Running head: TOTAL REWARDS PLAN 1

Total Rewards Plan

Katelyn Strasser

MPH 548

Human Resource Management

Concordia University Nebraska

Total Rewards Plan 2

Attracting and retaining qualified employees is a necessary but often costly business for many organizations. In healthcare, demands for experienced health care providers are at an all time high. However, shortage of healthcare professionals including physicians, nurses, and other personnel, leaves health care organizations in competition to appeal to highly skilled workers. Benefits have become an important tool that companies use as a way to lure in talent. Over the last few decades, the benefit costs as a percentage of total compensation have been increasing. The benefit costs as a proportion of salary were 28.2 percent in the early 1990s and 30.3 percent by 2010 (Employee Benefits

Research Institute, n.d.). Fried and Fottler (2011) report, “The average cost of fringe benefits in many healthcare systems can range from 20 to 35 percent of salary.” With these costs, it is important for organizations to carefully plan their employee benefits or total rewards packages.

The current trend right now is for human resources to not only put together employee benefits, but to offer total rewards systems. This blend of both monetary and nonmonetary rewards seeks to maximize employee satisfaction and loyalty. As important as the new rewards plans are themselves, equally critical is the way in which companies design, deliver, and evaluate the programs. According to Heneman (2007), a total rewards strategy is comprised of compensation, benefits, and personal growth. Within the category of compensation, one finds base pay, merit pay, incentives, promotions, and pay increases. Health and welfare, paid time off, and retirement are included in benefits.

Training, career development, and performance management are parts of personal growth. Implementing a total rewards program successfully will include the four steps of assessment, design, execution, and evaluation (Heneman, 2007). 3 TOTAL REWARDS PLAN Although each of the four steps is essential, this paper will focus on the design part of a total rewards program. In this phase, the project team decides who to reward and what rewards to offer. The full range of rewards that include compensation, benefits, and rewards for personal growth should be evaluated as possible parts of the system.

Compensation includes pay level, pay increases, and incentives. Usually it is a very lengthy and time consuming process to figure out pay level, but for the sake of simplicity in this paper, I am going to make each employee’s salary $100,000. I am also not going to include pay increases or cash bonuses in my total rewards program. Instead, I will focus on the benefits of both monetary and nonmonetary value.

My benefits package would start with health insurance. According to Heathfield

(n.d.), “Health insurance is the foundation of a comprehensive employee benefits package.” Workers see this benefit as a hallmark of a preferred employer. In fact, about

60% of Americans obtain their health insurance through their work. Employers pay the premium of the health insurance, and plans vary by type of policy. The amount that the employees pay is usually deducted from their paychecks (Heathfield, n.d.). Health coverage usually costs $2,000-$3,000 per year for single coverage and $6,000-$7,000 per year for a family plan (Hadzima, n.d.). The Bureau of Labor and Statistics (2014) reports that health insurance usually accounts for 8.6% of total compensation for civilian worker,

7.8% for workers in the private industry, and 11.7% for workers in the state and local government.

Also of great importance is the benefit of paid time off. Many companies are being to offer paid time off (PTO) as a single bank that includes vacation, sick time, and personal time. Employees like this benefit because it can enhance work-life balance, and 4 it also gives them freedom and flexibility to choose when they want time off, with the exception of illness. The number of PTO days offered by an organization usually varies by length of service for the employee. Employees that have worked longer at a business will generally accrue PTO at a faster rate, allowing them more days each year

(Heathfield, n.d.). Paid leave is around 7% of total compensation for workers with this benefit (Bureau of Labor and Statistics, 2014).

One benefit that is often overlooked is disability insurance. This may come in the form of short-term or long-term disability. Since many companies require employees to buy their own disability insurance, providing it to employees may offer some organizations a competitive advantage. The annual premiums that a business would pay are around $175 for group short-term disability and $200 for group long-term disability.

This benefit is important in the case of an incident where a person becomes disabled and cannot work. Disability insurance can help supplement the income that is no longer available (America’s Health Insurance Plans, 2007).

The next few benefits in the plan include dental and vision insurance. Dental insurance helps cover the cost for both preventative and emergency dental treatments or procedures. Dental insurance plans usually cover $1000-$1350 in dental care costs annually (Heathfield, n.d.). Vision insurance is usually an addition to the health policy. It provides for regular examinations, and it pays for part of the cost of corrective lenses.

Vision insurance usually only costs employers $60 annually for a family policy

(America’s Health Insurance Policy, 2007).

