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The Empuls Glossary

Glossary of Human Resources Management and Employee Benefit Terms

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Compensation And Benefits

Compensation and benefits are the components of an organization's overall employee management strategies. Compensations are the rewards in the form of direct pay, whereas benefits are the indirect pay that the employees can use.

What are employee benefits and compensation?

Compensation and benefits are the rewards and incentives that employees provide to the employees in exchange for contributing to the organization. This helps employees to boost morale, increase productivity and work towards the organizational goals.

Compensation is financial rewards that are provided to employees, such as:

  1. Bonus
  2. Commission
  3. Stock options and equity
  4. Paid time off
  5. Health insurance

1. Bonus: Bonus is the additional payments based on individual or group performance, provided after achieving a specific goal towards the organization.

2. Commission: Employees earn commissions after making a sale based on the percentage or a fixed amount of the sales generated.

3. Stock options and equity: Some big companies offer stock options to employees as a reward which would help them from the company's success and benefits. Benefits are the non-monetary reward services businesses provide to enhance their overall well-being and job satisfaction.

Benefits are non-financial benefits, such as:

4. Paid time off: Employees are given paid leave for vacation and holiday as a benefit to stay away from work and rejuvenate.

5. Health insurance: Employers may offer medical, dental, and vision insurance plans to help employees access healthcare services and manage their health-related expenses.

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What is the compensation and benefits structure?

Compensation and benefits structure is the outline of a system that an organization establishes to identify compensation and benefits for the employees.

The structure of compensation and benefits includes:

  1. Job evaluation and salary structure
  2. Performance management
  3. Variable pay programs
  4. Benefits being offered
  5. Legal compliance
  6. Analyzing the market

1. Job evaluation and salary structure: Businesses majorly conduct an internal evaluation process to assess the value of different positions that determines the appropriate salary ranges for job levels.

2. Performance management: It is a process that assesses and evaluates employee performance, which may include regular reviews, aligned goals, and performance appraisal systems.

3. Variable pay programs: Variable pay programs are designed to provide compensation based on specific performance criteria such as bonuses, profit sharing, commission, or incentive plans for individuals or teams.

4. Benefits being offered: The benefit structure outlines the specific benefits and perks the organization provides to employees, encompassing retirement plans, flexible work arrangements, or well-being programs for employees.

5. Legal compliance: The compensation and benefits structure must comply with applicable laws and regulations governing employment practices that include minimum wage requirements, overtime regulations, equal pay laws, and employee benefits legislation.

6. Analyzing the market: Market analysis is essential to understand the existing compensation and benefits practices within the industry and specific location that helps to ensure a competitive environment in the organization.

Why are compensation and benefits essential?

Compensation and benefits are essential for several reasons:

  1. Attracting and retaining talent
  2. Motivating and engaging employees
  3. Enhanced job satisfaction
  4. Promoting equity and fairness
  5. Compliance with legal requirements

1. Attracting and retaining talent: A competitive compensation and benefits package is crucial for attracting and retaining top organizational skills. In this highly competitive market, it is important to prospect and retain skilled talent to reduce turnover and associated costs.

2. Motivating and engaging employees: Compensation and benefits play a significant role in motivating employees to perform at their best by receiving rewards and recognition for their contributions, as they are likely to be more productive and committed to the work.

3. Enhanced job satisfaction: Employees who perceive they are fairly compensated and receive valuable benefits tend to experience higher job satisfaction as they are likely to increase employee loyalty and contribute to effective working.

4. Promoting equity and fairness: A well-designed compensation and benefits structure ensures fairness and equity within the organization by establishing clear guidelines and processes for determining salaries, bonuses, and other benefits.

5. Compliance with legal requirements: Compensation and benefits programs must comply with various labor laws and regulations that adhere to legal requirements to protect employees and organizations from legal liabilities, penalties, and potential reputation damage.

What are compensation and benefits in hrm?

In Human resource management (HRM), compensation and benefits refer to the policies, practices, and programs that organizations develop and implement to manage the rewards and incentives provided to employees.

Compensation in HRM includes:

  1. Job analysis and evaluation
  2. Salary structure
  3. Performance management

1. Job analysis and evaluation: HRM professionals analyze and evaluate roles and responsibilities to determine the relative effectiveness of various positions that helps in establishing salary ranges and compensation level.

2. Salary structure: HRM professionals develop a system related to the salary ranges in various levels that ensure salaries are aligned to the different job levels. They handle salary administration, such as negotiations, promotions, and salary adjustments.

3. Performance management: HRM professionals play a wide role in creating and implementing performance management systems by establishing performance criteria, conducting performance, and providing feedback that informs compensation based on the merits.

Benefits of HRM:

  1. Benefit plan design
  2. Communication and employee education
  3. Compliance and legal requirements

1. Benefit plan design: HRM professionals create designs that align with the objectives of the organizations and meet the needs that may include health insurance coverage, retirement plans, and other benefits as well.

2. Communication and employee education: HRM professionals play a prominent role in communicating benefits information to employees by providing guidance, answering issues, and educating employees about the culture effectively.

