Unit 6: Compensation and Benefits
When hiring new employees, business managers must decide how much they will compensate their potential new human capital. Since this expense is often their highest overhead cost, employers need to understand this element of financial planning to avoid business failure. A generous compensation package can be an important recruitment tool: some employees value direct financial compensation, while others prefer to receive more indirect benefits, such as healthcare, child care, and tuition reimbursement.
Employers often have more leverage during a recession to decrease employee salaries and benefits because they have a larger pool of eager, unemployed workers. However, retaining good people with appropriate compensation and benefits during low and high growth periods can foster a productive and committed workforce that appreciates a proper work/life balance. Meanwhile, the growing disparity between executive and employee pay continues as firms align executive compensation with overall company performance. In this unit, we explore this issue and others of employee compensation and benefits.
Completing this unit should take you approximately 2 hours.
Upon successful completion of this unit, you will be able to:
- apply the concepts/issues associated with compensation and benefits to create an attractive environment that draws valuable resources to an organization;
- identify key laws and legislation about compensation and benefits that shape how human capital decisions should be made; and
- differentiate between direct financial compensation, indirect financial compensation, and non-financial compensation.
6.1: Compensation
Before you begin this unit, take some time to do this activity, which will help you better understand the comfort of compensation.
The overall objective of a compensation plan is to recruit the best human capital, motivate employees to perform at their peak and retain employees. The compensation package is critical to the strategic HRM plan since much of an organization's budget is devoted to employee compensation. This chapter details compensation options, compensation theories, and applicable laws regarding compensation. It also differentiates between financial, indirect, and non-financial compensation. Perform and answer exercise question one, which asks you to research your intended career and consider your compensation expectations with what you learn.
This article discusses team-based rewards as it relates to compensation. At the center of this debate is trust. An organization must have an established culture of trust for this type of compensation to be effective. Teams built on a solid foundation of trust can benefit from team-based rewards such as incentive pay, recognition, profit sharing, and gain sharing. Make a pro and con list regarding this compensation structure.
Watch this video explaining the core considerations when designing compensation and benefits plans.
This video explains why it is important to provide employees with benefits as a part of the compensation package.
6.2: 401k Plans
This video explains the difference between 401k and 403b plans, which are employer-sponsored retirement plans.
As noted in the textbook chapter on compensation and benefits, there are a multitude of retirement options that employers can provide their employees, not limited to 401k plans and employee stock option plans. This short video provides insight into how employers can go a step further and provide training or understanding to employees regarding their financial options.
Unit 6 Assessment
- Receive a grade
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.