Strategic Compensation and Benefits

Question 1

What is included in total rewards (according to WorldatWork—the leading association of compensation professionals)?

Answer 1

• Compensation
  
  • base wage
  • premium pay
  • variable pay
  • incentive pay
• Benefits
  
  • legally required/mandated
  • health and welfare
  • retirement
  • pay for time not worked
• Work-Life
  
  • workplace flexibility/alternative work arrangements
  • paid/unpaid time off
  • health and wellness
  • community involvement
  • caring for dependents
  • financial support
  • voluntary benefits
  • culture change initiatives
• Performance and Recognition
• Development and Career Opportunities
  
  • learning opportunities
  • coaching/mentoring
  • advancement opportunities

Question 2

What are the key strategic compensation and benefits decisions?

Answer 2

• Competitiveness
  
  • desired competitive position (lead, lag, or somewhere in between)?
• Types and Mix of Rewards
  
  • fixed versus variable pay?
  • transactional versus relational rewards?
• Role of Performance
  
  • relative importance of individual, group/unit, and organizational performance?
• Communication
  
  • what information about compensation will be communicated (i.e., how much openness/secrecy)?

Question 3

Given data like we used in class (handout), calculate the cost of a pay raise (or increase in benefits) and the impact of the pay raise (or increase in benefits) on total payroll and unit cost.

Answer 3

• See your notes and the handout we calculated in class. Redo the calculations as practice
• Note: Any problem like this on the exam will be much shorter than what we did in class.

Question 4

Benefits Administration (True or False?)

1. Employers often outsource the administration of employee benefits because it requires a specialized knowledge set.
2. Employees often consider what discretionary benefits are available when deciding to work for an employer.
3. It is neither important nor legally required to inform employees of their benefits offerings or elections.
4. If the right factors are considered, the choice of employee benefits offered may lead to changes in employee behavior.
5. All employers place the same value on discretionary benefits.
6. It is ideal for employees to have a choice in the benefits they receive.
7. Discretionary benefits are those employee benefits that are mandated by law.
8. In an organization where the majority of employees are between the ages of 20and 40, employees are more likely to value benefits related to child birth and child care.
9. Cafeteria plans have the least amount of flexibility for employees in the variety of benefits employees receive.
10. Total rewards statements provide personalized data to employees about the compensation and benefits received through their employers (e.g., cost, elections, account balances).
11. There are no legal requirements that control the type and frequency of benefits communication.
12. Employees often compare what similar organizations offer in terms of employee benefits.
13. The timing of benefits communication is important to its overall success.
14. Employers should align their benefits strategy as part of a total rewards strategy.
15. The Internal Revenue Code does not offer tax incentives to employers for certain discretionary benefits offerings.

Answer 4

1. True
2. True
3. False
4. True
5. False
6. True
7. False
8. True
9. False
10. True
11. False
12. True
13. True
14. True
15. False

Question 5

Health and Medical Benefits (True or False?)

1. One strategy employers can use to manage increasing health care costs is to push some of that cost to employees through co-payments.
2. Under COBRA, employees who are fired for gross misconduct can continue their benefits at no charge.
3. In an HMO, employees do not need to go through their primary care physicians to see a specialist.
4. Many employers include preventive care in their health care benefits with the hope that increased preventive care will lead to healthier employees and lower overall health care costs.
5. In a PPO, covered individuals pay the same costs for health care services regardless of whether they receive services in or out of the network of acceptable providers.
6. Vision insurance often covers eye surgery, not just routine care.
7. Employers may choose to self-fund their major health care plan if it is more economical than purchasing group insurance.
8. Because of the aging workforce at ABC Corporation, the company started offering lunchtime seminars on managing diabetes, high blood pressure and common ailments for older people. These seminars are examples of components of a wellness program.
9. HIPAA does not address issues related to medical record privacy.
10. Traditional fee-for-service medical plans offer covered individuals the most freedom in choosing health care providers.
11. Low employee deductibles are one strategy employers can use to defray healthcare costs.
12. Dental insurance plans are often structured like major medical HMOs.
13. Mental health benefits often include in- or outpatient mental health services.
14. Alex’s boss learned that Alex is having some personal problems that are affecting his behavior and demeanor at work. Alex’s boss contacts her HR department for advice, and they suggest reminding Alex of the services available through the organization’s employee assistance plan (EAP). An EAP could address Alex’s needs.
15. PPOs do not delineate services between in-network and out-of-network providers.

Answer 5

1. True
2. False
3. False
4. True
5. False
6. False
7. True
8. True
9. False
10. True
11. False
12. True
13. True
14. True
15. False

Question 6

Retirement Benefits (True or False?)

1. Employer sponsors of profit-sharing retirement plans often fund those accounts with company stock.
2. The earliest that an individual can receive “old age” Social Security benefits is age 62.
3. Employers do not receive any tax incentives for making financial contributions to their employees’ 401(k) plans.
4. A defined contribution plan guarantees a predetermined benefit at retirement.
5. A vesting schedule determines when an employee is eligible to receive certain benefits.
6. Employees pay taxes on contributions to their employer-sponsored retirement plans at the time of the contribution.
7. The Social Security Act of 1935 created employer-sponsored retirement plans.
8. Most retirement plans use a formula to determine employee eligibility, employer contributions and employee benefits.
9. The Internal Revenue Code is one law that regulates retirement plans.
10. A cliff vesting schedule typically means that a covered individual is eligible only after a certain time period to receive full benefits.
11. Defined benefit plans are more expensive to employers than defined contribution plans.
12. Social Security benefits are received on a graduated scale.
13. In a defined contribution plan, employees often have discretion over how their funds are invested among a set of predetermined options.
14. Stocks are never used as contributions to retirement accounts.
15. The government offers an incentive through increased Social Security benefits by delaying payment receipt at the time of eligibility.

Answer 6

1. True
2. True
3. False
4. False
5. True
6. False
7. False
8. True
9. True
10. True
11. True
12. True
13. True
14. False
15. True