Pros And Cons Of Compensation

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Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation which includes a direct cash payment, indirect payments in the form of employee benefits and incentives to motivate employees to strive for higher levels of productivity is a critical component of the employment relationship. It is an integral part of the managing of any organization. Every organization must offer good wages and fringe benefits to attract and retain talented employees with the organization. If at any time, the wages offered by a firm are not competitive as compared to other firms, the efficient workers may leave the firm. Therefore, workers must be remunerated adequately for their services.
Typical compensation packages include health insurance, performance bonuses, vision and dental insurance and retirement plans. Each of these has a cost to the company and a value to the employee. According to Thomas J. Bergmann (1988) compensation consists of four distinct components: Compensation is wage or salary plus employee benefits and non-recurring financial rewards and non-pecuniary rewards. Wages represent hourly rates of pay,
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Companies may also offer various services, such as daycare, to employees, either free or at a reduced cost. It is also common to provide employees with discounted services or products offered by the company itself. These forms of compensation are more effective than hourly or salary because they are nontaxable, deducted as business expenses from employers, not included in taxable income for employees and not subject to employment taxes. In addition, these forms of compensation methods used to increase productivity or maintain retention of certain skills, or the pool of skill-sets needed in the
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