Understanding Compensation and its effects to Employees

Published: 16th August 2009
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Employee compensations play a big part in getting the right people for the job. An attractive compensation package attracts the right applicants to a vacant position and retains top quality employees.

To define compensation, it refers to wages, salary and/or incentives received by a worker for the performance of his/her job that also includes other kinds of services and benefits that can be provided by the company.

Compensation refers to monetary and non-monetary benefits given by the employers to the employees to motivate them in performing their job.

Monetary compensation examples include:

• Wage

• Salary

• Allowance

• Bonus

• Commissions

While non-monetary compensation examples are:

• Children education

• Transportation

• Subsidized ration of essential commodities

• Medical benefits

There are different types of compensation, in most businesses, wages and salaries are different in some ways although both refer to regular monetary compensation. Incentives are even different altogether.

Wages in most companies refer to the compensation paid by employers to workers. Usually paid in an hourly rate, this is paid to groups such as those who work in production or maintenance; this could also include family allowance, relief pay and other financial support.

Salary is paid to employees who work in a clerical, administrative, and professional capacity. Usually salaries are based on a weekly or monthly rate.

Incentives on the other hand are schemes or programs of companies to motivate their employees. This is usually monetary but can also include a variety of non-monetary benefits and/or prizes.

There are various factors that affect compensation. Some of them are:

• The company's ability to pay

• The prevailing compensation and benefits in the industry

• Availability of competent and qualified people for the position

• Performance and productivity of the employee

• Qualifications and relevant experience of the employee

• Stability of employment and

• Stability of employment and advancement opportunities

Compensation can mean different things to different people. A manager and an employer would have a different perception in regards to compensation and wages.

An employee may see the payment he/she receives more of an exchange for the services he/she rendered, or a reward for a good performance. To some, it reflects the value of their skills and abilities to the company.

To an employer or manager it is a different view altogether. To an employer, employee compensation is first and foremost an expense. Studies show that to most business enterprises, employees' compensation account for about 50% of all business costs.

They will consider first if the salary or wage to be paid to a worker is worth the cost to the company.

In addition, compensation is also a way for employers to influence workers' behavior and performance. Compensation affects how people work, the quality of their performance, their focus on the customer needs and even their interest in union or in taking legal action against the company.

Unequal and unfair compensation schemes that favor one group from the others could lead to unhappy employees. Legal actions may also be taken against the employer if proven that there is discrimination related to employee compensation and wages.

Employees who feel that they are not getting the same or equal compensation compared to other people in similar capacities can consult an employment attorney to help them know their rights.

Visit our website to learn more about employee rights regarding wages and compensation. Call us toll free for legal assistance.

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