.5). Methods such as personal or group interviews, focus groups, or questionnaires can be used to find out what benefits are important to employees. Organizations must be willing to act on the basis of this informa¬tion. Organizations need to think about the signals their benefits packages send and the implications of these signals for workforce composition. D. Communicating with employees is critical if employers are to realize sufficient returns on their benefits investments. Research is clear that employees and job applicants often have a very poor idea of what benefits provisions are already in place and the cost or market value of those benefits. Table 13.8 shows that employees significantly underestimated both the cost and market value of their medical benefits. 1. Although college graduates and M.B.A. students felt that benefits were not very important in evaluating a job offer, it may be because most companies are perceived to offer similar benefits. A company that offers poor benefits will be very noncompetitive. 2. Studies indicate that employees' awareness of benefits informa¬tion was significantly increased through several media, including memoranda, question and answer meetings, and detailed brochures. 3. Awareness of and satisfaction with benefits can be increased by multimedia presentations. Table 13.9 indicates alternate means of communication, since 27 million employees in the United States are illiterate. 4. Flex-plans, or Cafeteria Style—These plans permit employees to choose the types and amount of benefits that they want. Plans vary as to whether certain minimum levels (e.g., of health insurance) are required and whether employees can get money back for spending less than the allotted amount or pay more if they want more benefits. a. The advantages are that employees can be more aware and appreciative of their benefits package; there is a better match between the package and the employee's needs, which should improve satisfaction and retention; and cost reductions are often achieved. b. One drawback is administrative cost, especially in design and start up. However, software and standardized flex plans avail¬able from consultants help. Another problem is adverse selec¬tion, since employees are most likely to choose benefits that they will need most (such as expensive dental care). This will make it difficult to estimate costs in small businesses. Adverse selection can be controlled by placing limits on coverage amounts, pricing benefits with such problems higher, or using a limited set of options. 5. Flexible Spending Accounts—These accounts permit pretax contributions to an employee account that can be drawn on to pay for uncovered health care expenses. Another account up to $2,500 can be used for dependent care expenses. Funds must be spent during the year or they revert to the employer (employees should therefore have predictable expenses). The major advan¬tage is that take home pay increases. IV. General Regulatory Issues A. Affordable Care Act – The Affordable Care Act, signed into law in 2010, has several provisions that will have a major impact on employers as they are implemented through the year 2018. Table 13.10 summarizes key issues for employers. B. Nondiscrimination Rules and Qualified Plans—All benefits pack¬ages must meet certain rules to be qualified plans. These tax advantages include immediate tax deductions for employers for their contributions to retirement plans, no tax liability for the employee at the time of the employer deduction, and tax free investment returns on the retirement funds. Each benefit has different rules to obtain qualified status. In general, plans must meet nondiscrimination rules; that is, a benefit cannot discriminate in favor of highly compensated employees. These rules discourage owners or top management from developing plans that benefit only themselves. Integrity in Action The Affordable Care Act: How Will Employers Respond? This vignette overviews Darden Restaurant’s attempts at plans to use more part-time employees to avoid having some workers covered by the new “Affordable Care Act” (commonly referred to as “Obamacare”). After receiving negative feedback on their Facebook page, web page and in person at restaurants, Darden decided not to bump any more employees down to part-time. They have also found that their restaurants do better when they have full-time employees working. Discussion Question 1. How do you feel about a large corporation like Darden looking at the option of cutting employee hours in order to avoid coverage by the Affordable Care Act? Answer: This will be a highly personalized and politically charged question. Students’ responses will likely be all over the place. Cutting employee hours to avoid coverage requirements can be seen as a strategy to reduce costs, but it raises ethical concerns. It prioritizes financial gains over employee welfare, potentially undermining job security and benefits for workers. This approach can be perceived as exploiting loopholes in legislation rather than seeking to support employees or contribute positively to the broader social responsibility. 2. Is it good for the company? Is it good for employees? Answer: The data would initially seem to indicate that it is a good move for the company, but due to negative public perception will likely not be a good decision in the long run. Again, at first glance, it appears to not be good for employees (moving from full to part-time). One might argue however that if the company has to downsize due to the increases in costs that these moves might, in the long-run and macro-view be good for employees. For the company, reducing hours to avoid ACA coverage can be financially beneficial in the short term by minimizing healthcare expenses. However, it may also lead to negative public perception and lower employee morale, potentially impacting overall productivity and customer satisfaction. For employees, reduced hours mean less stability, fewer benefits, and potentially lower overall income, which is detrimental to their financial well-being and job satisfaction. C. Sex, Age, and Disability 1. Ensuring equal treatment for men and women in areas besides pregnancy, has to do with pensions. It is illegal for companies to require that women contribute more to a pension plan than men, although women, on the average, live longer. 2. Under the Age Discrimination in Employment Act (ADEA) and later amendments, employers cannot discriminate against employees over the age of 40 in terms of pay or benefits. For example, retirement benefits cannot stop accruing and employees cannot be forced to retire. In addition, early retirement incentives need to meet the following standards to avoid legal liability: (1) the employee is not coerced to accept the incentive and retire, (2) accurate information is provided regarding options, (3) the employee is given adequate time (is not pressured) to make a decision. 3. The Americans with Disabilities Act (ADA) went into effect in 1992. It specifies that employees with disabilities have equal access to the same health insurance coverage as other employees. D. Monitoring Future Benefits Obligations—The Financial Accounting Statement (FAS) 106 issued by the Financial Accounting Standards Board went into effect in 1993. This rule that any benefits (excluding pensions) provided after retirement, such as health care, cannot be funded on a pay as you go basis. Rather, they must be paid on an accrual basis and entered as future cost obligations on financial statements. The initial impact on large corporations, such as AT&T and GM, has been significant declines in net income. Attempts to control costs have been made (e.g., GM announced that it would require white collar employees and retirees to pay insurance premiums). A Look Back We have seen that many organizations have become less paternalistic in their employee benefits strategies. Employees now have more responsibility and sometimes, more risk, regarding their benefits choices. 