MILLER MANUFACTURING COMPANY
CASE STUDY – 10 Points
You are the Director of Employee Benefits for the Miller Manufacturing Company (MMC) and report to the Senior VP of Human Resources.
MMC was founded in 2000 and manufactures pumps, valves and mechanical switches used throughout the world. MMC holds several patents developed by the founder, Harry Miller, who is the Chairman. The day-to-day operation of the business is run by Mr. Miller’s son, Harry Jr., who at age 46 has been the CEO for the past 8 years. MMC has been consistently profitable, with a 10-year growth rate in earnings per share of 22%. In 2010, the company went public, with 60% of the shares held by institutional investors. 10% of the shares are held by the MMC Employee Stock Ownership Plan (ESOP) and the remaining 30% held by the Miller family. MMC has 1600 employees worldwide with all manufacturing done in two plants located in North Carolina (650 employees) and Ohio (400 employees). The corporate offices consist of 150 salaried exempt and non-exempt employees located at the Ohio plant. The corporate group includes the corporate staff and the centralized sales and customer service functions. The balance of the salaried employees (400) consists of sales and service representatives stationed worldwide. MMC has no unions at the present time. The current MMC benefits program is detailed later in this document.
You have just returned from a meeting with the CEO and the Senior VP of Human Resources. You have learned that MMC has been contacted by Olson-Young Enterprises (OY), located in Santa Clara, California. OY was founded in 2008 by an electronics engineer who had previously worked for MMC in the early 2000’s. OY manufactures electronic switches for pumps and valves. MMC does compete with OY, but OY has had problems in recent years with product quality and customer service. The market for electronic switches is growing at about 30% per year with most of the current market share held by one company in Japan. OY is the only US manufacturer and has a 15% market share. OY has 300 employees; all are located in the US. Their sales and service outside of the US is handled by a network of nonemployee, contracted representatives. OY is privately held, with only 10 shareholders.
Earnings at OY for the five-year period were reported as follows:
2017
2018
2019
2020
2021
Sales Revenue (millions)
14.6
15.3
12.7
11.5
10.4
Earnings (millions)
.5
1.1
(1.3)
(2.4)
.2
OY froze their defined benefit final average pay pension plan in 2016 with an unfunded liability at the time of $550,000. They continue to make annual contributions to fund that obligation. They have 10 unionized employees in the shipping department of the Santa Clara facility represented by the Teamsters. Details of the OY benefit program is detailed later in the document. Of note, unionized employees are covered by their Teamsters Union health, welfare and a flat rate defined benefit pension plan.
Benefits costs for the organizations are different. For MMC salaried and hourly employees, the cost of benefits is $.35 on the $1.00. At OY, the officers and salaried program costs $.42 on the $1.00 while the hourly Teamster program costs $.38 on the $1.00.
Your CEO thinks that the acquisition of OY would help to position MMC in the electronic switching business for pumps and valves and that its product line would fit nicely into its existing world-wide sales and service network. OY holds three patents on switch design and has a new switch design that will revolutionize switch technology. MMC is very interested in OY and wants to move quickly to finalize the acquisition.
Your boss has asked you to review the available employee benefits information and provide a report to him regarding the acquisition of OY.
Workforce Profiles
MMC
OY
Male
Female
Total
Male
Female
Total
Executives
17
3
20
Executives
5
5
10
Professional
130
30
160
Professional
15
5
20
Sales/Service
340
60
400
Sales/Service
10
15
25
Supervisory
95
15
110
Supervisory
5
30
35
Production
520
290
810
Production
70
110
180
Clerical
4
96
100
Clerical
0
20
20
Unionized
0
0
0
Unionized
9
1
10
Number
1106
494
1600
Number
114
186
300
Percent
69%
31%
100%
Percent
38%
82%
62%
MMC
OY
Males
Females
Males
Females
Single
8%
12%
Single
23%
40%
Married – no children
12%
40%
Married – no children
60%
20%
Married – children
79%
40%
Married – children
15%
30%
Single parents
1%
8%
Single parents
2%
10%
100%
100%
100%
100%
40% married with working spouse
60% married with working spouse
Age
MMC
OY
Under 25
5%
10%
25 – 35
10%
60%
36 – 45
35%
15%
46 – 55
30%
10%
Over 55
20%
5%
Service
MMC
OY
Under 1 year
5%
18%
1 – 5 years
10%
80%
6 – 10 years
35%
2%
11 – 20 years
30%
21 – 30 years
15%
Over 30 years
5%
Average Service
13 years
3 years
Earnings Distribution
MMC
OY
Average Pay
$55,000
$52,000
Number Earning Over $200,000
20
10
Number Earning Over $75,000
63
11
Employee Benefits
MMC
OY
Life Insurance
Salaried – Amount equal to 1 times salary to maximum of $1,000,000
Hourly – $10,000
(both paid by company)
Optional term insurance equal to 1 or 2 times salary to a maximum of $1,000,000 (paid by employee)
Officers – $100,000
Salaried – $ 25,000
(both paid by company)
Hourly – Teamster benefits
Accidental Death and Dismemberment
Salaried and Hourly – Same as life insurance amount for both groups (paid by company)
All Officers and salaried employees covered for $100,000 (paid by company)
Hourly – Teamster benefits
Business Travel Accident
Salaried and Hourly – 2 times earnings to a maximum of $1,000,000 (paid by company)
None for either group
Short-Term Disability
Salaried – Up to 10 weeks at full pay then 60% of pay up to six months (paid by company)
Hourly – 60% of pay up to $850 per week for 26 weeks (paid by company)
Salaried and Hourly – 10 sick days per year. Any unused days paid in cash at end of calendar year (paid by company)
Long-Term Disability
Salaried – 60% of pay after 6 months of disability to a maximum of $15,000 per month; benefits to age 65 (paid by company).
