Indirect Compensation - Essay Example

Indirect Compensation Name and ID Course Name and Code Instructor’s Name 27 December 2009 Employee compensation is an important issue that employees and employers should consider in determining the future of their organisations. Many employees work within an organisation based on the compensation that they get. Usually, two types of compensation exist: direct and indirect. Direct compensation mostly deals with monetary related benefits while indirect compensation deals with non-monetary related benefits. This means that indirect compensation is usually offered and provided to employees because of the services that they provide to an organisation (Dittmer & Griffin, 1994). Thus, the aim of this paper is to analyse and discuss the factors that make indirect compensation beneficial in that employees will retain or determine to choose a new employer. Indirect compensation are the components that are made available to the employees that provide protection in case of health related complexities and income in future occasions such as termination or retirement (Griffin & Moorhead, 2009). The indirect compensation, at times, may not be included in a compensation benefits program but are usually presented in a way that it will improve the welfare of an employee or to meet social or personal obligations while at the same time minimises employment related costs. Indirect compensation may include property and liability protection, deferred income, and family or spouse family income continuation, disability income continuation, health and accident protection and loss-of-job income continuation. Those organisations that offer these benefits usually retain or attract intellectual talent and thus resulting in productivity of an organisation (Baldwin, 2003). Disability income continuation is an important factor in compensation benefit. This is because an employee may be involved in an accident or other health related reasons that will prevent the employee from working efficiently. Thus, the disability income continuation provides monthly or weekly payments in lieu of the regular paycheck (Gargan, 2000). Numerous disability income continuation programs exist one of which is travel accident insurance for those employees who are required to travel frequently. This disability continuation ensures that payment is made to the employee in case of or event of disability, injury or even death. Nowadays, employees are required to travel frequently, and numerous risks exist that may injure the employees during the process of travelling. For example, marketers are required to travel frequently to determine the impact of a product in certain market segment, thus the marketer will be comfortable when he/she is assured that even if an accident leading to disability occurs, he/she will continue earning. Those organisations that offer this service or benefit will retain or attract new talents (Caruth & Handlogten, 2001). The economy is usually changing at a faster rate while competition may make some companies to go down. This result in loss of job, thus provision of programs such as loss-of-job income continuation provides income security to the employee, and the employee may feel comfortable working for the organisation (Griffin & Moorhead, 2009). Numerous loss-of-job income continuation programs exist and may include unemployment insurance; assist employs for short during due to termination or layoffs, supplemental unemployment benefit, guaranteed annual income, severance pay; provide for employees depending on the time they have worked for the organisation, and job contacts; provided in those situations that the employer end contract against certain terms/conditions provided. Many employees are afraid of losing their livelihoods, and introduction of these programs to an organisation may make the employee to understand that their contribution to the organisation are appreciated and also means have been developed that will guarantee payments whether the consequence of economy or inappropriate termination occurs. Putting this in mind, many employees will be attracted to such organisations to enjoy the job guarantees that are provided, while those in the organisation will not decide to change or look for new pastures (Gargan, 2000). Deferred income compensation usually is an understanding between the employer and employee on payment of income. It is an arrangement in which some amount of employee’s income is paid after certain date that the income is actually earned. Some examples of these plans are the retirement plan, pension and stock options. It is an understanding between the employer and employee that certain amount of income is deducted from the salary, and this amount will be paid at a later date. Many government policies support this view because of its numerous benefits (Dittmer, & Griffin, 1994). The amount of deferred income that an employee will earn depend on the number of years the employee has worked, amount of income and amount of salary that was forfeited. Many employees hope that after working for long periods, they will one day enjoy the benefits of their accomplishments, and thus deferred income ensures that this dream is fulfilled. Those organisations that have developed and fully followed deferred income policy usually attract many employees because the employees know that their future is guaranteed in terms of income (Rosenbloom, 2005). Some organisations provide a compensation plan that is referred to as spouse and family income protection. The spouse and family income protection is a program that ensures that survivors of employee receive income in case the employee dies. Pension plan is one such program that provides monthly income to family immediate family members; social security provides beneficiaries of deceased employees with certain income, life insurance that is based on groups of employees, and workers compensation insurance that provides both income benefits to survivors and burial expenses, all champion protection of income to family members (Chelladurai, 2006). This protection for income policies ensure that the dependants of the employee lives may continue as though the employee was still alive. Many employees work to ensure that the welfare of their families and dependents are guaranteed. Therefore, those organisations that provide such benefits attract new talents and man employees may decide to work permanently in these organisations. Hence, organisations that have spouse and family income protection will be productive because they will attract and retain best talent (Manas & Graham, 2003). Many employees know that their health is important in accomplishing duties effectively. This calls upon the health and accident protection program; that is most important of indirect compensation plans. This is the most used indirect compensation benefit but it is associated with increase in cost. These health care programs protect employees from expenses related to surgery, hospitalisation, and general medical expenses. Sometimes this health care policies cover eye care, dental care and prescriptions (Bernardin, 2002). Health care and accident policy is a major concern of many employees because they know that their health position will ensure that they succeed or fail in what they are doing. Poor health is usually associated with other expenses other than the budgeted ones. Thus, those organisations that provide these policy and program ensures that the employees work optimally because they are aware that their health is guaranteed and appropriate strategies are in place that can mitigate against accidents. Many employees will/are happy when they work for these organisations and thus it is an important factor determines appreciation of employees towards the organisation (Bernardin, 2002). Some organisations provide for property and liability protection. Group insurance for legal, home, auto and umbrella liability is becoming more common and usually associated for employees will premium payments that are deducted from the payroll (Noe, 2004). Additionally, legal insurance plan either provides an opportunity for an employee to choose an attorney or pick from a number that are provided. On the other hand, group umbrella liability policies are some components that are provided by few employers that covers employees beyond the usual auto and home owner’s policies. Minimal charges that are handled through deduction of the salary are used to handle these policies. Many employees appreciate and are attached to properties that they own. Thus, those organisations that provide means of ensuring that these properties are protected and means of addressing any liability will likely increase the number of talented employees. The employees presented with this option will understand its numerous benefits and thus will like to be associated with the organisation (Noe, 2004). Two types of compensation plans exist, which are direct and indirect. Indirect compensation framework is based on non-monetary terms. These benefits are not directly included in the contract plan but it is a supplementary provision for the employees of a given organisation. Indirect compensation plans brings into consideration numerous components that are provided to employees, which include property and liability protection, deferred income, and family or spouse family income continuation, disability income continuation, health and accident protection and loss-of-job income continuation. These components of indirect compensation are paramount in retaining, attracting and providing a means in which the employees will gauge an organisation. The aim of any organisation is to ensure that they retain the best talent so that the organisation can be productive. Thus, championing these indirect compensation policies will ensure that the aims of an organisation are achieved, and hence profitability. Reference Baldwin, D. (2003). The library compensation handbook: a guide for administrators, librarians, and staff. New York: Libraries Unlimited. Bernardin, H. (2002). Human resource management: an experiential approach, 3rd Ed. 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The handbook of employee benefits: design, funding, and administration, 6th Ed. New York: McGraw-Hill Professional. Read More