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Employee Compensation and Benefits

29 Jul 2016Career

What should be included in an organization’s plan for compensation and benefits? What are the major alternatives and factors an organization should examine? Include factors related to the attraction as well as retention of employees.

Every business organization needs the following resources in order for it to accomplish its goals:

  • a) machines;
  • b) funds and
  • c) personnel. 

The need to obtain these resources requires payments to the providers of these resources to induce them to supply these resources to the company.  The same is true with what Agha Sadaruddin calls the “people aspect”.  It is necessary that every company must have its own system of inducement – reward and compensation system, for it to obtain the best human resources they need.  The challenge however for every Human Resource Manager is how to attract, retain and motivate highly qualified and talented employees while at the same time controlling the company’s overhead expenses.

This essay is concerned with one of the most important functions of a Human Resource Manager in the arena of a very competitive working environment.  How to establish a plan for employee compensation and benefits that will attract, retain and motivate highly qualified and talented employees.

A company’s reward system refers to the totality of the inducements that a company must establish to enable it to attract people to work for the company, motivate them to perform well while working with the company and induce them to remain with the company for a long period of time.   Compensation is defined as what employees receive in exchange for their contribution to the organization" (Wether and Davis)  

It could be classified as either direct compensation or indirect compensation.  Direct compensation is that which relates to wages and salaries, incentives and gainsharing.  It is usually based on the performance of the employee.  It is suggested that the Human Resource Managers must establish a standard salary structure program that will fix the salary ranges for each position in the company. (Lee Ann Obringer, p.2)  The purpose of this salary structure is to establish the minimum and maximum levels within the pay range depending on the qualifications, work experience, and the skills of the employee.  It is also stressed that the salary structure program of the company must always be compared with the other companies engaged in the same industry so as to determine the level of competitiveness of the company’s compensation package. 

On the other hand, indirect compensation is that which is not related to wages and salaries or incentives and gainsharing, but employee fringe benefits that are given to employees as an incentive for becoming a part of the organization. Some benefits of direct compensation are insurance benefits, life, and disability insurances, mandated leave and benefits, retirement plans, vacation and personal days, holiday pay, leave of absence, employee services, and special programs.

Symbolic Rewards

Although it is true that most employees will prefer a job which proves a better and more competitive compensation package over another, it is not entirely true that the reward system of a company comprises only of the direct and indirect compensation system.  Every business organization must likewise attempt to satisfy the other needs of the employee such as the need for recognition, wholesome social interaction with fellow employees, and professional growth. An effective reward system is made up not only of the direct and indirect compensation system but it also includes such elements as recognition and symbolic rewards, and other non-economic inducements such as good working environment, pleasant work climate. 

Recognition coming from their employers is very important to every employee.  For some this recognition may even be preferred over the compensation system.  This could be done by giving promotion to am the employee who deserves it.  Promotion is almost always associated with salary increases as well.  In addition, those employees who may have performed extraordinarily for the company may be recognized through an award such as the Employee of the Month award.  Some companies also provide Service Awards for those employees who have rendered service for the company for a long time.  It must be stressed that these awards are capable of eliciting a higher level of commitment to the employees especially when the company itself accords so much importance to these awards.

Further, it is not only the compensation package and the formal recognition system that attracts, retains, and motivates highly qualified employees.  The working environment may also be one of the reasons why employees choose to stay or leave their workplaces.  The work environment may refer to either the physical working environment or the non-physical work environment otherwise known as the company culture. 

The physical working environment such as the fact that the company is relatively larger, more spacious, more pleasant and cleaner is a source of attraction for employees who are meticulous about their working environment.  The company culture is also important.  It bears stressing that every employee desires to work in a friendly and non-hostile work environment.  For the employees, they consider the work environment as their second home. Although we have different perceptions of the ideal work environment - some would like to work in a people-friendly environment one that gives emphasis on the relationship while others will prefer a more professional working environment where rules are strictly followed – the bottom line is that every employee dreams of working in a discrimination-free work environment.

I have described the various methods which employees may employ in order to attract, motivate and retain employees.  I have discussed that salaries or wages paid to employees for services rendered, benefits given to employees and monetary and non-monetary incentives all make up the compensation and benefits system which the company may induce workers to stay in the company and avoid the high cost of employee turnover.

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