Compensation & Benefits

Published by MBA Skool Team, Last Updated: May 12, 2020

What is Compensation & Benefits?

Compensation and benefits refers to the compensation/salary and other monetary and non-monetary benefits passed on by a firm to its employees. Compensation and benefits is an important aspect of HRM as it helps to keep the workforce motivated. It helps give benefits to employees based on their performance and actions and brings the best out the employees at workplace.

Importance of compensation and benefits

Companies hire people individual to achieve their organizational goals and people join companies to earn money & build their career. One of the biggest factors why people join companies in the compensation and benefits, salaries, perks, incentives etc which is given to them. Apart from the company's reputation and job profile, the money offered as a salary is pivotal in attracting people to work for the organization. The more the compensation and benefits offered to employees, the more is their loyalty, motivation to work and do well. However, companies which offer lesser salaries see a high attrition rate and less productivity from employees. All these factors help in making compensation and benefits an important factor in managing workforce. Salaries of employees are defined by several parameters like experience, education background etc. In senior management, skills like team management, communication management, leadership, time management etc are also considered while finalizing the pay package.

Compensation and benefits components

There can be several ways where benefits can be given to employees. Mostly it is given in terms of a CTC or gross salary. Some of the various components of compensation and benefits are mentioned below:

1. Fixed pay: This is the basic salary paid to the employee irrespective of any other factor. This is stated clearly in the employment contract. This is the compensation or salary or wage which an employee or a worker will definitely get as long as he or she is an employee of the company.

2. Variable Pay: This is the additional compensation paid to employee based on employee’s performance, company performance etc. Since variable pay is based on the performance of an individual, it motivates the employees to perform even better.

3. Equity Pay: Employees are awarded shares of the company, often at a discounted price. Employees are expected to make money out of them by the appreciation of the stock price and the growth of the company. This is mostly given to the senior management who have served the company for a long time.

4. Other benefits: Benefits such as medical facilities, insurance policies, company owned car of flat etc all play an important role in motivating employees. These benefits are given by the company as a part of recognizing the services of an employee.

Compensation and Benefits

Difference between compensation and benefits

Both the factors are important in motivating employees for doing their work and paying them for the services they are doing for the company. However, there is a slight difference between compensation and benefits. Compensation is completely related to the money which is being paid to an employee i.e. salary. bonuses etc. On the other hand, benefits are the non-monetary incentives given to employees like health benefits for which the employee doesn't have to pay.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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