Employee Stock Ownership?Plans
Employee stock ownership?plans (ESOPs)?are company-wide plans in which the employer contributes shares of its own?stock?(or cash to be used to purchase such?stock) to a trust established to purchase shares of the firm?s?stock?for employees. The firm generally makes these contributions annually in proportion to total?employeecompensation, with a limit of 15% of compensation. The trust holds the?stock?in individual?employee?accounts. It then distributes the?stock?to employees upon retirement (or other separation from service), assuming the person has worked long enough to earn?ownership?of the?stock. (Stock?options, as discussed earlier in this chapter, go directly to the employees individually to use as they see fit, rather than into a retirement trust.)
employee stock ownership?plan (ESOP)
A corporation contributes shares of its own?stock?to a trust in which additional contributions are made annually. The trust distributes the?stock?to employees on retirement or?separation from service.
ESOPs are popular. The company receives a tax deduction equal to the fair market value of the shares it transfers to the trustee, and can claim an income tax deduction for dividends paid on ESOP-owned?stock. Employees, as noted, aren?t taxed until they receive a distribution from the trust, usually at retirement. The?Employee?Retirement Income Security Act (ERISA) allows a firm to borrow against?employee?stock?held in trust and then repay the loan in pretax rather than after-tax dollars, another tax incentive for using such plans.117
ESOPs can also help the shareholders of closely held corporations (for instance, a family owns all the shares) to diversify their assets. They place some of their own shares of the company?s?stock?into the ESOP trust and (with the company compensating them for the shares they put in the trust) then purchase other marketable securities for themselves in their place.118
Research suggests that ESOPs probably do encourage employees to develop a sense of?ownership?in and commitment to the firm, but their effects on motivation and performance are questionable. In any case, those responsible for the funds?usually, the firm?s top executives?must be fastidious in executing their fiduciary responsibilities for the fund.119
Some?companies offer ?broad-based?stock?option plans? in which all or most employees can participate. The basic thinking is that sharing?ownership?in the company with employees makes motivational and practical sense.120
Employers seem to be cutting back on these. For example, Time Warner, Microsoft, Aetna, and Charles Schwab discontinued distributing?stock?options to most employees. Some of them, including Microsoft, are instead awarding?stock. With current tax laws, companies must show the options as an expense when awarded, reducing their attractiveness as a ?costless? reward. Microsoft and others apparently feel awarding?stockinstead of?stock?options is a more direct and immediate way to link pay to performance.121
Incentive Plans in Practice: Nucor
Nucor Corp. is the largest steel producer in the United States. It also has the highest productivity and lowest labor cost per ton.122?Employees can earn bonuses of 100% or more of base salary, and all Nucor employees participate in one of four performance-based incentive plans. With the?production incentive plan, operating and maintenance employees and supervisors get weekly bonuses based on their work groups? productivity. The?department manager incentive plan?pays department managers annual incentive bonuses based mostly on the ratio of net income to dollars of assets employed for their division. With the?professional and clerical bonus plan, employees who are not in one of the two previous plans get bonuses based on their divisions? net income return on assets.123?Finally, under the?senior officer incentive plan, Nucor senior managers (whose base salaries are lower than those in comparable firms) get bonuses based on Nucor?s annual overall percentage of net income to stockholders equity.124?Nucor also divides 10% of its operating profits yearly among all employees (except senior officers). Depending on company performance, this may be from 1% to over 20% of an?employee?s pay.
Personal Services and?Family-Friendly?Benefits
Although time off, insurance, and retirement?benefits?account for the lion?s share of?benefits?costs, most employers also provide various services?benefits. These include personal services (such as legal and personal counseling), ?family-friendly? services (such as child-care facilities), educational subsidies, and executive perquisites (such as company cars for its executives).
