Compensation and benefits are the base parts of any employment relationship. Compensation and benefits are seen differently from the points of view of the employees and employers. Compensation is an important and multidimensional aspect that can be connected to such factors as motivation, job satisfaction, quality of professional performance, and reward.
For the employees, compensation represents the degree to which they are valued by the organization they work for. For employers, compensation is a duty and a liability, which at the same time benefits them by protecting them from work-related lawsuits and problems (Workers’ Compensation Basics for Employers par. 1).
Employee compensation can be of three types. There are non-monetary, direct, and indirect kinds of compensation (Human Resource Management: Employee Compensation Guide 1). Non-monetary compensation refers to the benefits and rewards of intangible character. Direct compensation includes the worker’s basic wage, which stands for the salary an employee earns per year or their hourly or weekly wage. Direct compensation has several different categories.
For example, base pay is what is given to the employee as a regular standard reward for their job, and incentive pay is a bonus reward granted to a worker when some special requirements are met. Other kinds of bonuses may also include stock options or gifts given to demonstrate an appreciation of the worker’s excellent performance. Finally, indirect compensation involves a variety of benefits, such as health insurance granted by the company, retirement planning system, childcare, and paid leave.
In other words, these are the social security issues taken care of by the employers. Indirect compensations include benefits provided by the state and enforced by law as well as the compensations distributed by the employers based on their individual decisions. Such compensations are implemented with the purpose of benefiting both the employees and employers.
From the point of view of employees, compensation, and benefits at the workplace represent the cost of their contribution to the organization where they work. For the employees, the main factors that influence their satisfaction with compensation are its size, timeliness, and flexibility. For example, the workers expect their salaries to cover the costs of their living and, ideally, provide some additional funds for the savings.
Besides, for the employees, it is important that their wages correlate with the rates of inflation and have a perspective to grow. Fairness of the compensation in a company is related to the benefits provided by the competitor organizations and other similar businesses. If the compensation assigned by a company is significantly less than that given by other firms, this will cause high job dissatisfaction among the employees and will lead to the loss of workers who will leave their places to pursue better-paid jobs at the competitor organizations.
The relationship between the wages given by different companies working in the same field for the same jobs in different fields is called external equity of compensation. There is also internal equity that reflects the relationships between the compensations provided to the employees working in the same business.
This way, the employees who perform equal tasks should be compensated with similar amounts of money. Otherwise, the absence of fairness of compensation for the peers will definitely lead to low job satisfaction and workplace conflicts. Evidence shows that higher salaries, better benefits, and opportunities to earn a promotion are among the top reasons for the employees to change their workplaces (AIHA 14).
From the point of view of an employer, compensations and benefits are necessary because they provide a lot of positive influences for the business. First of all, fair and equitable compensations are the base of the motivation and loyalty of the employees. Besides, they contribute to the environment in the workplace. The evidence of unfair wages are known to everyone; these are employee turnover, strikes, conflicts, and lawsuits.
Such happenings disrupt the productivity of the companies, ruin their reputation, and relationships with the shareholders, partners, and customers. This is why it is very important for employers to maintain fair and equitable compensations. Moreover, when it comes to social security policies and benefits provided to retiring employees, future mothers, injured, sick, or harmed workers, remaining at peace with such employees helps the company maintain its inner balance.
Disrupted reputation and loss of customers and shareholders based on unfair compensations for the employees may lead to serious loss of revenues. Besides, lawsuits that occur as a result of an unfair compensation system may cost more than the actual benefits. Raising the wages and providing benefits a business invests in its own future.
Compensation is the company’s way to secure its development, stability, inner harmony, and revenues. Indirect compensation plays a significant role in the process of employee rewarding. For example, when a company provides cell phones or cars to its workers, it is highly appreciated and increases the level of comfort and loyalty among the employees.
The employers are often accused of being paid much more than the workers. The huge gap in the payment rates may be one of the most popular reasons for conflicts between the employers and the executives. This issue can be debited from the perspective of the workers, which are convinced that CEOs contribute very little to the working process, while the employees are its base.
Yet, if we compare the loss a company experiences when a CEO leaves for a vacation and when a couple of employees do, we will see that the functions of a CEO are various and multiple. Besides, the CEOs are hired by the board members, and their salaries are assigned based on their past performances in other companies. When the job evaluation is conducted according to the principle of skill-based pay, the experiences and talents of a CEO are truly rare and cannot be compared to those of the employees.
Besides, comparing the payments assigned to the employers and employees, many people believe that the revenue that remains after the worker compensations are given goes directly to the CEO, which is rather ignorant, as any business has numerous areas of expenditure apart from the benefits and compensations.
When it comes to job efficiency evaluation, technological progress plays a significant role. Over the last couple of decades, the technologies allowed businesses to develop rapidly, process data quickly, and expand fast. All of these benefits reflected in the revenues, and help the organizations increase their compensation costs by around ten percent over the last years.
In conclusion, benefits and compensations often become the sources of arguments and confrontations at the workplace. The employers’ inability to distribute the benefits evenly and fairly often increases job dissatisfaction. The size of a company is proportional to the number of reasons for conflict there.
Timely rewards and appreciation demonstrations are highly important for both employees and their employers because they help to maintain a balanced atmosphere at the workplace, keep the employees motivated, and increase the productivity of the whole business.
AIHA. 2004 Compensation & Benefits Survey. New York: AIHA, 2004. Print.
Human Resource Management: Employee Compensation Guide. UMN. Web.
Workers’ Compensation Basics for Employers. Nolo. 2014. Web.