Importance of Compensations and Benefits

 

What is compensations & benefits?

Compensation and benefits refers back to the compensation/salary and different economic and non-economic benefits passed on with the aid of using a corporation to its employees in go back for his or her services. Compensation and benefits is a crucial thing of HRM because it facilitates to preserve the body of workers encouraged are the maximum crucial hygiene factors. It facilitates supply advantages to employees primarily based totally on their overall performance and moves and brings the best out the employees at workplace (Odunlade, 2012).

Importance of compensation & benefits:

Companies hire people individual to attain their organizational desires and those be part of groups to earn cash & construct their career. One of the largest elements why people be part of groups in the compensation and advantages, salaries, perks, incentives etc. that is given to them. Apart from the company's recognition and task profile, the cash provided as a profits is pivotal in attracting people to work for the organization. The more the compensation and advantages provided to employees, the greater is their loyalty, motivation to work and do well. However, groups which give lesser salaries see an excessive attrition rate and much less productiveness from employees. All those elements assist in making compensation and advantages critical element in handling workforce. Salaries of employees are described through numerous parameters like experience, training history etc. In senior control, abilities like crew control, verbal exchange control, leadership, time control etc. also are considered even as finalizing the pay package.

Compensation & benefits components:

There are several components in the overall compensation and benefits plan of an employee. There can be several ways where benefits can be given to employees.

Mostly it is given in terms of a gross salary.

Some of the various components of compensation and benefits are mentioned below:

·       Fixed Pay

This is the basic salary plus other fixed components paid to the employee irrespective of any other factor. This is stated clearly in the employment contract. This is the compensation or salary or wage which an employee or a worker will definitely get as long as he or she is an employee of the company. 

Fixed pay is mostly the largest component of the compensation and benefits package offered by an organization to an employee.

·       Variable Pay

This is the additional compensation paid to employee based on employee’s performance, company performance etc. Since variable pay is based on the performance of an individual, it motivates the employees to perform even better.

·       Equity pay

Employees are awarded shares of the company, often at a discounted price. Employees are expected to make money out of them by the appreciation of the stock price and the growth of the company.

This is mostly given to the senior management who have served the company for a long time.

·       Medical

Medical is part of the compensation package for most of the companies now. Medical includes the health insurance, free checkups, medical facilities on campus etc. which keeps the employees safe as well as motivated.

·       Insurance

As discussed in the previous point. Medical insurance is part of the package these days. Many companies also offer insurance for parents and siblings as well or at subsidized rates. Even other insurance can be included.

·       Accommodation

Many companies even offer accommodation to employees. This can be either be in the form of a company provided place or the employee can claim the rent and the lease amount as per the company rules and policies.

Many companies even provide car or taxi facilities to employees to reach office.

 

Types of compensation:

Based on the seniority, responsibility and position of an employee, there are various types of plans:

·       Executive compensation for CEOs, managing directors, chairman etc. Mostly salaries and perks are decided by the committee.

·       Workers compensation is the salary and wages provided to employees and workers.

Difference between compensation & benefits:

Both the factors are important in motivating employees for doing their work and paying them for the services they are doing for the company. However, there is a slight difference between compensation and benefits.

Compensation is completely related to the money which is being paid to an employee i.e. salary, bonuses etc. On the other hand, benefits are the non-monetary incentives given to employees like health benefits for which the employee doesn't have to pay.

For an example, a company offers a salary package to an employee which has both compensation structure and benefits plans. The compensation plan would entail the components like fixed pay etc. and benefits would include medical insurance and work from home etc. 

Furthermore, this can be concluded as follows;

Compensation	Benefits
Compensation is an umbrella term used to describe anything that an employer gives an employee in exchange for their labor.	Benefits form a subset of compensation.
Compensation is a way for an organization to attract the best talent.	Benefits are used as a means to motivate employees to perform better.
Compensation can be monetary or non-monetary.	Benefits are always non-monetary.
Compensation is a direct payment for the work an employee performs at a company	Benefits are an indirect payment for their work.
Compensation is usually fully taxable, or a part of it can be exempt from taxation	Benefits can be tax-free or partially exempted from taxation

 

How do compensation & benefits ensure the success of a business?

There are many parts that determine an employee’s compensation and benefits package at a company. It is important for an HR professional to establish that their company offers competitive compensation and benefits packages and communicate this to current and potential hires (Iyer et al., 2003).

Having clear guidelines around compensation and benefits provide two distinct advantages to a company. First, they are able to attract and retain the best talent in their industry, as discussed above. Second, it provides companies a clear look into how much compensation and benefits account in their overall operating expenses and can ensure they are maintaining revenue at a level as to be able to afford to compensate their employees competitively.

Bibliography:

Iyer, A., Leach, C. W., & Crosby, F. J. (2003). White Guilt and Racial Compensation: The Benefits and Limits of Self-Focus. Personality and Social Psychology Bulletin, 29(1), 117–129. https://doi.org/10.1177/0146167202238377

Odunlade, R. O. (2012). Managing employee compensation and benefits for job satisfaction in libraries and information centres in Nigeria. Library Philosophy and Practice, 2012(1).