Compensation and Benefits

 

Compensation

For an organization to effectively manage employee compensation, the employer needs to impact performance positively and understand the various aspects of compensation that can motivate employees and direct their behavior towards achieving organizational goals. Providing generous rewards can help retain employees and ultimately lead to job satisfaction, commitment, and loyalty. Compensation refers to workers’ reward for their service or contribution to the organization. Another author stated that compensation is a systematic approach to providing employees monetary value and other benefits in exchange for their work service (Adibah, et al., 2019).  

There are two types of compensation (Unmesh, 2022),

1.     Direct Compensation

·       Hourly – Gig workers, temporary workers, and contract workers are paid hourly regardless of their output.  

·       Salary – Employees, whether full-time or part-time, skilled, or senior managers, typically receive a fixed salary for their work. 

·       Commission – The commission is typically paid as a percentage of sales. The percentage is fixed for a certain number of items sold, but it may increase if sales targets are exceeded.

·       Bonuses – At the end of a financial year, many companies offer bonuses to their employees as a reward for their contribution to the company’s success.

·       Merit-Based Pay – employees who meet or exceed their targets or perform well receive merit-based pay (Unmesh, 2022).

2.     Indirect Compensation

·       Equity Package – Equity, which refers to a portion of the company in the form of shares, has become a common method of compensating employees.  

·       Stock Options – This type of compensation allows employees to purchase a fixed number of shares at a predetermined price after a specific period. Stock options do not imply ownership of the company.  

·       Benefits – Employee benefits typically include healthcare, insurance, mental health support, and retirement plans.  

·       Paid Time Off

·       Maternity Leaves (Unmesh, 2022)

Benefits

Employee benefits are non-wage rewards provided by an organization to its employees. These benefits are also known as indirect compensation, as they are given to employees through plans, such as health insurance, organization shares, and retirement benefits, rather than cash. Employee benefits are additional packages and employer practices supplementing employees’ cash compensation. They include health, income protection, savings, and retirement programs that provide security for employees and their families. Employee performance refers to an individual’s ability to successfully complete assigned tasks, subject to the reasonable use of available resources. Good employee performance can increase productivity and indirectly increase profits for the organization. therefore, it is important to reward employees for their hard work and good performance (Adibah, et al., 2019). 

Types of benefits,

1.     Medical Insurance

2.     Retirement Benefits

3.     Educational Incentives

4.     Well-being Benefits

5.     Volunteer Opportunities.

(Maggie & Wooll, 2021)

Difference between compensation and benefits.


Compensation is a vital aspect of the rewards provided by a company to its employees. Benefits are also part of compensation but differ in the rewards given. Compensation is usually given as monetary rewards, while benefits are non-monetary rewards. Employee compensation includes all forms of financial and significant benefits received by employees as part of their employment relationship. Direct compensation can be in the form of salary and wages, while indirect compensation can be in the form of welfare support facilities. Compensation includes remuneration and allowances, while benefits include promotions and incentives. For example, there is a difference between the government and private sectors. The wages and salaries of local and state employees are lower than those of private sector workers with comparable educational qualifications. However, the benefits, such as pensions, offered to public sector workers are better (Adibah, et al., 2019). 

References

Adibah, A., Adnan, A., Fadillah, I. & Norseha, S., 2019. The Effect of Compensation and Benefits Towards Employee Performance. Asian Conference on Humanities, Industry, and Technology for Society, ACHITS 2019, pp. 1-17.

Maggie & Wooll, 2021. The 6 types of employee benefits: How to go beyond the minimum. [Online]
Available at: https://www.betterup.com/blog/types-of-employee-benefits
[Accessed 5 December 2023].

Unmesh, L., 2022. Types of Compensation: Explained. [Online]
Available at: https://blog.darwinbox.com/types-of-compensation
[Accessed 5 December 2023].

 

Comments

  1. Mohammed MahdirazaDecember 9, 2023 at 2:42 AM

    Agreed, compensation and benefits are more important in an organization, one of the major factors which decide the employee retain in as well the attracting the new talents, according to Elizabeth Howlett (2023) More than half (58 per cent) of UK employers are increasing compensation, while 45 per cent have implemented employee recognition programs to boost talent retention, a survey has revealed. Recent time many government organization employees are protesting in Sri Lanka to improve their compensation and benefits, this measures the satisfaction of employees.

    ReplyDelete
    Replies
    1. T. Yohani ThathsaraniDecember 14, 2023 at 7:03 AM

      Thank you for your comment. I agree that compensation and benefits are important in retaining employees and attracting new talents to an organization. Interestingly, many employers address this issue by increasing compensation and implementing employee recognition programs. It is worth pointing out that employee satisfaction is directly linked to the recent pretests by government organization workers in Sri Lanka.

      Delete
  2. Dushantha SamarasingheDecember 18, 2023 at 2:13 AM

    I personally think compensation and benefits are most effective in an autocratic background as it will be the only motivation for employees who are not emotionally connected to the organization

    ReplyDelete
    Replies
    1. T. Yohani ThathsaraniDecember 18, 2023 at 6:29 AM

      Thank you for your valuable comment. I agree with you too.

      Delete

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