Blog 7 - Compensation and Benefits
Compensation and Benefits
Difference between compensation and benefits
Compensation
|
Benefits
|
Monetary value
|
Non-monetary value
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Compensation is performance based
|
Benefits are not performance based but membership based
|
Employees cannot determine their compensation
|
Employees can determine their benefit packages and are entitled to
them
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In piece-rate compensation plan, pay determined by contribution made
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No benefits at all
|
Meant to attract as well as to retain talented workers.
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Meant to motivate as well as to improve welfare of employees
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Pay offered on weekly, fortnight as well as monthly bas
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Benefits can come separate from actual pay earned by the employee
|
(Mark, T. 2019).
How do HR Departments calculate
compensation and benefits?
A
compensation specialist will use salary surveys to help her determine a market
rate. A salary survey asks many businesses to share their compensation data for
positions. The data is then anonymized and sold back to businesses. In this
way, a company can determine that the average rate for a junior accountant is
$X, while the average rate for a marketing manager is $Y.
Because positions vary from company to
company, you cannot just look at the salary survey and base all your salaries
on the average salary for someone with that title. A marketing manager at a
Fortune 500 company will have a very different job description than a marketing
manager at a 25-person business.
Compensation managers will determine
not only an ideal salary for a position but a salary range. Because candidates
vary wildly, it doesn’t always make sense to pay different people the same
amount. One person may have more experience and better skills than another and
deserves a higher salary. Each range has a mid-point, which you may hear as a
compa-ratio. If you have a compa-ratio of 100 percent, that means you are at
the midpoint of the salary range.
Compensation managers often use statistical tools, such as regression
analysis, to establish a proper salary position. The variables that
the regression use can include
·
Highest degree earned (and type and degree area)
·
Years of experience
·
Tenure with the company
·
Position tenure
·
Current salary
·
Full-time equivalent status
·
Exempt vs. non-exempt status
·
Grade level or salary band classification
·
Employee location (if you have multiple
locations)
·
Job performance ratings
In addition to salaries, stocks,
retirement benefits, health insurance, and any other benefit are included in
compensation figures.
Importance of compensation and
benefits
The
more the compensation and benefits offered to employees, the more is their
loyalty, motivation to work and do well. However, companies which offer lesser
salaries see a high attrition rate and less productivity from employees. All
these factors help in making compensation and benefits an important factor
in managing workforce. Salaries of employees are defined by several parameters
like experience, education background etc.
In
senior management, skills like team management, communication management,
leadership, time management etc. are also considered while finalizing the pay
package.
(MBA Skool Team, 2022)
Compensation and 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.
Some of the various components of compensation and
benefits are mentioned below:
1. 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.
2. 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.
3. 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.
4. Medical
5. 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.
6. 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.
Conclusion
To assist firms, develop greatly in the future, every
organization must implement the 'compensation and benefits' in its policies.
Assume your company wants to keep its finest employees for the long term
without any issues. Due to the good packages and other incentives offered by
rival organizations, the organization's best talent is constantly on the point
of being attracted. In that scenario, hiring their services through
Compensation and Benefits may be a wise decision! It will also assist
businesses in achieving more growth and advancement.
References
MBA Skool
Team, (2022). Compensation & Benefits Meaning, Importance, Types &
Example
Mark, T.
(2019, October 18). Difference Between Compensation and Benefits. Difference Between Similar Terms and Objects.
http://www.differencebetween.net/business/difference-between-compensation-and-benefits/.
Vulpen, E (2019) A Full Guide to
Compensation and Benefits
Employee desire to perform successfully is largely influenced by wages and benefits. This is due to the fact that it has the potential to improve the employee's life and ensure their future. As a recompense and benefit, the employee will improve their performance in order to receive a bonus or promotion. Good article. All the best.
ReplyDeleteThank you Nishantha
DeleteAs discussed above, Compensation and benefits are an important part of human resource management because they help employees stay motivated. It assists the organization in rewarding its personnel based on their performance. This will increase employee engagement and morale. However compensation and benefits have to be transparent and fair to all employees. Good article Venushka
ReplyDeleteThanks Dilini
DeleteCompanies hire people individual to achieve their organizational goals and people join companies to earn money & build their career. One of the biggest factors why people join companies in the compensation and benefits, salaries, perks, incentives etc. which is given to them. Apart from the company's reputation and job profile, the money offered as a salary is pivotal in attracting people to work for the organization. 👍
ReplyDeleteThanks Lakshitha
DeleteEvery organization must implement the 'compensation and benefits' in its policies to keep their well efficient people in the organizations. otherwise they will leave to the another company. the well compensation's organizations are supporting to the staff & as well as their families.you have nicely briefed the topic .
ReplyDeleteThanks Wasantha
DeleteFor the organizational success and development every company should implement the compensation and benificts there are didifferent between conpensation and benifict.conpensation and benifts process is responsible for organization HR department in your article you have well explained .
ReplyDeleteThanks Shashitha
DeleteEmployees are rewarded for their achievements through the salary and benefits processes, which bring transparency to Human Resources. Compensation and benefits give managers the tools they need to make a difference among employees by fostering a high-performing corporate culture within the company.
ReplyDeleteAn interesting topic. Good job Venushka
Thanks Anuradha
DeleteCompensation and other rewards and benefits are widely use in HR function mediating equipment to solve various HR related issues such as employee motorization, employee retention, work-life balance, to reduce work place stress etc. You have identified the impotence of compensation and benefits. An interesting and comprehensive topic. Well done. All the best.
ReplyDeleteThanks Amila
DeleteCompensation is a direct payment for the work done by an employee of the company. This is the main reason for an employee to doing a job. This blog clearly identified the importance of compensationa and benefits. Interesting article.
ReplyDeleteEvery company should adopt compensation and benefits for organizational performance and development. Compensation and benefits are distinct. The HR department is in charge of the compensation and benefit procedure, which you have properly explained in your post.
ReplyDeletePeople won’t work for you without pay. And unless you’re a non-profit organization, it’s illegal to ask them to work for you for free. There is a social contract between the employer and employee, where the employee puts in the work and the employer rewards this. Compensation and benefits are an important part of that equation.
ReplyDeleteWell done!
Compensation and other awards and perks are frequently used in HR function mediation equipment to handle various HR-related difficulties such as employee motorization, retention, work-life balance, and stress reduction at work, among others. You've recognized the futility of pay and perks. A fascinating and extensive subject.
ReplyDeleteAs all employees are focused on job perks, this is an interesting issue for every employee. Employee attraction and retention for any organization will be determined by the employment perks supplied by the organization. You have chosen an interesting topic and discussed many types of work advantages. Excellent initiative
ReplyDeleteProviding proper compensation and benefits to employees is essential in retaining and recruiting talented and employees to an organization and HRM is key in managing the company HR policies. This is a great article that shows the importance of compensation and benefits as well as the components of compensation and benefits. Well done.
ReplyDelete