The Benefits And Compensation Business Essay

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In todays corporate market, more than ever the Human Resources department within each organization is given the daunting task of offering both current and highly sought after employee's compensation and benefits that are competitive with rival companies within a similar market. Often referred to as "HR", they are forced to entice new and talented workers to join the work force, without sacrificing the profitability of the company. Compensation and benefits used as hiring tools include programs such as base salaries, hourly wages, and team or group bonuses.

Benefits packages are also a bargaining chip used by HR. Such benefits include healthcare packages, corporate sponsored day care, authorization for telecommunication use, stock options, retirement plans such as dollar-matching 401(K), etc. These items do not give employees direct financial or monetary compensation, but do save workers money, time and convenience, which are all paid by the employer to lure the best and brightest of their field or craft. Despite many rules and regulations already in place meant to limit compensation and benefits, while living through an economically-stressed time, every benefit and compensation item offered needs to be fought for by each and every corporate employment regardless of how high or low they fall on the corporate ladder.

Benefits and Compensation


"What benefits does your company offer" is the first thing many applicants ask of a potential employer during an initial job interview. Benefits - indirect financial and nonfinancial payments employees receive for continuing their employment with the company - are an important part to compensation. Benefits may include health and life insurance, pensions, time off with pay, and child-care assistance. Most full-time employees in the United States receive such benefits. Virtually all employers offer some health insurance coverage. Employee benefits account for 33% - 40% of wages and salaries which equates to nearly 28% of total payrolls ("Chapter 10 -- Benefits and Other Compensation Issues", 2005). Pay for time not worked is the most costly benefit, due to a lack in work production.

Compensation is a primary motivator for employees. People look for jobs that not only suit their creativity and talents, but compensate them accordingly-both in terms of salary and other benefits. Compensation is also one of the fastest changing fields in Human Resources, as companies continue to investigate various ways of rewarding employees for performance.


It is important for small business owners to understand the difference between wages and salaries. A wage is based on hours worked. Employees who receive a wage are often called "non-exempt." Inversely, a salary is an amount paid for a particular job, regardless of hours worked, and these employees are called "exempt." The difference between the two is carefully defined by the type of position and the kinds of tasks that employees perform. In general, "exempt" employees include executives, administrative and professional employees, and others as defined by the Fair Labor Standards Act of 1938 ("U.S. GAO - Federal Workers' Compensation: Issues Associated With Changing Benefits for Older Beneficiaries", n.d., p. 1-11). These groups are not covered by minimum wage provisions, while "non-exempt" employees are covered by minimum wage pay and other provisions.

It is important to pay careful attention to these definitions when determining whether an individual is to receive a wage or a salary. Improper classification of a position not only poses legal problems, but often results in employee dissatisfaction, especially if the employee believes that execution of the responsibilities and duties of the position warrant greater compensation than is currently awarded.

When setting the level of an employee's monetary compensation, several factors must be considered. First and foremost, wages must be set high enough to motivate and attract good employees. The wage must accurately reflect the value of the labor performed. The next step is to review prevailing rates and classifications for similar jobs. This process requires research of the competitive rate for a particular job within a given geographical area.

Job analysis not only helps to set wages and salaries, but ties into several other Human Resource functions such as hiring, training, and performance appraisal. When the job is defined, a wage can be determined and the needs for hiring and training can be evaluated. The evaluation criteria for performance appraisals can also be constructed as the specific responsibilities of a position that are outlined and defined. Other factors to consider when settling on a salary for a position include: availability of capable people, level of demand in the industry, cost of living in the area, and compensation levels already in existence elsewhere in the company ("Employee Benefits in the United States news release text", 2012).

There are many federal, state, and local employment and tax laws that impact compensation. These laws define certain aspects of pay, influence how much pay a person may receive, and shape general benefits plans. The Fair Labor Standards Act (FLSA) is probably the most important piece of compensation legislation. This act contains five major compensation laws governing minimum wage, overtime pay, equal pay, recordkeeping requirement, and child labor ("U.S. GAO - Federal Workers' Compensation: Issues Associated With Changing Benefits for Older Beneficiaries", n.d., p. 1-11). Most of the regulations set out in the FLSA impact non-exempt employees. The Equal Pay Act of 1963 is an amendment to FLSA, which prohibits differences in compensation based on gender in the same workplace whose jobs are similar ("U.S. GAO - Federal Workers' Compensation: Issues Associated with Changing Benefits for Older Beneficiaries", n.d., p. 1-11). It does not consider "exempt" or "non-exempt" status.