Other benefits that I would include would be life insurance and retirement benefits. Life insurance is valuable to employees because it would give a lump sum of 5 TOTAL REWARDS PLAN money to the designated beneficiary if an employee died. Life insurance is usually in the form of term life insurance or permanent life insurance policies (Healthfield, n.d.). Life insurance can be offered to employees at a cost of $150 for employers (America’s Health

Insurance Policy, 2007). A 401k retirement plan is a benefit that many people seek to save money for retirement. This allows a portion of paychecks to be taken out and put into an account for retirement income. Many companies offer the benefit of matching the employee’s contribution up to a certain percent, usually around 3 percent (Healthfield, n.d.). Other benefits related to retirement that people usually do not consider is their employee’s contribution to Social Security and Medicare. Employees are taxed 6.2% on the first $90,000 of salary and 1.45% with no salary cap (Hadzima, n.d.).

Additional benefits that I think would be valuable to employees would be educational assistance, gym memberships, childcare assistance, and health and wellness programs. The dollar amount on these benefits varies by organization, and not all organizations offer them. Opportunities for training and career development would also be included in benefits. This might range from paying for certification to seminars and training sessions.

The following table summarizes the benefits for my total rewards plan. It shows the types of and amount of each benefit, along with the percentage of salary of each benefit. The plan is based on someone whose salary is $100,000 and receives $27,000 yearly in benefits.

Name of Benefit Cost of benefit to employer Percent of salary ($100,000) per year Health insurance $7,200 7.2% Paid time off $9,100 9.1% Short and long-term $375 .375% 6 disability insurance Dental insurance $1,350 1.35% Vision insurance $60 .06% Life insurance $150 .15% Retirement $3,000 3.0% Educational assistance $3,000 3.0% Childcare assistance $2,000 2.0% Gym membership $265 .265% Training and career $500 .5% development opportunities Total benefits $27,000 27%

The costs for the first seven benefits were taken from the sources I cited previously in the benefits explanation. The costs for the other benefits vary by organization; so I used amounts that I am familiar with or I think would be nice amounts to have in a total rewards plan. Since benefits in healthcare usually amount to 20-35 percent of an employee’s salary, I decided to go somewhere in the middle with 27% of the salary in benefits (Fried & Fottler, 2011). Total benefits for this plan equal $27,000, therefore creating a total compensation of $127,000.

In the instance that the benefit amount had to be cut by 20%, I would need to take away $5,400 in benefits. I would focus on taking away benefits that are at the bottom of the list such as educational assistance, childcare assistance, gym membership, and training and career development opportunities. These are the less traditional benefits, and more of just added perks to the employees. Another option could also be to look at health insurance. Depending on the employee, some employees may prefer to just be on a single rather than family plan. This could save the company $4,000-$5,000, and could keep them from cutting the other benefits. However, if most of the employees have family plans, cutting their insurance would probably hurt employee satisfaction. 7 TOTAL REWARDS PLAN Another aspect to consider when cutting monetary rewards is how the organization could offset this with an increase in intrinsic rewards. Intrinsic rewards are intangible and could include recognition or praise from superiors. This organization could think of creative but low to no-cost ways to recognize its employees, such as notes of encouragement. Other intrinsic rewards related to job satisfaction may be restructuring a position so an employee can work at home or looking at how to create more flexible, family friendly hours for employees. Intrinsic rewards can give employees a sense of belonging to an organization and help them achieve long-term satisfaction

(Fried & Fottler, 2011).

References

America’s Health Insurance Plans. (2007). An employer’s guide to disability income

insurance. Retrieved from https://www.assurantemployeebenefits.com/

816/aebcom/xhtml_clip/disabilityedu/employersguide.pdf 8

Bureau of Labor and Statistics. (2014). Employer costs for employee compensation news

release text. United States Department of Labor. Retrieved from

http://www.bls.gov/news.release/ecec.nr0.htm

Employee Benefit Research Institute. (n.d.). How much do benefits cost employers?

Retrieved from http://www.ebri.org/publications/benfaq/index.cfm?fa=ovfaq1

Fried, B. J., & Fottler, M. D. (2011). Fundamentals of human resources in

healthcare. Chicago, Illinois: Health Administration Press.

Hadzima, J. G. (n.d.). How much does an employee cost? Retrieved from

http://web.mit.edu/e-club/hadzima/how-much-does-an-employee-cost.html

Heathfield, S. M. (n.d.). What’s in a comprehensive employee benefits package?

Retrieved from http://humanresources.about.com/od/compensation-

structure/tp/employee-benefits-package.htm

Heneman, R. L. (2007). Implementing total rewards strategies. Society for Human

Resource Management. Retrieved from https://engage.cune.edu/learn/

pluginfile.php/29064/mod_page/content/3/07rewardsstratreport.pdf