1. Why do employers offer benefits? Is it because the law requires it, because it makes good business sense, or because it is the right thing to do? How much responsibility should employers have for the health and well-being of their employees? Take the perspective of both shareholder and an employee in answering the question. Answer: Benefits are offered to employees to attract and retain a talented workforce. Some companies will take this a step forward and assume more responsibility for their employees well-being by offering programs that will increase their employees health and work-life balance. From the perspective of shareholders, benefits could be viewed as an unnecessary burden to the company or a way to ensure that their workforce is healthy and motivated. From an employee’s perspective, benefits are a mandatory since the costs of individual plans are expense and the company will need you to be healthy in order to perform at your best. 2. If you were advising a new company on how to design its health care plan, what would you recommend? Answer: Student answers may vary. It is important to note that the health care plan must match the strategy of the organization and be competitive in the industry to attract and retain top talent. If advising a new company on designing its health care plan, I would recommend: 1. Offer a Range of Options: Provide employees with a selection of health care plans, including high-deductible health plans (HDHPs) paired with Health Savings Accounts (HSAs) and more traditional low-deductible plans. This allows employees to choose based on their health needs and financial situation. 2. Promote Preventive Care: Ensure the plan covers preventive services with no out-of-pocket costs. This can help employees avoid serious health issues and reduce overall health care costs. 3. Educate Employees: Provide resources and support to help employees understand their options, the cost implications, and how to make informed decisions. This could include workshops, online tools, and one-on-one consultations. 4. Incorporate Wellness Programs: Include incentives for participation in wellness programs and preventive measures, such as gym memberships, smoking cessation programs, and health screenings. 5. Balance Cost and Coverage: Design the plan to balance affordability for both the company and employees while ensuring comprehensive coverage. Consider implementing cost-sharing mechanisms like co-pays and coinsurance to manage expenses effectively. 6. Flexibility and Adaptability: Build flexibility into the plan to adapt to changing needs and regulations. This includes regular reviews and updates based on employee feedback and health care trends. Chapter Vocabulary These terms are defined in the "Extended Chapter Outline" section. Marginal tax rate Consolidated omnibus budget reconciliation act (COBRA) Pension benefit guaranty corporation (PBGC) Employee retirement income security act (ERISA) of 1974 Cash balance plan Summary plan description (SPD) Family and medical leave act Health maintenance organizations (HMO) Preferred provider organizations (PPO) Financial accounting statement (FAS) 106 Discussion Questions 1. The chapter opening story described how employers and employees are are shifting more employee health care costs to employees. What are the likely consequences of this change? Where does the social responsibility of employers end, and where does the need to operate more efficiently begin? Answer: Student answers may vary. Some students will believe that the changing relationships between employers and employees will cause employees to decrease job loyalty, to not have a sense of belonging and importance in the company, and possibly look elsewhere for retirement plans instead of, or in addition to, the company. An employer can only offer an employee so much and have to look at its financial stability and what they are able to give employees, and if the contributions are not enough for the employees, then the company could offer some advice for investments outside the company. The company needs to take care of its employees, even if it’s just a way to invest somewhere else. Consequences of Shifting Health Care Costs: • Increased Employee Financial Burden: Employees may face higher out-of-pocket expenses, leading to financial strain and potentially decreased job satisfaction. • Reduced Access to Care: Higher costs could deter employees from seeking necessary medical care, potentially leading to worsened health outcomes. • Increased Employee Turnover: Financial stress and dissatisfaction may drive employees to seek employment with better benefits. • Social Responsibility vs. Efficiency: Employers have a social responsibility to provide adequate health care benefits, but need to balance this with cost control to maintain financial viability and competitiveness. 2. Your company, like many others, is experiencing double digit percentage increases in health care costs. What suggestions can you offer that may help reduce the rate of cost increases? Answer: Table 13.7 in the text provides a list of suggestions, such as cost shifting to employees, use of alternative providers such as HMOs and PPOs, claims review, attempts to decrease experience rating, self funding (see the example), health education and preventative care, and encouragement of external controls. It is also possible to revise packages on the basis of employee input, using cost benefits models. Suggestions to Reduce Health Care Cost Increases: • Implement Wellness Programs: Invest in programs that promote healthier lifestyles and preventive care to reduce long-term health care costs. • Negotiate with Providers: Work with health care providers to negotiate better rates and explore alternative pricing models. • Adopt Cost-Effective Plans: Offer high-deductible plans paired with HSAs, which can lower premiums and encourage more cost-conscious behavior. • Promote Generic Drugs: Encourage the use of generic medications to reduce prescription drug costs. • Utilize Telemedicine: Incorporate telemedicine options to reduce costs associated with in-person visits and improve access to care. 3. Why is communication so important in the employee benefits area? What sorts of programs can a company use to communicate more effectively? What are the potential positive consequences of more effective benefits communication? Answer: Communication is critical since a great deal of money is spent on benefits, yet often employees neither understand the benefits nor their cost. Most communication programs are written, but they may not reach employees who are illiterate. Alternative techniques are videos, benefits fairs, and telephone hot lines. The positive results may be an informed and satisfied work force and lower turnover. 4. What are the potential advantages of flexible benefits and flexible spending accounts? Are there any potential drawbacks? Answer: Advantages are an increased understanding and appreciation of benefits (since so much communication is required to help employees make informed choices), better matching of the plan with the needs of individual employees (which should result in increased satisfaction and retention), and cost reductions. Disadvantages are the administrative costs, especially in design and start up, and adverse selection. 5. Although benefits account for a large share of employee compensation, many feel there is little evidence on whether an employer receives an adequate return on the benefits investment. One suggestion has been to link benefits to individual, group, or organization performance. Explain why you would or would not recommend this strategy to an organization. Answer: Students should discuss this question. It is likely that most of them, like any other portion of the U.S. population, view benefits as an entitlement and would be strongly opposed to linking benefits to performance. It can be discussed philosophically why this is likely the case. For example, the United States has a strong tradition of equal treatment of individuals relative to such issues as health care (regardless of what has really happened). Social responsibility suggests that benefits should not be treated as a reward but as an investment in human resources, and so forth. Recommendation for Linking Benefits to Performance: 1. Increased Motivation and Alignment: • Linking Benefits to Performance: Tying benefits to individual, group, or organizational performance can align employees' incentives with the company’s goals, potentially boosting motivation and productivity. • Performance-Based Rewards: Employees may feel more engaged and valued if they see a direct connection between their performance and their benefits. 