Compensation & Benefits: Definitions & Importance.
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Human Resource Management (HRM) has never been as significant as it is today. Companies want to attract, retain and motivate brains to meet objectives. Today Humans are regarded as one of every company’s assets so they need to be efficiently and effectively managed. One of the tools companies use to attract, retain and motivate its people is Compensation Management. In this hub, I shall define compensation and benefits along with their advantages for a company and its workers.
Suppose, you own a boutique. Lets call it myWear - or you can give it any name of your liking. You have hired three salespersons and a receptionist. The salespeople are responsible to look after the sales affairs. The receptionist's duties are to handle the cash and manage the account books. I shall refer to this illustration throughout the hub.
COMPENSATION:
Would the three salespersons and the receptionist work for free? No. They would, like us all, expect something in return. You must have heard a common phrase: Give and Take. You always have to give things to people in return to what you take from them. Compensation refers to this exchange, but in monetary terms. Compensation is the employer's feedback for an employee's work. It simply is the monetary value you would give to your four employees in return of their services.
Gary Dessler in his book Human Resource Management defines compensation in these words "Employee compensation refers to all forms of pay going to employees and arising from their employment." The phrase 'all forms of pay' in the definition does not include non-financial benefits, but all the direct and indirect financial compensations.
BENEFITS:
Employees today are not willing to work only for the cash alone, they expect 'extra'. This extra is known as employee benefits. Also known as fringe benefits, Employee benefits are non-financial form of compensation offered in addition to cash salary to enrich workers’ lives.
What benefits would you offer to your employees at myWear? Off course, you would offer different benefits to the salespersons and the receptionist. Problem will arise when you begin to decide what benefit to give to whom and on which basis? Employee benefits are not performance-based, they are membership-based. Workers receive benefits regardless of their performances. Employee benefits as a whole have no direct affect on employee performance, however, inadequate benefits do contribute to low satisfaction level and increase absenteeism and turnover in employees (DeCenzo and Robbins; 2007). So you would have to carefully design your benefit package. Your package may include a cell phone to each worker, taking them to a training workshop or seminar, giving them a day or two off every month and so on. While deciding on the benefits package, do consider the associated costs.
ADVANTAGES OF COMPENSATION & BENEFITS
Advantages to Your Boutique:
A well designed compensation and benefits plan helps to attract, motivate and retain talent in your firm (which is myWear). A well designed compensation & benefits plan will benefit your boutique in the following ways.
1. Job satisfaction: Your employees would be happy with their jobs and would love to work for you if they get fair rewards in exchange of their services.
2. Motivation: We all have different kinds of needs. Some of us want money so they work for the company which gives them higher pay. Some value achievement more than money, they would associate themselves with firms which offer greater chances of promotion, learning and development. A compensation plan that hits workers’ needs is more likely to motivate them to act in the desired way.
3. Low Absenteeism: Why would anyone want to skip the day and watch not-so-favorite TV program at home, if they enjoy the office environment and are happy with their salaries and get what they need and want?
4. Low Turnover: Would your employees want to work for any other boutique if you offer them fair rewards. Rewards which they thought they deserved?
Advantage to Your Employees:
1. Peace of Mind: your offering of several types of insurances to your workers relieves them from certain fears. Your workers as a result now work with relaxed mind.
2.
Increases self-confidence: Every human being wants his/her efforts to get acknowledgment. Employees gain more and more confidence in them and in their abilities if they receive just rewards. As a result, their performance level shoot up.
I hope this hub added to your knowledge of compensation management.
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CommentsLoading...
Thank you Mr. hafeezm for your reading the hub...
That's great NNazir, when you compensate your employee's poorly there will be always a high turn over with a short period of time and this would hinder your company's effectiveness, I find this hub useful and keep it up
Well explained compensation. can you provide some more explanation on " how to control that high turn over? "
Thank you oderog for your valuable comments
Malik Tahir: The best way to control the high turnover is to design a 'fair' compensation plan.
By fair I mean that The employee shouldn't perceive he/she is not receiving what he/she deserved.
In the given illustration how can u develop a fair plan?
Provide a salary + commission package. This means provide salary floor and commission in addition to that.
2. In addition, u must train them to SELL efficiently and effectively.
3. Developing a sales pipeline takes time, don't push too hard.
4. They will ONLY b loyal with myWear - your boutique - if they believe they have a FUTURE and ample of development chances.
I hope I've answered your question.
really it knwolegdable for the studnt of MANGNT scince
Thank you very much Asif.
Your comment is very valuable.
it is very knowledgeable for management sciences students
Thank you Madiha
thank you...your facts help me a lot in my research...
jomarie - Thank you v. much. These r solely not my facts. I cited the sources from which things were taken.
Not bad NNazir, when are you writing more hubs? i wouldn't mind reading more of them!
G Miah
Thank you v. much
Do expect My next hub 'Parts of Salary' soon, Inshallah.
Excellent explanation of terms.
lovelypaper: Thank you v. much & Excellent Comment :)
Mr. Nnazir this is a very interesting topic & u explain it really well.
Thank u v much Mr. Zubair Khan...
Very nice information and useful. Thank you for sharing this with us. Good work.
lctodd1947 - Thank u v much...
A nice hub - basically it all comes down to showing respect and compassion-share value and you will receive value.
its helped to me. thank you very much
Shiva Kumar-You're Welcome...
Thank you for stopping by...
