If Employees Undervalue The Cost Of Benefits Business Essay

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"If employees undervalue the cost of benefits, why should a company not drop benefits and simply add more direct compensation". Do you agree or disagree with this statement? Explain using relevant organisational examples.


Thorough literature review must be evident.

Discussion on direct and indirect compensation has to be undertaken

There must be sufficient linkage between theory and practice.

Harvard style of references should be used

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All Jobs in any company pay a salary, and we are paid according to our work or wherever we stand, however it's often the perks that retain staff. Added benefits are also often something to work for the company as a dedicated employee, for example1, a company car, say Wipro, is available in our organisation once we reach a certain level, say CEO. Whether or not we wish to accept, it's nice and awesome to see that a brand new BMW could be ours with a bit of work (plus a bigger tax deduction because we have to pay taxes out of our monetary benefits, i.e. Compensation, which may not satisfy us.)

Thus, I would disagree, as direct compensation may not encourage loyalty in the same way added benefits do.

Let us discover some of the benefits that we get in a company as an employee and employer.

Employee benefits refer to retirement plans, health life insurance, life insurance, disability insurance, vacation, employee stock ownership plans, etc.

Benefits are forms of value, other than payment, that are provided to the employee in return for their contribution to the organization, that is, for doing their job.

Worker's compensation is really a worker's right, rather than a benefit.

Prominent examples of benefits are insurance (medical, life, dental, disability, unemployment and worker's compensation), vacation pay, holiday pay, and maternity leave, contribution to retirement (pension pay), profit sharing, stock options, and bonuses.

Intangible benefits are less direct, for example, appreciation from a boss, likelihood for promotion, nice office, etc. People sometimes talk of fringe benefits, usually referring to tangible benefits, but sometimes meaning both kinds of benefits.

For example, when a CEO of Wipro Technologies Azim Premji  appreciates Managing irector of Wipro Technologies T.K. Kurien, he is being provided with Intangible Benefits.

Compensation includes topics in regard to wage and/or salary programs and structures, for example, salary ranges for job descriptions, merit-based programs, bonus-based programs, commission-based programs, etc

Compensation also includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and checks, and sales commission. 

Compensation is payment to an employee in return for their contribution to the organization, that is, for doing their job. The most common forms of compensation are wages, salaries and tips.

The cost of turnover varies with the difficulty of the job to be performed. For example2, in a food-processing company, say Kissan, showing someone how to put jars of jam into a cardboard box may take five minutes, so the cost of training someone to handle this job would not be high.


The benefits serve as incentives to the employees and encourage them to work harder for the organisation.

These also help in building up employee job satisfaction

Employee benefits are an important part of any company's offering to their prospective or existing staff

Employer Advantages

Scheme pension company contributions employer's reasonable for exchange in salary lower slightly settle willing many examples.

One of the major advantages for employers is an easing of their own cash flow. This is particularly the case, for example7, if you introduce a salary sacrifice system, whereby employees give up a portion of their salary in return for other benefits. It may be possible to negotiate discounts with benefit providers if your workforce is large, and the provision of non-cash benefits can therefore be cheaper than the providing the part of the salary that the employee is sacrificing. Furthermore, there are potential tax advantages, although these are limited and potentially complex.

Employee Advantages

For example8, in the first instance, if the benefits are attractive then you will have access to useful offerings such as a pension scheme or company car, without having to make these arrangements yourself. This is of particular use for utilities such as mobile phones, which can be provided as a non-cash benefit by an employer.

Finally, tax advantages are extended to employees as well as employers. Through cooperation with your employer, you should be able to negotiate a benefits package that provides a tax advantage; for example9, if your employer pays for your mobile phone, this is treated as a non-taxable benefit. Sundries such as this can represent a significant tax saving over the course of a year. 


Why Might Employee Satisfaction Matter?

High satisfaction may suggest that workers are being allowed to slack or are given pleasant working conditions, to the detriment of shareholder value. Indeed, agency problems may lead to managers tolerating insufficient assort and/or excessive pay, at shareholders expense. The manager may derive private benefits from improving his colleagues compensation, for example11, more pleasant working relationships or seek to enjoy the quiet life and avoid the confrontations that may result from holding employees to their reservation utility.

Second, for example12, employee satisfaction may represent an insufficient form of compensation compared with cash, for the same reason that CEO perquisites are often viewed as inefficient compensation (e.g. Yermack (2006)). The CEO is forced to consume the perk even if his marginal valuation is low, whereas cash is fully fungible and could be used to buy the perk if the CEO desires it.

Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC)

registered with the Reserve Bank of India under section 45-IA of the Reserve Bank of India Act, 1934.Reliance Capital sees immense potential in the rapidly growing financial services sector in India and aims to become a dominant player in this industry and offer fully integrated financial services. Reliance Life Insurance is another step forward for Reliance Capital Limited to offer need based Life Insurance solutions to individuals and Corporates.

