9

COMPENSATION ADMINISTRATION, BENEFITS AND SERVICES

They pay you nickels and dimes but this is what makes it worth it [referring to the presidential yacht Sequoia]

 

—Richard Nixon

While many would choose to believe that money in the bank every month is what keeps people going, the truth if far from this. Let us share a few commonly held myths in the industry.

 

Myth:	Money is a top motivator.
Fact:	It is not. People look for much more than just a salary cheque at the end of the month. They want to be valued and treated like human beings. Their greatest reward is receiving acknowledgement that they did contribute to making something meaningful happen. Money does not do this; personal recognition does.
Myth:	Motivation is expensive and above all difficult.
Fact:	Things that are the most motivating to employees tend to be relatively easy to do and less costly. Personally recognizing the accomplishments of employees can be easy.
Myth:	What motivates others is the same as what motivates oneself.
Fact:	Not true, which is why human resources and managers must ask the employees what they want. This can be done either by having one-on-one discussions or by conducting a survey to discuss what would be meaningful.
Myth:	Motivation is no problem, till it becomes a problem.
Fact:	Prevention works better than cure in the case of motivation too.

 

Managers are often too busy focusing on what is urgent and forget about regularly checking on their team. When morale sinks, regenerating it is much more difficult.

9.1 DEFINING EMPLOYEE BENEFITS

Employee benefits refer to the indirect financial and non-financial payments the employees receive and at times they could be a part of the employee's compensation too. They are considered a crucial part of an employee's compensation. For example, benefits in an organization could include pension, insurance, leave etc. Employees do understand the value of benefits and it becomes a deciding point for many employees when seeking a new assignment too. Benefits should be designed with utmost care. Some of the broad issues that arise in the employers mind are—What benefits should be included? Who is to be covered? Should employees on probation be included? Should some of them be a part of the employees cost to company (CTC)? Should employees decide on which benefits they want to chose?

 

Some of the benefits in India are governed by certain laws and could have tax implications. For example, provident fund, gratuity and pension are governed by certain laws.

Fringe benefit tax (FBT) that has come into effect has forced companies to review the manner in which firms give benefits to employees. Earlier, employers were relatively generous in giving out benefits to companies’ senior professionals. Most of the benefits were tax-free. Now they have become a part of a comprehensive compensation package which is offered by the employers to the employees. For example, earlier Reliance Infocom (Communications) used to give senior professionals unlimited medical facility for self and immediate family (over and above the normal medical). After the introduction of FBT, this benefit was stalled.

9.2 OBJECTIVES OF THE EMPLOYEE BENEFIT PLAN

The benefit plan that the organization decides upon can have multiple objectives. However, the organization should be careful about not being too ambitious in wanting to achieve everything because that carries the danger of making the plan very difficult to understand and also to implement. What the organization identifies as objectives is dependant upon what the business of the organization is and what the characteristics of its workforce is in terms of demographics, aspirations, competitive benefits in the employment market etc. The broad objectives of the employee benefit plan could be:

• To help in the recruitment and retention of employees.
• To enhance the commitment of employees in the organization.
• To show the employees that the company ‘cares’ for them.
• To help in designing tax-efficient remuneration that aids in reducing tax liabilities, compared to entire cash payouts.
• To help the employees in their personal needs such as security, financial assistance—company car and petrol.
• To provide a programme that helps to provide support and balance between the professional and personal side of life by recognizing the employee needs.
• To enhance job satisfaction.
• To motivate employees to achieve high levels of productivity and excellence in customer service.
• To recruit and retain talented employees by creating an environment that is rewarding and satisfying.
• To recognize employees in achieving their goals and thereby helping in achieving the departmental and organizational goals.
• To motivate employees to be proactive about their health and wellness and to increase employee morale by offering preventative health care programmes.

You should note that this does not include motivation as one of the objectives. This is because benefits rarely motivate directly or immediately until and unless it is in the form of some incentive.

9.3 FACTORS INFLUENCING CHOICE OF BENEFIT PACKAGE

An organization would want to have the most optimum combination of benefits which gives maximum value for money. The choice of the benefit package will depend on the employee's expectations and the employer's intent and budgets. Both the employers and the employees influence the choice of the benefit package.

Employers

• Benefits are an integral part of the overall reward compensation structure and hence it is important for the benefit package to measure up well against the competitors in the employment market.
• Importance in attraction, motivation and retention of talented employees.
• Its relationship with the overall compensation package.
• Any kind of statutory and legal requirements.

