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Managing labor costs is a major responsibility
of today’s HR departments.
The links below highlight some of the ways to control costs:
Benefit Costs
Inflation in health care & benefit levels -- and costs -- ran
wild for a decade until managed care programs reined them in. Now
the run is starting again and new solutions are needed. It is time
to involve employees in managing their own health care costs, while
maintaining the employers' negotiating power with the health care
providers.
Voucher accounts in which employees get an annual "budget"
to spend on health care and are allowed to keep the unspent portion
at year-end is one approach. These programs require supplemental disaster
protection insurance, but will raise the awareness of costs, and add
a sense of responsibility on the person incurring the costs -- the
employee -- while taking the company or its HMO out of the "policeman"
role.
Another step is to have employees pay cash and be reimbursed later
for prescriptions and routine doctor or clinic visits, to further
raise their awareness of the costs, and to emphasize the value of
using generic drugs where applicable.
Employers that can form PPOs or HMOs and negotiate pharmacy prices,
per diem hospitalization rates, surgical, and clinic fees, can also
help control costs.
The role of government cannot be depended on to be the primary one,
or it will be another de-facto tax for waste in spending. The best
practices of companies are now being widely discussed -- get into
one of these forums and build a plan that fits your company and employee
needs and budgets.
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Retirement Plans
Companies must contain the cost of retirement and the benefits of
retirees. People who work for companies for long periods of time are
entitled to have some form of retirement plan. This is the dilemma.
Finding the right balance of these two is a critical challenge. Investigate
all of the options. A few of the most common are:
- 401(k) plans with or without matching funds
- Defined Benefit Plans (the old kind of pension
plans -- depends on actuarial tables to define how much money
is needed to fund them)
- Defined Contribution Plans (limits employer
contributions and costs)
- Cash Management Accounts (a newer, more popular
one, which limits company contributions but may not meet the need
of many retirees)
The challenge is to evaluate your company needs and means to provide
for them. The next challenge is to educate employees what they will
get if they retire and help them learn how to manage that money effectively.
Finally, educate employees (including near-term retirees) of what
the likely combination of any Social Security (U.S.) contribution
-- when added to their own funds and pensions -- can help avert catastrophic
social welfare problems in the years ahead. This is the only humane
thing to do.
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Wage & Salary Problems
Pay that is suitable for the job/position is often not a strong motivator,
but inadequate or unfair pay is a very strong demotivator! Salary
competition and escalation of non-cash compensation, growth in lucrative
severance programs, and maintaining equity among/between various locations,
departments and divisions, continue to create pay issues that can
undermine employee motivation, retention and performance.
Companies should have a structured wage and salary program with defined
pay and job relationships, and the flexibility to reward outstanding
performers. Companies also need an equity-sharing plan of some form
-- if possible in their ownership structure -- to permit employees
to earn ownership in some part of the company. In certain instances
seniority may be a viable factor in pay progression, but this factor
declines in validity as the learning curve of jobs is met and exceeded.
Salary surveys at regular internals are necessary to stay competitive
-- you don't want to learn you are not competitive by losing several
of your best people to higher pay offers. Perks and benefits (company
cars, vacations, employee purchase programs, etc.) are often a seemingly
"cheap" form of compensation, but have an insidious side
since they form "classes" in the company (the haves and
have-nots) and can be taken for granted or become "entitlements"
after a while. Used with care, they are excellent -- used to excess
and they are demotivating to much of the workforce.
New employees who come into a company often command (higher) market
rates for their salaries, while loyal older employees with their modest
annual increases have fallen behind the market. This is why a constantly
monitored scale of pay equity must be maintained. By sorting jobs
in sequence of their pay ranges, and listing the incumbent with the
job, then sorting this in descending order, the people who are poorly
compensated vs. their peers will stand out. Fix these or you could
lose some of your most loyal dedicated people -- or at the very least
destroy their motivation.
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