Categories: BUSINESS & FINANCE

Compensation and Benefits

“Compensation is considered to be the combination of all pay, salary, benefits, bonuses, and any other type of reward an individual receives for their work and or services,” (Mondy, 2010, p. 268). A comprehensive and well-balanced compensation and benefits package has many different components. It should be tailored and designed to complement the specific needs and wants of the individual who is receiving it. “In addition, a balanced compensation package should be diverse and offer a combination of direct and indirect financial compensation as well as nonfinancial compensation,” (Mondy, 2010, p. 7).

Direct compensation is the monetary compensation that individual receives from their employer in return for their time, work, and services. “Examples of direct compensation are wages, salaries, commissions, and bonuses. Indirect compensation is a form of financial benefit that is not in the form of money in an individual’s paycheck, commission or bonus check. These types of benefits should be considered as part of an individual’s overall compensation because they do add value for the employee. The fact that the employee is not having extra “money” added to their paycheck is also beneficial because it keeps them from paying more income tax.

There are legally required benefits and benefits that are voluntarily offered by the employer. Examples of legally required benefits include Social Security, Unemployment Compensation, Worker’s Compensation, and Family & Medical Leave. Examples of voluntary benefits include sick pay, vacation pay, holiday pay, health care, life insurance, retirement or pension plans, stock option plans, supplemental unemployment benefits, various types of employee services, superior pay, and various types of on-site services. Nonfinancial compensation involves the physical and psychological elements that an employee obtains from their specific job, profession, work environment, working conditions, organization’s culture, or relationships with fellow employees. Another example of a nonfinancial benefit is workplace flexibility which can include flextime, shorter workweeks, job sharing, telecommuting, and working a part-time schedule,” (Mondy, 2010, p. 269).

There are many considerations that can effect what an organization’s position will be regarding their compensation and benefits. “Some organization’s that offer higher wages and salaries than their competitors do so in order to draw individuals with higher levels of skill, education, productivity, and ambition. These organizations are considered to be pay leaders. In contrast, there are organizations that consistently pay the least amount to their employees, when compared to the rest of the industry, due to the fact that either their employees tend to be mostly unskilled workers or because they are financially challenged. These companies are considered pay followers. Then there are organizations that fall into the middle of the spectrum. These types of organizations tend to pay the industry average, or market rate, believing that it is possible to obtain appropriately qualified individuals and still remain aggressive against their competitors,” (Mondy, 2010, pp. 271-272).

Other factors that affect what an organization’s position will be include the level of management involved that determines the compensation amount. “Compensation decisions or selections at the executive level may provide uniformity throughout the organization, but other levels of management may be more in tuned to employee’s achievements and importance within the organization. Whether or not a company is in a financial position to pay more or less is also a deciding element in their compensation policies. Where the organization is located may be a determining factor in compensation levels due to the labor market located in that area. Some employers may use compensation surveys to determine how they want to structure their compensation packages, whereas others may simply use the current cost of living and the current state of the economy as deciding factors,” (Mondy, 2010, pp. 271-274).

As mentioned earlier, a compensation and benefits package should be tailored to the individual in question. An organization would not necessarily want to offer the same types of benefits to individuals of different age groups, lifestyles, or interests. A successful organization will be able to recognize the unique needs and wants of each potential employee and be able to design a package accordingly. For example, someone who is younger and new to the work force most likely would not need or want what an older individual who is closer to retirement would. For the purposes of this paper, three distinct groups will be discussed in terms of compensation needs. The first group will consist of young, single employees with higher technical skills; the second group will consist of middle aged, married employees who tend to be middle management level; and the third group will consist of older employees who are closer to retirement and tend to be upper management level.

The first group of candidates is more likely to have technically advanced skills, less experience, less personal responsibilities, more time to devote to building or developing their career, and less interest in retirement or pension plans and stock options. This group is more likely to have a lower base pay or salary mainly due to their inexperience, but may be attracted to different benefits and perks tailored to their unique interests. Some of the unique indirect benefits that may attract this group of candidates include an on-site gym, a state of the art or gourmet coffee/break room, vehicle allowance, cell phone allowance, company provided laptops and other high tech devices, company paid tuition, continuing education and/or advanced training, yoga and other types of stress reduction classes, on-site dry cleaning facilities, on-site beauty/barber salons, company sponsored fitness programs or events, and tickets to local sporting and cultural events, employee assistance programs (legal, family, financial), paid sick and vacation leave, and of course the normal medical, dental, vision and prescription benefits.

The second group of candidates is more likely to be family-oriented, middle-aged, seeking stability and security, and focusing more on long term retirement goals. Comprehensive medical, dental, vision and prescription benefits would most likely be very important to this group, specifically family coverage. Following is a list of other benefits that this age group would probably prefer. Company contributions to retirement accounts, company paid continuing education, on-site gym, on-site daycare and/or elder care facilities (or reimbursement for fees), paid vacation and sick leave, summer programs for employee’s children when out of school, car allowance, yoga and other types of stress reduction classes, wellness programs, technology allowance (cell phone, laptop, etc.), tickets for local sporting, cultural, and educational events/places, on-site beauty/barber salon, on-site dry cleaning, company paid life and accident insurance, and employee assistance programs (legal, family, financial).