Compensation & Benefits: Definitions & Importance.

Nauman Nazir
3 min readOct 8, 2021

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Human Resource Management (HRM) has never been as significant as it is today. Companies want to attract, keep and motivate brains to meet objectives.

Today Humans are one of every company’s assets, so they need to be efficiently and effectively managed. One tool companies use to attract, retain, and motivate their people is Compensation, Management.

In this article, I shall define compensation and benefits along with their advantages for a company and its workers.

Suppose you own a boutique. Let's call it myWear — or you can give it any name of your liking. You have hired three salespersons and a receptionist. The salespeople look after the sales affairs. The receptionist’s duties are to handle the cash and manage the account books. I shall refer to this illustration throughout the hub.

COMPENSATION:

Would the three salespersons and the receptionist work for free? No. They would, like us all, expect something in return. You must have heard a common phrase: give and take. You always have to give things to people for what you take from them.

Compensation refers to this exchange, but in monetary terms. Compensation is the employer’s feedback for an employee’s work. It simply is the monetary value you would give to your four employees in return for their services.

Gary Dessler in his book Human Resource Management defines compensation in these words:

“Employee compensation refers to all forms of pay going to employees and arising from their employment.”

The phrase ‘all forms of pay’ in the definition does not include non-financial benefits, but all the direct and indirect financial compensations.

BENEFITS:

Employees today are not willing to work only for the monetary return I discussed earlier. They expect ‘extra’. Human Resource professionals know this extra as employee benefits, also known as fringe benefits. Employee benefits are a non-financial form of compensation offered besides cash salary to enrich workers’ lives.

What benefits would you offer to your employees at myWear? Of course, you would offer different benefits to the salespersons and the receptionist.

The problem will arise when you decide what benefit to give to whom and on which basis? Employee benefits are not performance-based, they are membership-based. Workers receive benefits regardless of their performances.

Employee benefits have no direct effect on employee performance, however, inadequate benefits contribute to low satisfaction levels and increase absenteeism and turnover in employees (DeCenzo and Robbins; 2007).

Therefore, you would have to carefully design your benefits package. Your package may include a cell phone for each worker, taking them to a training workshop or seminar, giving them a day or two off every month, and so on. While deciding on the benefits package, consider the associated costs.

ADVANTAGES OF COMPENSATION & BENEFITS

Advantages to Your Boutique:

A well-designed compensation and benefits plan helps to attract, motivate and retain talent in your firm (which is myWear). A well-designed compensation & benefits plan will benefit your boutique in the following ways.

1. Job satisfaction: Your employees would be happy with their jobs and would love to work for you if they get fair rewards for their services.

2. Motivation: We all have different needs. Some of us want money, so they work for the company which gives them higher pay. Some value achievement more than money, they would associate themselves with firms that offer greater chances of promotion, learning, and development. A compensation plan that hits workers’ needs is more likely to motivate them to act in the desired way.

3. Low Absenteeism: Why would anyone want to skip the day and watch the favorite TV programs at home, if they enjoy the office environment and are happy with their salaries and get what they need and want?

4. Low Turnover: Would your employees want to work for any other boutique if you offer them fair rewards. Rewards which they thought they deserved?

Advantages to Your Employees:

1. Peace of Mind: your offering of several types of insurances to your workers relieves them from certain fears. Your workers, as a result, now work with a relaxed mind.

2. Increases self-confidence: Every human being wants his/her efforts to get acknowledgment. Employees gain more and more confidence in themselves and in their abilities if they receive just rewards. As a result, their performance level shoots up.

I hope this article added to your knowledge of compensation management.

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Nauman Nazir
Nauman Nazir

Written by Nauman Nazir

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A writer who have been professionally writing since 2015 for blogs. Nauman is a post graduate in marketing. He likes to write on lifestyle and technology.

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