In addition, the United States government has passed several other laws that have impacted compensation issues. These include the Old Age, Survivors, Disability and Health Insurance Program (OASDHI), which formed the basis for most benefits programs. Such actions include the implementation of unemployment insurance, equal employment opportunities, worker's comp, Social Security, Medicare, and Medicaid programs and laws.

Pay increases are given for numerous and for varying degrees of reasons, but they are normally handed out for promotions, merit increases, or cost of living increases based on higher living expense areas such as Santa Barbara, Los Angeles, Virginia, and Washington, D.C. The Hay Group pointed out that there is less distinction today between merit increases and cost of living increases: "…because of the low levels (3 to 4 percent) of salary budget funding, most merit raises are perceived as little more than cost of living increases. Employees have come to expect them," (Kuo & Mango, 2006, p. 12-18). This "base pay" system is one that most people are familiar with. Often, it includes a set salary or wage, a set schedule for merit increases, and a set benefits package.

Benefits are an important part of an employee's total compensation package. Benefits packages became popular after World War II, when wage controls made it more difficult to give competitive salaries (Schraeder & Becton, 2002, p. 18-24). Benefits were added to monetary compensation to attract, retain, and motivate employees, and they still perform that function today. Many of these benefits are nontaxable to the employee and deductible by the employer (Schraeder & Becton, 2002, p. 18-24).

Many benefits are not required by law, but are nonetheless common in total compensation packages. These include health insurance, accidental death and dismemberment insurance, some form of retirement plan, vacation and holiday pay, and sick leave ("Forward-thinking approach to compensation and benefits related issues", 2012). Companies may also offer various services, such as reduced or free day care ("Forward-thinking approach to compensation and benefits related issues", 2012).

In addition, there are also certain benefits that are required by either state or federal law. Federal law, for example, requires the employer to pay into Social Security, and unemployment insurance is mandated under OASDHI (("Employee Compensation - type, benefits, cost, Determining wages and salaries, Compensation laws", n.d.). State laws govern worker's compensation.


Traditional compensation methods may hold a company back from adequately rewarding its best workers. When compensation is tied to a base salary and a position, there is little flexibility in the reward system. Some new compensation systems, on the other hand, focus on reward for skills and performance, with the work force sharing in company profit or loss (("Benefits and Other Compensation Issues", 2003). One core belief of new compensation policies is that as employees become employee owners, they are likely to work harder to ensure the success of the company (Kuo & Mango, 2006, p. 12-18).

Compensation programs and policies must be communicated clearly and thoroughly to employees. Employees naturally want to have a clear understanding of what they can reasonably expect in terms of compensation (both in terms of monetary compensation and benefits) and regularly scheduled performance appraisals. To ensure that this takes place, consultants urge business owners to detail all aspects of their compensation programs in writing. Taking this step not only helps reassure employees, but also provides the owner with additional legal protection from unfair labor practices accusations, union-led investigations, and courtroom situations.

By introducing incentives, companies can boost employee morale tremendously. A few examples of employee incentives are paid vacations, company sponsored social activities, stock options, company-paid vehicles, and bonuses or pay increases based on performance (Compensation and Benefits Issues Arising from Divestitures, Mergers, and Acquisitions", 2004, p. 1-32). These are just a few activities that can lead to a more productive work environment.

A challenging issue facing HR executives today is the benefits package a company offers to its employees. Benefits such as retirement plans, healthcare, family leave plans and vacation time are becoming increasingly important to employees (Mohammad, 2011). However, such benefits are costing companies a tremendous amount of money each year. Human Resource executives must find a middle ground that will not only please its employees, but also be affordable to the company.