2. Enhanced Accountability: • Clear Metrics: Establishing clear performance metrics for benefits can make it easier to measure and manage employee performance, leading to more effective use of benefits. Potential Drawbacks: 1. Complex Implementation: • Difficulty in Measuring Performance: Accurately measuring individual or group performance can be challenging, and poorly designed metrics may lead to dissatisfaction or unintended consequences. • Increased Administrative Burden: Managing and monitoring performance-based benefits requires additional administrative effort and resources. 2. Potential for Reduced Morale: • Equity Concerns: If not implemented carefully, performance-based benefits could create perceptions of unfairness or favoritism, negatively impacting team cohesion and employee morale. Conclusion: Linking benefits to performance can be effective in driving alignment and motivation, but it must be carefully designed to ensure fairness, clarity, and support for both employees and organizational goals. Balancing performance-based incentives with equitable and comprehensive benefits is crucial to maximize the return on benefits investment. Self-Assessment Exercise Refer to the text for the self-assessment exercise. Exercising Strategy: Smokers Face Another Risk from Their Habit: It Could Cost Them A Shot at a Job More hospitals and medical businesses in many states are adopting strict policies that make smoking a reason to turn away job applicants. Questions 1. Should companies be allowed to require its employees not to smoke? Why or why not? Answer: Student responses will likely vary. Some may feel that it is appropriate to allow companies to require employees not to smoke because of the known health risks and costs that smoking causes. However, smoking tobacco is a legal activity, and therefore, a case could be made that policies against smokers—particularly, employment decisions—are a violation of privacy. Both arguments could be made successfully. • Allowable for Health and Safety: Companies can require employees not to smoke, particularly in industries where health and safety are critical, such as healthcare, where smoking may impact the work environment or patient care. • Encouraging Healthy Habits: Such policies may also promote healthier lifestyles and reduce healthcare costs. 2. Do you feel that companies should be able to restrict other employee activities? Answer: As the case with the answer to question one, this question could appropriately result in an array of student responses. If an activity interferes with job performance, or if the (voluntary) activity increases the costs of health care of poses other costs borne by the employer, it could be argued that companies should be able to restrict other employee activities. However, this is a contentious debate because of the potential for discrimination and the potential for intrusion into the private lives of employees. • Scope of Restrictions: Companies should be cautious about restricting other activities, as it could infringe on personal freedoms and privacy. Restrictions should be relevant to job performance and workplace safety. • Balance Required: Employers must balance the need for workplace safety with respecting employees' personal lives. 3. Do you believe it is discrimination to not hire people who smoke? Define discrimination. Explain your view on whether employees are engaging in discrimination in this case. Answer: Once again, student responses can and likely will vary. Discrimination refers to unfair treatment of an employee based upon some characteristic of that employee. Therefore, not hiring smokers is discriminatory, because means differential treatment. The question is, is this type of differential treatment fair? • Definition of Discrimination: Discrimination involves treating individuals unfairly based on characteristics such as race, gender, or disability, rather than job-related criteria. • Not Hiring Smokers: It can be viewed as discrimination if the policy unfairly targets a specific group. However, if the policy is job-related and applies to all candidates equally, it may not be discriminatory but rather a business decision based on health concerns. Managing People: The Affordable Care Act—How Will Small Employers Respond? This vignette discusses the ramifications of the Affordable Care Act on small companies that are near the 50 employee threshold specified by the law. One such company, Automation Systems, LLC is contemplating avoiding expansion due to the increases in cost it would endure as a result of the law. The owner is presently looking for solutions to avoid these increases in cost, as are many other employers. Such solutions include dividing the business (i.e. creating a spin-off), reducing worker hours below the definition of full-time, relocation, or even laying off staff. Questions 1. How do you feel about companies looking for ways to avoid coverage under the Affordable Care Act? Answer: This will be a highly personalized and politically charged conversation with no definitive right or wrong answer. • Avoiding Coverage: Seeking to avoid coverage can be seen as an attempt to minimize costs, but it may also indicate a lack of commitment to employee welfare. It reflects a tension between managing business expenses and providing benefits. • Ethical Considerations: Ethically, businesses should balance cost management with the responsibility to provide fair and necessary benefits to their employees. Avoiding the law’s requirements could undermine trust and employee morale. • Long-Term Implications: While these strategies might offer short-term financial relief, they could impact the company's reputation and employee satisfaction, potentially affecting long-term success and employee retention. 2. Do you feel that it is more understandable that small companies like these would look to avoid coverage, compared to larger companies (e.g., the Darden corporation discussed earlier in the Integrity in Action box)? Answer: This will also be a highly personalized and politically charged conversation with no definitive right or wrong answer. • Financial Constraints: Small companies often have tighter budgets and fewer resources, making the financial impact of compliance with the Affordable Care Act more burdensome. Therefore, their actions to avoid coverage might be seen as a pragmatic response to financial pressures. • Flexibility: Small companies may have more flexibility to make significant operational changes, such as reducing hours or creating spin-offs, to mitigate costs. This flexibility can make avoidance strategies more feasible for them. • Larger Companies’ Capacity: Larger companies, like Darden, typically have more financial resources and established processes to absorb additional costs. Their decision to avoid coverage could be perceived as less justifiable, as they have greater capacity to comply and support employee benefits without significant disruption. • Impact on Employees: Regardless of size, avoiding coverage can negatively affect employees. However, the perception of fairness and responsibility might differ based on the company’s size and resources. Small companies may be viewed with more empathy due to their limited means. 