Employees

• Internal and external parity, i.e., comparison of benefits with respect to others at the same level and in other companies.
• Employee needs in relation to one's age, marital status and other family members.

9.4 CLASSIFICATION OF EMPLOYEE BENEFITS

Employee benefits constitute all the benefits that can be offered as a part of the total compensation package. Benefits can be categorized under various heads to make it easy to study them.

 

9.4.1 Personal Needs

Employee benefits for personal needs are those that recognize the interface between personal life and work life and offer benefits to make it comfortable for the employee. These would include holidays, leave, flexible work arrangements (FWAs), flexi time, job sharing, telecommuting, compressed work week, personal counselling, recreational facilities, work–life balance programmes and employee assistance programmes. Let us discuss the most commonly offered benefits to employees.

• Leave
• Flexible Work Arrangements (FWAs)
• Recreational facilities
• Work–life balance programmes

Leave

Apart from the weekly rest, employees are given the benefit of availing leave from work in order to attend to any personal exigency or plan a vacation to relax and rejuvenate themselves. Most organizations give employees the benefit of availing leaves in three primary categories. These are as follows:

• Casual leave: Around 7–10 days. This leave can be availed for any personal reasons. They have to be utilized in the same year and usually cannot be carried forward.
• Sick leave: Around 10 days (medical certificate may be required to avail the same for more than two days or so at a stretch). Most employees avail this leave when they are genuinely sick, but a few others use it for personal reasons. Many companies do not encourage employees to avail sick leave for personal reasons; they give the employees some kind of cash prize for a full month of attendance or so. One can accumulate sick leave over the years.
• Privilege leave: Around 20–25 days. This can be taken in parts or at one go, i.e., 4–5 days at a stretch and even more. This needs to be informed much in advance to the organization. One can accumulate privilege leave over the years and certain companies also permit encashment of the leave.

Companies also have a concept of ‘earned leave’, which clubs all the three leaves together. In such cases companies just have one kind of leave.

Other Leaves.   Apart from the customary kinds of leave mentioned above there are various other kind of leaves too which organizations extend to their employees. Some of the most common ones are explained below.

• Paternity and maternity leave: Most companies have started offering paternity leave to male employees during the week their spouse delivers a baby. It is usually between three and six days. The female employees who deliver a baby get around 12 weeks.
• Adoption leave: A few companies in India have introduced this leave for parents who have adopted a child.
• Paid holidays (public holidays): These would differ from company to company. There are also around 12 public holidays in a year, though Central and State government employees do enjoy a few more holidays compared to private sector employees. The list of holidays also differs from location to location. Most companies give 12–14 days of holidays in a year. In India, this list includes the three national holidays which are 26th January (Republic Day), 15th August (Independence Day) and 2nd October (Gandhi Jayanti–birthday of Mahatma Gandhi). Apart from these, all organizations choose the remaining days from the local list of holidays in that state. This list is usually made available for the next year by the local chamber of commerce. Some employers also give employees the benefit of ‘optional holidays’ to use at their discretion, this is in lieu of the public holidays.
• Sabbaticals: This may be granted for long serving employees as leave for a year or two. For example, some nationalized banks offer sabbaticals for two years for those employees who have worked with them for more than 10 years.

Each organization designs leave benefits suitable to the employees of the organization. Take for example, the Satluj Jal Vidyut Nigam Ltd. (SJVN) has the following kinds of leave entitlement for its employees—casual leave, special casual leave, earned leave, half-pay leave, earned leave, commuted leave, sick leave, special disability leave, extraordinary leave, study leave, maternity and paternity leave, quarantine leave, terminal leave and compensatory off.

Flexible Work Arrangements (FWA)

With the social structure transforming into a nuclear setup, with both partners working, taking care of children and the elderly becomes very challenging. Therefore, with changing times more and more employees look for flexibility in the work arrangements. This flexibility has also been made possible by technology.

Flexi time.   The company decides the number of hours the employee should put in and the employee decides the time that they will enter and exit the workplace. Employees determine their own start and stop time. At some companies, the concept of flexi time is built around core work hours such as 11 a.m. to 3 p.m., which indicates that the employee can report to and leave from work as and when they wish, but during the core work hours, they need to be present at work.

Compressed Work Week.   Pilots, doctors, nurses etc. have a compressed workweek; they do not work for the regular hours of work and they work for fewer days in the week, but work for longer hours. Some of them could also work on a 12-hour shift.