Another challenging HR issue facing companies today is the ability to offer a competitive incentive package. Employees today want to work for a company that offers reasonable salaries, excellent health benefits, a pension plan and comprehensive 401k plans (Employee Compensation - type, benefits, cost, Determining wages and salaries, Compensation laws", n.d.). Another sought after benefit is tuition reimbursement, child care centers, fitness centers, life insurance, and the all-important paid time off (Employee Compensation - type, benefits, cost, Determining wages and salaries, Compensation laws", n.d.). Each of these perks is very costly to the company, but without them the quality of their workforce would be sacrificed. Companies are adding more benefits to attract and retain employees each year. HR executives need to understand their company and be able to offer as many benefits as possible without hurting the profitability of the company.

Of all the disciplines in the human resources field, compensation is one of the most complex issues to tackle. Handling compensation issues requires knowledge of employment trends, the value of experience and credentials for various positions and industries, negotiation skills, company budget, and the organization's bottom line (Kuo & Mango, 2006, p. 12-18). Addressing compensation issues can range from developing competitive wage scales to weighing the advantage of bonus and incentive payments.

The term compensation means financial payments such as wages and salary paid to employees. Compensation also includes bonus and incentive payments, raises and company stock awarded to employees (Employee Compensation - type, benefits, cost, Determining wages and salaries, Compensation laws", n.d). Compensation specialists often have knowledge of both compensation and employee benefits. This is one reason why human resources departments sometimes combine compensation and benefits into one departmental function.

Compensation represents the largest of all expenses in most organizations, and it is in turmoil. The Federal government's statements are inconsistent and have resulted in much uncertainty. While some employers are reducing hiring and instilling tight budgets, freezing salaries, decreasing bonuses and pay, while cutting out 401k contributions, they should also remain concerned about holding on to their most talented employees when the economy recovers. With decreasing revenues sales compensation structures need revision, such as the trend away from a revenue basis to a profit basis. There are also the changes to 401(k) and other plans where companies are cutting their matching contribution funds, and the IRS is providing guidance.

The biggest pain of Compensation and Benefits is how to introduce the fair and transparent compensation policy to the organization. In the public sector, this issue is quite easy to solve as their compensation schemes are pretty rigid and people get used to them. But in the large corporations - the transparency and fairness of the compensation policy can be a real issue and are much more noticeable by employees.

Fair Compensation Policy needs a clear definition of job descriptions and job profiles in the organization. The value of each job must be evaluated and the organization must develop a clear system of jobs within the organization. When the organization has a clear system of job evaluation and all the job positions are put in the correct order, the organization can develop the Fair Compensation Policy. The fair compensation policy takes the following inputs into account which include job, evaluation, job market situation, business strategy, and preferences of the organization. The fair compensation policy defines the fair value of each job in the organization and lays out the clear process of reaching this fair value. Every HRM needs Fair and Transparent Compensation Policy implementation in order to support the performance of the business and to increase satisfaction of employees. Up to this point, this discussion has been about civilian benefits and compensation. Now let's briefly shift our focus to the governmental employee side of this topic.

Compensation and benefit issues involving direct federal government employees are not much different than that of its civilian counterparts. In fact, due to the rules set in place under the Federal Employees' Compensation Act (FECA), nearly $1.88 billion in "wage-loss compensation" and an additional $898 million was paid out "…for medical and rehabilitation services and supplies" in payout year 2010 ("U.S. GAO - Federal Workers' Compensation: Issues Associated With Changing Benefits for Older Beneficiaries", n.d., p. 1-11). These are numbers staggering, but the civilian pays out much more than that since the quantity of the worker pool is exponentially greater than that of the government. Other benefits paid out in 2010 include: "loss of wages when employees cannot work because of work-related disabilities due to traumatic injuries or occupational diseases", "schedule awards for loss of…a body part or function", "vocational rehabilitation", "death benefits for survivors", "burial allowances", and "medical car for injured worker," ("U.S. GAO - Federal Workers' Compensation: Issues Associated With Changing Benefits for Older Beneficiaries", n.d., p. 1-11). Changes to how the government manages its employees have undergone changes within the past two years and inevitable changes will force a new era in government employment where spending is concerned due to the current sequestration.

