Compensation and Benefits

The topic of compensation and benefits is of high importance to organizations and their HR departments. Compensation and benefits are often talked about in the same breath. Although they are related to each other closely, there is a difference between the two.

What are compensation and benefits?

In the plainest terms, compensation may be termed as the monetary reward a person gets for allowing the organization in which she works to make use of her labor. It is the compensation that the employing organization gives the employee in return for the time the employee spends with the organization. This compensation is purely financial in nature. Having said this, while compensation is essentially financial in nature; it can also be about giving the right motivation for this labor in the form of promotions, challenges, etc.

What about benefits?

Benefits are built into compensation and are part of it. While compensation is primarily associated with the economic aspect of rewards; benefits are what accompany this financial reward. Organizations offer other kinds of rewards too, to employees. These can be in the form of nonfinancial offerings like facilities, perks, leave benefits, allowances for children’s education, maternity benefits, and so on.

Compensation is usually two-dimensional

Compensation and benefits come with each other. They are bound and linked to each other. Almost no organization offers its employees only one of these two aspects of compensation and benefits to the exclusion of the other. Having compensation and benefits in a proportionate measure is what most organizations seek to attain.

Types of compensation

Most compensation and benefits come with a little variation based on the organization, but the core is the same: compensation consists of a fixed pay, which is what may be termed the “guaranteed” sum given to employees as their salary. In addition, most employees, especially those in management and business positions, earn what is called variable pay. This pay is not fixed, and is paid based on meeting targets.

Benefits

Benefits vary from one company to another, based on the standing the company has in terms of its financial and reputational position. Many organizations make it a policy to reward employees with many benefits that they believe motivates the employees to give in their best. When children’s education, for instance, is taken care of, it is very difficult for an employee to leave the organization and look for alternatives, unless of course, the other aspects of work are miserable enough to compensate for this benefit.

Offering compensation and benefits is thus a matter of balance. An organization that makes a judicious choice in handing these to its employees gets the most out of them.

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