Chapter Summary

11.1 Identify the advantages and disadvantages of individual incentives.

Individual incentives make it easy to evaluate each individual employee. They provide the ability to choose rewards that match employee desires, they promote a link between performance and results, and they may motivate less productive workers to work harder. Disadvantages include the fact that many jobs have no direct outputs, making it hard to identify individual objectives; we may motivate undesirable behaviors; there is a higher record-keeping burden than in group incentives; and individual rewards may not fit in the organizational culture.

11.2 Identify the advantages and disadvantages of group incentives.

Group incentives help foster more teamwork, and they broaden the individual’s outlook by letting them see how they affect others. They also require less supervision and are easier to develop than individual incentives. Disadvantages include the potential for social loafing, the possibility that we will discount individual efforts and output, the fact that outstanding performers may lessen their efforts, and the potential for group infighting.

11.3 Discuss the issue of whether or not executive compensation is too high.

There is no doubt that in some cases, executive compensation has gotten out of control. There is evidence that there have been some serious excesses in executive pay, especially when CEO pay has increased while employees were taking pay cuts and getting laid off. However, executives drive organizational performance more than any other employee. Since labor is always at least partly priced based on supply and demand, and there are very few executives with the high-level skills necessary to run large firms, these individuals are always going to be worth quite a bit of money to the firm. This means that as a general rule, executive pay is probably not out of line, considering the pressure on executives to perform at the highest level all the time.

11.4 Summarize the major statutory benefits required by federal law.

Social Security and Medicare—Social Security is composed of Old-Age, Survivors, and Disability Insurance (OASDI) programs, and Medicare is the national health care program for the elderly or disabled.

Workers’ compensation is a program to provide medical treatment and temporary payments to employees who are injured on the job or become ill because of their job.

Unemployment insurance is a federal program managed by each state to provide payments for a fixed period of time to workers who lose their jobs.

FMLA is leave that must be provided by the employer to eligible employees when they or their immediate family members are faced with various medical issues. The leave is unpaid, but the employer must maintain health coverage for the employee while they are on leave.

ACA requires that all employers with more than 50 employees provide health insurance for their full-time employees or face significant penalties levied by the federal government.

11.5 Name the main statutory requirements that must be followed if organizations choose to provide health care or retirement plans for their employees.

COBRA is a law that requires employers to offer continuation of health insurance, for up to 18 to 36 months, on individuals who leave their employment if the employee is willing to pay the premium cost of the insurance policy.

HIPAA requires that, if the employee had health insurance at their old job and the new company provides health insurance as a benefit, it must be offered to the employee. In other words, the individual’s health insurance is “portable.” HIPAA also requires that companies take care to protect the health information of employees from unauthorized individuals.

ERISA lays out requirements that must be followed if the employer provides a retirement or health care plan. ERISA determines who is eligible to participate and, when they are eligible, provides rules for “vesting” of the employee’s retirement funds, requires portability of those funds, and requires that the funds are managed “prudently” by the fiduciary that maintains them.

11.6 Describe the main categories of voluntary benefits available to organizations.

Major voluntary benefits include group health insurance, retirement plans, other insurance coverage, paid time off, and employee services. Paid time off comes in various forms, such as sick leave, vacation time, holidays, and personal days. Group health insurance provides employees with health care coverage, and retirement plans allow them to save for their own retirement, sometimes with some help from the organization. Other insurance includes group term life insurance, short- and long-term disability policies, dental and vision insurance, group automobile and homeowners insurance, and many more. Finally, employee services can include a massive range of options from educational assistance to child or adult day care, gyms, cafeterias, and too many others to list.

11.7 List the organization’s options when providing flexible benefit plans to employees.

Companies can choose modular plans, core-plus plans, or full-choice plans. Modular plans provide several basic modules from which each employee chooses. There is no other option outside one of the modules. Core-plus plans provide a base set of benefits to all employees (the core) and then other options that the employee can choose from freely to meet their personal desires and needs. Full-choice plans allow the employee complete freedom of choice, but they come with some potential problems such as “moral hazard,” “adverse selection,” and high management costs.