Thursday, April 02, 2015

Employee Compensation the real meaning

Employee compensation is what employees receive in return for what they contribute to the organization. The first thing that comes to mind is, of course, wages or salary. But there are many other ways to compensate employees for their work. Some individuals may be willing to take slightly lower pay in return for better benefits or hours. 

Compensation is determined first by laws put forth by the government that make sure that all employees are treated equitably. For example, compensation should not vary based upon race, creed, or gender. Next, it is determined by state laws and then it is determined by the policies of the organization. Lastly, the human resources department and managers determine the final compensation that an employee will receive.

The total compensation for an employee includes more than monetary compensation, including benefits, retirement contributions, stock options, deferred compensation, paid vacation, and the cost of special employee perks. Average total compensation as a metric is distinct from the cost per employee or employee overhead, which can include figures such as the cost of location and technology for each employee.

The most obvious reason for compensating employees is that an organization should not expect something for nothing. But by giving generous compensation, an organization attracts better employees and retains them for longer. Compensation is what organizations use to compete for top talent. 

Both monetary and non-monetary compensation options are available for organizations to consider. Organizations and managers can be as creative as they need to be in order to generously compensate employees.

Employees today do not work for cash alone but they expect something “extra”. This “extra” is known as employee benefits or fringe benefits, they are non-financial form of compensation offered in addition to cash salary to enrich their work life.

Therefore apart from the fact that employee compensation is a social and legal requirement it also brings benefits such as job satisfaction, employee motivation, low absenteeism and controlled turnover.