Job Sharing and Telecommuting.   Job sharing does happen in few industries, wherein two or more employees share a full-time job. For example, two employees could share a job, with one working in the mornings and the other coming in late afternoons and working till late evenings. Telecommuting refers to the employees who work from home using their computers/laptops and are in constant touch with their team via mails etc. For example, many software organizations permit employees that work on projects of certain kinds to work from home. Have a look at this Study on Telecommuting by Sun Microsystems on Environment and Energy Conservation.

• By working at home an average of 2.5 days a week, employees saved more than $1,700 per year in gasoline and wear and tear on their vehicles.
• Office equipment energy consumption rate at a Sun's office was two times that of home office equipment energy consumption from approximately 64 W per hour at home to 130 W per hour at a Sun's office.
• Commuting was more than 98 per cent of each employee's carbon footprint for work, compared to less than 1.7 per cent of total carbon emissions to power office equipment.
• An employee reduced energy used for work by the equivalent of 5,400 kW per hour per year by eliminating commuting just 2.5 days per week.

Recreational Facilities

Most companies take membership to a sports club or similar such recreational facilities and permit their employees to use the same too.

Work–life Balance Programmes

Employers should create a work environment that reflects their employers’ life stage needs and values. The primary goal of a work–life balance programme is to minimize the levels of stress. A well-balanced lifestyle is very important for an employee's well-being. Companies nowadays have tied up with personal and career counsellors to help employees on the personal front and their career aspects too.

 

 

FWAs comprise an aspect of non-financial compensations that allows families to manage stressful work and home. If employers ignore this (work/life balance), the employees will expose themselves to a greater risk of a ‘burnout’. Having a balanced work–life environment can be a key factor in recruiting and retaining talent workforce. For example, at Ness Technologies the Ness Women—A forum that promotes the interest of Ness women helps in enhancing their career through various women-oriented programmes while offering various initiatives to ease their personal issues. It is a big step taken by the Nessian women by focusing on two broad areas—enhancement of professional role of Ness women and providing support at a personal level. In Fujitsu India, some of the benefit programmes offered to the employees are as follows: flexi timing, seven paid holidays per year, 21 vacation days per year, leave encashment, three floating holidays per year, onsite café facilities, overtime benefits, onsite gym and health care facilities, subsidized transportation, medical insurance and life insurance for employees and their family and gratuity benefits.

Employee Assistance Programme.   As the name suggests, employee assistance programme (EAP) is intended to assist the employees in managing their emotional well-being. EAPs are intended to help employees deal with personal problems that might adversely impact their work performance, health and well-being.

EAP was initiated in America in the 1920s and initially the focus was to tackle alcohol and drug problems. It spread in big way when legislation in the country made it mandatory for the companies to have EAP services accessible for their employees. In the 1980s, the concept of EAP was broadened to include personal and family concerns. Now many employers recognize the role of emotional support, especially during trying times such as when there is a corporate restructuring, mergers and acquisitions, and even coping with terrorist attacks and natural disasters such as tsunamis, earthquakes and hurricanes.

The key to a successful EAP lies in having the management buy in (for the investment) and the employee buy in (credibility of the service). Often, HR does an informal survey to find out the kind of counselling assistance that employees would need. Some companies hire fulltime in-house counsellors.

HCL Technologies has introduced MITR, an employee assistance programme that would assist HCL employees and their immediate family members with comprehensive information, personal development and counselling services that are available 24 × 7, 365 days in a year. MITR is just a phone call away for all employees to provide independent support, information and advice that is completely free and confidential. HCL has tied up with PPC, a leading worldwide EAP service provider. MITR has been customized to make it convenient as per employee needs. All employees can avail telephone counselling to provide immediate support and guidance on any issue—personal or work-related issues including relationships and caring for loved ones; dealing with difficult situations; adapting to a new work or social environment; substance-related disorders—alcohol and other drug abuse; academic worries—exam stress or failure and underachievement; relationship issues—marital and couple, parent/child, sibling; phase-of-life events—entering school, leaving parental control; adjustment disorders; mood and anxiety disorders; HIV and Aids support.

Tata Consultancy Services, the IT giant has established ‘Maitree’ a unique 60,000-strong support network to play the role of a companion, counsellor and guide for employees spread all across the globe. Maitree's counselling service includes full-time counsellors in different cities in India. The unique selling proposition of this service is its informal nature, and a sense of comfort in sharing and talking about personal or work-related problems. HR and administration functions work closely with Maitree counsellors in order to address employee concerns and issues.