For federal employees, they currently have two different types of retirement options. The first retirement plan offered is the Civil Service Retirement System (CSRS) which is applied, or "grandfathered" for employees who were hired before 1984 ("U.S. GAO - Federal Workers' Compensation: Issues Associated With Changing Benefits for Older Beneficiaries", n.d., p. 1-11). The second retirement plan is called the Federal Employees' Retirement System (FERS) and it is applied to all employees hired after 1984 ("U.S. GAO - Federal Workers' Compensation: Issues Associated with Changing Benefits for Older Beneficiaries", n.d., p. 1-11). Both plans are paid out to an employee based on age and total years of service rendered ("U.S. GAO - Federal Workers' Compensation: Issues Associated with Changing Benefits for Older Beneficiaries", n.d., p. 1-11). Retirement annuities are determined by three things: "…number of years of service, the accrual rate at which benefits are earned for each year of service, and the salary base to which the accrual rate is applied," ("U.S. GAO - Federal Workers' Compensation: Issues Associated With Changing Benefits for Older Beneficiaries", n.d., p. 1-11). Additionally, employees can opt to pay into a plan similar to a 401(K) called the Thrift Savings Plan, or TSP, and is based on investing money which lowers current taxable compensation salaries to be deferred when collected in retirement after 59 ½ years of age ("U.S. GAO - Federal Workers' Compensation: Issues Associated With Changing Benefits for Older Beneficiaries", n.d., p.1-11). In some cases, the government will match TSP contributions dollar-for-dollar depending on the job discipline one is assigned to.

Federal compensation is a completely different than its benefits programs. Compensation is based on pay scales which are determined by position and locality (or zip code). Pay or financial compensation for government employees is greater for those with college degrees, similar to that of the civilian sector. Although, the monthly or annual pay tend to be far less than that of civilian contracted counterparts with similar expertise, education, and training ("U.S. GAO - Federal Workers' Compensation: Issues Associated with Changing Benefits for Older Beneficiaries", n.d., p. 1-11).

Recommendations for Managers:

There are many things companies can do to eliminate workplace discrimination. One way to do this would be to offer equal pay for equal work, regardless of gender or ethnicity. Today, women are paid 77 cents on the dollar to do the same job, perform the similar tasks, and cover similar amounts of responsibility to that of their male counterparts (Employee Compensation - type, benefits, cost, Determining wages and salaries, Compensation laws", n.d.).

Another issue that needs to be addressed is the benefit of telecommunication. Telecommunication can be defined as ability of employees or workers to remain employed by the company while working from alternate locations such as the home or residence (Schraeder & Becton, 2002, p. 18-24). This benefit adds value to the employee to manage a sizeable workload from home where workers are more comfortable, while being able to still care for family members as needed. Telecommunication also adds to the community by reducing traffic congestion and overall city pollution (Schraeder & Becton, 2002, p. 18-24).

One last recommendation I would have for managers would involve the use of flexible work schedules. Some workers have issues with daycare hours, lack of paid sick days, or simply are night owls. By allowing a flexibility window for a work day, it allows personal needs to be met, while still ensuring job tasks and the mission of the company are met or exceeded. Flexibility hours can still be monitored by the use of a corporate website that tracks hours based on the time of log-ins and logging out. Government employees are required to log-in to government approved computers in order to track hours and fill-in time cards.


Future employees seek to earn fair compensation based on workplace experiences earned, training received, and achieved education. They also are in search of a fair company that will also offer and pay-for benefits such as daycare expenses, offer family healthcare, grant paid sick leave, and offer bonuses for beating project deadlines and exceeding goals. Needless to say, mostly everyone wants to be shown "the money."

By offering fair wages and a competitive benefits package, it is far easier for Human Resources to recruit, hire, and maintain the best and the brightest of their craft or workplace discipline. If employees feel they are being taken care of, work center morale will remain high and the work will get done. Without such programs, employees feel under-appreciated, under-utilized, and will seek work elsewhere. If such problems are resolved regardless if it is for federal or civilian job, workers will be glad to work for their current employer.