compnt and benefit

8/7/2019 COMPNT AND BENEFIT

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Compensation & Benefits

Compensation & Benefits (abbreviated C&B) is a sub-discipline of Human-Resources,

focused on employee compensation and benefits policy making.

Contents

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y 1 The Basic Components of Employee Compensation & Benefitsy 2 Guaranteed Payy 3 Variable Payy 4 Benefitsy 5 Equity Based Compensationy 6 C&B Organizational Placey 7 C&B Main Influencersy 8 Bonus Plans

[edit] The Basic Components of Employee Compensation &

Benefits

Employee compensation and benefits are basically divided into four categories:

1. Guaranteed Pay monetary (cash) paid by an employer to an employee based on

employee/employer relations. The most common form of guaranteed pay is the base salary.

2. Variable Pay monetary (cash) reward paid by an employer to an employee that is

contingent on discretion, performance or results achieved. The most common forms are bonusesand sales incentives.

3. Benefits programs an employer uses to supplement employees compensation, such as paid

time-off, medical insurance, company car, and more.

4. Equity Based Compensation a plan using the employers share as compensation. The mostcommon examples are stock options.

[edit] Guaranteed Pay

Guaranteed pay is a monetary (cash) reward.


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The basic element of the guaranteed pay is the base salary, paid based on an hourly, daily,weekly, bi-weekly or a monthly rate. The base salary is typically used by employees for ongoing

consumption. Many countries dictate the minimum base salary defining a minimum wage.

In addition to base salary, there is other pay elements which are paid based solely on

employee/employer relations, such as13

th salary, seniority allowance, and more.

[edit] Variable Pay

Variable pay is a monetary (cash) reward that is contingent on discretion, performance or resultsachieved. There are different types of variable pay plans, such as bonus schemes, sales incentives

(commission), overtime pay, and more.

[edit] Benefits

There is a wide variety of employee benefits, such as paid time-off, insurances (life insurance,medical/dental insurance, and work disability insurance),pension plan, company car, and more.

A benefit plan is designed to address a specific need and is often provided not in the form of

cash.

Many countries dictate different minimum benefits, such as minimum paid time-off, employerspension contribution, sick pay, and more.

[edit] Equity Based Compensation

Equity based compensation is an employer compensation plan using the employers shares asemployee compensation. The most common form is stock options, yet employers use additional

vehicles such as Restricted Stock, Restricted Stock Units (RSU), Employee Stock Purchase Plan(ESPP), and Stock Appreciation Rights (SAR).

The classic objectives of equity based compensation plans are retention, attraction of new hiresand aligning employees and shareholders interests.

[edit] C&B Organizational Place

In most companies, compensation & benefits (C&B) is a sub-function of the Human-Resources(HR) function.

HR organizations in big companies are typically divided into three: HR Business Partners

(HRBPs), HR Centers of Excellence, and HR Shared Services. C&B is an HR center ofexcellence, like Staffing and Organizational Development (OD).

[edit] C&B Main Influencers


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Employee compensation and benefits main influencers can be divided into two: internal(company) and external influencers.

The most important internal influencers are the business objectives, labor unions, internal equity

(the idea of compensating employees in similar jobs and similar performance in a similar way),

organizational culture and organizational structure.

The most important external influencers are the state of the economy, inflation, unemployment

rate, the relevant labor market, labor law, tax law, and the relevant industry habits and trends.

[edit] Bonus Plans

Bonus plans are Variable Pay plans. They have three classic objectives:

1. Adjust labor cost to financial results - the basic idea is to create a bonus plan where thecompany is paying more bonuses in good times and less (or no) bonuses in bad times. By

having bonus plan budget adjusted according to financial results, the companys labor cost is

automatically reduced when the company isnt doing so well, while good company performancedrives higher bonuses to employees.2. Drive employee performance - the basic idea is that if an employee knows that his/her bonus

depend on the occurrence of a specific event (or paid according to performance, or if a certaingoal is achieved), then the employee will do whatever he/she can to secure this event (or improvetheir performance, or achieve the desired goal). In other words, the bonus is creating an incentive

to improve business performance (as defined through the bonus plan).

3. Employee retention - retention is not a primary objective of bonus plans, yet bonuses are

thought to bring value with employee retention as well, for three reasons: a) a well designedbonus plan is paying more money to better performers; a competitor offering a competing job-

offer to these top performers is likely to face a higher hurdle, given that these employees are

already paid higher due to the bonus plan. b) if the bonus is paid annually, employee is lessinclined to leave the company before bonus payout; often the reason for leaving (e.g. disputewith the manager, competing job offer) 'goes away' by the time the bonus is paid. the bonus plan

'buy' more time for the company to retain the employee. c) employees paid more are moresatisfied with their job (all other things being equal) thus less inclined to leave their employer.

The concept saying bonus plans can improve employee performance is based on the work of

Frederic Skinner, perhaps the most influential psychologist of the 20th century. Using theconcept ofOperant Conditioning, Skinner claimed that an organism (animal, human being) is

shaping his/her voluntary behavior based on its extrinsic environmental consequences - i.e.reinforcement or punishment.

This concept captured the heart of many, and indeed most bonus plans nowadays are designedaccording to it, yet since the late 1940s a growing body of empirical evidence suggested that

these if-then rewards do not work in a variety of settings common to the modern workplace.Research even suggested that these type of bonus plans have the potential of damaging employee

performance

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