In 2001, IBM piloted an EAP for more than 3,000 employees in India. Among the focus areas for the programme are managing change, grief and bereavement, marriage and family problems, depression, integrating work and life and managing personal stress. Beyond printed materials, key deliverables have included orientation programmes, face-to-face counselling, telephone counselling and referral services. IBM's Global Stress Management programme includes a stress intervention Web site, online manager stress intervention training and location-specific stress management resources.

9.4.2 Pension Schemes

Pension schemes are those schemes that are typically financed during the employee's lifetime and they then provide a guaranteed income to the employee and their dependants on the employee's retirement or death.

 

Provident Fund

Employees contribute 12 per cent of the base pay and dearness allowance towards provident fund contribution. For the pension scheme, out of the contributions payable by the employer to the provident fund scheme part of the contribution, i.e., 8.33 per cent of the employee's pay is remitted to the employees’ provident fund.

Superannuation Schemes and Pension Plans

In order to take care of post-retirement needs and contingencies of death while in service, many organizations offer contributory superannuation scheme and other pension plans. These financial programmes provide the income to individuals after their retirement. Companies such as ICICI Prudential, Bajaj Allianz and Tata AIG are some of the companies that have regular pension plans. Superannuation fund is a group pension plan offered by LIC and subscribed to by many employers in India.

Retirement Policies

Early retirement.   Many employers introduce voluntary retirement schemes (VRS), so that the employees can retire early. Ideally, these are meant for the employees who are older than 50 years of age. The company opens up the VRS for a specific time frame, so that the employees could decide to retire earlier than the normal retirement age of 58 or 60 years. The financial package includes cash component depending on the level of the employee and could include some other benefits too. This scheme is a relatively sensitive one and should be handled with a pair of kid gloves, as this scheme can potentially blow up in the face of the management—as it could be viewed as older employees being coerced to leave. For example, McKinsey had undertaken a restructuring plan and had advised SAIL to cut the 160,000-strong labour force to 100,000 by the end of 2003, through a VRS. SAIL was banking on natural attrition to reduce the number by 45,000 within two years, but due to some government regulations, the retirement age was increased to 60 years, which further delayed the reduction.

In a bid to convince its employees to accept VRS, SAIL highlighted six ‘plus’ points of VRS, in its internal communique, Varta. During the next 4–5 years, SAIL had to reduce its workforce by 60,000 for its own survival. Employees with chronic ailments, and habitual absentees, who did add to low productivity, were the first to go, some with the help of administrative actions too.

9.4.3 Personal Security

The employee benefits for personal security are benefits that enhance the individual's personal and family security with regard to illness, health, disability, redundancy and even death. Thus, all insurances that cover any such untoward event are a part of this benefit.

 

Disability Income Continuation

The term ‘disability’ could refer to regular, temporary, partial or total disablement. This happens when employees are unable to work due to an accident, health-related issues. The disability income continuation assists them in maintaining their existing lifestyle without major modification. Some of the components which are available are short- and long-term disabilities, workers compensation, sick leave, travel accident insurance and retirement plans.

Personal Accident

Personal accident insurance policies are taken by companies for their employees. This is done to give them or their families some benefit in case of an accident causing serious injury or death. Insurance companies such as, Oriental Insurance and ICICI Lombard do such policies for quite a few organizations.

Life Insurance

A life insurance policy provides death benefits to beneficiaries and accidental death benefits too. This is one of the most popular and one of the oldest benefits. The kind of benefit given varies from company to company. The premium cost is often taken care of by the employer. Employees are often given the option to pick up additional amount of insurance for an extra charge.

Insurance Against Death in Service

This is provided either as a part of the pension scheme or as a separate life assurance cover. This benefit provides for a compensation to be paid to employees’ dependants, in case if they die before retirement.

Loss of Job Income Continuation

These are designed to aid employees/workers during short-term periods of unemployment that may happen due to layoffs or termination.

Business Travel Insurance

This is provided for all the employees who have to travel extensively on company business. It is not only the personal safety of the employee that has to be considered when travelling abroad but also other essentials such as equipment and money too. There are many insurance providers who opt for this type of policy, all of whom offer varying degrees of cover and support to take the stress out of travelling abroad for work.

Health Care for Family

The health care or medical coverage is meant to cover the costs of treatment in the event that employees or their dependants falls sick. This coverage could include medical, surgical and hospital expenses. At times prescription drugs, dental, optical could also be covered. Once employees joins the company, they have to undergo a health check-up, any pre-existing aliments are not covered in the health care plans. This rule also applies to the employee's immediate family and dependents. Nowadays, benefits have become relatively costly for employees. Most employers now add the same or part of the same to the employees total compensation, i.e., the CTC, this, however, varies from company to company.