For example13, indeed, in the early 20th century, cash was viewed as the most effective motivator: given relatively harsh economic conditions, workers were mainly concerned with meeting their physical needs (such as food and shelter), which could be addressed with money.

once workers basic physical requirements are met (which is increasingly true in the more a­ cent current economic environment), they are increasingly motivated by non-pecuniary factors such as recognition and self-esteem. For example19, while perks (such as country club membership) can be bought with cash from third parties, on-the-job satisfaction cannot be externally purchased and can only be provided directly by the organization.

For example21, one potential channel is motivation, and is supported by theories in both neoclassical economics and sociology. In the traditional organizations, employees were primarily required to follow prescribed processes, the output of which was easily measurable. This made motivation easy: managers could simply measure output, and reward or punish the workers accordingly through monetary piece rates or the threat of dismissal .

For example24, If the employees' output is not quotable, but still observable (e.g. her cooperativeness with colleagues), the manager can award her if she shirks. In this case, for providing excessive job satisfaction may be an effective motivator, since the employee risks being overridden, and losing such satisfaction, if she exerts low effort

For example26, if output is neither verifiable nor observable, extrinsic motivators such as piece pay or the threat of severance are ineffective. In particular, motivating employees to innovate may require tolerance of failure . However, simply removing extrinsic motivators may encourage workers to shirk. This is where intrinsic motivators become important. For example27, an employee may view pleasant working conditions a gift from the organization, and respond with a gift of increased effort (Akerlof (1982)).

For example29, unlike physical capital, human capital is inalienable and owned by the workers themselves, not managers or shareholders, and can thus leave the organization at little cost. Effective retention is therefore crucial for building competitive advantage through a superior workforce.

Effects Of Motivation On Employees' Job Performance In An Organization

A manager has to make appropriate use of motivation to enthuse the employees to follow them. Hence this studies also focusing on the employee motivation among the employees of RELIANCE COMMUNICATIONS (RCOM).

he importance of motivation and how it affects an organization's performance in it's entirety, will be the best deciding measure between good and bad motivational   techniques used by prominent business experts. 

Different people hold different needs and respond accordingly. This means that there have been many revisions in motivational techniques and theories. A company relies on motivational methods at will when vying to satisfy, or meet certain goals. When   meeting any economic, social, or financial needs, as well as by performing a job well enough to obtain a better status, needs an effort by even spending time wor

Comparing Cost Control Strategies

When it comes to controlling costs, employers generally do what they can to implement plans.   One way to help control costs can be by limiting the services or products offered to employees.   Riders are available for employees who would like to have options and other choices. Riders can be used for alternative choices for dental coverage, vision coverage, or other healthcare needs.   When employers offer plans and certain coverage they tend to offer it on an annual basis and through "open enrollment periods".   Open enrollments occur for the most part annually or on an as needed basis, following a new hire, or life change. Employees get to pick which benefits work best for them and their families for the year.   This is a plan that has no third party administrators.   There are various types of premiums and deductibles that are offered with these choices as well.   There is good coverage in both plans, but there are more risks and issues with self-funded plans.

Self-funded plans are customized to help save money and fit budget as well.   With self-funded plans riders can not be purchased, there is not an open enrollment, and there are often third party administrators that help manage insurance claims and needs.

In both plans the benefits only exist with current employers and are not transferable or "portable".   Both plans provide options of provider networks of PPOs, HMOs, or POS.   With employer-sponsored plans there is a possibility choose which provider network is used, but this too may have an effect on the overall cost of the plan.   With self-funded plans the costs vary and can depend upon the choice of which plan is chosen

Employee Engagement

 to foster a culture of engagement, HR leads the way to design, measure and evaluate proactive workplace policies and practices that help attract and retain talent with skills and competencies

The Employee Ownership

Job Ownership Research is an associated company of JOL. JOL is the association of employee owned and trust owned businesses. Founded in 1979 as Job Ownership Limited, its member companies include the John Lewis Partnership, other long-established jointly owned companies such as Scott Bader and Swann-Morton, consultancies such as Mott MacDonald and Cyril Sweett, and a range of employee owned businesses of all sizes from a wide variety of sectors. Wholly independent and not-for-profit, JOL is funded and governed by its member companies. Co-operativesUK is the national member-owned and led organisation that promotes the interests of cooperatives of all kinds, works to increase awareness and understanding of co-operative values and principles, and supports the development and growth of new and existing co-operatives. It is a focal point for the sector, a forum for innovation and best practice, and a strategic voice for the co-operative movement

Employee Welfare Facilities


      The principle source of any organization is the people managing its people are the most important aspect of managing organization. No longer is manpower one of the resources in industries or business and establishment. It is the most important of all resources. Manpower is that resource through which the management directs and controls resources like material, money, machines and others.

A.   Human resource management:

      "Personnel management is the planning, organizing, directing and controlling of the procurement, development, compensation, integration, maintenance and separation of HR to the end that individual, organizational and societal objective and accomplished."

Objectives of Human Resource Management

  a) Effective utilization of human resources in the achievement or organizational goals.

  b) Establishment and maintenance of an adequate organizational structure and desirable working relationships among all members of the organization.

  c) Securing ntegration of the individual and informal groups with the organization and there by their commitment, involvement and loyalty.

  d) Recognition and satisfaction of individual needs and group goals.

  e) Provision for maximum opportunities for individual development and advancement.

  f) Maintenance of high morale of human organization.

  g) Continuous strengthening and appreciation of human assets.

