AT&T's compensation and benefits structure

AT&T's Compensation And Benefits

AT&T Compensation and Benefits Plans

Any company is obliged to present any prospective employee an offer regarding the compensation and benefits attributed to the respective position. Such aspects are established by law. But lately, employees have become more and more attentive to the section regarding the compensation and benefits in their work contract.

When agreeing to occupy a new work position, individuals are not only interested in their wages or other basic benefits. Employees have learnt to diversify their needs and to request special benefits and compensation plans.

The range of employee benefits includes:

Retirement plans

Health life insurance

Life insurance

Disability insurance

Vacation

Employee stock ownership plans

There are other types of benefits that employers grant their employees. However, such benefits are more and more expensive for employers to support, and employees' options modify frequently. All these have lead to the introduction of flexible benefit plans (McNamara, 2008).

Because of the fact that some benefits are federally required, like unemployment and worker's compensation, they are considered to be basic rights and not actual benefits that reward employees. The most important types of benefits include all types of insurances, vacation pay, holiday pay, maternity leave, contribution to retirement. Although profit sharing, stock options, and bonuses are benefits, some people regard them as being forms of compensation.

The most important forms of compensation include:

Salary ranges for job descriptions

Merit-based programs

Bonus-based programs

Commission-based programs

Compensation takes the form of base pay or variable pay. Certain plans include both types of pay. In order to provide the best compensation plan to each employee, most companies associate the compensation ranges with the jobs descriptions in case.

AT&T's compensation and benefits plans

AT&T's compensation and benefits plans are mainly consisted of:

Pension benefits

Postretirement benefits

Obligations and funded status

Plan assets

Supplemental retirement plans

Non-U.S. plans

Contributory savings plans

Stock-based compensation

Pension benefits

All of the company's employees benefit from one of the company's noncontributory pension plans. The employees that work in the management level are covered by a pension plan that is calculated based on a traditional pension formula, like a stated percentage of employees' adjusted career income, and a frozen cash balance or defined lump sum formula (at&T, 2007).

A few years ago, the company decided to modify this plan for management employees, and to freeze benefit accruals previously earned based on a cash balance formula.

Postretirement benefits

The company provides its employees a series of medical, dental, and life insurances. However, such plans are only available for certain retired employees. These benefits come in the form of diversified plans and accrue actuarially-determined post retirement benefit costs.

Obligations and funded status

The subject takes into consideration "defined benefit pension plans, the benefit obligation is the projected benefit obligation, the actuarial present value, of all benefits attributed by the pension benefit formula to employee service rendered" (at&T, 2007).

The company pays a great deal of interest to these retirement plans. This is revealed by the annual cost of these plans. In other words, the costs attributed to these sections have increased each year, as it follows: the net pension and postretirement cost (benefit) has increased from $135 in 2005 to $608 in 2007, after a $78 decrease in 2006. The postretirement benefits have increased from $1,201 in 2005 to $1,557 in 2006 and $1,686 in 2007.

In 2007, the assumptions used in determining the projected benefit obligation, the net pension and post employment benefit cost were: discount rate for determining projected benefit obligation - 6.5%, discount rate in effect for determining net cost - 6%, long-term rate of return on plan assets - 8.5%, composite rate of compensation increase for determining projected benefit obligation and net pension cost - 4%.

However, other costs have decreased compared to previous years. For example, the health care cost trend rate assumed for current year for retirees of 64 and under decreased from 6.43% in 2007 to 5.76% in 2008. In the case of retirees of 65 and over, it decreased from 7.5% in 2007 to 6.36% in 2008. The rate to which the cost trend is assumed to decline was maintained at a constant level of 5% in 2007 and 2008.

Given the company's financial situation and the current global economic conditions, it is estimated that the compensation and benefit costs will decrease in the following years. The company estimated the following evolution:

Pension benefits: $4,964 in 2008, $4,841 in 2009, $4,864 in 2010

Postretirement benefits: $2,520 in 2008, $2,636 in 2009, $2,733 in 2010

Medicare subsidy receipts: $120 in 2008, $130 in 2009, $140 in 2010

The company is very active in the stock-based compensation plan. This type of compensation is encouraged by the company's board of directors. The compensation cost in 2005 reached $143, in 2006 it reached $301, and in 2007 it reached $720.

Advantages and disadvantages

The advantages of the pension benefit plans offered by at&T to its employees are more visible for the employees that occupied managerial positions prior to their retirement. For example, the existing cash balance for each employee continues to earn interest at variable annual rate. As a consequence, "those management employees, at retirement, may elect to receive the portion of their pension benefit derived under the cash balance or defined lump sum as a lump sum or an annuity" (at&T, 2007).

There are several disadvantages regarding at&T's offer of compensation and benefits plans. For example, in the case of mergers, the recognition of a new liability or asset by the acquirer does not take into consideration the following items:

Previously existing unrecognized net gain or loss

Unrecognized prior service cost

Unrecognized net transition obligation

Recommendations

AT&T's human resources strategy can be easily deducted from its compensation and benefits plans. For example, the company pays more interest to post retirement benefits that to post employment ones. The company wants loyal employees to work here for as long as possible. They want to make their employees want to retire from this company and to dedicate themselves to this company.

The company does not seem to want short-term or medium term employees that are motivated by substantial gains on a short or medium term basis. But this might not be a suitable strategy for the company and the field it activates in, given the economic and financial situation worldwide.

It is recommended that the company modifies the strategy on short-term. The current financial crisis will affect att&T also, and the company must adapt to the new requirements. The company must maintain at least a stable situation for the moment.