Periodic Health Check-ups

To encourage employees to take wellness seriously, companies sponsor or part sponsor preventive health check-ups for its employees. For this, they could have a tie up with various hospitals for the employees to have periodic heath check-ups. In response to this, large hospitals have a separate section devoted to preventive health check-ups for working executives. For example, Reliance Communications have a tie up with Dhirubhai Ambani hospital for an executive health check-up for their senior-level executives.

9.4.4 Financial Assistance

These benefits aim to provide financial assistance to the employee to pursue any asset building, personal objectives or tide over some financial crisis in their personal life.

 

Company Loans

There are companies which give loans to their employees for certain stated purpose up to a certain limit (usually a function of the level and salary of the employee) payable in a certain period. However, it is usually those companies which are a bank or an NBFC (non-banking financial corporation) or have one of its sister concerns in this business that extend such a benefit to its employees. Employers can offer this benefit to their employees at a cost lower than the market and the employees feel happy as they receive funds at a discounted rate. For example, HDFC Bank offers insurance, personal, car and home loans to the employees at a discounted rate.

 

Relocation

Relocation could be stressful for employees and their family, as there is disruption in family life and surroundings, commuting hassles in a new place, education facilities for the children etc. In such situations companies pay for the shipment of employees’ household goods and temporary living expenses and it could also include guest house accommodation for 15 days or so for the employees and their family. For extending this benefit either companies tie up with a certain relocation specialist vendor or lay down a policy to regulate availing of this benefit by the employee. In such cases usually the employee has to organize for three quotes from different vendors and then take approval from the company about which one to opt for.

Company Discounts

This is where a company has products or services that can be offered to employees at a favourable discount. For example, a retail outlet may give their employees some discount coupons during Diwali. Those which do not tie up with other companies to work out a special corporate scheme especially for the employees. Companies use their bargaining power to extend such benefits to its employees.

Severance Pay

These are meant for the employees who are getting separated from the organization. Most companies give them their notice pay that ranges from one to three months, this is based on the clause indicated in the appointment letter. Some also link it to number of years of service and the level or designation of the employee, so the severance pay could go up by few months. A carefully drafted severance or redundancy pay in case things do not work out is not only becoming acceptable, but is highly detailed and elaborately worked out as a part of the overall compensation plan. In India, severance was non-existent even at the height of the dotcom boom. The biggest companies were oblivious to severance pay being doled out to any key executive. The trend actually started with Indian companies hiring expatriates for their international operations. A severance package is a common concept in the West that was made famous by layoffs and downsizings. These executives refused to join without separation terms being articulated in advance. Indian companies were perceived to be a high-risk option, akin to start-ups, hence the insistence. Then, expatriate Indian executives carried forward the idea, asking for some form of protection having to let go their secure positions in global companies. The concept has now permeated deep and the departure deals are being negotiated in advance by senior executives in India.

In the age of mergers or companies changing hands, for example, iFlex being bought over by Oracle, or Daksh being bought by IBM, key executives are secured with a severance package by their side. It is still a far cry from situations in the United States where companies such as EDS have had to dole out severance package of $35 million to its ex-CEO Dick Brown or the more recent, $130 million severance package for Michael Ovitz at Disney or the $21 million package for Carly Fiorina of HP. But slowly and surely, the employers in India are willing to negotiate some sort of a deal, just in case the relationship does not work out.

9.4.5 Allowances

These are allowances given to the employee to take care of basic needs of their life. Often these allowances are structured in a way that they offer tax relief to the employee too.

 

Dearness Allowance (DA)

This is to neutralize the cost of living and the rise in prices. The DA can be either increased or decreased, depending on the rise in prices. Many organizations also call it COLA or Cost of Living Allowance. This is pegged to the CPI (consumer price index) and is revised for computation of salaries once every quarter.

House Rent Allowance (HRA)

This is given to those employees who have not been given company accommodation, i.e., rent-free accommodation. The tax treatment if the company has leased the accommodation to provide to the employee is different from that which is incurred when the company pays employees HRA to cover their rental expenses.

Compensatory Allowances

These are given to employees due to the peculiar conditions they may have to undergo or to compensate for other difficulties. This is meant for those in hazardous kinds of jobs, which could have effect on the employees’ health over a period of time. Some of them are city compensatory allowance which vary from city to city, hardship allowance, project allowance, special duty allowance, bad climate allowance, border area allowance, tribal area allowance etc.