      2. Scope of HRM:

      The scope of HRM is very vast, all the major activities in the working life of the employee from the time of his/her entry in to the organization until he/she leaves. The organization come under the purview of HRM, it includes activities like human resource planning, training and development, performance appraisal and job evaluation, employee and executive remuneration, motivation and communication, welfare, safety and health, industrial relations and prospects of HRM.


Many different companies and industries employ large part-time workforces. These employees work fewer hours each week than their full-time counterparts and may not perform all of the same duties. But for part-time employees, as important as their job descriptions are the employee benefits they do, or do not, receive as compensation in addition to an hourly wage.

The federal government does not differentiate between full- and part-time employees. Each company has the right to set its own definition for part-time employment, which can determine whether or not you receive benefits and, if so, what type. A 30-hour workweek is usually the cut-off for part-time employment, with most full-time employees working 40 or more hours each week. Benefit policies may require part-time employees to work at least 20 hours per week, on average, to qualify for benefits.

Part-time employees can receive several different types of benefits. While many companies reserve all benefits for full-time workers, some of the most common benefits for part-time employees include a 401k-retirement savings plan and basic health insurance. Part-time employees are less likely to receive health insurance coverage that includes dental and vision coverage, though some companies offer these benefits as well. Other less-common benefits for part-time workers include maternity leave, paid sick days and paid vacation.

The federal government requires employers to offer some benefits to all employees, regardless of their status or regular hours. One of these benefits is social security benefit, which employers deducts from employees' paychecks and match with a payment to the government. Employers must also pay unemployment insurance taxes and purchase workers compensation insurance 

Benefits Of Offering Domestic Partner Benefits

Benefits of Offering Domestic Partner Benefits

Domestic partner benefits are health benefits that are offered to non-married couples which are the same or near the same as benefits that are provided for legally married couples. Currently many businesses do not offer these benefits because of various reasons.   Some do not completely understand the definition of domestic partner; some fear the tax and costs of these benefits, while other businesses do not fully understand the positive impact this type of benefit will have on employees and potential employees. 

  Domestic partnership is a personal relationship between two people in a committed relationship who support each other financially and emotionally, but not married and live in the same household. Many people mistake a domestic partnership as same sex however; that is not true.   In some parts of the country, such as California, Maryland, Nevada, Maine, Rhode Island, District of Columbia, Washington, Wisconsin, and Oregon, domestic partnership is considered the same as legally married. Domestic partners are not considered the same as married couples by insurances therefore; these benefits are defined different. 

Domestic partner benefits is a benefit plan offered to employees who have a significant other but are not married, usually these benefits are the equal or comparable to the benefits provided to a married couple. Some states and cities allow domestic partners to register their partner. This registration may be a condition an employee must receive to place his or her partner on a benefit plan. For those states that do not offer such registration employers may require other legal documentation to qualify for benefits. Keep in mind, as an employer; if documentation is required to prove a significant other, it is important that this documentation should be required for all employees. Example if an employer requires an employee who has a domestic partner to provide a partner registration the employer would...

Creative compensation

 Finding the time to build and implement an equitable wage structure can be difficult. To make the process easier, consider the following checklist:

Decide what you want your compensation package to do.

recruit new employees

motivate current employees

reward well-performing employees

minimize risk of violating federal laws

build employee loyalty

any combination of the above

Determine your internal wage structure; either:

evaluate the jobs

evaluate the employees

create competency groupings

Talk to your employees about their indirect compensation needs:

health insurance

paid vacation


child care

retirement planning

Structure your total rewards system, including:

indirect compensation based on your employee's needs and your compensation objectives

direct compensation based on labour market information and your compensation objectives

Implement your new system, remembering to:

communicate with your employees about their needs

review your compensation package regularly-make sure it is fair, equitable and competitive

be flexible and innovative to maintain a competitive advantage

maintain both internal and external equity


Organizations imply that the market fails to incorporate intangible assets fully into stock valuations - even if the existence of such assets is verified. This suggests that the market may have even greater difficulty in valuing other forms of intangible investment, and provides empirical support for theoretical models of managerial myopia.

The results are consistent with the view that employee satisfaction is positively related to corporate performance, rather than representing inefficiently excessive non-pecuniary compensation. However, there are other interpretations of this association which the data cannot entirely rule out. The future research that successfully identifies the underlying causes of superior performance may have important implications. If superior employee satisfaction caused even a portion of the 64 basis point monthly abnormal return, then employee-friendly programs can substantially improve shareholder value.


Abowd, John (1989): The Effect of Wage Bargains on the Stock Market Value of the Firm. American Economic Review 79, 774-800

Akerlof, George and Janet Yellen (1986): Efficiency Wage Models of the Labour Market's Cambridge University Press, Cambridge UK

Akerlof, George (1982): Labour Contracts as Partial Gift Exchange Quarterly Journal of Economics 97, 543-69

Anginer, Deniz, Kenneth Fisher and Meir Statman (2007): Stocks of Admired Companies and Despised Ones Working Paper, University of Michigan