Organizational Research Paper
Introduction
Compensation is the rewards received by an employee in return for his/ her contribution to the organization .It is usually a monetary reward to the employee for their services and it basically involves salary structures. The most common forms of compensation are wages, salaries and tips ( Mazurek, 2012).Benefits are other non-monetary forms of value that are provided by the employer to the employee in return for their contribution to the company. Some of the more common for of benefits include; insurance (which encompasses medical, dental, life, disability, accident, unemployment etc.) dental insurance, vacation pay, holiday pay and maternity leave.
Compensation and Benefits can be referred to as a sub-discipline of human resources management. And it is at times referred to as ‘total reward’ or ‘remuneration’. According to HR experts compensation is thought as the whole package received by an employee; ‘It can be considered as the combination of all pay, salary, benefits, bonuses and any other type of reward an individual receives for their work or services’ (Mondy,2010, p.268).Thus compensation can be thought to generally refer to all the different rewards received by an employee at a given time. Thus benefits can be thought of as a type of compensation.
The Basic Components of Employee Compensation and Benefits Plans
Compensation and benefit plans can generally be categorized into four main categorize. These being;
a) Guaranteed Pay
This is a monetary/ cash reward given to the employee by the employer for the services offered. It is based on the minimum wage and an individual’s skills and their level of experience. The guaranteed pay can again be partly determined by the employer- employee relationship. The most common form of this type of compensation is the basic salary. This kind of compensation is made out to the individual regardless of whether or not their work load reduces or increases. Others include seniority allowance which is based solely on employer/employee relation.
b) Variable Pay
It is also a monetary/cash reward that is based on discretion, performance or results achieved. The most common types of variable pay include: bonus schemes, sales incentives (i.e. commission), overtime pay. This type of compensation is based on the performance of the individual in their given role.
This type of compensation can be seen in industries such as real estate where individuals receive a percentage of the amount they bring in.
c) Benefits
Benefits are non-monetary programs offered by employers to supplement their compensation. They are designed to address a specific need of the employee. They include a variety of types; paid time-off, life insurance, medical/dental insurance, work disability insurance, company car, pension plan, tuition reimbursement, daycare, sick leave, flexible and alternative work arrangements(Estreicher & Reilly, 2010).
d) Equity-based Compensation
This type of compensation uses employer’s shares as employee compensation .The most common form includes stock options. Others are restricted stock units (RSU), Employee stock purchase plan (ESPP) and stock appreciation rights (SAR).The main objectives of equity based compensation are; retention, attraction of new hires and aligning employees’ and shareholders’ interest. That is to say, the employees are better motivated since they are part of what is at stake (Estreicher & Reilly, 2010).
Advantages and Disadvantages
Compensation and benefit plans have a number of advantages but they also do have disadvantages. These include;
a) Advantages
For the Employer
One of the main advantages and principally the main reason of compensation and benefit plans is to give the company the ability to recruit and retain highly qualified employees.
• Another advantage is to improve employee productivity by insuring them security and peace of mind through use of these plans.
• Providing benefits to employees is seen as managing high-risk coverage at low-costs and thus easing the company’s financial burden.
• Premiums are tax deductible as corporation expense, which means savings for the organization.
• A well-implemented benefit plan can ensure sustainability of the organization. By retaining unique specialized skills, even long after the employees have left. This is by skills are passed to the next generation employee while slowly phasing out the old ones (Estreicher & Reilly, 2010).
For the Employee
• Compensation and benefit plans have led to peace of mind of employee and employee satisfaction. These factors increase employee productivity.
• Employees with personal life and disability insurance can enjoy additional protection including income replacement in the event of serious illness or disability.
• Employees feel a sense of pride in their employers. This assists them to look forward to doing their best.
b) Disadvantages
• Compensation and benefit plans of any kind are complex to some degree. This is especially so when there are a variety of elements included in the package
• If it is not well thought out or well-implemented, significant cost can be incurred when implementing benefit plans.
• Another disadvantage can be seen in misuse of company resource by employees who can cost the company.
Improving Benefit Plans
As a compensation and benefits manager, when outlining a compensation and benefit package, one must consider a variety of factors. These include;
Type of employees- understanding the type of employees present in your organization can assist one in developing an attractive benefit package for the employee. Most of todays’ organizations include up to three different generations working together at the same time. Therefore when outlining the needs of these employees one could opt to give different packages to different groups. Example the single and young type employees’ package could include entertainment allowance and bonus giveaways such as computer devices as opposed to the package of a married middle aged employee, whose package should be more leaned towards certainities such as medical insurance and pension plans.
Using benefit packages as a motivational tool- in order to effectively use and improve benefit packages, the manager must not only view benefits as an incentive to the employee but must also view it as a motivational tool. For example as opposed to giving equal pay rises to all employees, one can choose to give higher pay rise to certain employees according to their performance. This also effectively sends the right message to the under-effective employees and can again assist to keep the organization within budget while still keeping a highly motivated staff. This is ofcourse so if the package is well executed.
Friendly and effective communication helps to clearly define the extent to which the packages cover and this kind of correspondence can help the organization improve its benefit packages from suggestions by employees. This again avoids any misunderstanding between the employee and the employer. Considering the kind of needs the employee requires, helps the organization to come up with a very effective and improved benefit scheme package (Estreicher & Reilly, 2010).
Considering the kind of job categories present in the organization- outline the various jobs in the organization can help assist and organize the benefit packages that the organization proposes to offer to the employees. This helps to easily outline who gets what and who deserves what.
Conclusion
The idea of compensation and benefit packages arises for the basic fact that recruiting and retaining a highly motivated and effective staff is an expensive affair. Their objective, thus, is attract and retain qualified staff. Compensation as seen above is the wholesome returns received by an employee for their services offered this including direct and indirect rewards. While many organization struggles with offering competitive compensation packages and consider wages as a key consideration in targeting employees. The understanding that other factors such as quality of life and organizational culture are important to employees today, will help companies sail through and effectively retain their staff. This concept of improving employee performance using incentives is what led the introduction of other forms of compensation that we see today. And it is based on the works of Frederic Skinner from which most of the plans were designed from.
References
Estreicher S & Reilly D.J.(2010).Employee Benefits and Executive Compensation : Proceedings of the New York University 59th Annual Conference on Labor: Alphen aan den Rijn, Netherlands: Kluwer Law International.
Mazurek S.(2012).Employee Benefits and Compensation (Employee Pay).Retrieved from: http://managementhelp.org/payandbenefits/index.htm
Mondy, R.W (2010).Human Resource Management (11e.d).New Jersey: Prentice Hall.
