Employee Compensation & Benefit Management

Employee Compensation and Benefit management is a major Human Resources Functions for an organization. HR Managers with the direct support of top management of an organization are responsible for developing & sustaining an effective compensation & benefit package for different positions of the organizations.

By going through the below write up we will get detail information on the following topics:

  • What is Employee Compensation & Benefits?
  • Components/Elements of Employee Compensation
  • Types of Employee Benefits
  • Objective/ Importance of Employee Compensation & Benefits

What is Employee Compensation & Benefits?

Employee Compensation

The term Compensation can simply be defined as the financial return employees receive over a period of time in exchange of the services rendered by them in an organization. It includes all forms of financial returns and payments that employees receive as part of the employment terms & conditions.

So Compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, medical allowance, special allowances, bonus, incentives, commissions etc.

It is an important function of HR to structure/develop and implement an effective compensation package for attracting and retaining competitive workforce in the organization. Through developing effective Compensation packages company can provide adequate, equitable and fair remuneration to the employees.

Employee Benefits

Besides Compensation in the form of salary/wages, employee benefits are additional facilities/services and payments provided to an employee as part of the employment contract. Employee benefits may be required by law of the country or provided voluntarily by the employer.

According to Cockman, “employee benefits are those benefits which are supplied by an employer to or for the benefits of an employee, and which are not in the form of wages, salaries and time rated payments.”

Nowadays employee benefits are regarded as an important tool to retain employees and to improve the productivity and performance of employees in the organization. Due to increased competition for good candidates, the benefits an employer provides for a particular position play an important factor in attracting applicants.

From an employee’s point of view, a good package of benefits from the organization increase standard of their living and contribute to their own health and that of their family. From an employer’s point of view, benefits help staff remain happy and committed, reducing the chance of their leaving the organization.

Common employee benefits includes Free lunch or lunch at subsidized rates, medical facilities, Insurance facilities to employee & their family members, retirement benefits (provident fund, gratuity etc.),maternity leave, childcare, free education to employee’s children, housing accommodation, paid vacations ,subsidized gym memberships etc.

Components/Elements of Employee Compensation

Employee compensation is one of the most valuable and important function of human resource management.

Compensation is a payment made in cash to the employee in return of the contribution that he/she makes in the organization. Compensation package includes a base pay as well as variable pay components.

Major components of employee compensation are as follows:

1. Base Pay Structure(Wages & Salary) which includes

  • Basic Salary
  • House Rent Allowance
  • Medical Allowance
  • Conveyance Allowance
  • Other Allowances

2. Variable Pay Packages which includes

  • Overtime Payment
  • Bonus
  • Incentives/Reward
  • Commissions
  • Profit Sharing Payments
  • Stock Options
  • Travel/Meal/Housing Allowances
  • Different Types of Benefits

Types of Employee Benefits

An organization provide various benefits to their employees to retain them in the company and maintain their living standard with that of others of same status in the society.

Major benefits offered by employers to employees are listed below:

  • Retirement benefits such as Provident fund, Gratuity, Pension scheme etc.
  • Free medical facilities to the employee and the close members of his/her family.
  • Free lunch or lunch at subsidized rates offered to the employees.
  • Group Term Life Insurance and Health Insurance premium is provided by the employer for their employees. Thus Employees are insured for life against accidents, illness or natural death.
  • Leave Travel Allowance scheme is implemented by many organization for paid holidays to the employees.
  • Different types of leave like Casual Leave, Sick Leave, Earn leave, Maternity leave (for female employees) and government holidays are provided to the employees for enjoyment & refreshment. Payment of un availed earned leave is paid after completion of the year.
  • Employees are provided Paid Vacations once or twice in a year.
  • Childcare facility is provided for getting effective job performance from a female employee( mother of the baby)
  • Allowance for children education or Free education to the children of the employees are provided by the employers. Scholarships to the meritorious students of the employees are also given.
  • In many organizations Full time Car/Transport facilities is provided to senior level employees. Company may bear all expenses associated with car like drivers salary & allowances, fuel cost, maintenance cost, car document renewal cost etc. Otherwise company provides a fixed amount to the concern official to bear all the expenses related with the Car.
  • Free transport service is provided to the employees by the employers. This service is mainly provided to the employees for attending their duties in the office or factories. This service may be free or provided at subsidized rates.
  • Corporate mobile SIM card is provided to the employees and the bill is paid by the company.
  • Housing accommodation benefit is provided to the employees at free of subsidized rates.
  • In some organizations study leave is granted. In some cases company sponsors the employee for higher studies and bears all the expenses of his education.
  • Subscriptions for professional association is sometime borne by the employers.
  • Employee Training related cost at home or abroad is borne by the company.
  • Recreational facilities and programs like picnic, day long outing, family get together, leisure trip at home or abroad etc. are arranged by the employers.
  • In relation to company business trip overseas travel allowance on daily basis is provided to the employees.
  • Employees are provided salary advance from the company to meet urgent family requirement.
  • Employees are provided loan facilities from the company for purchasing of flat, land, car etc. or meeting emergency family needs.
  • Employees are provided Membership of social/cultural clubs
  • To get much benefits from an employee for some specific job category company may allow Flexible office timing Schedules to the employeee.

Objective/ Importance of Employee Compensation & Benefits

Companies engage employees to achieve their organizational goals and people join companies to earn money & build their career. Apart from the company’s reputation and job outline, the compensation package offered to the employee is the key in attracting people to work for the organization. The more rational competitive compensation and benefit package offered to employees, the scope of getting more effective & efficient employees for a vacant position is increased.

Besides, for retaining good & effective employees in the organization a standard compensation and benefit packages need to be developed & sustained for different positions of the organization. An effective compensation & benefit package create value to the organization in the following ways:

Increasing motivation of the existing employees

Properly compensated employees certainly add value to the company. When employees are valued, they feel good about coming in to work joyfully and perform their assigned job responsibilities enthusiastically. Overall morale of the employees increases and they are self-motivated to perform jobs effectively.

Attracting & Appointing Top Talents from the Market

Most of the potential candidates are in search of jobs where they can be comfortable with compensation package. These types of really potential candidates knows their ability as a job performer and select the right company which can full fill their demand.

So, HR Managers of a professional company should make compensation package survey of similar nature business competitors and design their pay structure for different positions of the company as the best fit to attract the most potential candidate from the market. Hiring the perfect candidate through this process decreases recruiting budgets and helps the organization to make the job done for the specific position successfully.

Establishment/Creating of Employee Loyalty

If a company develop competitive compensation package and the workforces are being paid well and feel contended, they are likely to stay with the organization for a long period. Proper compensation is one of the major factor for which workforces remain with the employers. Employees don’t think of leaving the organization and provide their best effort to perform assigned jobs.

As a result employee turnover become very less and company needs to give less attention in recruitment related jobs and hiring cost is minimized. A loyal and dedicated workforce work as a team and provide best output for the betterment of the company.

Increase Employee Productivity

Satisfied/contended employees are the most productive group of employees of an organization. If an employee is properly compensated s/he will give maximum effort to perform assigned job responsibilities successfully. Appropriate compensation package is the main motivational factor for an employee to provide maximum productivity.

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