Employee Benefits in Public Sector - Research Paper Example

 Employee Benefits in Public Sector Introduction Both private and public employers are rapidly changing the ways they can satisfy their employees in order to make them productive and high performing. Human capital is obviously one of the most powerful assets in an organization and therefore any expenditure incurred in improving the workplace conditions as well as skills, knowledge and experiences of employees is truly investment that potentially gives back greater returns. All expenditures in forms of life insurance, health insurance, disability and retirement benefits, even though some employees take them for granted, have been found to have positively impacted the individual performance of employees and overall performance of the organization. Pay and benefits normally vary between private and public sectors. Both pay and benefits motivate employees, but there are debates regarding what has greater impact on employees’ satisfaction. Different firms take different methods to motivate employees. Private firms in the US and in most other countries pay better as compared to that of public sector, and in contrary, public sector employers give more benefits to the workers than private sector firms do. It is because, public sector firms use benefits as a means of attracting and retaining employees because of its inability to offer as higher pay as private firms do. This part of the research paper reviews relevant literature about employee benefits in public sector and addresses the importance of these benefits in terms of attraction, retention and motivation of employees. This paper examines various employee-benefits in public sector such as health insurance, life insurance, paid leave, and retirement benefits and compares these benefits between private and public sector employees. Importance of employee benefits in public sector Benefits given to employees in both private and public sectors are part of the total compensation paid to them, and from the perspective of HRM, both pay and benefits should necessarily serve similar function in motivating employees. As Noe, Hollenbeck & Gerhert (2003, p. 403) noted, benefits normally contribute to attracting, retaining and motivating the workforce. Though private sector firms pay relatively higher, employees are highly attracted to public sector for the extra benefits such as security contributions, pensions, retirement savings etc offered by the public sector firms. But, Georgellis, Iossa & Tabvuma (2010, p. 487) concluded in their study that public service motivated employees are attracted to public sector jobs for a higher level of satisfaction with the nature of their work itself since public sector provides greater opportunities for pro-social behaviors. Employees are expecting benefits to help them maintain social and economic security. Most Americans consider employee benefits while choosing a job. Eight out of ten people of the respondents of a survey revealed that benefits are extremely important to them when they decide about whether to choose a particular job. Most Americans found health insurance as the most important benefit they look at. It is because, more than one quarter of Americans reported that they or their immediate family member have encountered job lock, or passed up a job opportunity, or stayed at a job they would have otherwise skipped, or they still continue working at older age to continue health insurance (Reddick, 2009, p. 51). Reddick (2009, p. 51) argued that employee benefits always have the ability to attract and retain better workforce. When employees are getting relatively lower levels of employee benefits, they are found to exhibit job dissatisfaction, higher levels of absenteeism, lower levels of performance and productivity and higher level of job turnover. Benefit package is perceived as highly important in influencing employee behavior (Bergmann, Bergmann & Grahn, 1994, p. 401) and therefore it is imperative that all different firms may find which specific benefit will be most appropriate to influence the behavior of its employees. Literature Review Employee Benefits in Public Sector Employee benefits are indirect forms of compensation that are intended to achieve human resource objective of attracting, retaining and motivating employees. Employees work for earning money. They often consider moving from one employer to another for higher pay. Similarly, they want better benefits and better working conditions as well, even though they don’t work for it, and they may move from one to another seeking better benefits or conditions. Employee benefits are, as Garman & Forgue (2007, p. 42) defined, forms of remunerations provided by employers to employees that result in employees not having to pay-out-of pocket money for certain expenses. Many of the employee benefits in place today were introduced or provided at employer initiative. Employers took initiative for different benefits by considering employee satisfaction and motivation aspects. Another important impetus for the growth of employee benefits was cost effectiveness. Employee benefits are not taxable and also that many group-based benefits can be obtained at a lower rate than they could be obtained by employees from their own spending. Apart all these, government in the US