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Compnt and Benefit

Compensation & Benefits (C&B) is a sub-discipline of Human Resources focused on employee compensation and benefits policy making. There are four basic components of employee compensation and benefits: guaranteed pay (such as base salary), variable pay (such as bonuses), benefits (such as health insurance and paid time off), and equity-based compensation (such as stock options). C&B is typically a sub-function of the HR department and aims to attract, retain, and align employees while considering various internal and external influencers.

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54 views3 pages

Compnt and Benefit

Compensation & Benefits (C&B) is a sub-discipline of Human Resources focused on employee compensation and benefits policy making. There are four basic components of employee compensation and benefits: guaranteed pay (such as base salary), variable pay (such as bonuses), benefits (such as health insurance and paid time off), and equity-based compensation (such as stock options). C&B is typically a sub-function of the HR department and aims to attract, retain, and align employees while considering various internal and external influencers.

Uploaded by

shubhramishra
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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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
[hide]

 1 The Basic Components of Employee Compensation & Benefits


 2 Guaranteed Pay
 3 Variable Pay
 4 Benefits
 5 Equity Based Compensation
 6 C&B Organizational Place
 7 C&B Main Influencers
 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 bonuses
and 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 employer’s share as compensation. The most
common examples are stock options.

[edit] Guaranteed Pay


Guaranteed pay is a monetary (cash) reward.
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 as 13th salary, seniority allowance, and more.

[edit] Variable Pay


Variable pay is a monetary (cash) reward that is contingent on discretion, performance or results
achieved. 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, employer’s
pension contribution, sick pay, and more.

[edit] Equity Based Compensation


Equity based compensation is an employer compensation plan using the employer’s shares as
employee 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 hires
and 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 of
excellence, like Staffing and Organizational Development (OD).

[edit] C&B Main Influencers


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 the
company 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 company’s labor cost is
automatically reduced when the company isn’t doing so well, while good company performance
drives 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 certain
goal is achieved), then the employee will do whatever he/she can to secure this event (or improve
their 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 designed
bonus 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 less
inclined to leave the company before bonus payout; often the reason for leaving (e.g. dispute
with 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 more
satisfied 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 the
concept of Operant 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 designed
according 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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