Compensation and Benefit Design Applying Finance and Accounting Principles to Global Human Resource Management Systems

Part 1

Chapter 1 Introduction: Setting the Stage     3

• The Cost Versus Expense Conundrum     4
• CAPEX Versus OPEX     7
• The Current HR Cost-Classification Structure     8
• The Current Accounting for Compensation and Benefit Cost Elements     12
• Key Concepts in This Chapter     23
• Appendix: The Terms     24

Chapter 2 Business, Financial, and Human Resource Planning     29

• The Overall Planning Framework     30
• HR Planning     34
• HR Programs     43
• Key Concepts in This Chapter     52
• Appendix     53

Chapter 3 Projecting Base Compensation Costs     55

• Base Salary Costs     58
• Key Concepts in This Chapter     67
• Appendix: Cash Flow Impact of Salary Increases     67

Chapter 4 Incentive Compensation     71

• An Introduction to Incentive Compensation Programs     71
• Accounting for Annual Cash Incentive Plans     74
• Key Incentive Compensation Metrics     77
• Free Cash Flow as an Incentive Plan Metric     81
• Economic Value Added as an Incentive Plan Metric     82
• Residual Income as an Incentive Compensation Plan Metric     86
• The Balanced Scorecard and Incentive Compensation     87
• Balanced Scorecard and Compensation     92
• Key Concepts in This Chapter     94

Chapter 5 Share-Based Compensation Plans     95

• Stock Award Plans     97
• Stock Option Plans     100
• Stock Option Expensing     103
• The Accounting for Stock Options     106
• Tax Implications of Stock Plans     112
• International Tax Implications of Share-Based Employee Compensation Plans     116
• Employee Share Purchase Plans     121
• Stock Appreciation Rights     122
• Key Concepts in This Chapter     126
• Appendix: Stock Options and Earnings per Share     127

Chapter 6 International and Expatriate Compensation     131

• The Background to International and Expatriate Compensation     132
• The Balance Sheet System     136
• Expatriate Taxes     143
• The Cost-Differential Allowance     151
• Global Payroll Systems     156
• International Pensions     159
• Global Stock Option Plans     161
• Key Concepts in This Chapter     164

Chapter 7 Sales Compensation Accounting     165

• General Accounting Practices     166
• Sales Compensation Plans     168
• Accounting Control and Audit Issues     175
• Other Salient Elements of a Sales Compensation Plan     177
• Travel Allowances     179
• Commission Accounting     183
• Key Concepts in This Chapter     185

Chapter 8 Employee Benefit Accounting     187

• The Standards Framework     189
• Defined Contribution Versus Defined Benefit Plans     190
• Section 965 Explained     191
• Calculating Plan Benefit Obligations     194
• Claims Incurred but Not Reported (IBNR)     194
• Other Benefit Obligations     196
• Additional Obligations for Postretirement Health Plans     197
• Self-Funding of Health Benefits     198
• International Financial Reporting Standards and Employee Health and Welfare Plans     201
• The Financial Reporting of Employee Benefit Plans     202
• Key Concepts in This Chapter     207

Chapter 9 Healthcare Benefits Cost Management     209

• The Background     209
• The Reasons for the Rising Costs     212
• Cost Containment Alternatives     214
• Forecasting Healthcare Benefit Costs     228
• Key Concepts in This Chapter     230

Chapter 10 The Accounting and Financing of Retirement Plans     231

• The Background     232
• The Accounting of the Plans     235
• The Pension Benefit Obligation     245
• Pension Plan Assets     253
• The Pension Expense     256
• The Accounting Record-Keeping     262
• Accounting Standards Affecting Pension Plans     265
• Key Concepts in This Chapter     266

Part 2

Chapter 11 Human Resource Analytics     271

• The Background for the Use of HR Analytics     272
• The Need for HR Analytics     273
• Measuring the Effectiveness of HR Investments     274
• Total Compensation Effectiveness Metrics     280
• A Changed Paradigm     284
• Key Concepts in This Chapter     285

Chapter 12 Human Resource Accounting     287

• The Background     287
• The Debate     289
• HR Accounting Methods     291
• Key Concepts in This Chapter     300
• Appendix: No Long-Term Savings from Workforce Reductions     301
• Conclusion     305
• An HR Finance and Accounting Audit     306

References     309

Index     323

Bashker “Bob” Biswas, Ph.D., is the Principal of the Biswas Group Inc., a Global Management Consultancy. Dr. Biswas concurrently holds the position of Visiting Professor at Keller School of Management at DeVry University in Sacramento, California.

Dr. Biswas has over 40 years experience in Total Rewards Management; Finance; Accounting; Executive Compensation; Base, Incentive, Sales and Equity Compensation; Human Resource Strategy; Human Resource Information Systems; International Human Resources; and International Compensation.

The companies he has worked for are Control Data, Bechtel, Memorex, Maxtor, Hitachi Data Systems and BioGenex, and Zain. Dr. Biswas has held positions at the Director level and above since 1982. At Maxtor and BioGenex he was a Vice President. While at Memorex and Zain, he worked out of London and the Middle East/Africa respectively. He has traveled to over 30 countries on variouscompensation and benefits related projects.

During his tenure in the Middle East, Dr. Biswas conducted Total Rewards and Global Human Resource Management Seminars throughout the Middle East and Africa. He was a leading instructor in the Zain Human Resource Management Academy.

In addition, he has held consulting positions at Skopos Corporation, a venture investment backed HRIS start-up cofounded by Dr. Biswas in 1983, at Coopers & Lybrand, and at PricewaterhouseCoopers. At Coopers & Lybrand, he was a Director of Human Resource Consulting in the San Francisco office and National High-tech Leader for Human Resource Consulting. Dr. Biswas was also responsible for the firm’s National Software Industry Compensation Survey. In total he has provided Compensation Consulting to over 40 companies.

Dr. Biswas has taught at various universities as an adjunct faculty member since 1984. He has authored and coauthored articles in Human Resource Management. Dr. Biswas also has presented at WorldatWork’s National Conference and briefly taught in their Certification Program.

Dr. Biswas holds a B.A., M.B.A., and Ph.D., and a post-graduate diploma in Industrial Relations.

He has been a member of WorldatWork (American Compensation Association) since 1972.