Direct and Indirect Compensation

Topics: Maslow's hierarchy of needs, Employee benefit, Abraham Maslow Pages: 15 (4228 words) Published: August 5, 2011

“If employee undervalue the cost of benefit, why should a company not drop benefit and simply add more direct compensation” Do you agree or disagree with this statement? Explain using relevant organizational examples. CONTENTS

1. Introduction3
2. Findings and Analysis
2.1 What is employee benefit?4
2.2 What is compensation?---- Critical analysis of compensation components and its function in an organization?6 2.3 Total Reward Management8
2.4 Critical analysis of motivation.10
3. Conclusion12
1. Introduction

There is a common phenomenon in the workforce----employee underestimates his or her cost of benefit, for some employers they will still retain the benefits and easily supplement more direct compensation to the unsatisfied employees in order to attract them. Actually, benefits are forms of value, other than payment, that are provided to the employee in return for their contribution to the organization, that is, for doing their jobs. Employee benefits typically refers to insurance, (Example 1)such as retirement insurance, health life insurance, disability insurance, vacation, employee stock ownership plans, etc .The reason why employees are unhappy of their cost of benefit is associated with company’s total reward management. Firstly, it will probably relate with employee’s misunderstanding or lack of communication of benefit value. (Example 2) "Too many employees today don't really understand their benefits packages," says Marianne Adams, assistant vice president of enrollment services at Colonial Life & Accident Insurance Company. (Example 3) “With more costs and decision-making being shifted to employees, benefits communication and education is more important than ever,” says Randy Horn, president & CEO of Colonial Life. Secondly, benefit undervaluation is also likely related to the thorough understanding and flexible application of compensation program. Generally, compensation categorized into direct and indirect, both of them have different function and motivation effect. Direct compensation is a remuneration provided to employees in exchange for their labor and services for the company. These include base pay, variable pay, performance-related payments and any retroactive pay, and employees can use it for the purchase of goods and services at their will. To the opposite of direct compensation is indirect compensation, it means the employee is the beneficiary, but does not receive directly. (Example 4) contributions to retirement pension, medical insurance, training and education opportunities, and child care voucher and other forms of indirect benefit. Furthermore, it is likely what we think is a valuable benefit will not just satisfy other employee. This has something to do with employee motivation, we can take Maslow’s hierarchy of needs for reference, which means every human being has different motivation requirement from their work, for some employees, the basic needs, such as food, house, safety, for some others maybe higher to self-esteem or self-actualization. Thus, employer should establish reasonable and flexible total reward management policy under thorough understanding of compensation program along successful application of motivation strategy. Just like an old Chinese saying goes, know the enemy, know yourself, you will never know defeat. In this case, we can say know total reward management, know employee’s motivation requirement, you will never know benefit undervaluation.

2. Findings and Analysis
2.1 What is employee benefit?
Benefit----indirect financial and nonfinancial payments employees receive for continuing their employment with the company (Dessler, 2011). It is a form of value provided to the employee in return for their contribution to the company, that is, for doing their jobs. (Example 5) benefits are insurance (medical, life, dental, disability,...
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