There are several different types of financial compensation given to employees. Health and welfare benefits, reimbursements and employee services are one category of financial compensation that is a very high priority for many workers. This includes medical and dental insurance, pension plans, and disability programs. This is where employers spend over 14% of the total compensation expenses according to our class notes. There are many sub categories that employers need to choose from within this broad financial compensation area. Some sub categories include: HMO, PPO, POS plans, consumer directed plans, and cafeteria plans. Health and welfare benefits, reimbursements and employee services are very important because they provide very important services that most people cannot afford on their own. This is a hot button issue right now with the new health care reform and it is the topic of many discussions in the news and elsewhere.
Another type of financial compensation is the employee’s salaries and wages. This category is the largest expenditure for the employer in their financial compensation plan and can be up to 60% of the total expenses. Wages are paid to hourly employees and these employees are usually eligible to receive overtime pay. Salaried employees are paid a flat rate usually per year and are held accountable for their accomplishments. Some salaried employees are also eligible to receive overtime pay. Wages and salaries are important to all employees; this is their livelihood and the reason that most people work.
Premium payments are also a form of financial compensation that are given as a recognition to employees who take on extra work or work in undesirable conditions. These premiums payments may be given to employees who work weekends or swing shifts. Another example of when a premium payment might be offered is to a news reporter who offers to go to a dangerous or hazardous place for a report. These types of payments are very important in hospital settings or any other 24 hour operation. This gives employees an incentive to work a schedule or under conditions that would otherwise be very disliked by all employees.
Another type of financial compensation is pay for time not worked. This category includes holidays, vacation, sick leave, and PTO or Paid time off programs. Pay for time not worked is usually offered to employees after a certain waiting period and may increase with years of service. This type of compensation is highly valuable to employees with families as it gives them paid time to spend with their loved ones. Other employees also find paid time off important because it gives them time to take care of their doctors appointments or get their car fixed during normal business hours.
Short-term incentive compensation is a form of financial compensation that is used as a motivational tool by the employer. These incentive payments are given when certain criteria is met. These payments are sometimes called bonuses or commission. Usually the incentives are paid on a weekly or monthly basis and they are often paid in cash. These incentives are highly valued by sales employees and can sometimes make up the majority of their salary.
There are also several different types of non-financial compensations that are offered by employers. One example is permitting flexible work schedules. This is when the employer allows the employee to change their work hours to better suit their own schedule while still keeping their position and pay. This opportunity can be very valuable to families with two working parents or families that are caring for elderly adults.
Another form of non-financial compensation is holding company functions for employees. This could be a holiday party at a fancy restaurant or a company function at a resort destination. This form of compensation is valuable to all employees because it boosts moral and makes the employees feel appreciated.
Promoting from within is another form of non-financial compensation. This is when a company designs a program where employees can be promoted to higher positions and the company makes a plan to hire qualified employees for newly open positions before they look for candidates from outside the company. This is very important for lower level employees who want to move up the ladder and get more responsibility and higher pay.
Verbal praise and positive feedback are also a form of non-financial compensation. This may be something as simple as an email to the employee thanking them for doing a great job on a project or a manager taking time out to let the employee know how well they are doing. This is important at all levels because it lets employees know that the management and company care about the job that they are doing; it makes employees feel special and appreciated.
Educational reimbursement is another example of non-financial compensation. This is a program that is offered to employees and sometimes their families. The company will reimburse the employee up to a certain amount for classes and education. Some companies require that the classes be in the same field while others do not make that distinction. Most companies do require an employee to pass a waiting period before they are eligible for educational reimbursement. This is important to any employee who would like to go to school and get more education to attain higher levels of pay and higher positions.
Compensation Management in a Knowledge-Based World, Richard I. Henderson. ISBN: 0131494791