3. What are the consequences for companies, workers, and society of companies avoiding coverage by the law? Answer: And yet again, this will be a highly personalized and politically charged conversation with no definitive right or wrong answer. • For Companies: • Short-Term Savings: Companies can avoid immediate costs associated with providing health insurance, potentially improving their financial position in the short term. • Legal and Reputation Risks: Companies that evade coverage might face legal challenges or damage to their reputation if perceived as avoiding their responsibilities. This can affect their relationships with customers and potential employees. • For Workers: • Lack of Coverage: Employees may lack access to health insurance or face inadequate coverage, leading to increased personal financial strain and potential health risks. • Job Instability: Efforts to avoid coverage, such as reducing hours or layoffs, can lead to job insecurity and reduced income for workers. • For Society: • Increased Healthcare Costs: Without adequate coverage, workers might delay or forgo necessary medical care, leading to higher emergency care costs and strain on public health systems. • Economic Inefficiency: Widespread avoidance of coverage can lead to inefficiencies in the labor market and contribute to inequality, as some workers may face barriers to affordable healthcare. Overall, while avoiding coverage might offer short-term benefits to companies, it can result in broader negative consequences for employees and society. HR In Small Business Babies Welcomed at T3 T3 is a marketing agency that has a primary value for innovation. One innovation that Gay Warren Gaddis, the agency’s owner, implemented was a “bring your baby to work” benefit for new mothers to avoid the lost time she anticipated would result from four of her employees all being pregnant at one time. The program seems to be successful with over 55 babies coming to work since the program’s inception. The company also offer benefits such as medical, dental, and vision insurance; various life insurance policies; disability insurance; a 401(k) plan; paid time for vacations, holidays, and sick leave; and discounts on gym memberships and cell phone plans. There are also some other unusual benefits: breakfast on Mondays, candy on Fridays, a book club, and a “bring your dog to work” policy. Questions 1. Of the employee benefits mentioned in this case, which of them do you think are important for keeping a creative workforce engaged at T3? Answer: Answers here will vary, but it would seem the “bring your… to work” benefits would certainly need to be on the list. These are unique benefits and would likely lead to more employee engagement at work. • “Bring Your Baby to Work” Policy: This benefit can be particularly effective in supporting new mothers and fostering a family-friendly work environment. It aligns with T3’s value of innovation by creating a flexible and supportive workplace that acknowledges and accommodates personal needs, which can enhance overall employee satisfaction and retention. • Medical, Dental, and Vision Insurance: Comprehensive health benefits are crucial for maintaining employee well-being and reducing stress related to healthcare concerns. This support helps employees focus on their work and creativity without being distracted by health issues. • 401(k) Plan and Various Insurance Policies: These benefits contribute to financial security and stability, which can enhance job satisfaction and reduce turnover. A financially secure employee is more likely to be engaged and committed to their work. • Paid Time Off, Holidays, and Sick Leave: Generous leave policies are important for maintaining work-life balance, which can prevent burnout and keep employees motivated and productive. • Discounts on Gym Memberships and Cell Phone Plans: These perks support employees’ personal interests and well-being, which can indirectly boost creativity and productivity by fostering a more balanced and healthier lifestyle. • Breakfast on Mondays and Candy on Fridays: These small but thoughtful perks contribute to a positive work environment and can enhance morale and camaraderie among employees. • Book Club and “Bring Your Dog to Work” Policy: These unconventional benefits promote a vibrant and engaging workplace culture. They support personal interests and create opportunities for social interaction, which can stimulate creativity and strengthen team bonds. Overall, benefits that support work-life balance, personal well-being, and flexibility are key in keeping a creative workforce engaged at T3. 3. What are some of the advantages of the agency’s T3 and Under policy? What are some of the risks? How can the company address those risks? Answer: Again, this will be a varied conversation but some of the advantages are spelled out in the vignette.. for example, employees not having to worry about their babies while they work which allows them to concentrate more on their work. Advantages: • Enhanced Employee Retention: The “bring your baby to work” policy supports new mothers, reducing the likelihood of turnover by accommodating their needs and helping them balance work and family responsibilities. • Increased Job Satisfaction: Employees may feel valued and supported, leading to higher job satisfaction and loyalty. • Positive Work Environment: The policy can foster a supportive and inclusive workplace culture, improving morale and employee engagement. • Attractiveness to Talent: This benefit can make T3 more attractive to potential hires, particularly those with young children, giving the company a competitive edge in recruiting. Risks: • Distractions and Reduced Productivity: Babies in the workplace might cause distractions and disruptions, potentially affecting overall productivity and focus. • Logistical Challenges: Managing the logistics of having multiple babies at work (e.g., space, safety, and hygiene) could pose challenges. • Perceptions of Favoritism: Other employees may perceive the policy as favoritism, leading to potential resentment or a sense of inequality. Addressing Risks: • Clear Guidelines: Implement clear guidelines for the “bring your baby to work” policy to minimize distractions and ensure a safe and supportive environment for both employees and babies. • Designated Areas: Create designated areas or rooms for parents and babies to help manage noise and disruptions. • Regular Reviews: Regularly review and assess the impact of the policy on productivity and employee satisfaction, making adjustments as needed. • Communication: Maintain open communication with all employees to address any concerns and ensure that the policy is perceived as fair and inclusive. 4. At what other kinds of companies, if any, do you think a “bring your baby to work” policy might be effective as an employee benefit? Why? Answer: Students will likely come up with a wide variety of types of firms here. It seems however that a key to this type of program’s effectiveness would be a culture of acceptance and innovation. • Creative Industries: Companies in fields like advertising, design, or tech startups, where innovation and creative thinking are crucial, might benefit from a “bring your baby to work” policy. These industries often emphasize flexibility and work-life balance, making such a policy a good fit for fostering a supportive environment that encourages employee loyalty and creativity. • Non-Profit Organizations: Non-profits that often have a strong focus on family and community support may find this policy aligns well with their values, helping to retain dedicated employees who might otherwise struggle with work-family balance. • Educational Institutions: Universities or schools might implement this policy to support faculty and staff, particularly in positions where flexible working arrangements are already common. • Tech Companies: Many tech companies offer flexible working conditions and are known for innovative benefits. A “bring your baby to work” policy could enhance their reputation as a family-friendly employer and support work-life integration for employees. • Startups: Startups, which often have a culture of flexibility and a focus on employee satisfaction, might