Transport Allowance

These are given to meet the expenses of local travelling from residence to place of work and back.

Education Allowance

This is meant for the education of the employees’ children.

Deputation Allowance

This is paid to employees, if they are deputed to some other location for work. This is aimed at covering the discomfort that the employee has to go through because of change of location. Deputation allowance is paid only for a specific period of time.

Uniform Allowance

This is meant for those that need to wear uniforms as a part of the work requirement.

Leave Travel Allowance (LTA)

This allowance is meant to encourage employees to take a break from work with the family. Apart from the obvious benefits, it has tax advantages too. Under these rules, employees can undertake journey twice to their hometown or once to their hometown and once to any place other than their home town. Employees can claim tax benefit only twice in a block of four calendar years.

9.4.6 Other Benefits

Cafeteria Services/Subsidized Canteen Facilities

Gone are the days when employees would get free lunches. Nowadays companies provide subsidized cafeteria services, but many companies have even stopped the subsidized services and the employees are charged at actual. Companies have a wider spread of food compared to the earlier days, there could be healthier options available too. Some companies do roll out Sodexo and Ticket Restaurant food coupons, but they are nevertheless added to the employees’ compensation. Meal passes are perceived by employees as tax friendly and useful benefit to them.

 

Deferred Income

Deferred income could be deferred bonus/incentives, pension plans, stock option, profit sharing, retirement plans, life insurance plans, retention bonuses etc. For example, to retain its key senior employees post-merger with EDS Corporation, Mphasis provided cash component–based retention bonus plan for its employees. This is mainly to retain good employees and provide them a cash incentive to keep them motivated.

Other Benefits

With employee engagement making it to the CEO's agenda, companies have been coming with innovative benefits for employees. Some of the other common benefits are:

1. Car and scooter schemes.
2. Grocery store, gym, day care centre etc. in the work premise.
3. Luncheon vouchers.
4. Laptops, mobile, data card, Blackberry.
5. Tie up with some education institutes for an evening course in management.

9.4.7 Intangible Benefits

Benefits usually directly cost the employer but there are some intangible benefits such as status, recognition, career development etc. that do not cost directly but matter to the employee just as much. Some of the intangible benefits are as follows:

• Status—recognition of seniority or expertise.
• Training opportunities.
• Career progression, customised career planning and career paths.
• Recognition of the need to balance work and family.
• Employee suggestion schemes.
• Tax benefits to employees as a results of proper structuring of the compensation package.
• Grocery store, gym, day care centre etc. in the work premise.
• Time off for PTA, i.e., parent–teacher meetings at school.
• Concierge services.
• Birthday/anniversary—day off.

9.5 BENEFIT DESIGN

An employee benefit programme should keep in mind the organizational objectives and the employee needs too. The organizational objectives would depend on the size of the company, locations (Does it have operations only in India or in other countries too?), number of employees, profitability and other related issues and this must be attuned to the compensation programme of the company which must, nevertheless, be cost-effective in the long run.

9.5.1 Factors Affecting Benefit Design

1. It should be a part of the total compensation management strategy.
2. Must add value to the performance management programmes.

   HRM in Action

   Employee Benefits: Deloitte & Touche USA LLP! (Mumbai and Hyderabad)

   Accident insurance: Employees and their family have substantial financial protection in case of an accident involving the employee. The scheme provides employees with 24-hour insurance cover across the globe. The premium for this benefit is completely borne by the organization. The plan provides for compensation depending on the severity of the injury and incapacitation.

   The firm also provides for medical insurance (hospitalization benefits) under a policy similar to the mediclaim policy covering the employee and their dependents. Deloitte India covers three dependents (spouse or children) while the India-based subsidiaries of Deloitte & Touche USA LLP cover five dependents (parents, spouse or children).

   Initial accommodation for outstation candidates: The Indian-based subsidiaries of Deloitte & Touche USA LLP provides one week of guesthouse accommodation on a twin-sharing basis for outstation candidates upon joining.

   Company-organized transportation: The employees of the Indian-based subsidiaries of Deloitte & Touche USA LLP in Mumbai and Hyderabad offices are provided with company transportation from major pickup points across the city to the offices. The cost for this facility is completely borne by the company.

