What is Compensation? What HR staff and job seekers need to know

What is Compensation?

Compensation is the benefit employees will receive for their work and is the cornerstone of an effective workforce. The quality and performance of a company's talent pool often depends directly on how well a company implements its compensation planning strategies.

What is the reason the company cannot lack compensation?

Obviously people won't work for the company for free - they expect to be paid for the effort and expertise they put in. It's also illegal to ask them to work for free (unless you're a nonprofit).

That said, compensation is an important part of an employer-employee contract, as most employees won't work simply because they love their job.

Along with that, forms of compensation are also important for any vacancy. If a candidate is faced with a choice between two companies with the same salary, the company's compensation is more attractive, the company has a better chance of getting the candidate.

In addition, a good compensation mode will bring many things to businesses such as:

Employee Retention - An attractive compensation plan helps reduce employee turnover. They will be more incentivized to do their job well and this saves the cost of recruiting new employees.

Motivation – As mentioned in what compensation is, it is the factor that motivates employees to constantly develop themselves and strive to reach new heights. It gives them a reason to work hard and keep working towards reaching the next big milestone.

On the other hand, employee performance and efficiency can be severely affected without a good compensation package. Here are a few reasons why:

Low Job Satisfaction - Employees will feel undervalued and unsatisfied with their jobs. This can lead to dissatisfaction among colleagues and lower morale in the workplace.

Low Productivity – Poor benefits lead to low productivity, and employees are less motivated to strive for excellence.

High turnover rate - If compensation is less attractive compared to what employees have paid, they will quickly leave their current job. Recruiting new employees will cost a lot of money such as retraining and waste of time.

Various forms of compensation

Types of compensation are usually divided into the following sections:

Direct benefits (Salary, bonus, allowance). This includes the form of wages, incentives and bonuses or overtime pay. For example, some jobs are commission-based, incentivizing employees to do more work to get paid more. Allowances such as travel allowance, meal allowance and mobility allowance may also be included.

Indirect benefits (Welfare). This involves all the ways businesses pay employees other than direct pay. It could be health insurance, leave, recognition of achievements and contributions, internal culture and much more.

While direct employee benefits are certainly important, indirect forms of compensation are a major driver of employee engagement and job satisfaction.

What is an effective way to determine compensation levels?

As a manager or HR professional, you can apply effective methods when planning compensation and benefits for your company.

First thing, check your budget. You should know how the company budget is structured, which will give you a better understanding of how the money is spent.

Once you've mastered the budget, consider employee compensation plans. While the employee salary review is typically done at the end of the year, you can do this quarterly to make necessary adjustments.

A good place to start when making an assessment is to ask the following questions:

- Has the company recently changed its business or sales strategy? If so, is the compensation plan still relevant for this strategy?

- Has your company grown since the last audit?

- Do employee salaries and bonuses accurately reflect changes in job duties?

The answers to these questions will help you determine if your current compensation and benefits need to be reevaluated.

As one way to increase retention and reduce employee turnover, make sure to pay special attention to high-performing employees on your team. High performance will (usually) pay more, which will be an important part of your compensation package.

When an employee doesn't feel like they're getting paid, they're likely to leave for a more suitable company.

The salary and benefits you offer should be different from what other companies offer. Consider sending out a survey to your current employees to find out what they feel your company's compensation and benefits are lacking. The feedback you get may mean you consider extra time off, gas assistance, lunch, or additional health care benefits like dental or vision.

As you begin to reevaluate your employee compensation plan, you need to come up with ways to create a solid structure and reliable process, not just one-off fixes. This means not only laying out your current employee compensation strategy, but also identifying ways you will continue to review and improve in the future. Only with a long-term strategy in place can your business begin to truly grow and engage employees in a meaningful way.

The above is the share about what compensation is and the related essentials, hopefully it will be useful for you working in HR positions and job seekers to make the recruitment or application process more efficient.