Total Compensation Strategy Scenario
Session 8: Employee Benefits
Instructions for assignment
Read Chapter 9 Employee Benefits and complete the CASE Lightning Industries. You must compete your costing models in Excel or Google Sheets and submit the file for grading.
- First, calculate the amount needed to increase wages by 3% while reducing total compensation by 3%. This is your cost savings target. Next, calculate the two option packages for cutting benefit costs. (7 points)
- Which of the packages would you recommend to Jacobs? Why? (2 point)
- Which of the packages/strategies would require less input from employees in terms of their reaction to the benefit changes? (1 point)
You may include your written answers in your Excel file or you can include a separate Work file.
Notes:
- There are some errors in Exhibit 9.9. Some are material, some are not. They are:
- Dollar value of yearly benefits, per employee = $13,000
- a) Paid vacation (16 days average) = $2,331 (not material to the case study)
- b) Paid statutory holidays (9 days) = $1,311 (not material to the cases study)
- c) Paid rest periods, etc (60 minutes) – based on the costing provided for weeks worked (52 weeks minus vacation and statutory holidays), this is actually 52.5 minutes per week. This is material as Option #1 contemplates the elimination of 10-minute paid break.
- Terminology: the textbook defines Co-insurance as “the percentage of insurance premiums paid for by the employee“. In Canada, the term co-insurance normally refers the sharing of the benefit cost. Example: You have a prescription that costs $100 and your insurance plan has a 80/20% coinsurance. That means your benefits plan (the insurer) will pay $80 and you will pay $20 for the prescription. For this case study (Option 2): assume co-insurance refers to a premium split where the employer will pay 80% of the healthcare premium and the employee will pay 20%.
- There are some ambiguous points in the case – that is deliberate. You will need to make some assumptions – that is fine; just be sure to state your assumptions clearly in your answers.
- There is a Discussion Topic for this assignment so you can post any questions for your classmates.