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Employee Compensation and Benefits – An Understanding

What is Compensation and Benefits? Compensation and benefits is a branch of human resources that deals with the payments to employees and the provision of benefits. It includes the process of determining how much an employee should be paid and deciding what benefits should be offered and inclusions vis a vis the exclusions as well.

Compensation and benefits are crucial functions of human resource management. A rewarding compensation and benefits plan attracts high-performing candidates and helps foster staff motivation, retention and a positive workplace experience.

Compensation covers people’s direct pay, their salary, while benefits cover employees’ indirect pay, such as health insurance and stock options and  also social benefits that include the likes of parental leave, etc. Compensation is the financial value that a team member receives in exchange for their services. This monetary value can include wages, salary, commissions and bonuses. 

Benefits are non monetary, additional perks or rewards that a company provides for a team member. Certain benefits may have a financial value, even though a team member receives no cash. Examples of benefits with a monetary value include equity, stock options, health insurance and retirement savings plans. Non-monetary benefits may be a flexible working schedule, paid time off or learning and development opportunities.\

Employee compensation and benefits are divided into four basic categories 

  • Guaranteed pay 
  • The Variable pay 
  • Benefits 
  • Equity-based compensation

Why are compensation and benefits important?

Excellent compensation and benefits packages can differentiate an organisation from other employers in the marketplace. An organisation hires people to achieve its organisational goals, and candidates can join companies to earn money and advance their careers. Companies that develop a competitive and well-designed compensation and benefits strategy may enjoy these benefits.

While attracting high-performance candidates and improving retention organisations must continually recruit high-performance candidates and manage the retention of team members for longer continuity. Often, talented people know how to highlight their value and negotiate for the best compensation and benefits options. Compensation specialists consider a combination of compensation and benefits to recruit high-performance candidates and reduce staff turnover. A desirable mix of monetary and nonmonetary options can make an organisation more competitive in the marketplace, attract talent and reduce recruitment costs.

Motivated team members

When compensation is below then the average in any industry, organisations find it challenging to keep team members highly motivated. Fair compensation boosts morale and increases workplace satisfaction, which motivates people to deliver their best efforts, and improves employee retention. Besides direct compensation, benefits, such as a workplace gym, prepaid meals, additional paid vacation time or a gift card for achieving a goal, can motivate team members to perform their tasks.

Increased loyalty and engagement

When an organisation values and appreciates team members, it fosters a belief in the  overall mission, helps improve staff retention and increases loyalty and engagement. Examples of benefits that make people feel valued and understood in the workplace include stock options, flexible schedules, personal days, child care, gym memberships and product discounts. The benefit of a service recognition program is that it inspires loyalty and engagement and can improve staff retention.

Improved productivity

Team members who feel undervalued, spend more time on personal projects or offer a minimum service in proportion to their compensation. In contrast, a successful compensation and benefits plan rewards team members for their efforts and can inspire increased efficiency and productivity in the workplace. Performance-based reviews, sales incentives and team rewards can motivate team members and improve productivity.

Enhanced workplace experience

Although competitive compensation is essential, benefits such as health and wellness programs, paid time off, rewards and incentives can enhance the workplace experience and reduce absenteeism. For instance, offering insurance options benefits team members and can allow them to focus on workplace tasks. When team members are excited about coming into the workplace, they might provide better customer service and talk positively about the organisation to their friends and family.

Components of nonfinancial compensation

Many organisations understand the benefit of competitive financial compensation. Still, a well-structured combination of compensation and benefits can optimise engagement, productivity, absenteeism and financial resources and help meet organisational goals. 

Some benefits with no monetary value include:

Family leave: This benefit includes extended leave allowance for bereavement, maternity and paternity leave.  

Flexible working schedule: An organization can offer flexible work hours and the option to work remotely for a few days a week as long as team members complete their assignments on time. 

Paid time off: Depending on the length of service, organizations may allow team members to schedule paid days off for some personal time. 

Training and development: Employers develop training programs to enable team members to learn specific skills or gain knowledge to improve their performance. 

Use of company equipment: Some companies provide access to computer equipment, cell phones and tablets for the duration of a candidate’s service contract.

Thus a combination of compensation and benefits suit the employees and assist in building a strong portfolio, and is highly important and clear that this supersedes a part of the initial process establishment and what needs to be followed throughout by every employee and employer will have to understand what suits the best and work accordingly.


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