Compensation and Benefits
Compensation
and benefits refer to the benefits a firm provides to its employees in exchange
for their labor. The compensation and benefits processes belong
to most important HR Processes, which are critical for the organization and
modern HR organization. The organization with effective compensation and
benefits drives its personnel costs, manages the performance of employees and
rewards the extraordinary performance.
Role of Compensation and Benefits in Human Resource Management
The compensation and benefits processes introduce the transparency into Human Resources and rewarding employees for the achieved performance. The compensation and benefits provides the managers with the compensation tools to build a difference among employees as the high performance corporate culture can be built in the organization. The compensation and benefits department monitors the external job market and optimizes the personnel expenses budget of the organization. The compensation and benefits defines the compensation strategy, sets the transparent and simple compensation policy and defines the general rules for the extraordinary payments, bonus schemes applied in the organization and introduces general other compensation policies like the Relocation Policy, Short-Term Assignment Policies, Benefit Car Policies and other.
When a person receive a job offer, the first thing he or she look at is the salary. Whether the recruiter lists the wage as an hourly, weekly, monthly, or hourly rate, candidates see it as the most critical part of any job offer. Typically, when employees think about compensation, the salary is what they think of. But, for many employees (especially senior employees) compensation is far more than just the regular paycheck. Benefits cover indirect pay. This can be health insurance, stock options, or any myriad of things offered to employees. All of these things are critical in any job offer. Two jobs that offer identical salaries may vary wildly in the benefits category, making one a better financial proposition than the other.
First, people won’t work
for the company without pay. And unless the organization is a non-profit organization,
it’s illegal to ask them to work for 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.
Compensation & benefits
and Employee Motivation
Researchers found that a 10
percent increase in base pay resulted in a 1.5 percent increase in the chance that the employee would stay at the company for their next
role, rather than moving on. While their findings were statistically
significant and turnover is expensive, it’s probably not enough to convince a
boss to give someone a 10 percent raise. Salary is clearly important, but there
are some things more important other than money.
Compensation can be
divided in to 02 main categories considering following factors,
Direct compensation. This consists of:
1. Salary. This is the base and
variable pay for work.
2. Rewards. Other monetary benefits
from working at the company, including health care, retirement pay, and
allowances.
Indirect compensation. This consists of:
1. Work-life balance. A good work-life balance
is crucial for a happy career.
2. Recognition. Recognition by
colleagues and supervisors, as well as external recognition for your job.
3. Development & career. Training and
development, mentor programs, talent (mobility) programs.
If the Management only look
at compensation when determining what makes employees happy, They will not get
the full picture. Total rewards look at how all aspects of an employee’s
work-life impact their satisfaction. As established above, pay and benefits are
not the only things that make employees happy. Management practices have
significant impacts on employee happiness and profitability and even reduced
workplace accidents. Ignoring the culture part of an employees’ total rewards
can reduce company performance and increase turnover.
Main Compensation Goals
The compensation
strategy has to set the main compensation goals
of the organization and they have to be kept as
the main target for Human Resources to be achieved. The compensation goals have
to be set in accordance with the business strategy and they have to visible in
the HR Strategy. The top management and Human Resources have to decide, what
the goals are of the compensation schemes in the organization. The compensation
goals should be aligned with the corporate culture and the general long-term
expectations of the employees, when the organization does not implement a huge
change in the corporate culture.
Main compensation goal is about the role of the compensation in the organization. Each organization pay salaries, but the role of the compensation has to be balanced with the other aspects of the overall motivation scheme applied in the organization. The organization has to choose to pay higher salaries and oer less development or career opportunities or it can offer lower salaries and better career opportunities to keep the motivation system balanced.
Types of Compensation &
Benefits
·
Overtime pay
·
Bonuses and commissions
(discretionary and non-discretionary)
·
Retirement (defined
benefit and defined contribution plans)
·
Stock options
·
Restricted stock
·
Vacation
·
Profit-sharing
·
Merit pay
·
Sign-on bonuses
·
Relocation bonuses
·
Housing, school, and meal
reimbursement
·
Healthcare benefits
(medical, dental, vision, etc.)
Salespeople, for instance, will need a commission plan that details what their commission is, and under what circumstances they receive it (is it when the paperwork for the sale is signed or is it when the customer pays?). Profit-sharing plans need to define what constitutes a profit, and when such, the company pays the bonuses.