Tough economic times mean employers are revamping the personal services?benefitsthey offer. Among the most-dropped?benefits?recently were educational assistance, long-term care insurance, and job sharing. ?Most-added??benefits?included legal counseling, lactation rooms, work-at-home policies, and paid or subsidized off-site fitness.124?For example, when the Dallas-Fort Worth Airport found that its employee fitness and wellness facility wasn?t producing the expected health cost savings, it instituted incentives to get employees to use it more regularly.125
Software giant SAS Institute, Inc., offers generous employee?benefits. The North Carolina firm keeps turnover at 4% in an industry where 20% is typical, partly by offering?family-friendly?benefits?like paid maternity leave, day care on site, lunchtime piano concerts, massages, and yoga classes like this one.
Personal services?benefits?include credit unions, legal services, counseling, and social and recreational opportunities. (Some employers use the term?voluntary?benefits?to cover personal services?benefits?that range from things like pet insurance to automobile insurance.126) We?ll look at some of these.
Employee Assistance Programs
Employee assistance programs (EAPs)?provide counseling and advisory services, such as personal legal and financial services, child and elder care referrals, adoption assistance, mental health counseling, and life event planning.127?EAPs are popular, with more than 60% of larger firms offering them. One study found that personal mental health was the most common problem addressed by employee assistance programs, followed by?family?problems.128
employee assistance program (EAP)
A formal employer program for providing employees with counseling and/or treatment programs for problems such as alcoholism, gambling, or stress.
4 Outline the main employees? services?benefits.
For employers, EAPs produce advantages, not just costs. For example, sick?familymembers and problems like depression account for many sick days employees take. Employee assistance programs can reduce such absences by providing expert advice on issues like elder care referrals.129?Few but the largest employers establish their own EAPs. Most contract with vendors such as Magellan Health Services and CIGNA Behavioral Health.130
In either case, employers and managers should keep several issues in mind. Everyone involved including supervisors and EAP staff must respect?confidentiality.?Also, keep files locked, limit access, and minimize identifying information.?Be aware of legal issues.?For example, in most states counselors must disclose suspicions of child abuse to state agencies.?Define?the program?s purpose, employee eligibility, the roles and responsibilities of EAP and employer personnel, and procedures for using the plan. Ensure your EAP vendors fulfill?professional and state licensing requirements.
Several trends have changed the?benefits?landscape. There are more households where both adults work, more one-parent households, more women in the workforce, and more workers over age 65.131
Such trends lead many employers to bolster their?family-friendly?(or ?work?life?)?benefits?.132?These include child care, elder care, fitness facilities, and flexible work schedules?benefits?that help employees balance their?family?and work lives.133?We?ll look at some examples.
Benefits?such as child care and fitness facilities that make it easier for employees to balance their work and?family?responsibilities.
Subsidized Child Care
Most working people make private provisions to take care of their children. Organized day care centers accounted for about 30% of child-care arrangements, and relatives or nonrelatives accounted for most of the remaining arrangements.
Employers who want to reduce the distractions associated with finding reliable child care can help. Some employers simply investigate the day care facilities in their communities and recommend certain ones to employees. Others set up company-sponsored and subsidized day care facilities. For example, Abbott Laboratories built a $10 million child-care center at its headquarters north of Chicago, daytime home to about 400 children of Abbott employees.134
By establishing subsidized day care, employers assumedly can benefit in several ways. These include improved recruiting results, lower absenteeism, improved morale, favorable publicity, and lower turnover. But, good planning is required. This often starts with a questionnaire to employees to answer questions like, ?What would you be willing to pay for care for one child in a child-care center near work??
Unexpected absences accounted for a cost per absence to employers of about $700 per episode (for temp employees and reduced productivity, for instance). More employers are thus offering emergency child-care?benefits, for example, when a young child?s regular babysitter is a no-show. Texas Instruments built a Web database its employees use to find last-minute child-care providers. Others, like Canadian financial company CIBC, are expanding their on-site child-care centers to handle last-minute emergencies.135
The responsibility for caring for aging relatives can affect employee performance.136?One study found that, to care for an older relative, 64% of employees took sick days or vacation time, 33% decreased work hours, 22% took leaves of absence, 20% changed their job status from full- to part-time, 16% quit their jobs, and 13% retired early.
