Considerations for Compensation and Benefits

Topics: Human resource management, Human resources, Employee benefit Pages: 5 (1458 words) Published: July 19, 2012
Considerations for Compensation and Benefits

Compensation is one of the most important considerations perspective employees will make prior to accepting a job offer. For this reason, another performance of Human Resource (HR) professionals is the compensation analysis. The focus of the analyst in this position is to use strategy in formulating compensation and benefits packages that are attractive and conducive to maintaining talented employees (Editorial Board, 2011). As another critical service of HR experts, this document will explore the types of benefits and compensations companies use to meet certain criteria of employees. This work will also provide insight on the ways in which these packages are designed to attract employees at various stages in their professional lives. At the conclusion of this article, we will have demonstrated further value of the Human Resources professional to their respective organizations.

The long study of human motivation has continuously shown that people will do that which they are rewarded for doing. Based on this concept, compensation has been recognized as the most meaningful professional reward for employees. Companies use compensation and benefits as a means of attracting and maintaining valuable employees. Organizations world-wide have further identified that financial incentives must be paired accordingly with the desired results in order to be the most effective. In recent estimates, a reflected 41% of payroll is comprised of employee benefits (M.U.S.E., n.d.). For this reason, it has become increasingly necessary to implement strategy in developing compensation and benefits packages that meet certain elements, such as being fair, being comparable to the pay of others, and providing satisfaction with the content of the work (M.U.S.E., n.d.). Direct and Indirect Compensation

In order to fulfill the aforementioned elements, compensation analysts must use a variety of direct and indirect compensations. Direct compensations are those monetary contributions (base pay and variable pay) made directly to employees in exchange for the labor they provide. Direct compensations include salary, home or rent allowances, vehicle allowances, leave and travel allowances, health reimbursements, seasonal bonuses, and other similar allowances. In short, it is the compensation that is given to the employee without a go-between. Contrarily, indirect compensation is the non-monetary benefit employees receive for the work they do which is not necessarily given to them directly. These types of compensation are seen in, but not limited to retirement accounts, health insurance, overtime policies, leave policies (such as maternity leave), educational assistance programs, and tax contributions (Nicholson, n.d.). In cleverly implementing direct and indirect compensations, employers can build a comprehensive benefit or reward package to attract and maintain skillful employees. Choices in Development of a Comprehensive Package

Depending on the philosophy the company most closely identifies with; options for developing compensation and benefit packages are unlimited. For example, companies may base their packages on entitlement or performance. In providing compensation based on entitlements, a company might choose to reward employees based on time with the company regardless of their performance. On the other hand, performance based compensation is generally reflective of the individual employee’s job duties and execution. Similar approaches to compensation will include a traditional approach and a total-rewards approach. In traditional compensation companies, the compensation is comprised primarily of the base pay. Progression within the company is typically based on promotion, with bonuses reserved for executives who have climbed the ladder. Organizations in this category may have pay plans which are company-wide for all employees. Companies that approach compensation as...

References: Compensation: Development of Salary Administration Plan. (1999). HR Guide to the Internet. Retrieved from
Editorial Board. (2011). Introduction to Human Resource Management 1st Edition. Words of Wisdom, LLC.
Forsyth, B. (2012). Live Chat. Managing Human Resources. Colorado Technical University.
GAO. (2012). Benefits for Retirement-Age Beneficiaries. United States Government Accountability Office. Retrieved from
M.U.S.E. (n.d.). Compensation and Human Theory. Managing Human Resources. Colorado Technical University. Retrieved from
Nicholson, J. (n.d.). What Is Included in Direct Compensation? Ehow Money. Retrieved from
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