Hourly – No LTD
Officers covered by individual policies that provide $10,000 per month after 6 months of disability; benefits to age 65 (paid by company).
Salaried and Hourly – No LTD
Health Care
Insured indemnity plan with claims paid and administration by Aetna
Covers Salaried and Hourly employees
Employee Contributions: Employee – none; Dependent – $25.00 per week
One HMO available with 6% of employees participating
Except for HMO’s, no wellness benefits
Self-insured PPO with stop loss insurance at $100,000 per employee. Claims paid by third party administrator (UHC)
Covers Officers and Salaried employees. Hourly employees covered by Teamster benefits
Employee Contributions: Employee only – $10 per week Employee and 1 dependent – $20 per week
Employee and 2+ dependents – $30 per week
Four HMOs available with 37% of employees participating
Wellness benefits in all plans as well as company programs
Medical Plan – In Hospital
Room at 100% of semi-private rate for 120 days; 100% of other hospital charges.
Surgical at 100% of scheduled benefit up to $50,000.
Doctors Visits (in hospital) at $100 per visit
Diagnostic X-rays and Lab at 100% up to $1,500 per year
In Network – All expenses covered at 80% after satisfaction of a $500 deductible per admission.
Out of network – All expenses at 60% after satisfaction of a $1,500 deductible per admission.
Medical Plan – Out of Hospital
Deductible at $250 per year per employee or $500 per family
Reimbursement at 80% up to a $5,000 out of pocket
RX coverage is subject to deductible and reimbursed at 80%
In network deductible at $250 per year per covered member with reimbursement at 80% to $1,500 out of pocket maximum
Out of network deductible at $500 per year per covered member with reimbursement at 60% to $3,000 out of pocket maximum
RX coverage is tiered program managed by a PBM with in and out of network copays
Hourly – Teamster benefits
Dental Benefits
Deductible at $25 per covered member, reimbursement at 100% for preventive and diagnostic with 50% for basic and major restorative.
$2,000 annual maximum
$2,000 separate lifetime orthodontic maximum
No deductible and 100% preventive, 80% diagnostic, 50% for basic and major restorative
$1,750 annual maximum
No orthodontic coverage
Hourly – Teamster benefits
MMC
OY
Retirement
Salaried – DB plan with 2% of 5 year FAE times years of services (fully integrated with Social Security)
Eligibility on date of hire
Vesting at 100% after 5 years of service
Hourly – DB flat rate of $15 per month per year of service
Eligibility on date of hire
Vesting at 100% after 3 years of service
Both Salaried and Hourly participate in MMC ESOP
Salaried and Hourly – Profit Sharing Plan with 10% of net profits in excess of $1,000,000.
Eligibility is at 1 year of service
Vesting is immediate
DB FAE Pension Plan was frozen in 2016
Hourly employees participate in OY Profit Sharing as well as a DB flat rate pension with Teamsters
Executive Physical Exams
None
Executive entitled to an annual physical at the physician of their choice (paid by the company)
Questions to answer for your boss:
Looking at the benefit programs offered by the companies, what do you think the benefits strategy of MMC and OY has been? Broadly describe the strategy and how you believe it aligns with what you know about the respective organizations?
Identify 3 benefit challenges and 3 benefit opportunities that are apparent when looking at combining the benefit plans at the two companies?
Identify 3 benefit challenges and 3 benefit opportunities that would exist if the OY employees were to become covered by the MMC benefit program.
Identify 3 benefit funding opportunities that are available at either company.
Assume the acquisition of OY goes through. Select 3 benefit programs and provide your recommendation on harmonizing those programs for the combined company.
Assume the acquisition of OY falls through. Identify 3 benefit changes that should be considered by MMC anyway?
Remember, you are writing a business report to your Senior VP of Human Resources that he/she will share with the CEO. Make sure you write clear, concise and carefully crafted and limit you work to no more than 3 to 4 pages.