Hi Nazir-I have recently signed with hubpages and happened to come across your article on executive compensation trends more relevant.keep up the good work.
Thank You for and interesting hub. GBY
shakthiprasad - Welcome to the community. And thank you v much for your reading the hub.
stars439 - You're Welcome! And Thank you for the compliment...
great work,this article has contributed to completing my course work at postgraduate school
Perfect and very beneficial post Mr. Nazir... I liked it so much...
hi,nnazir it'reaily great thought about compensation , i am impressed.
This interesting topic is very well-versed.that's great.
very usefull
i enjoyed
and will read and read
thx
thank you, Shashi and ingi yousry for your valuable comments.
I thank Allah u find the article interesting.
Moses-It's really an honor for me..
Mohammad S. and Anju Mishra -
Thank you v. much but i need u all to help me make it better..and write on things that benefit u professionally as well as personally..
Hi Sir NNazir,
I would just like to ask if you could possibly differentiate a Salary scale from a job grade... for me to clearly workout on the making of which...
I had really hard time.
thanks so much
Tere
ma.theresa_lerias - Thank you for your time.
Job Grades: After u've determined (Job Evaluation) the value of all the jobs u group jobs with similar responsibilities and duties. All the jobs form grade structure.
Jobs with higher responsibilities and duties are given higher grades (of coarse, are offered higher pay & benefits)
the grades may be named: OG2, OG3 etc OG2 called an Assist Manager & OG3 a Manager etc. Depends on the company policy.
Example: A company divides all the jobs in seven grades. The Job Resp and Job specification of each grade is different.
Salary Scale: Each grade is associated a salary scale. An Assistant Manager at the State bank of Pakistan is paid between PKR25000 to PKR40000. So how does the company determine how much to pay within the grade? it depends on factor such as experience, technical and other skills.
Hope this'll help u.
simply super i is very much usufull for me to do my project in the topic compensation and benefit thankyou very very much
Very well explained..Wud like to see more articles from ur side...Thanks
@vedha.s...
Praise for Allah Almighty the article was useful for you for your project.
you're welsome vedha.s!
and thank you very very much for your time :)
Nice write up. Well explained!
Tx a lot for sharing this and it was sooooooooo useful for my term paper, highly appriciated if you would able to put moer articales on performance based reward system.....
Tx a million
why that compensation and benefit are important in human resource management?
hey......very informative.thank u very much u'v just help me clear my ideas regarding compensation and benefits..its actually my report in class this friday...Allah bless
Good Explanation & Information Regarding Compensation Mgt In HRM
hii , i am doing now a diploma in hrm , and what you explain really helped me alooooooooooooot, really thanks, but please can you also explain performance appraisal and give some example of it i feel that i w can understand it more and i will really be very great full this is my email ranaaljack2011@hotmail.com
Excellent! Even my colleague who attended a whole workshop particularly on this topic got confused while explaining the true difference between compensation and benefits, which you have done it so simply and beautifully, while not complicating or over lapping any part. I never stick to reading an article till the end...but this time I did. :) well done!! and Thankyou for helping confused people like us ... :)
I cant find your next hub Mr NNazir, "parts of salary"...
Opeyemi
Thank you very much..All praise to Allah...
Opeyemi: Thank you very much for your time and comment. :)
Sadhna: Thank you very much for your time & comment.
I was having a very hard time with writing and my health. I had an accident on July 24, and the result was a femoral neck fracture. Praise to Allah, I'm quickly recovering.
Inshallah, I will continue writing on compensation & benefits.
jing: Thank you very much for your time & comment.
Glad to read there is no ambiguity of thoughts in your mind about compensation & benefits.
Praise only to Allah!
M IFTIKHAR ALI: Thank you so much for your comment & time.
Rumesa: All praise to Allah! We cannot do anything if Allah doesn't want us to.
You're welcome Rumesa, and thank you for your time & your motivating comment.
Yes, as managers we need to clear our minds about the two concepts.
Today's workplace environment is quickly changing and is very competitive. Employees switch organizations the moment they see a better opportunity. If our company doesn't offer a compensation package as good as our competitors, then undoubtedly we're helping them to make the decision today than tomorrow. And we can't plan great with ambiguous concepts and confused minds.
should sales force compensation be linked with customers feedback? what are the advantages and disadvantages of this approach ?
Useful, very very useful.thanks,it has really helped me with my long essay.thanks
very nie sir.to shre google thanks
nazir bhai its tooo good / fantastic
i m studying in business administration in final semester my speacialisation is human resource and i have make a report on compensation and reward can please help me..
Thank you for your time Modesta bron
Praise to "Allah! it helped you with your long essay. you are Welcome!
Thank you mumtaz khan inqulab for your time.
Thank you mohmmad sahil for your time and comment.
Yes, I will help you, Inshallah!
I'm an MBA in HRM and Marketing myself.
I will guide you to the door, Inshallah, you will have to walk through it.
This is really helpful; thanx
Your hub were very interesting and the illustration simple and understandable.
Muhammad, Enny
Thank you very much for your time and liking the hub
Hi, Is anyone here doctoral student in HR?
I need help in making my PhD research proposal.
Thanks.
This page was very helpful, its too short though just as I was enjoying it its finished.
it really helped me in ma project work
Really nice info..........thank you
hafeezrm Level 5 Commenter 2 years ago
A nice hub from NNazir. Difference between compensation and benefit is well explained.