Reference no: EM132747708

Given the rapid escalation in the cost of employee benefits over the past 15 years, organizations are advised to evaluate the effectiveness of their benefit adoption, retention, and termination procedures. Since employee benefits cost about $4 trillion today, companies are increasingly paying attention to this reward component. Unfortunately, the contribution employee benefits can make to an organization is unclear. The degree to which benefits impacts an organization's ability to attract, retain, and motivate employees is not known. Compounding this issue is the ever-present entitlement problem. Employees perceive benefits as a right, independent of how well they or the company performs. Efforts to reduce benefit levels or eliminate parts of the package altogether would meet with employee resistance and dissatisfaction.

• Assuming that organizations must find ways to control the costs of benefits wherever possible, the chapter focuses on identifying ways to maximize the returns from benefit expenditures. The reasons for the growth in employee benefits are outlined, and studies on the value of employee benefits as perceived by employees are discussed. Next, details related to the key issues in benefit planning, design, and administration are presented. The chapter concludes with the presentation of a model of the key factors influencing benefit choices, from both an employer's and employee's perspective.

Problem 1: As HR Director at Orange Fixtures, your bonus this year is based on your ability to cut employee benefit costs. Your boss has said that it's okay to shift some of the costs over to employees (right now they pay nothing for their benefits), but that he does not want you to overdo it. In other words, at least one-half of your suggestions should not hurt the employee's pocket book. What alternatives do you want to explore, and why?

Problem 2: Are employees more likely to favor defined contribution plans over defined benefit plans? How about employers? Explain your answer.