05 Jun Question The Context You are the Director of Human Resources at a large,
Question
The Context
You are the Director of Human Resources at a large, global company that employs thousands of people. The CEO has asked you to consider a new employee benefits program for the company and is open to your suggestions and analysis. To guide you, she has asked you to tackle a few different issues, per the questions that follow.
Please treat each question separately. That is, do not use the information provided in a particular question or your answers from a particular question in any other question, unless otherwise specified.
•You should answer each part of every question. Remember that you must show your work to get full credit.
• Please label your answers when appropriate. For instance, if the question asks “how much money …?” your answer should include a dollar sign.
Question 1. (9 points)
If you were to implement a new employee benefits program, there would be significant upfront and annual costs, but also significant benefit. The CEO is insistent that any new project yield a positive net present value.
After a little research, you believe the following to be true:
• The upfront (immediate) costs would total $5 million
• The only other costs would be the annual administrative cost, totaling $600,000 in the first year and increasing by 5% for each subsequent year
• The benefits to this project would be $1.3 million in the first year and increase by 6% for each subsequent year
a) Very briefly describe three positive outcomes of the new benefits program that might be included within the annual benefit calculation. That is, name three “good things” that might arise due to the program. (1 point)
b) Does the investment yield a positive net present value? If your answer is “it depends,” then clearly describe the dependency. Please make sure to clearly explain how you arrive at your answer and that you clearly identify and explain any additional assumptions or information you incorporate into the problem, should you feel it necessary to do so. (8 points)
Question 2. (6 points)
One particularly difficult aspect of analyzing the likely effectiveness of a new benefits program lies in knowing how many people will take advantage of each “sub-program” (e.g., health insurance, tuition reimbursement, on-site child care, etc.). With current data, you can estimate the inflow and outflow from only two benefits sub-programs: health insurance and tuition reimbursement.
A quick extrapolation from historical data shows that – in any given year – you expect to add 110 employees to the health insurance sub-program and 560 to the tuition benefit sub-program. In any given year, you expect to lose 3% of enrollees from the health insurance sub-program and 23% of enrollees from the tuition benefit sub-program.
a) What is the long-term equilibrium enrollment in the tuition reimbursement sub-program? (2 points)
b) You believe that the ideal number of employees in the health insurance sub-program is 8,000. Assuming that you can alter the number of employees that enter the health insurance sub-program each year, but not the percentage of health insurance enrollees you lose, how many new employees would you need to add each year to yield a long-term equilibrium of 8,000? Assume here that you must add the same number of employees each year. (2 points)
c) If the number of annual additions to each sub-program were reduced by 10 (that is, resulting in 100 new employees for health insurance and 550 new employees for tuition reimbursement), which sub-program’s long-term equilibrium would be more greatly affected? (2 points)
Question 3. (6 points)
The CEO has expressed some reservation about the existing tuition reimbursement program, which is quite expensive. The program provides full reimbursement for courses taken at any accredited institution of higher education. She asks you to provide some feedback on the program’s successes.
Every year, you distribute an employee survey to get feedback on employees’ satisfaction with their jobs. You happen to know that the CEO is extremely interested in employee satisfaction. She has long made it a priority to do everything she can (within reason) to ensure that employees are happy at work. Since you have data on employee satisfaction and employees’ use of the tuition benefit, you think perhaps some analysis could be useful.
Assume for this question that employees’ responses on the survey accurately represent their true level of satisfaction. Through some basic statistical analysis, you learn that employees who use the tuition benefit program (that is, they attend an institution of higher education and request reimbursement) report much higher levels of job satisfaction than those who do not use the tuition benefit program.
When you present the CEO with this information, she says “Let me ruminate on this for a while.” A week later, she replies: “Based on the information you’ve given me, we need to keep the tuition reimbursement program. I place a very high value on happy employees and I believe that the value of the increased employee satisfaction for those who use the tuition reimbursement program is well worth the cost of the program.”
a) Provide a brief critique of the CEO’s use of your analysis to arrive at her decision to keep the tuition reimbursement program. Assume that she has no additional information on the relationship between employee happiness and participation in the tuition reimbursement program. (4 points)
b) Describe how additional data collection and analysis might improve the CEO’s decision-making process regard
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