Direct Compensation vs. Benefits
1. Introduction
System of rewards is one of the key aspects in managing human resources within any organization. It has profound impact on attracting, retaining and motivation of employees and as a result on the overall performance of an organization. There is no doubt that employee compensation, which according to Dessler refers to all forms of pay or rewards going to employees, is the crucial factor in employee motivation. There are different two types of compensation: direct and indirect compensation.
Direct compensation refers to monetary benefits offered and provided to employees in return for doing their job. The most common forms of direct compensation are wages, salaries, incentives, commissions and bonuses.
Indirect compensation refers to pay in the form of financial benefits. [Dessler 390] All employee benefits can be divided into health, educational, employee incentive, family, lifestyle, recreational, government, retirement, savings, and transportation benefits. [http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Employee-Benefits.html]
A common distinction between direct and indirect forms of employee compensation is that the former creates an employee's standard of living, whereas the latter protects that standard of living. [http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Employee-Benefits.html]
Benefits is a very important and powerful instrument used in employee recruitment, retention, motivation, performance, and satisfaction, however for businesses it is more expensive to provide benefits to employees than use direct compensation. And while some benefits, such as government sanctioned ones, for example pension plans, are mandatory, the majority are supplementary, the availability of supplementary benefits is dependent on a business's compensation structure. Each company has to decide what is more valuable, therefore more motivating, for its workers and what is more cost-effective for the company - to provide benefits or simply
System of rewards is one of the key aspects in managing human resources within any organization. It has profound impact on attracting, retaining and motivation of employees and as a result on the overall performance of an organization. There is no doubt that employee compensation, which according to Dessler refers to all forms of pay or rewards going to employees, is the crucial factor in employee motivation. There are different two types of compensation: direct and indirect compensation.
Direct compensation refers to monetary benefits offered and provided to employees in return for doing their job. The most common forms of direct compensation are wages, salaries, incentives, commissions and bonuses.
Indirect compensation refers to pay in the form of financial benefits. [Dessler 390] All employee benefits can be divided into health, educational, employee incentive, family, lifestyle, recreational, government, retirement, savings, and transportation benefits. [http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Employee-Benefits.html]
A common distinction between direct and indirect forms of employee compensation is that the former creates an employee's standard of living, whereas the latter protects that standard of living. [http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Employee-Benefits.html]
Benefits is a very important and powerful instrument used in employee recruitment, retention, motivation, performance, and satisfaction, however for businesses it is more expensive to provide benefits to employees than use direct compensation. And while some benefits, such as government sanctioned ones, for example pension plans, are mandatory, the majority are supplementary, the availability of supplementary benefits is dependent on a business's compensation structure. Each company has to decide what is more valuable, therefore more motivating, for its workers and what is more cost-effective for the company - to provide benefits or simply