has played a very significant role in the growth of employee benefits. Three employee benefits were mandated by the government; workers compensation by state government and unemployment insurance and social security by federal government (Milkovich and Newman, 2004, 402). Paid leave benefits Public employees receive benefits of paid leaves, disability benefits, health care insurance, defined pension plans, injury pay, and life insurance and so on. Moore (1991, p. 431) pointed that state and local employees are very likely to receive personal and military leaves, but they are less likely to get funeral leaves. As far as total paid leave is concerned, public sector employees were getting 22 percent more benefits than what has been obtained by the private employees of the same professional level. On an average, public employees were found to have an additional 33 percent more vacation time than the private employees received. Bureau of Labor Statistics (1995, p. 31) found that cost of paid leave for white-collar public employees was one-third more than the average for white-collar private employees. It has also been found that there is a single exception that government white-collar professional such as technical workers were receiving paid leave 9 percent below that of paid leave obtained by private sector employees of same category. In a recent study, Carrigan (2011, p. 58) revealed that paid sick-leave was available only to 61 percent of private sector employees, but is available to around 90 percent of public sector employees. As depicted above, Edwards (2010) pointed out that employees in public sector in the US receive considerably as high as 89 percent paid sick leave whereas private sector employees are receiving only 61 percent paid sick leave. In a study conducted by Keefe (2012, p. 111) it is found that paid leave, that comprises of vacation, holiday, sick and personal leaves, is accounted as 8.6 percent of the total compensation earned by government employees. More than 500 respondents of this survey accounted paid leave to be 8.6 percent of the total of both pay and benefits, where in pay was accounted to be 66.9 percent and benefits accounted to be 33.1 percent. Health Insurance One of the most important benefits that employees as well as employers are concerned about is employee’s health insurance. Health insurance and other health care benefits are nearly similar between private and public employees. Until recently, various health care benefits such as insurance for hospital room and board, physician and surgeon charges, x-ray and laboratory expenses, prescribed drugs and mental care, alcohol and drug abuse treatment, extended home health care etc were available to almost all employees of both private and private sector. Even though the benefits received by both groups are almost similar, private employees tended to spend more on these services. 27 percent of private employees used to pay deductibles of $ 200 or more whereas only 17 percent public employees had to pay deductibles over $ 200 (Moore, 1991, p. 433). Reddick (2009, p. 51) noted that health benefits are perhaps highly important among all other employee benefits since there is a relationship between the importance attached to health benefits and having a more satisfied and productive workforce. Out of all the benefits in place today, health benefits are found to have greatly impacted employee attraction, retention and motivation. Health insurance in the public sector comprises of Medicare and Medicaid programs. Medicare program is for the elderly people, mainly for those on end-stage dialysis and for others who have been disabled for more than 2 years. Medicaid program is meant for those who receive aid to families and dependent children (Greenberg, 2002, p. 73) Coggburn, Daley and Kearney (2012, p. 223) found that there was considerably steady drop in the numbers of private sector firms offering retiree health care benefits. It has been 22 percent in 1997, but it became 13 percent in 2002. Though large scale organizations have given greater emphasis on health care benefits considering the facts that it directly impacts the motivation and performance aspects of employees, some small scale organizations avoided or taken it for granted and a decline was noted in the private sector in general. Early retiree coverage has declined from the 88 percent in 1991 to 68 percent in 2003. There has been a slight decline in the health benefits offered by local governments as well. But in contrary, the health insurance benefits of state governments rose between 1997 and 2002, from 76 percent to 92 percent for early retiree employees and 69 % to 86 % for Medicare eligible employees. Various researches showed that different types of health plans lead to increased employee satisfaction, because health benefit attributes may vary from individual to individuals. In a very conventional plan, or in an indemnity health insurance, the employee may face same cost sharing regardless of which hospital or physician the employee chooses. The employee, in such a conventional plan, faces deductible and co-insurance above the deductible (Reddick, 2009, p. 52). Keefe (2012, p. 112) found that public employers provided better health insurance and pension benefits. Health insurance, for instance, has been accounted for 6.3 