Compensation and Benefits

Figure 01: Meaning of Compensation and Benefits (Miftah, 2021)


What is Compensation and Benefits in HRM?

In HRM, compensation and benefits relate to the pay, monetary, and non-monetary benefits that an organization provides to its employees at work. It is a key tool used by Human Resource Managers to help individuals reach their full potential at work. In some ways, it works: 'Better remuneration and benefits, better performance and retention!' Compensation and Benefits handles everything from internal motivation to increased production. Compensation is the advantage that an employee receives in exchange for the service that he has delivered to the business in broad terms. (Azmi, 2021)

Difference Between Compensation and Benefits

Compensation can take the form of monetary or non-monetary benefits. Benefits are never monetary in nature. Compensation is a monetary reward for the work that an employee does for a company. Benefits are a form of indirect compensation for their efforts.

Objectives of Compensation

Compensation has four basic goals: to focus your employees' efforts, to attract quality employees, to retain top performers, and to motivate your employees. The abbreviation FARM stands for focus, attract, retain, and motivate, and it can be used to describe these goals.

Focus - By rewarding desired actions, you can encourage performance on certain objectives.

Attract - If you don't pay a competitive wage, you'll be at a disadvantage when it comes to hiring on the free market.

Retain - A goal is to have a low turnover rate. You'd like to keep your best employees.

Motivate - Good performance is rewarded with fair recompense. Money is not the most powerful motivation, but it can become an issue if it is insufficient. (Dorf, 2010)


Compensation and Benefit Components

An employee's entire compensation and benefits plan consists of various components. Benefits can be provided to employees in a variety of ways. It is usually expressed in terms of a CTC or gross salary. (mbaSKOOL, 2022)

The following are some of the different components of compensation and benefits.

Fixed Pay - This is the employee's basic salary plus extra set components, regardless of other factors. The employment contract expressly states this. This is the remuneration, salary, or wage that an employee or worker will receive for the duration of his or her employment with the company. Fixed salary is usually the most important part of an employee's compensation and benefits package. (mbaSKOOL, 2022)

Variable Pay - This is the additional pay given to employees based on their performance, the company's performance, and other factors. Variable compensation inspires employees to perform even more because it is dependent on individual performance. (mbaSKOOL, 2022)

Equity Pay - Employees are given shares in the company, usually at a reduced price. Employees are expected to profit from the company's growth and stock price appreciation. This is typically presented to senior executives who have worked for the company for a long time. (mbaSKOOL, 2022)

Medical - Medical insurance is now included in most firms' pay packages. Medical benefits include health insurance, free checkups, and medical facilities on campus, among other things, to keep employees safe and motivated. (mbaSKOOL, 2022)

Accommodation - Many companies even provide housing for their staff. This can take the shape of a company-provided location or the employee being able to claim the rent and lease amount according to the company's regulations and procedures. Many organizations even provide employees with a car or taxi service to get to work. (mbaSKOOL, 2022)


Conclusion

To assist firms grow greatly in the future, every company must implement the 'compensation and benefits' policy. Let's say you want to keep your top employees for the long haul. Because of rival firms' lucrative packages and other incentives, the organization's greatest talent is always on the point of being attracted. In that scenario, enlisting their services through Compensation and Benefits is a wise decision! It will also assist businesses in growing and progressing more quickly. (Azmi, 2021)


(https://www.youtube.com/watch?v=iY6e_NDCJgM)


References

Azmi (2021) What is Compensation and Benefits in HRM Objectives, Examples [Online] 
Available at: https://www.startuphrtoolkit.com/compensation-and-benefits-in-hrm/
[Accessed 02 May 2022]


Dorf (2010) Compensation 101: Compensation Definition and Objectives [Online] 
Available at: https://compensation.blr.com/Compensation-news/Compensation/Com-pensation-Administration/Compensation-101-Compensation-Definition-and-Objec/
[Accessed 02 May 2022]


mbaSKOOL (2022) Compensation & Benefits Meaning, Importance, Types & Example [Online] 
Available at: https://www.mbaskool.com/business-concepts/human-resources-hr-terms/4032-compensation-a-benefits.html
[Accessed 02 May 2022]


Miftah (2021) Meaning of Compendation and Benefits [Online] 
Available at: https://pyjamahr.com/components-of-employee-compensation-and-benefits/
[Accessed 02 May 2022]


YouTube (2013) COMPENSATION AND BENEFITS - HRM Lecture 05 [Online]
Available at: https://www.youtube.com/watch?v=iY6e_NDCJgM
[Accessed 01 May 2022]

Comments

  1. MafazMay 4, 2022 at 11:04 AM

    Hi Jaliya,

    A really interesting topic. When discussing about compensation and benefits the three theories: reinforcement and expectancy theories, equity theory and agency theory can be highlighted. According to reinforcement and Expectancy Theories an employee will be motivated an performance will increase by a monetary reward. Therefore, outcome-oriented contracts seem to be an obvious solution as these are interdependent.

    ReplyDelete
    Replies
    1. Jaliya RajaguruMay 6, 2022 at 5:31 AM

      Very detailed comment Mafaz. Thanks for sharing your valuable knowledge about nthiw topic.

      Delete
  2. Sachini GamageMay 4, 2022 at 9:33 PM

    In HRM, compensation and benefits relate to the pay, monetary, and non-monetary benefits that an organization provides to its employees at work. It is a key tool used by Human Resource Managers to help individuals reach their full potential at work. this will directly effect to the company productivity as well. Interesting topic Jaliya. Good Luck!

    ReplyDelete
  3. Pasan NanayakkaraMay 5, 2022 at 2:33 AM

    Providing direct compensation and benefits is a key method an organization management or an employer use to make its employees feel valued within an organization. It is an important method used in any organization to motivate and increase employee loyalty in any organization. As mentioned in this article, this method is important in keeping the highly valued talents within the organization for the long run. Great article.

    ReplyDelete
  4. Venushka BandaranayakeMay 5, 2022 at 8:06 AM

    The more the compensation and benefits offered to employees, the more is their loyalty, and motivation to work and do well. However, companies that offer lesser salaries see a high attrition rate and less productivity from employees.All the best.

    ReplyDelete
  5. H.M.W.IRESHA MBA24May 6, 2022 at 8:17 PM

    The goals of compensation are to attract people to work for your organization and to retain people who are already working in the organization. Compensation is also used to motivate employees to work at their peak performance and improve morale. Timely valuable topic & clear explanation, good luck,

    ReplyDelete
  6. Suresh HerathMay 7, 2022 at 11:00 AM

    Employee loyalty and motivation to work and perform well increases as remuneration and benefits are increased. Companies that pay lower compensation, on the other hand, have greater staff turnover and lower productivity.

    ReplyDelete
  7. Tharindu L BandaraMay 7, 2022 at 11:41 PM

    Hello, In order to help companies grow massively in the future to retain employees longer, each company must implement a compensation and benefit policy. You have explained its importance well here. All the best!

    ReplyDelete
  8. Niluke SirimannaMay 8, 2022 at 9:12 AM

    Compensation and benefits will motivate and satisfy employees, and they will be less likely to explore for possibilities outside the company, resulting in them staying on the job for longer.

    ReplyDelete
  9. Jaliya RajaguruMay 8, 2022 at 9:19 AM

    Thank you for sharing your knowledge about this topic.

    ReplyDelete

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