Compensation in Human
Resources is a part of the complex HR
processes, policies and procedures. The top management and Human Resources have
to decide, what will be the primary role of compensation in the organization.
Some organizations prefer the supplementary role of the compensation and other
organizations prefer the dominant role of the compensation. This compensation
decision is extremely important as it sets the general framework for the
compensation components, if they will exist in the organization or they will be
the part of the other HR policy.
Managementhelp.org. (2020). Employee Benefits And
Compensation (Employee Pay). [online] Available at: https://managementhelp.org/payandbenefits/index.htm
[Accessed 10 July 2020].
HRM Handbook. (2020). Compensation And Benefits -
HRM Handbook. [online] Available at: https://hrmhandbook.com/hrp/compben/amp/
[Accessed 10 July
2020].
AIHR Digital. (2020). A Full Guide To
Compensation And Benefits | AIHR Digital. [online] Available at: https://www.digitalhrtech.com/compensation-and-benefits/amp/
[Accessed 10 July
2020].
Which kind of benefits new generation expects ..?
ReplyDeleteThank you Roshan for your question.
DeleteI think salary level, health insurance, and a retirement plan,job security, advancement within the company, and opportunities for work-life balance are the common benefits that new generation expects.
How do you practice compensation and benefits in your company among the team?
ReplyDeleteThank you Dilanka for your question.The answer for your question is, Understanding the budget, Consistently review employee compensation, Creating salary ranges & develop a plan
DeleteWhat are the modern Compensation methods?
ReplyDeleteThank you Buddima for your question.Employee Stock Option Plans, Flexi-time schedules, Incentive Schemes, Pay band system are the most common modern compensation methods.
DeleteAmila as you said there are two categories of Compensation. But most organizations don't give their attention for indirect compensation. What do you think of that?
ReplyDeleteThank you Manujaya for your comment.Actually that is a good point.Nowadays management of the companies are more focused on direct compensations.In short term they might get the benefit from that.When it comes to the employee retention with the company, Indirect compensations play a huge role.So when considering long term, not paying attention to the Indirect compensations will be a huge disadvantage.
DeleteAmila,comparing with the hierarchy of the organization the compensation also different to each grade.it is correct. But maintaining a huge different or gap with the parallel grades is unfair. What do you think about this?
ReplyDeleteYou are correct again Manujaya. HR Department of the organization must intervene & make adjustments to reduce the gap & make it fair for everyone.
DeleteAmila,What is compensation & benefits in human resource management?
ReplyDeleteThank you Upul for your question.Put simply, compensation covers people's direct pay, their salary. Benefits cover employees' indirect pay, things like health insurance and stock options but also social benefits such as parental leave.
Deletehi amlila,
ReplyDeleteHow is a compensation system linked to employee performance?
Thank you Hemantha for your question.Improved compensation system will make the employees feel valued & cared, which increases motivation and loyalty towards the organization. Not only employees are more motivated to do a good job, but also, the longer people are with the company, the more they know and the more efficient they become.
DeleteWhat are the principles of compensation management?
ReplyDeleteThank you Pubudu for your question.Here are some basic principles of compensation management.
Delete1. The priority level of wages and salaries must be reasonably in line with that happened in the market. The labour market criterion is most commonly used.
2. There should be definite plan to ensure that differences in pay for jobs are based upon variations in job desires, such as skill effort, responsibility or job or working environment, and mental and physical needs.
3. The plan should carefully differentiate between jobs and employees. A job carries a certain wage rate, and a person is assigned to fill it at that rate. Exceptions sometimes occur in very high-level jobs in which job-holder may make the job large or small, depending upon his ability and contributions.
4. Equal pay for equal work, i.e., if two jobs have equal difficulty requirements, the pay should be the same, in spite of of who fills them.
5. An equitable practice should be adopted for the recognition of individual differences in ability and contribution.
6. There should be a clearly established procedure for hearing and adjusting wage complains.
7. The wage must enough to ensure for the worker and his family can afford standard of living.
8. Punctual and right payments of the dues of the employees must be ensured and arrears of payment should not delayed.
Hi Amila, What is the purpose of compensation and benefits
ReplyDeleteThank you Eranga for your question.Simply compensation and benefits programs are designed to attract top talent and retain valued employees with the organization for a longer period.
DeleteWhich kind of benefits over 40 years employee expects?
ReplyDelete