percent to 8.3 percent of private sector employee health benefits, but 11.2 percent of state and local government employee compensation. Retirement benefits were also accounted for considerably greater share of public employee-compensation, that is 8.1 percent compared to the 2.8 to 4.8 percent in the private sector. Edwards (2010) reported that there is significant difference between the health benefits provided by private and public sectors. Employees in public sector receive as high as 88 percent as health insurance whereas private sector employees receive only 71 percent health insurance. Retiree Benefits Baby boomers will be between the ages of 66 and 84, representing about 20 percent of total US population by 2030 (Willet, 2006, p. 28). There are greater concerns about this aging workforce especially in states like California, New York, Elorida, Pennsylvania, Illinois, Ohio and Michigan. As Schulz & Binstock (2008, p. 74) pointed, the compulsory national public pension program put forward by America is no way unique, because this is widely practiced around the world except in very few countries. This is extended to cover broad group of workers. In recent years, public sector firms have increased the pension and other retiree benefits. A study conducted by Hurley, Felland & Gerland (2006, p. 200) found that employee retirement benefit is of greater concern to most of the employees. It is widely perceived as more important than even health care benefits. Within the public sector, Defined Benefit plans are playing pivotal role in employee benefit packages. Around 96 percent of public employees are covered by state as well as local governments’ defined benefits plans. Employer-provided Defined Benefits plan coverage has been noticed as less extensive in private sector. It is because; many private sector employers have taken the advantage of liberalizing of the contracting out rules in 1980s to move to consider defined contribution (Disney, Emmerson and Tetlow, 2009, p. 518). Defined pension benefits for state and local employees provide more generous benefits than that in the private sector. Though private sector pensions are always accompanies by social security benefits, around one-fourth pension plan participants in public sector work for jurisdictions, but not for social security system (Waitrowski, 2001, p. 3). Defined pension plans have been found to have always attracted larger numbers of employees to public sector jobs. Though defined pension plans are available in both private and public sectors, these are more widespread in the public sector. Only around 63 percent employees are covered by defined pension plans in the private sector, whereas around 93 percent employees are covered in the public sector (Moore, 1991, p. 434). According to the latest report, it is 67 percent in private sector whereas 90 percent in public sector (Edwards, 2010). One of the most important added advantages of pension plans is that state and local employees can retire earlier than their counterparts do in private sector. 38 percent of state and local government employees are in pension plan and are allowed to retire at an age with 30 years in service, whereas only 19 percent of all private employees are getting this option. Pension is devalued by inflation if pension amounts are not adjusted to reflect the increases in cost of living of employees in years after their retirement (Moore, 1991, p. 435). All full time employees in public sector get access to various retiree-benefits such as health insurance, pension etc so as to make them remain with their government employer for a full career time. Those workers who complete 20 to 30 years of service will be rewarded with relatively greater pension benefits, presenting around 35 to 75 % of their last pay. These employees are also covered by the employer provided health care (Clark and Morrill, 2010, p. 1). Life Insurance According to the recent study, life insurance benefits were only available to 59 percent of private employees whereas it is available to 80 percent of public sector employees (Carrigan, 2011, p. 58). Life and disability insurances are other important factors that influence employees’ decision whether to choose a job or not. These are also part of social security concerns. Bureau of Labor Statistics (1995, p. 8) found that life insurance benefits are significantly better valued and are higher among the public sector employees than private sector employees. From latest survey about access and take ups of life insurance in private and public sector, it is found that 57 % employees get access to life insurance in private sector and 97 percent out of them take up the insurance, where as in public sector, 79 percent employee have access to life insurance and 98 percent out of them take up insurance. Literature Review Table Major areas Key issues Key literature Importance of employee benefits in public sector Benefits attract, retain and motivate employees. It causes higher level of satisfaction. Most Americans think of benefits while choosing a job, because it influences the behavior as well. Noe, Hollenbeck & Gerhert, 2003, Georgellis, Iossa & Tabvuma, 2010, Reddick, 2009, Bergmann, Bergmann & Grahn, 1994 Paid Leave benefits Public employees get paid leaves. They get additional 33 percent more vacation. Paid sick leave