adopt this policy to attract and retain talent by addressing the needs of new parents. In general, companies that prioritize flexibility, family support, and work-life balance are more likely to benefit from implementing a “bring your baby to work” policy. Additional Activities Twitter Focus Babies Welcomed at T3 T3 is an independent advertising agency started by Gay Warren Gaddis, a woman who encouraged employees to bring their babies to work. She counted on the employees to work flexibly in the presence of their children. Once babies reach nine months or start to crawl, parents are expected to make arrangements for day care. Bringing babies to work is not the only employee benefit at T3. The company also offers medical, dental, and vision insurance; various life insurance policies; disability insurance; a 401k plan; paid time for vacations, holidays, and sick leave; and discounts on gym memberships and cell phone plans. Question 1. How would you feel about working in an environment where babies are brought into the office? What are the advantages of this policy? Any disadvantages? Answer: Personal Feelings: Working in an environment where babies are brought into the office might be a mixed experience. On one hand, it could create a more relaxed and family-friendly atmosphere, which could be very supportive for employees with young children. It might also reflect positively on the company's commitment to work-life balance and employee satisfaction. However, there might be concerns about potential distractions and disruptions, especially if the babies are loud or require a lot of attention. For employees who are not parents, there could be concerns about the impact on productivity and fairness. Advantages: • Support for Parents: It provides a supportive environment for parents, reducing stress and helping them balance work and family responsibilities. • Increased Loyalty and Retention: Employees might feel more valued and loyal to the company, leading to higher retention rates. • Positive Work Culture: It can foster a supportive and inclusive work culture, enhancing employee morale and engagement. • Recruitment Edge: The policy can make the company more attractive to potential hires, especially those with young children. Disadvantages: • Distractions and Disruptions: Babies can be noisy and might disrupt work, affecting productivity and concentration. • Logistical Challenges: Managing space, safety, and hygiene for babies in the workplace can be challenging. • Potential Resentment: Non-parent employees might feel the policy is unfair or that their needs are being overlooked. • Impact on Professionalism: There could be concerns about maintaining a professional work environment with babies present. To address these potential disadvantages, it’s important for the company to establish clear guidelines and provide designated areas for parents and their children to minimize disruptions and ensure a balanced work environment. Manager’s Hot Seat Exercise: Listening Skills: Yeah, Whatever-Please refer to the Asset Gallery on the OLC for Hot Seat videos and notes. I. Introduction Organizational Behavior and Management instructors will find this scenario useful in depicting behaviors associated with active listening (and not listening). An analysis of the interaction will reinforce communication concepts including: the communication process, the components of active listening, and information processing. Communication networks may also be reinforced by this scenario. II. Learning Objectives 1. To assess students’ understanding of the communication process. 2. To analyze and evaluate the components of active listening in a novel scenario. III. Scenario Description: Overview: Pilar Grimault has scheduled a meeting with her department’s young Creative Director, Miguel Valentino. He has recently completed a campaign for a longstanding client, Jezebel. Although the campaign was a huge success, the client has complained to Pilar about Miguel’s project management skills. Profile: •Pilar Grimault is the Senior Account Manager at Midnight Visions, a worldwide advertising agency, after having been a Creative Director for Midnight in London. She manages teams ranging from 25 to 150 people, working on accounts for record labels, fashion houses and entertainment conglomerates. •Miguel Valentino is a Creative Designer, overseeing some of the most high profile accounts for record labels and design houses, and managing global teams of five people. References: The references included in the DVD are: •The Communication Process (PPT 13-3) •Components of Active Listening (PPT 13-5) •Information Processing (PPT 13-6) •Communication Networks (PPT 13-10) Back History: At Midnight, Account managers oversee four to six accounts at any given time. Some of Miguel’s current accounts are Jezebel, Antonioni, and HotSpot. This is the first time Miguel has had three high profile accounts at the same time – a result of shifting schedules and production slow downs. Pilar has a lot of confidence in Miguel, but because he’s had less experience than most, watches over him more closely. In addition to reviewing the Account reports, she has casually/subtly checked in with some of the team members and some of the clients about Miguel’s performance – most of the news is great with a few things that could and should have been handled better. This is really a positive review and the trouble spots at this stage of the game are minor. But they still need to be addressed. The trouble spots she is most concerned with involve The Jezebel Account – Miguel went over budget [$11,000!] and then charged the client for overages without checking with/warning them in advance. They were thrilled with the end media and were okay about the overages – but not the process. Today is the review. Scene Set-up: Pilar and Miguel meet to discuss the Jezebel account. Scene Location: Pilar’s Office The Meeting - Summary: Miguel enters Pilar’s office on cloud nine because of the great work he did for Jezebel. Pilar congratulates him but has to bring up the fact the client was not happy with the management of the project. Miguel is completely distracted (reads magazine, checks voicemail) and does not listen to Pilar. He becomes defensive when she offers the solution of having his assistant provide budget reports. He half-heartedly agrees with her suggestion and then leaves in a huff. Three weeks later – Miguel is shocked that Jezebel has asked him to be removed as project manager from the campaign. Pilar notes that if he had listened to her three weeks ago, this situation could have been avoided. Miguel becomes very responsive and actively listens to her suggestions for improvement. Afterthoughts – Summary: Pilar feels the first meeting was a failure because Miguel’s body language indicated that he was distracted and not listening to her. She felt this was very unprofessional behavior. After the second meeting Pilar acknowledges that losing the account got Miguel’s attention and will now take her suggestion more seriously. Dossier: The specific artifacts included in the DVD are: 1. Memo from Jezebel to Grimault 2. Emails between Sampson and Grimault 3. Voicemail from Susan to Miguel IV. Discussion Questions: The References and related Discussion Questions may be found in PowerPoint slides 13-1 to 13-10 on the instructor’s side of the text’s Website. Learning Objective #1: To assess students’ understanding of the communication process. 1. During their initial meeting, what “noise” was present that hindered Miguel and Pilar’s ability to communicate successfully? Refer to PPT 13-3. Answer: Miguel was so excited about the end result of his project that he could not focus on any negative information. The fact that the information Pilar was trying to relay was negative exacerbated the problem even more. Miguel’s distraction caused him to read a review of his project and answer his cell phone during his meeting with his boss. These behaviors prevented Pilar’s message from being successfully received.  