More employers are therefore providing elder care services. For example, the United Auto Workers and Ford provide elder care referral services for Ford?s salaried employees, including assessments and recommendations on the best care.137?The National Council on Aging has a website to help find benefit programs:?www.benefitscheckup.org.
Family-Friendly?Benefits?and The Bottom Line
It?s not easy to evaluate the ?profitability? of such programs. A recent analysis of?family-friendly?benefits?found little evidence that they improve performance.138
However, measuring performance isn?t easy. ?Family-friendly? firms such as SAS routinely turn up on ?best companies to work for? lists. This probably makes it easier to recruit and retain good employees. Employees probably forego some pay for services like built-in day care.?And some advantages are indirect. For example, work?family?conflict may affect performance, which?family-type?benefits?may improve.139
5 Explain the main flexible benefit programs.
The bottom line is that employers are reviewing (and often reducing) these?benefits. Even Google, long known for offering?benefits?that blow most other employers away (free buses from the city, on-campus day care, and restaurants) has cut back a bit of late.
Other Personal Services?Benefits
Employers provide other personal services?benefits.140?Google, perennially a ?100 best companies to work for,? still offers an on-campus bowling alley, caf?s company wide, adoption assistance, the Google Child Care Center, free shuttle service from San Francisco, and on-site dry cleaning (for instance).141?Home Depot offers a ?nose to tail coverage? pet health insurance program. Ben & Jerry?s gives employees three pints of ice cream to take home daily. CVS Caremark, seeking to retain older employees, offers various elder-friendly?benefits. Its ?snowbird? program lets pharmacists winter in Florida and work in the Northeast when it?s warmer, for instance.142
Based on one survey, the percentage of employers offering education?benefits?dropped from 68% in 2007 to 58% in 2011.143?Such programs are expensive. The employer may also be paying its best employees to leave. Researchers studied how the U.S. Navy?s part-time college education reimbursements influenced job mobility. Taking tuition assistance decreased the probability the person stayed in the Navy.144
Payments may range from all tuition and expenses down to a fixed several hundred dollars per year. Many employers also reimburse non?job-related courses (such as a Web designer taking an accounting class) that pertain to company business.145?Many employers provide college programs on the employer?s premises, or remedial work in basic literacy.
Diversity Counts:?Domestic Partner?Benefits
When employers provide?domestic partner?benefits?to employees, the employees? same-sex or opposite-sex domestic partners are eligible to receive the same?benefits?(health care, life insurance, and so forth) as do the husband, wife, or legal dependent of one of the firm?s employees. Many employers offer domestic partner?benefits. For instance, Northrop Grumman Corp. extends domestic partner?benefits?to the 9,500 salaried workers at its Newport News shipyard.146
With the passage of the Defense of Marriage Act, Congress provided that employers may not treat same-sex domestic partners the same as employees? spouses for purposes of federal law. There was therefore some doubt as to whether the?benefits?extended to domestic partners would be federal tax free, as they generally are under IRS guidelines for ?dependents? including the taxpayer?s spouse or son or daughter, or parent or aunt.147
However in 2013 the U.S. Supreme Court struck down part of the Defense of Marriage Act. Under this ruling, gay couples married in states where it is legal must receive the same federal health, tax, Social Security and other?benefits?heterosexual couples receive.148
When you reach the pinnacle of the organizational pyramid?or close to the top?you will find, waiting for you, the Executive Perk. Perquisites (perks for short) are special?benefitsfor top executives. They range from company planes to private bathrooms.
Most fall between these extremes. Perks include?management loans?(typically to exercise executives? stock options);?financial counseling; and?relocation?benefits, often including subsidized mortgages, purchase of the executive?s current house, and payment for the move. Publicly traded companies must itemize all executives? perks (if they total more than $100,000).
