Employee Benefit Plans

‘Employee Benefits’ refers to various types of non-wage (non-financial) compensation provided to employees in addition to their normal wages/salaries and performance bonuses. Examples of these benefits include: housing (employer-provided or employer-paid), group insurance (health, dental, life, etc.), disability income protection, retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid and non-paid), social security, profit sharing, funding of education, and other specialized benefits.

These benefits are, obviously, an important component of your employee motivation system. Therefore, they must be analyzed and managed as an investment – with all usual KPI. Analyzed in terms of incremental value added.

In other words, when analyzing your employee benefits system, you have to ask yourself the following questions:

How efficient is our employee benefit system in terms of generating an incremental financial value compared to motivation system that includes no benefits? How much incremental financial value does each new benefit add?

‘Employee Benefit Plans’ account on your balance sheet (often called ‘Pension Benefit Obligation’ or PBO for short) contains the amount of money a company must pay into a defined-benefit pension plan to satisfy all pension entitlements that have been earned by employees up to that date.

The PBO must be calculated by a competent actuary (a finance professional who deals with the financial impact of risk and uncertainty), who must use the optimal methodology and efficient tools to come up with a reliable PBO value. Some of the assumptions an actuary will use to calculate the PBO include, but are not limited to, the estimated remaining service life of employees, salary raises and the mortality rates of employees.