Compensation and Benefits

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.

Other Types of Compensation

Key Takeaways

  • Before beginning work on a pay system, some general questions need to be answered. Questions such as what is a fair wage from the employee's perspective and how much can be paid but still retain financial health are important starting points.
  • After some pay questions are answered, development of a pay philosophy must be developed. For example, an organization may decide to pay lower salaries but offer more benefits.
  • Once these tasks are done, the HR manager can then build a pay system that works for the size and industry of the organization.
  • Besides salary, one of the biggest expenses for compensation is medical benefits. These can include health benefits, vision, dental, and disability benefits.
  • Social Security and unemployment insurance are both required by federal law. Both are paid as a percentage of income by the employee and employer.
  • Depending on the state, workers' compensation might be a requirement. A percentage is paid on behalf of the employee in case he or she is hurt on the job.
  • A mandatory benefit, COBRA was enacted to allow employees to continue their health insurance coverage, even if they leave their job.
  • There are three main types of health-care plans. A fee-based plan allows the insured to see any doctor and submit reimbursement after a visit. An HMO plan restricts employees to certain doctors and facilities and may require a copayment and/or deductibles. A PPO plan is similar to the HMO but allows for more flexibility in which providers the employee can see.
  • Pension funds were once popular, but as people tend to change jobs more, 401(k) plans are becoming more popular, since they can move with the employee.
  • Profit sharing is a benefit in which employees receive a percentage of profit the organization earns. Stock ownership plans are plans in which employees can purchase stock or are granted stock and become an owner in the organization.
  • Team rewards are also a popular way to motivate employees. These can be in the form of compensation if a group or the company meets certain target goals.
  • Paid time off, or PTO, can come in the form of holidays, vacation time, and sick leave. Usually, employees earn more days as they stay with the company.
  • Communication with employees is key to a successful benefits strategy.