1. Miguel’s response [to Jezebel’s concern about the budget] is: a. Appropriate b. Missing the point c. Disrespectful Miguel missed the point and was being disrespectful to his boss.  2. The trouble spot is: i. Miguel’s distracted ii. Pilar’s too passive iii. A misunderstanding Miguel is very distracted because he is so excited about his final product. Pilar has failed to explain how important the issue is, too. Learning Objective #2: To analyze and evaluate the components of active listening in a novel scenario. 1. What components of active listening did Miguel demonstrate (or fail to)? Refer to PPT 13-5. Answer: Miguel failed to exhibit any of the components of active listening as indicated by the following behaviors. •He displays defensive/closed body language. •He’s preoccupied - looking out window/reading something else. •He jumps in at every opportunity just to hear himself talk [waiting for an opening to speak]. •He stops listening to think up a rebuttal for whatever she’s claiming. •He dismisses anything that doesn’t jive with his opinion. •He maximizes the negative and completely over-reacts. •He NEVER clarifies, reiterates or questions her meaning. 2. Use the Information Processing slide (PPT 13-6) to explain Miguel’s behavior in the first meeting. Answer: Miguel may have been going through a period of information overload fueled by his positive emotions regarding the success of the project. 3. What could Pilar have done to get Miguel’s full attention in the initial meeting? Answer: Student’s should discuss possible alternative approaches. Examples include… Pilar may have been more successful if she had spent a little more time congratulating Miguel and letting him continue to “brag” at first. Then she could have transitioned into discussing the next challenges in the campaign that Miguel has to look forward to and then incorporate a budget checking plan here. He may be less defensive if it is suggested as an improvement. Alternatively she could have shown Miguel the memo from the client directly to get his attention. Pilar should probably not have let Miguel leave without a commitment from him to change. His body language indicated that he was not going to follow her suggestion.  3. Miguel is not cooperating. Pilar should: A. Be forceful B. Reiterate problem C. Fire him Pilar needs to reiterate the problem but may need to be more forceful to get Miguel’s attention. Firing him doesn’t make sense because he is such a talented employee.  4. The [initial] meeting has been: A. A success B. A failure C. A bit productive A failure. Miguel’s body language indicates that what he says he’ll do is not what he intends to do. To ensure Miguel's full attention in the initial meeting, Pilar could have employed several strategies: 1. Set Clear Expectations: At the start of the meeting, Pilar could explicitly state the importance of the discussion and request Miguel's full attention. This sets a professional tone and underscores the significance of the meeting. 2. Address Distractions: Pilar could have addressed any potential distractions by asking Miguel to put away his magazine and turn off his phone before starting the discussion. This would help create a focused environment. 3. Use Engaging Communication: Pilar could use more engaging communication techniques, such as directly addressing the specific issues with the Jezebel account and linking them to the potential consequences. This might make the discussion more relevant and compelling for Miguel. 4. Provide Immediate Feedback: Instead of waiting to discuss the issues at the end of the meeting, Pilar could have provided immediate feedback on the first signs of distraction. This would help to address any disengagement early on. 5. Involve Miguel in Problem-Solving: Pilar could involve Miguel in the problem-solving process by asking him for his input on how to address the budget management issues. This could make him more invested in the discussion and solutions. 6. Create a Structured Agenda: Having a structured agenda with specific topics and times allocated to each can help keep the meeting on track and ensure that all important points are covered. 7. Follow-Up: Pilar could schedule a follow-up meeting or a check-in after the initial discussion to review progress and ensure that Miguel has addressed the feedback. This reinforces the importance of the issues discussed. By implementing these strategies, Pilar could have increased the likelihood of engaging Miguel in a meaningful and productive conversation about the Jezebel account issues. 4. How did Miguel’s behavior change in the second meeting? What indicators were there that he was listening? Answer: Miguel’s body language indicated that he was very concerned about losing the account and wanted to do what he could to get it back. He looked directly at Pilar, he took notes, he leaned forward, he didn’t interrupt, he asked clarification questions.  5. Why is this [second] meeting different? A. Pilar’s aggressive B. Miguel’s afraid C. Better communication Miguel is afraid he may lose his client and his positive reputation. As a result, there is better communication between them.  6. Miguel’s behavior: A. Remains poor B. Improved C. Is motivated Miguel’s body language and active listening indicates that he is motivated to make the necessary changes. 5. What communication network (PPT 13-10) was present in this scenario? Use examples from the scenario to support your answer. Answer: Students’ answers will vary because it is not entirely clear from the scenario. However, it would seem that Miguel would have direct communications with Pilar and the client and Pilar would have direct communications with the client and Miguel. Therefore, an all-channel communication network is likely. In the scenario, the communication network that is most evident is the "Chain Network." This network is characterized by a linear flow of information from one person to another, following a hierarchical path. Examples from the Scenario: 1. Pilar to Miguel: • Initial Meeting: Pilar is the supervisor (manager) who needs to communicate concerns about Miguel's handling of the Jezebel account. She attempts to address these concerns directly with Miguel, following a top-down communication approach. However, Miguel’s lack of attention and defensive reaction creates a barrier in this chain of communication. 2. Miguel’s Reaction and Disengagement: • Initial Meeting: Miguel’s behavior, including reading a magazine and checking voicemail, indicates that he is not fully engaged with Pilar’s feedback. This failure to effectively communicate on his part disrupts the intended flow of information and resolution. 3. Jezebel's Feedback to Grimault: • After the Initial Meeting: Jezebel communicates their dissatisfaction with Miguel's management to Grimault, which is part of the chain network involving Pilar. This feedback reflects the outcomes of Pilar's communication efforts and Miguel's handling of the account. 4. Pilar’s Second Meeting with Miguel: • Post-Account Loss: Following Jezebel’s request to remove Miguel, Pilar re-engages with him to discuss improvements. This second meeting represents a continuation of the communication chain, with Pilar attempting to correct the issues from the previous discussion. In summary, the Chain Network is illustrated by the hierarchical flow of communication from Pilar (manager) to Miguel (employee) and the subsequent feedback loop involving Jezebel’s dissatisfaction and Miguel’s response. The disruption in communication flow during the initial meeting led to issues with the Jezebel account, highlighting the importance of effective communication within this network. Teaching Suggestions This chapter will provide a challenge to most students because of its unfa-miliar and complex content. Having students consider the personal impli¬cations of benefits (or not having them) would be useful. The activities below consist of a combination of interviewing, research, and case analyses that may further explain to students why benefits are so important to both organizations and employees. 