   Compensation package: Both Deloitte organizations pay market competitive salaries to all their people. Compensation and benefits are reviewed and revised once a year and any adjustments are based on a thorough review not only of market conditions, but also of individual performance and contribution to the success of the respective Deloitte organizations.

    

   Source: Adapted from http://careers.deloitte.com/india/experienced-professionals/culture_benefits.aspx, accessed on 27 April 2011.

3. Must be in line with the culture of the organization.
4. Must increase commitment from employees in a way that they identify with the purpose of the organization.
5. Must meet the real needs of employees and the perceived needs of employees.
6. Must take into account tax efficiencies.
7. Must ensure that benefits are cost-effective.
8. Must establish flexibility.
9. Must be creative.
10. Must provide choice to the employee.

 

 

This should follow the objectives listed earlier in the chapter. Companies need to regularly experiment with various benefits—by now, sure you recall that ‘one size does not fit all’. The benefits should be customized to suit both the employers and the employees. One needs to integrate benefits with other compensation components too. The planning process should include strategies for ensuring external competitiveness and adequacy benefits. Employee benchmarking studies across the industry would give an indicative picture of what others in the same industry do.

Ensuring that benefits are adequate from an employee perspective is quite a mammoth exercise. Most organizations evaluating adequacy consider the financial liability of employees with and without a particular benefit. Most organizations consider whether employee benefits costs are justified. Nowadays, companies do not absorb the costs of increase in benefits.

Once the HR designs the benefit programme, it should be sent across to the business heads, key stake holders and employees of the company, so that there is a buy in from all of them and is not viewed as just an HR initiative. Inputs that come in after the review process should be acted upon and also communicated to all concerned. A focus group, task force and a committee could also be formed, instead of sending it across to all the employees for their inputs—this could be a mix of various levels and functions. Many tech-savvy companies also use opinion surveys to gauge the feedback from the employees. Once the inputs have been reviewed, the same could be then communicated during meetings, bulletin boards, video conferences, company newsletters or other such discussion forums and then mailed to all the employees too. A benefit programme should cater to a diverse workforce and aging population.

Nowadays, companies have a cafeteria approach—flexible method of benefits, i.e., they can pick and choose the benefits according to their need and tax planning too. They also have the freedom to change it yearly.

9.6 BENEFITS ADMINISTRATION

Benefit administration should be done with utmost care in the organization or else improper or poor administration could leave the employees with a bad taste. The employees who need to be covered should be first tackled. Should it be meant for all employees or only for a certain level of employees? Should it be offered to part-time employees also or should it be restricted to full-time employees only?

 

The following are the four issues in benefit administration:

1. Who should be covered or benefitted?
2. How much choice should the employee have in the flexible benefit scheme?
3. How should the benefits be financed?
4. What is the legal standing on the benefits?

The organization may not want to cover all employees for all the available benefits. Hence, the compensation and benefits team need to demarcate the same. For example, the organization may not want to treat part-time employees at par with the full-time ones. Should probationers and trainees get the same benefits as compared to confirmed employees? The answers to these questions depend on the policy decisions taken by the company along with the compensation and benefits team.

Most of the benefits are designed keeping the average employee in mind, exceptions to this, cannot be handled in any manner whatsoever. Under the cafeteria style/flexible benefit option, the employees choose the benefits that suit their need and tax planning, but if their spouse in another organization has the same benefits, only one can claim most of the listed benefits, so thereby one would definitely stand to lose, especially if all the benefits form a part of the CTC compensation.

9.6.1 Administering the Benefit Programme

Administration of the benefits has three parts to it. These are: (1) Communicating the benefit programme; (2) Processing of claims and (3) Cost factor.

1. Communicating the benefit programme: The compensation and benefits team should ensure that all the employees are clear about the details of the benefit programme; this is ideally done during the induction process for new employees. The benefit programme is normally added in the HR policy manual and in the employee handbook of the company. In most companies, the handbook is available on the company intranet. HR could also make this as an annual activity, especially when there are additions or deletions to the programme. In case of queries, there should be a help desk facility available and the compensation team should be available for a one-to-one discussion too.
2. Processing of claims: The compensation and benefits team must be proactive and should immediately answer the queries on processing of claims, especially in case of emergencies such as hospitalization. The employee processing the claims should be careful in checking the documentation and determining the eligibility of the employee for the particular claim. Companies have also started outsourcing the same to vendors, for example, Paramount Health Care is a vendor to many Indian companies.
3. Cost factor: Some companies may not include trainees and probationers in some of the benefits. Companies could even add this to the employees’ CTC compensation or some companies give this as an additional benefit to its employees. There are also administrative costs incurred for such a programme.

