ORGANIZATIONAL RESEARCH PAPER
1.0 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 (Free management library, section 2.)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. Common forms of benefits include; medical insurance, dental insurance, life insurance, maternity leave and pension pay
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 benefits can be thought of as a type of compensation.
2.0 Body
2.1 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 individual’s skills and their level of experience. The most common form of this type of compensation is the basic salary. 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 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.
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.
2.2 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.
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.
2.3 Improving Benefit plans
In order to improve compensation and benefit plans one must consider some of following factors such as the kind of employees present in the organization. This can assisting in defining in the package what will be attractive to which kind of employee.
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
Considering the kind of needs the employee requires, helps the organization to come up with a very effective and improved benefit scheme package.
3.0 Conclusion
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 struggle 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
1. Mondy, R.W (2010)
Human Resource Management (Edition 11).
New Jersey;
Prentice Hall
Print.
2. Sheri Mazurek.
Employee Benefits and Compensation (Employee Pay)
Free Management Library
Management.org/pay and benefits/index.htm
1550 hrs 11th November
3. Wikipedia
Compensation and Benefits- Wikipedia Search
en.m.wikipedia.org/wiki/Compensation_and_benefits
1620hrs 11th November 2012.
