Compensation & Benefits Definition - Term Paper Example

Benefit Compensation Essay Discretionary benefits. Discretionary benefits are not mandatory. They are given to individuals in special circumstances on a discretionary basis.  Discretionary benefits are usually arranged by different of public and faith-based companies. This is a voluntary help and it represents a response to person’s needs and not all the people in need receive this assistance, some requests may be denied. There are three types of discretionary benefits: - help provided by social organizations; - charity; - help provided by faith-based organizations. Discretionary benefits are very helpful, because they give assistance to people who really need it. On the other hand, those who receive this help may be then considered to be poor and dependent on somebody’s decision. 2. Defined benefits plans vs defined contributions plans. The controversy on the issue what retirement plan to choose - defined benefit plans or defined contribution - has been held for too long time. The supporters of defined benefit plans argue that DB retirement plans represent the only, which can offer real retirement safety. The supporters of defined contribution plans state that DC retirement plans still provide more safety due to the possibility of employees to trace the facilities on their accounts. During the last few years too many defined benefits plans were changed to defined contribution retirement plans. The main reasons of that are the following: funds supervision;  easy control A lot of complexities with the benefits offered by a defined benefits retirement plan Michael Sze in his work “Which is Better for the Participants - A Defined Benefit or A Defined Contribution Plan” provides the questionnaire that helps define employees’ preferences. He made an interesting conclusion that younger workers prefer defined contribution retirement plans, while older employees often choose defined benefits plans. The survey clearly indicates that the employees are more informed than what some pension experts believe them to be. The employees may not fully understand the technical details of the DB and DC plans, but they know essentially what they need and what types of arrangements would be best to provide for these needs. The challenge is for the pension experts and plan sponsors to establish plans that will cater to their needs (Sze). It is necessary to mention that converting defined benefits plans into defined contribution retirement plans represents a problem for companies. Some people do that not because of advantages the plan provides, but to have extra funds in the situation of economic crisis. Jeff Sanford calls it “a new pension crisis” and comments: Another problem, as some companies are starting to find out, is that plan conversions may set your company up for legal problems if employees retire and run out of money faster than they expected. As lawsuits already filed in the U.S. are making clear, employees are holding companies responsible for not properly educating them about the change in their pensions, forcing them into a decision they knew little about and putting high-fee funds into their pension plan (Sanford, 2007). 3. Employee benefits While discussing the issue how employee benefits are influenced by the changing business environment, it is essential to mention that as the society changes, the very existence of these benefits called into question. The economists provide the following comments: “The biggest contribution that companies can make is to focus on production and sales activities so as to bring about economic vitalization and employment”, “the role of employee benefits provided by large companies has ended. Companies should instead pay out the amount as wages and let employees choose how to use the money” (Tachibanaki, 2002). Employment practices alterations made employee benefits not so essential. When all the workers receive equal salaries, these benefits played an important role. Now when the salaries are performance-based, the benefits became less important. The questions aroused if employee benefits are needed in the modern business world. The investigation was held in the form of survey. Employees from different companies were asked about the importance of benefits. The results showed that notwithstanding that environment is changed, there is a need in benefits clearly expressed by workers. Altering environment demands new approaches to companies’ management including employee benefits. 4. Compensation committees. Now the legislation takes the necessary measures to make sure that compensation committees have the autonomy and special help to implement their essential function: a) the legislation wants the compensation committee meet new rules of autonomy: - supervisors who preserve the interest of shareholders should establish good relations with management; - severe independence rules have limited insulting bookkeeping practices; - at the same time as stock exchanges establish rules of autonomy, they can’t act before they make sure that shareholder’s interests are preserved. b) the legislation wants to make sure that compensation committees gets necessary advices and wants any counselor to be independent; - compensation committees will not have any benefits if they set pays without getting necessary advices; - compensation committees’ application to counselors help preserve the interests of shareholders; - independent counselors should report only to the committee. c) compensation committees should have the right hire independent advisers who will help preserve shareholders’ interests; - the consultants should work to preserve the interest of shareholders; - the consultants’ advices are valuable only if the consultants are independent.  5. US companies should increase base pay (beyond the level that would be paid in the United States) to motivate employees to accept foreign assignments. The statement is true, because it appears to be the only way to make US employees to accept foreign assignment. In order to prove it, it is essential to consider another ways: each assignment is paid as in host country; Problem: the sum can be too small for US workers sum is added to salary for every assignment; Problem: in case if assignment fails sum is removed and this is treated by the employees as a pay cut making them dissatisfied wage is increased at the beginning of the assignment; Problem: earnings of employee are increased as well as taxes for one year Thus, the best way for US companies to make employees to accept foreign assignments is to increase base pay. Works Cited Tachibanaki, Toshiaki. 2002. Companies Consider Withdrawing from Corporate Welfare. Nihon; Sanford, Jeff. 2007. DB versus DC: Pension crisis: the second pension crisis approaches. Canadian Business Online; Sze, Michael. Which is Better for the Participants - A Defined Benefit or A Defined Contribution Plan, available at http://www.szeassociates.com/dbvsdc.html; Read More