is also available more to public employees than private employees. Moore, 1991, Bureau of Labor Statistics , 1995, Carrigan, 2011, Edwards, 2010, Keefe 2012, Health insurance Benefits health benefits are almost similar to both private and public employees, but public employees are found to spend less on health-care expenses. It involves Medicare and Medicaid programs. There was drop in private firms offering these benefits. Public employers provided better health care benefits Moore, 1991, Greenberg, 2002, Coggburn, Daley and Kearney, 2012, Keefe, 2012 Retiree benefits Pension as most important consideration of employees for social security. Defined benefits plan play vital role in public sector. It attracts large population to public sector. Public sector employees get more retiree benefits than private employees. Hurley, Felland & Gerland, 2006, Disney, Emmerson and Tetlow, 2009, Waitrowski, 2001, Moore, 1991, Clark and Morrill, 2010 Life insurance benefits Largely influences employees decision about job. Public sector employees get greater access to life isnurance than private sector employees. Carrigan, 2011, Bureau of Labor Statistics, 1995 Conclusion This literature review revealed that employee benefits are an important element to attract, retain and motivate employees within a workplace condition. When it comes to public sector employees in America, more efficient and talented employees are required to get them for longer career so that organization itself can improve its operation efficiency as well as helping it survive in today’s competitive market place. This paper illustrated that private sector firms may always attract wider population of employees because of their pay scale higher than that of public sector firms. But in contrast, public firms must always be capable of attracting and retaining better workforce for the benefits they offer to employees. As compared to the benefits provided in private sector, public sector employees are getting more benefits of paid leave, life insurance, health care and retiree benefits. This paper highlighted that American employees working in public sector have added advantages of more access to benefits such as life insurance, paid leave, pension and health insurance. This paper recommends to further study on how different employee benefits both directly and indirectly influence employee behavior in terms of motivation, satisfaction, attraction, retention, and skill-enhancement and so on. It is important to explore in to how and why employees are looking for certain benefits such as pension even though payments from the same job are relatively less than other jobs. References Bergmann, T.J, Bergmann, M. A and Grahn, J. L, 1994, How important are employee benefits to public sector employees, Public Personnel management, EBSCO database Bureau of Labor Statistics, 1995, Employees Benefits Survey: A BLS reader, U.S. Department of Labor, Bureau of Labor Statistics Bureau of Labor Statistics, 2012, Employee benefits in the United States, March 2012, News Release, U S department of Labor Carrigan, M. D, 2011, Motivation In Public Sector Unionized Organizations, Journal of Business Se Economies Research, EBSCO database Clark, R. L and Morrill, M.S, 2010, Retiree Health Plans in the Public Sector: Is There a Funding Crisis?, Edward Elgar Publishing Coggburn, J.D, Daley, D.M and Kearney, R.C, 2012, Public Sector Retiree Health Care Benefits: A View from the American States, Public Personnel Management, EBSCO database Disney, R, Emmerson, C and Tetlow, G, 2009, What is public sector pension worth?, The Economic Journal, EBSCO Data base Edwards, C, 2010, Employee Compensation in State and Local Governments, Tax and Budgets, Cato Institute, Retrieved from http://www.cato.org/pubs/tbb/tbb-59.pdf Garman, E.T & Forgue, R.E, 2007, Personal Finance, Ninth edition, Cengage Learning Georgellis, Y, Iossa, E and Tabvuma, V, 2010, Crowding Out Intrinsic Motivation in the Public Sector , Journal of Public Administration Research and Theory, EBSCO database Greenberg, W, 2002, The Health Care Marketplace, Beard Books Hurley, R.E, Felland, L and Gerland,A, 2006, Public Employees' Health Benefits Survive Major Threats, So Far, Health Affairs, Market Watch, EBSCO database Keefe, J, 2012, Are public employees overpaid, Labor Studies Journal, School of Management and Labor Relations, Rutgers University, EBSCO data base Milkovich and Newman, 2004, Compensation, Eighth edition, The McGraw Hill Companies Moore, P, 1991, Comparison of State and Local employee benefits and private employee benefits, Public Personnel Management, EBSCO database Noe R.A, Hollenbeck J.R and Gerhert B (2003), Fundamentals of Human Resource Management, The McGraw−Hill Companies, Irwin Reddick, C.G, 2009, The importance of employee health benefits to public and private sector organizations, Public Personnel Management, EBSCO database Schulz, J.H and Binstock, R.H, 2008, Aging Nation: The Economics and Politics of Growing Older in America, JHU Press Waitrowski, W.J, 2001, Comparing employee benefits in the public and private sectors, Monthly Labor Review, EBSCO database Willet, M, 2006, Baby Boomers’' Retirement: The Impact on Public Employee Pensions and Benefits, benefits and Compensation Digest, International Foundation of Employee Benefit Plans, EBSCO database Read More