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.
During times of recession, employers often have more leverage to decrease employee salaries and benefits because they have a larger pool of eager unemployed workers to choose from. However, retaining good people with appropriate compensation and benefits, during periods of low and high growth 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 continue to align executive compensation with overall company performance. In this unit we explore this issue and others pertaining to employee compensation and benefits.
Completing this unit should take you approximately 6 hours.
Upon successful completion of this unit, you will be able to:
- identify and 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 with regard to compensation and benefits that shape how human capital decisions should be made; and
- differentiate among direct financial compensation, indirect financial compensation, and non-financial compensation and give examples of each.
6.1: Compensation of Human Capital
Before you begin this unit, take some time to play this brief game, which will help you develop a better understanding of the comfort of compensation.
Read this chapter after watching the short video introduction. The overall objective of a compensation plan is to recruit the best human capital, motivate employees to perform at their peak, and to retain employees.
The compensation package is a critical component of the strategic HRM plan since a great deal 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 among financial compensation, indirect financial compensation, and non-financial compensation. Under section 6.1, "Goals of a Compensation Plan", perform and answer exercise question one, which asks you to research your intended career and think about your compensation expectations with what you learn.
- This article documents the advantages and disadvantages of 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 in order 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.
6.2: The Basics on 401k 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 as to how employers can go a step further and providing 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.