Employees prefer choice in their?benefits?plans. In one survey of working couples, 83% took advantage of flexible hours (when available); 69% took advantage of the flexible-style?benefits?we?ll discuss next; and 75% said that they prefer flexible?benefits?plans.149
Given this, it is prudent to survey employees??benefits?preferences, perhaps using a form like that in?Figure?13-5. In any case, employers should provide for choice when designing?benefits?plans.
FIGURE?13-5?One Page from Online Survey of Employees??Benefits?Preferences
Source:?http://data.grapevinesurveys.com/survey.asp?sid=20062143964099, accessed September 16, 2013.
The Cafeteria Approach
One way to provide a choice is with an aptly named?cafeteria?benefits?plan.?(Pay specialists use?flexible?benefits?plan and cafeteria?benefits?plan?synonymously.) A?cafeteria plan?is one in which the employer gives each employee a?benefits?fund budget, and lets the person spend it on the?benefits?he or she prefers, subject to two constraints. First, the employer must of course limit the total cost for each employee?s?benefitspackage. Second, each employee?s?benefits?plan must include certain required items such as Social Security, workers? compensation, and unemployment insurance. Employees can often make midyear changes to their plans if, for instance, their dependent care costs rise and they want to divert contributions.150?IRS regulations require formal written plans describing the employer?s cafeteria plan, including?benefitsand procedures for choosing them.151
Individualized plans allowed by employers to accommodate employee preferences for?benefits.
Types of Plans
Cafeteria plans come in several varieties. To give employees more flexibility in what?benefits?they use, about 70% of employers offer?flexible spending accounts?for medical and other expenses. This option lets employees pay for certain?benefits?expenses with pretax dollars (so the IRS, in effect, subsidizes some of the employee?s expense). To encourage employees to use this option, some firms are offering?debit cards?that employees can use at their medical provider or pharmacy.152?Core plus option plans?establish a core set of?benefits?(such as medical insurance), which are usually mandatory for all employees. Beyond the core, employees can then choose various?benefitsoptions.153
The accompanying HR Tools feature explains how many smaller employers manage the costs of their various?benefits.
IMPROVING PERFORMANCE:?HR Tools for Line Managers and Entrepreneurs?Benefits?and Employee Leasing
Many businesses?particularly smaller ones?don?t have the resources or employee base to support the cost of many of the?benefits?we?ve discussed in this chapter. That?s one big reason they turn to ?employee leasing.?
In brief, employee leasing firms (also called?professional employer organizations?or?staff leasing firms) assume all or most of the employer?s human resources chores. In doing so, they also become the employer of record for the employer?s employees, by transferring them all to the employee leasing firm?s payroll. The leasing firm thus becomes the employees? legal employer, and usually handles employee-related activities such as recruiting, hiring (with client firms? supervisors? approvals), and paying taxes (Social Security payments, unemployment insurance, and so on).
Insurance and?benefits?are usually the big attraction. Even group rates for life or health insurance can be quite high when only 20 or 30 employees are involved. That?s where leasing comes in. Remember that the leasing firm is now the legal employer. The employees are thus part of a larger insurable group, along with other employers? former employees. The small business owner may get insurance it couldn?t otherwise afford.
As in dealing with all vendors, the employer should have a detailed negotiated agreement with the employee leasing firm. Define what the services will be; include priorities, responsibilities, and warranties.154Understand that if the leasing firm merges into another firm, the new parent may require you to change your systems once the contract period expires.155
Discussion Question 13-4:
Explain how you believe you?d react to having your employer switch you to a leasing firm, and why.
Flexible Work Schedules
Flexible work schedules are popular.156?Single parents use them for balancing work and?family?responsibilities. And for many millennial employees, flexible work schedules provide a way to pursue their careers without surrendering the quality of life they desire. There are several flexible work schedule options.