1. Have students interview a participant of a 401(k) plan and report to the class the participant's perceptions of the plan and how he or she makes decisions relative to investment. Is it perceived as an important benefit? How would employees decide how to invest in the plan? 2. Case: Steelcase and Workers' Compensation Costs. In the late 1970s, Steelcase experienced an increase in the number of workplace injuries. Most individuals stayed at home and recovered their former abilities, although it sometimes took months before they could return to their regular jobs. To reduce the time to return to work, Steelcase instituted a program in which recovering workers could perform "light duty" work. Steelcase also opened a transitional work center at its Grand Rapids, Michigan, manufacturing site. The center has openings for 30 employees to do various temporary, light duty jobs such as washing towels and sorting gloves. Because the company no longer has to outsource the jobs, it saves $400,000 a year in addition to savings in workers' compensation costs. Employees who return to work in any capacity (even if not in their former positions) still receive the same hourly wages and full benefits as they recover. In 1986, Steelcase also expanded its medical center in Grand Rapids to focus more on monitoring the recovery of injured employees through early treatment and rehabilitation. In spite of incorporating these strategies into daily operations, workers' compensation claims have continued to rise steadily. Steelcase grew rapidly between 1980 and 1990. The number of employees rose from 8,000 to 11,300 in North America, and sales tripled from $600 million to $1.8 billion. The company now processes more than 2,000 workers' compensation claims each year company wide. Question What other actions can Steelcase take to reduce workers' compensation costs? (Note: the previous example would provide some suggestions.) (Adapted from J. J. Laabs, PersonnelJournal, February 1993, pp. 72 87.) Answer: To further reduce workers' compensation costs, Steelcase could consider the following additional actions: 1. Enhanced Safety Training Programs: • Action: Implement comprehensive and continuous safety training programs for all employees. • Rationale: Regular training can improve safety awareness and reduce the likelihood of workplace accidents. 2. Injury Prevention Initiatives: • Action: Introduce ergonomic assessments and redesign workstations to prevent injuries. • Rationale: By addressing potential ergonomic issues, the company can reduce the risk of repetitive strain and musculoskeletal injuries. 3. Wellness Programs: • Action: Develop wellness programs that promote healthy lifestyles, including exercise, nutrition, and mental health support. • Rationale: A healthier workforce is less likely to suffer from conditions that could lead to injury or prolonged recovery times. 4. Early Intervention and Case Management: • Action: Enhance early intervention strategies and establish a dedicated case management team to oversee injury claims and recovery processes. • Rationale: Effective case management can help in providing timely medical treatment and rehabilitation, leading to quicker returns to work. 5. Return-to-Work Programs: • Action: Expand and improve return-to-work programs with personalized rehabilitation plans and gradual reintegration into regular duties. • Rationale: Tailored return-to-work programs can ensure that employees are effectively rehabilitated and ready to resume their full duties. 6. Safety Audits and Inspections: • Action: Conduct regular safety audits and inspections to identify and address potential hazards in the workplace. • Rationale: Proactive hazard identification and remediation can prevent accidents and reduce the number of claims. 7. Employee Involvement: • Action: Engage employees in safety committees or feedback programs to encourage their active participation in identifying safety issues and suggesting improvements. • Rationale: Employees who are involved in safety initiatives are more likely to contribute valuable insights and adhere to safety protocols. 8. Technology and Equipment Upgrades: • Action: Invest in modern technology and equipment that can improve safety and efficiency. • Rationale: Up-to-date equipment can reduce the risk of accidents and improve overall workplace safety. 9. Behavioral Safety Programs: • Action: Implement behavioral safety programs that focus on changing employee behaviors related to safety. • Rationale: Addressing behaviors that contribute to unsafe practices can lead to a reduction in workplace injuries. By adopting these strategies, Steelcase can build on its existing efforts to reduce workers' compensation costs and create a safer and more productive work environment. 3. Case: Campbell Soup Co. and Health Care Costs. Health care costs for Campbell's rural operations were exceeding those for its urban areas. John C. Hague, Campbell's corporate benefits director, stated, "Although our medical costs weren't completely out of sight, they clearly were rising at an alarming rate. What surprised us was that the costs weren't high where we expected them to be." For example, health care costs in its Paris, Texas, and Omaha, Nebraska, divisions greatly exceeded the medical costs per employee in the larger cities, such as Philadelphia. After investigating the situation, they discovered a phenomenon known as outmigration. People were leaving their own communities to seek health care in the larger cities for hospital care. With the help of the consulting firm of Burgett & Dietrich, Inc., Campbell set up a managed care program. The program was run by Campbell instead of an insurance company or HMO (HMOs are typically not available in small towns). Campbell, which is self insured, has a direct say in how its health care dollars are spent. Campbell provides a monthly forum in which community employers and health care providers can discuss such topics as medical trends, frequency of diagnoses, per diem costs of hospitals, average lengths of stay, referral patterns, and costs per visit. Campbell trained local personnel and operations managers about how to manage the plan. The plan was gradually implemented in five divisions. The program is unique in that employees agree not to self refer (i.e., select hospitals and doctors on their own). They choose a primary care physician from a participating panel. Campbell pays 100 percent of the costs (no payment is required by the employee; it is made directly through the network) for PCN (primary care network) physicians and specialist visits. Network physicians agree to case-manage each patient's care and must be involved in a monthly board meeting in the community. If a specialist believes further treatment is neces¬sary after a visit, he or she must obtain the approval of the primary care physician. This saves a lot of money in repeated tests. Campbell has determined that it saves 10 to 20 percent of the health¬care costs for employees who are in a network. The process creates height¬ened awareness of medical costs for all concerned. The focus is on ensuring that the medical system is appropriately utilized and that it is not abused by the patient or the provider. Employees are attracted by the lower cost; they now have good reasons to obtain health care locally. It is a paperless system; the employee does not have to file any claims. Employees still have choices regarding health care. The system appears to represent a win win situation for Campbell and its employees. Questions a. Can you see any potential disadvantages of Campbell's plan? Answer: 1. Limited Provider Choice: • Issue: Employees are restricted to a network of physicians and specialists, which might limit their choice of healthcare providers and potentially lead to dissatisfaction if their preferred providers are not included. • Impact: This could affect employee morale and perceived quality of care. 2. Network Restrictions: • Issue: The requirement for all referrals to go through a primary care physician might delay access to specialized care or lead to additional bureaucratic hurdles. • Impact: Employees with urgent or complex health needs might experience delays in receiving the necessary treatment. 