Compensation and Benefits: Definition and Importance

Compensation, Benefits, Employee Benefits, fringe benefits, compensation and benefits
Posted by Numan Nazir on Friday, 02/12/2010 12:07 am

Human Resource Management (HRM) has never been as significant as it is today. Companies want to attract, retain and motivate brains to meet objectives. Today Humans are regarded as one of every company’s assets so they need to be efficiently and effectively managed. One of the tools companies use to attract, retain and motivate its people is Compensation Management. In this article, I shall define compensation and benefits along with their advantages for a company and its workers.

Suppose, you own a boutique. Let’s call it myWear - or you can give it any name of your liking. You have hired three salespersons and a receptionist. The salespeople are responsible to look after the sales affairs. The receptionist's duties are to handle the cash and manage the account books. I shall refer to this illustration throughout the article.

Compensation:
Would the three salespersons and the receptionist work for free? No. They would, like us all, expect something in return. You must have heard a common phrase: Give and Take. You always have to give things to people in return to what you take from them. Compensation refers to this exchange, but in monetary terms. Compensation is the employer's feedback for an employee's work. It simply is the monetary value you would give to your four employees in return of their services.

In the book Human Resource Management, Gary Dessler defines compensation in these words "Employee compensation refers to all forms of pay going to employees and arising from their employment." The phrase 'all forms of pay' in the definition does not include non-financial benefits, but all the direct and indirect financial compensations. I shall, Inshallah, explain