Flextime?is a plan whereby employees? workdays are built around a core of midday hours, such as 11:00?a.m. to 2:00?p.m. Thus, workers may opt to work from 7:00?a.m. to 3:00?p.m. or from 11:00?a.m. to 7:00?p.m. The number of employees in formal flextime programs?from 4% of operators to 17% of executive employees?doesn?t tell the whole story. Many more employees take advantage of informal flexible work schedules.157?The effect of flextime for most employees is about 1 hour of leeway before 9:00?a.m. or after 5:00?p.m.158
A work schedule in which employees? workdays are built around a core of midday hours, and employees determine, within limits, what other hours they will work.
Telecommuting?using technology to work away from the office?is popular. About 48% of employers offer ad hoc telecommuting options, while 17% offer them on a full-time basis.159?Some jobs have much higher rates. For example, almost 45% of medical transcription is reportedly work from home.160?Just over 13 million Americans work from home at least one day per week, with Fridays and Mondays the favorite days to stay home.161
On the other hand, Yahoo famously said it needed its employees ?working side by side? and brought them back to the office from telecommuting.162
Employers that offer telecommuting must calculate the program?s?benefits?and costs. Thus, Delta Airlines spends an initial $2,500 for each home-based reservation agent for computer and software licenses, but pays each such agent $1.50 per hour less than call center counterparts. Less obvious expenses include having IT answer telecommuters? technical questions.163?A telecommuting program at Capital One Bank apparently led to about a 41% increase in workplace satisfaction, and a 53% increase in those who say their workplace enhances group productivity.164?The accompanying HR Practices Around the Globe feature shows another example of how telecommuting cuts costs.
IMPROVING PERFORMANCE:?HR Practices Around the Globe?NES Rentals
Seeking to cut costs while maintaining its reputation for great products and service, NES Rentals sent their employees home. Today, three-fourths of their customer support, collections, finance, and other back-office?workers at their Chicago office work from home at least part of the week.165?They no longer have dedicated desks, but share space in the office. The CEO says productivity has increased 20%. Employee turnover dropped from 7% in 2009 to ?virtually non-existent? in 2010. NES is leasing 40% less office space, saving $100,000 in real estate expenses. He estimates NES?s total savings from instituting this new telecommuting benefit at about $350,000 annually.166
Discussion Question 13-5:
Why do you think some firms, such as NES, like telecommuting, while others, such as Yahoo, shun it?
Many employees, like airline pilots, do not work conventional 5-day, 40-hour workweeks. Workers like these typically have?compressed workweek?schedules?they work fewer days each week, but each day they work longer hours. Some firms have four 10-hour day workweeks. Some workers?in hospitals, for instance?work three 12-hour shifts, and then take off for 4 days.167
Schedule in which employee works fewer but longer days each week.
Effectiveness of Flexible Work Schedule Arrangements
Studies show that flexible work schedules have positive effects on employee productivity, job satisfaction, and employee absenteeism; the effect on absenteeism is generally greater than on productivity. Highly flexible programs were less effective than less flexible ones.168
Some experts argue that 12-hour shifts increase fatigue and accidents. To reduce potential side effects, some employers install treadmills and exercise bikes, and special lights that mimic daylight.
Other Flexible Work Arrangements
Job sharing?allows two or more people to share a single full-time job. For example, two people may share a 40-hour-per-week job, with one working mornings and the other working afternoons. About 22% of the firms questioned in one survey indicated that they allow job sharing.169?Job sharing can be particularly useful for retirement-aged employees. It allows them to reduce their hours while the company retains their expertise.170?Work sharing?refers to a temporary reduction in work hours by a group of employees during economic downturns as a way to prevent layoffs. Thus, 400 employees may all agree to work (and be paid for) only 35 hours per week, to avoid a layoff of 30 workers.
Allows two or more people to share a single full-time job.
Refers to a temporary reduction in work hours by a group of employees during economic downturns as a way to prevent layoffs.