 

 

9.6.2 Flexible Benefit Plan Administration

Compensation specialists normally design the flexible benefit package. The flexible benefit plan is also known as the cafeteria plan. As in a cafeteria, one decides what one wishes to eat, in the similar way, a flexible benefit plan enables the employees to pick and choose the various options/benefits that are best suited as per their need and tax plan. For example, employees who may have the need for a higher net pay packet could chose the options which are given to them on a monthly basis—they may not opt for leave travel allowance, i.e., LTA., as it is an annual payment. In the last decade or so, majority of the companies in India have opted for an ERP—SAP, Oracle HRMS Ramco Marshall, Adrenalin etc. This has made life easier in administering a flexible pay plan both for the employees and the compensation team too. The employees can change their benefits at a periodic basis, to suit their requirement. The employees can access them anywhere in the world, with the employee code and password. The change automatically gets updated in the system and eliminates the need of paperwork. One can even check the tax plan on the system.

Companies have either a standard benefit plan or a cafeteria plan/flexible benefit plan which gets customized for all employees. In the standard benefit plan package, the employees typically are not offered a choice among the benefits. A standard package is designed for all employees at all levels. In a flexible benefit plan—the employees are permitted greater flexibility in choosing the benefit options of greatest value to them; here as discussed earlier they can chose and pick as per their needs and what attract them, for example, if a spouse of an employee is already covered in an insurance plan, the employee again need not cover their family in the insurance plan, they could instead opt for another benefit.

9.6.3 Guidelines for an Effective Benefit Programme

Benefits must be properly planned weighing the pros and cons for both the employees and the employers. It is always a good idea to involve the employees at all levels during the inception of a new programme. An egalitarian benefit scheme sends the message that the organization has equal respect for all employees. Equally important to the design of the programme is the administration. Proper administration is a must, it is better not to have a benefit if the HR team is poor in its administration and efficiency levels. The benefit programme should be communicated to all in a manner that all are able to avail of the benefits.

Advantages

• Tax deductions are available on some of the benefits.
• There is a lot of variance in the plans (flexible cafeteria plans), this helps the employees who have varied needs at different points in their lives and helps to cater to the changing needs of the workforce.
• It caters to a diverse workforce.
• It benefits the employers as it helps in recruitment and retention of employees.
• Flexible benefits make addition of new benefits less costly. It gets added as one among a wide variety of elements from which to choose.

Disadvantages

• Increased administrative complexity created by managing a large variety of possible benefit combinations.
• There are added costs in maintaining the benefit plan.
• Increase in the cost of benefits, as and when the employees may decide to opt out of a particular benefit.
• The employees at times without studying a particular benefit could make a bad choice and then find themselves not covered for emergencies.

Organizations need to increase employee awareness in this regard. Benefits also need to comply with certain tax rules that may change from time to time. As there are so many rules and regulations, the administrators should develop a compliance checklist and regularly conduct audits to ensure that they are complying with the new and existing requirements.

1. SAS Institute in the United States has been on the ‘Great Places to Work’ list from the time the award got instituted. Go on to www.sas.com to see all the benefits that the company extends to its people.
2. The Handbook of Employee Benefits: Design, Funding, and Administration by Jerry S. Rosenbloom: Take a look at the benefits in the new globalized environment. This book is a good ready reckoner to design benefits for an international audience.

1. Define the following terms: (a) Employee benefits, (b) telecommuting, (c) compressed work week and (d) job sharing.
2. Identify various ways by which the employers can control the costs of various benefits given to the employees.
3. What are the objectives of an employee benefit plan and what could be the advantages and disadvantages of an employee benefit program.
4. How will you administer a flexible benefit plan?

1. Group exercise: Divide the class into four to five groups and give each group one sector, i.e., manufacturing, retail, telecom, software and pharmaceutical and ask them to design an employee benefit programme for different levels of employees.
2. Individual exercise: You are appearing for a final interview for the position of a senior manager. What questions would you ask the interviewer pertaining to the benefits package?
3. Group exercise: Divide the class into four to five groups and give each group one sector, i.e., manufacturing, retail, telecom, software and pharmaceutical, request them to review the Web Sites of two Indian companies in the same sector and list down the various benefits offered by those companies.
4. Individual exercise: You are the HR manager for a call centre and are to design a flexible benefit programme for your employees and give justifications for the same (prepare the same in the form of a report to be submitted to the head of HR).

 

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