3. Implementation Complexity: • Issue: Setting up and managing a self-insured network can be complex and resource-intensive, requiring significant administrative oversight and ongoing coordination. • Impact: Smaller organizations might lack the resources or expertise to effectively manage such a program. 4. Employee Pushback: • Issue: Employees might resist changes to their healthcare access or disagree with the network's limitations, leading to potential dissatisfaction or lower engagement with the program. • Impact: Employee resistance can undermine the program's effectiveness and create challenges in maintaining high participation rates. 5. Potential Quality of Care Concerns: • Issue: While the focus on cost management is beneficial, it could unintentionally prioritize cost savings over quality of care, particularly if cost-cutting measures impact the thoroughness of treatment. • Impact: There is a risk that healthcare quality might be compromised if not properly managed. b. Would this type of plan be an appropriate choice for all organizations? Answer: 1. Organizational Size and Resources: • Appropriate: Larger organizations or those with substantial administrative resources might find this plan suitable due to their capacity to manage and oversee a self-insured network. • Not Appropriate: Smaller organizations or those lacking the administrative support might struggle with the complexities and resource demands of managing such a plan. 2. Employee Demographics: • Appropriate: Organizations with a workforce in areas where managed care options are limited and where employees would benefit from local care could find this plan advantageous. • Not Appropriate: Organizations with a diverse or geographically dispersed workforce may find it challenging to implement a network that adequately covers all employees. 3. Industry and Employee Needs: • Appropriate: Industries with stable and predictable healthcare needs might benefit from the cost savings and local care advantages of this plan. • Not Appropriate: Industries with high turnover, frequent travel, or varied healthcare needs might not find the network restrictions suitable for their employees' diverse requirements. 4. Regulatory Environment: • Appropriate: Organizations operating in regions with supportive regulations for self-insured plans might find this approach feasible. • Not Appropriate: Organizations in regions with stringent healthcare regulations or where managed care options are already well-established might find this plan less beneficial or redundant. In summary, while Campbell’s plan offers significant advantages in cost control and local care, it may not be suitable for all organizations due to its limitations and the resources required for effective implementation. Each organization should carefully evaluate its specific needs, workforce demographics, and available resources before adopting a similar approach. Source: Adapted from J. J. Laabs, "How Campbell Manages Its Rural Health Care Dollars," Personnel Journal, May 1992, pp. 74 81. 4. Research Topic: Long Term Care (LTC) Insurance. One new benefit that many people believe will become a standard benefit in the future is long term care (LTC) insurance. The demand by aging baby boomers, coupled with Congressional efforts to reduce federal Medicare and Medicaid expenditures, will encourage employers to include LTC insurance as a component of employee benefit plans. LTC policies cover nursing home care, in home care, and assisted ¬living services such as meal provision and transportation. LTC is typically offered to employees and their spouses, retirees and their spouses, and parents and parents in law of employees and retirees. The employee or retiree is usually responsible for the premiums. Source: "Long Term Care Insurance—A Standard Benefit?" Issues in HR, January/February 1996, p. 1. HRM Failures Top Case 13: Workers Comp: Benefit or Bane? James Kelly worked as an installer for a satellite TV company. He typically drove 200 miles a day between jobs, climbing ladders, working on roofs, and crawling into tight spaces. Kelly was injured while driving the company van and filed a workers’ compensation claim. His doctor said Kelly couldn’t perform his normal job duties but could work with certain restrictions. Since Kelly couldn’t work as an installer, his employer offered him a light-duty position. At a medical exam arranged by a third-party workers’ compensation administrator, the examining doctor said Kelly was well enough to return to his installer job. Kelly’s doctor disagreed, saying his condition had not stabilized and he should continue treatment. After the exam, the employer offered Kelly his installer job back, but Kelly declined, saying his doctor had not yet lifted the work restrictions. When the company refused to keep Kelly in the light-duty position, Kelly sued, alleging that the employer retaliated against him for filing a workers’ compensation claim, eliminated the light-duty position, and refused to offer him other available positions. At trial, the employer claimed the light-duty position had been a temporary assignment and that Kelly was ineligible for other available positions either because of his medical restrictions or because the position constituted a promotion. Although the court determined that the evidence was “not overwhelming” in Kelly’s favor, it did suggest a connection between his filing a claim and the employer’s adverse employment action. It said a “reasonable jury” might reach the same conclusion. Employers should remember that filing workers’ compensation claims is a protected activity for employees, and they must take care not to factor such information into employment decisions. Question In your opinion, how should employers treat workers’ compensation claims to avoid problems? Possible answers •Know their organization’s rights and responsibilities regarding workers’ compensation. •If possible, they should engage an experienced third-party workers’ compensation administrator to handle claims. •They should refrain from voicing any opinions regarding an employee’s claim or situation. To avoid issues related to workers' compensation claims, employers should: 1. Ensure Compliance: Adhere strictly to workers' compensation laws and regulations, maintaining transparency and fairness in handling claims. 2. Avoid Retaliation: Make employment decisions based solely on job performance and qualifications, not on whether an employee has filed a claim. 3. Provide Support: Offer suitable light-duty or modified roles to injured employees, where feasible, to aid their recovery and return to work. 4. Communicate Clearly: Maintain open lines of communication with employees regarding their claim status and any job modifications or opportunities. 5. Document Everything: Keep detailed records of all actions and decisions related to workers' compensation claims to defend against potential disputes. 6. Follow Medical Advice: Respect and act on the medical recommendations provided by employees’ healthcare providers regarding work restrictions. 7. Review Policies: Regularly review and update workers’ compensation and return-to-work policies to ensure they are fair and legally compliant. 8. Training: Train managers and HR personnel on the legal aspects of workers' compensation to prevent inadvertent mistakes. 9. Consult Experts: Engage legal or workers' compensation experts to review cases and ensure proper handling. 10. Maintain Neutrality: Treat all employees consistently regardless of their workers' compensation status to prevent claims of discrimination or retaliation. Case: Kelly v. Ironwood Communications Inc., CV 08-3058-CL, 2009 U.S. Dist. Lexis 36674 (April 30, 2009). Solution Manual for Human Resource Management Raymond Noe, John Hollenbeck, Barry Gerhart, Patrick Wright 9780077164126