Compensation is one of the methods used by organisation to further and grow the aspirations of the company. Compensation packages are one of the key strategies that most organizations apply in order to attract and retain the best brains possible. Adjustment may be made to the mode of remuneration according to the set goals, requirements, available resources and the structure of the business. Need for compensations comes in different ways as positively affecting empolyees morale, acquiring and retaining potential employees, award and encourage good performance, ensure equity both externally and internally, introduction of practices such as negotiations, improving company loyalty as well as reduction of turnover.
Difference between direct and indirect compensation
Bogardus, (2004) states that directcompensation is remuneration of employees in monetary terms for the services they give to the organisation. The monetary benefits could be in the form of basic salary, allowances such as house rent, travel, medical covers, bonuses and tips. These are given at particular set time usually at regular intervals.
On the other hand, Fallon, & Zgodzinsk, (2011), refer to indirectcompensation as any non-cash benefit employee receives from employer that is above basic monetary compensation. The include various policies such as leave, overtime, car and it could also be in the form of insurance and retirement benefits.
Developing a comprehensive compensation and benefit package
A company’s compensation and benefit package is the most competitive aspect that ensures competency and maintained advantages in the marketplace. It is of great essence in determining the market pay rate and the advantage a company has over the other market salary reports of similar companies and industries.
Maintaing competitiveness in the market is a very big challenge that companies encounters. This is due to the fact that a company should not only come up with an appealling compensation package but also determime its viability in comparison to the going market reports and the market salary reports. Also it should ensure that it has the ability to pay what the markets bears to achieve and maintain external equity.
A company must consider compensation practices of other similar companies in the market. This is to solve the problem of recruiting new employees and to also help retain top talents in the company. This is mostly effective in cases where employees fill they can get better pay and benefits working at their similar position in another company within the market.
Similarly, a company should have a clear identification of effort in put by employees. This could be done by placing value on employees skills, experience and responsibility in determination of level and value of compensation to be awarded to each employee.
Similarities and differences in compensation and benefits in private and public sectors.
There is no adequte measure to compare or differrentiate between compensation in private and public sector. This is because both sectors have toally different policies and procedures in their operation. Pointing out which of the two is better than the other becomes misleading and unpromising. Looking at recruitment systems, public sectors is poor. This ic evidently seen in their haphazard allocation of duties, poor working environment and bad promotion practices on seniority rather than merit. This tends to justify the low compensation experienced in the sector. As a result there is a significant decline in public employees productivity and undermining of motivation levels. Despite these shortcomings, public employment remains competitive due to its flexibility. This flexibility comes through short working hours, very minimal supervision, few obligations, job security due to permanence and steady income and also low competition. These factors are very attactive to employees as they are able to resort to other employment in private sector which help them to sufficiently meeet their needs.On the other hand, private employment is characterized with rules and regulations. The rules are laid down in accordance to market forces of demand and supply, efforts of individual employees, levels of education and perfomance.
All these contribute to clearly shows thee great distinction in public and private compensation and benefit. In both sectors, however, the primary task of the employer is to motivate the workforce through the determined compensations and benefits. It is believed that motivated employees boost the organization performance by 50%. Companies need capitalise on compensation strategies to enhance performance, and promote organisational accountability.
Typical considerations on how organisation design compensation and benefit package.
Several tactics can be applied in desisinging employees compensation and benefit package structures. The first one is strategically based tactic, where businesses ultimate targets and goals are given a great consideration in the rewarding of employees perfomance. Another technique is market tough tactic which basically involves analysis of demand and supply in the market and the tactics used in the market to retain and acquire only the best performers. The other method is through complete analysis where a thorough research is done on the nature of jobs done by employees, the entire market and what employees are expected to do in future while still maintaining the competitive edge. Results awarding is policy employed by many employers to reward attainment of a certain perfomance target set for them. This encourages performance by recgnising effort and not potential of employees.that most organizations apply. This means rewarding exccellent results and recognize potential. The other tactic is Transformative, under this method, the compensation plan is based on the current issues in the market. Employees are rewarded on the trending plans at that time.
Benefit Packages Most Attractive To Workers In Various Career Stages And Their Needs
These benefits can vary depending on the stages of workers in their career. They are classified into young workers, middle-aged and those nearing retirement workers. For young workers, they will be attracted to; Offer attractive benefits. With the increased cost and high standards of living, an attractive salary as well as benefits are the basic consideration in employment.
Fallon, & Zgodzinsk, (2011), proposed Promotion of work or life balance. Nearly73% of young workers indicated a need for job opportunities which gave a platform for growing their careers and also fulfill their personal obligations. They also showed the willingness to work hard given a narrow and quick way to enable them climb the corporate ladder.
Middle-aged workers, are attracted to; Indirect compensations, these would be be in form of house allowances. This is in the case where they are required to relocate as they are less flexible as most often have school aged children and are left financially unable to sell their homes. Similarly they need insurance cover to cater for their childrens’ education. Retirement savings incentives is also an attractive benefit to the middle-aged workers as they tend to focus on their fiture financial stability. Pension rights anticipated also determine if the benefits are attractive or not. For workers nearing retirement; Health benefits, employees nearing retirement are more vulnurable to illness and poor health. This makes health benefits very attractive to them. High compensation; this may occur once an employee learn that, without a job, they may not be able to obtain health insurance coverage. High pension; Employee nearing retirement age will mostly be attracted to high levels of pension to supprt them in their later days.