A healthy compensation and benefits policy is one of the most important Human Resource (HR) policies. A well planned compensation and benefits program promises great returns for a company.
Workers have a right to adequate compensation for their labor. On the other hand, benefits are provided by the employer, as a value apart from salary as a return for employee’s contribution to the organization’s health.
Compensation can be in the form of wages or tips and is based on variable pay or fixed base pay. Depending on the role of the person, base pay is adjusted, while performance determines the value of variable pay. A balanced mix of both forms of pay results in an efficient and a motivated workforce.
Benefits have traditionally been in the form of retirement plans, insurance plans and vacation. Today, employee stock ownership plans and flexible benefit plans are gaining ground.
Many behavioral scientists like Herzberg, Maslow and Likert have commented on the various motivations behind a worker’s contribution to the organization. They all have agreed on the theory of economic man, the one who works more for an enhanced compensation. However, there is a limit to how much one can work for money. Hence, the concept of benefits and more importantly, intangible form of benefits gains ground. These benefits, which serve as major motivators, include:
i. Appreciation from boss
ii. Nice workplace environment
iii. Transparent and conducive environment for promotions
Tangible benefits such as holiday pay, medical expenses reimbursement, profit sharing and bonuses.
Various roles engender in a successful compensation and benefits plan include:
- It has been seen that a successful compensation plan enables businesses to attract the best talent from the industry.
- Further, a well thought out and transparent benefits regime can lead to effective utilization of this human capital.
- Healthier Work Place Environment: Better alignment of the goals of an employee and the organization and thus, significant improvement in morale of the workforce.
- Reduced Levels of Attrition: This also involves retaining quality workers and encourages new employees to commit to the organization for the long term.
- Drives Personnel Cost: It links to a wider set of HR functions and optimizes personnel cost. This enhances perception and communication within the organization.
- Refining Key Skills: Rewards exceptional employee performance. It also helps manage performance of workers
The above can be aided by an apt compensation and benefits software adopted by the HR department. Software for compensation and benefits manages the identification, development and implementation of the compensation policies of a firm. The benefits of such tailor-made software can be enumerated as:
- Introduces transparency into HR
- Monitors the job market
- Keeps personnel expenses in check
- Optimizes the personnel budget of the organization
- Aids development of new compensation and benefits components
- Helps implementation of individual salary review as well as mass salary review
- Follows set standards and maintains organizational fairness
An example of employee bonus and incentive plans can include cash incentives based on a percentage of the employee’s gross salary or an employee’s share. The shares are based on a pool of funds earmarked for distribution to employees whose performance resulted in the organization’s success. Another illustration of a compensation plan may include group health-care benefits, wherein some employers pay a large portion of the total monthly premium, with another portion of the premium being deducted from the employee’s pay packet.
A well designed compensation and benefit HR process supports the effectiveness of a competitive organization and helps augment its position as a thought leader.