3. Compliance and legal requirements: HRM Professionals ensure that the organization's compensation and benefits programs comply with applicable laws and regulations.

How many types of compensation are there?

The types of compensation are as follows:

  1. Base salary
  2. Bonus
  3. Profit-sharing
  4. Stock options/Equity
  5. Performance-based pay

1. Base salary: This is the fixed amount of money employees receive as regular pay that is determined according to the job responsibilities and qualifications.

2. Bonus: Bonuses are the additional payments given to employees based on individual or collective performance, goals, or achievements that can be discretionary, performance-based, or regulated according to the company's profit.

3. Profit-sharing: Some organizations have programs related to profit-sharing where a portion of the company's profit is distributed among the employees with direct finance stakes.

 4. Stock options/Equity: Some companies may come up with stock options or equity as a form of compensation, which allows employees to purchase shares at a predetermined price that allows them to benefit from the company's growth and earn financial returns.

5. Performance-based pay: Performance-based pay includes various forms of compensation tied to individual or team performance.

How do compensation and benefits affect the performance of employees?

Compensation and benefits have a significant impact on employee performance:

  1. Motivation and engagement
  2. Attract and retain employees
  3. Employee satisfaction
  4. Performance-based incentives
  5. Employee well-being

1. Motivation and engagement: Adequate compensation and attractive benefits can serve as powerful motivators for employees as they fairly feel rewarded for the efforts they put in. Rewards help increase productivity and job performance to go above and beyond in their roles.

2. Attract and retain employees: Offering employees with attractive compensation and benefits helps to attract top talents in the recruitment process and supports the well-being and work-life balance of the employees.

3. Employee satisfaction: Compensation and benefits that align with employee expectations can help enhance job satisfaction. When they feel fairly compensated, they access valuable benefits and are satisfied with the job experience.

4. Performance-based incentives: Compensation structures that incorporate performance-based incentives like bonuses or commission plans that can encourage higher performance.

5. Employee well-being: Benefits that support employee well-being include healthcare coverage, retirement plans, and work-life balance. When employees are working towards their goals, they need a high level of motivation and job satisfaction that leads to improved performance.

Employee pulse surveys:

These are short surveys that can be sent frequently to check what your employees think about an issue quickly. The survey comprises fewer questions (not more than 10) to get the information quickly. These can be administered at regular intervals (monthly/weekly/quarterly).

One-on-one meetings:

Having periodic, hour-long meetings for an informal chat with every team member is an excellent way to get a true sense of what’s happening with them. Since it is a safe and private conversation, it helps you get better details about an issue.


eNPS (employee Net Promoter score) is one of the simplest yet effective ways to assess your employee's opinion of your company. It includes one intriguing question that gauges loyalty. An example of eNPS questions include: How likely are you to recommend our company to others? Employees respond to the eNPS survey on a scale of 1-10, where 10 denotes they are ‘highly likely’ to recommend the company and 1 signifies they are ‘highly unlikely’ to recommend it.

Based on the responses, employees can be placed in three different categories:

  • Promoters
    Employees who have responded positively or agreed.
  • Detractors
    Employees who have reacted negatively or disagreed.
  • Passives
    Employees who have stayed neutral with their responses.

How to improve compensation and benefits?

Some steps to take to enhance or improve compensation and benefits:

  1. Conduct a compensation and benefits analysis
  2. Benchmark against competitors
  3. Seek employee feedback
  4. Review compensation structure
  5. Enhance benefits offering
  6. Communicate and educate
  7. Monitor and adjust

1. Conduct a compensation and benefits analysis: Start by analyzing the compensation and benefits programs. It provides comprehensive standards, local rates, and the needs and expectations of the workforce.

2. Benchmark against competitors: Research and gather information about what the competitors offer in terms of compensation and benefits; this helps to understand the prevailing practices in the market and ensure offerings remain competitive.

3. Seek employee feedback: Engage employees to know about their perceptions and preferences regarding compensation and benefits by conducting surveys and group or one-on-one discussions to gain insights.

4. Review compensation structure: Assess the compensation and benefits structure to treat fairly and work in open and transparent communication. This may take place by reviewing salary and implementing a performance-based pay structure that contributes towards achievement.

5. Enhance benefits offering: Review the benefits package and identify areas where enhancements can be made by offering a range of benefits that address employees' diverse needs, like healthcare coverage, retirement plans, paid time off, and flexible work arrangements.

6. Communicate and educate: Communicate effectively to ensure employees understand and appreciate the benefits and compensations by providing clear and transparent information about the programs.

7. Monitor and adjust: Regularly review and assess the compensation and benefits that monitor employee satisfaction, retention rates, and feedback to gauge the impact of your improvements.

Difference between: compensation and benefits vs payroll

Compensation and benefits encompass the overall rewards and incentives that employers offer to the employees in exchange for the work and contributions towards the organization that may be in the form of monetary compensation such as bonuses, profit-sharing or stock options, and non-monetary benefits, including health insurance, retirement plans, paid time off or wellness programs.

Whereas payroll is specifically referred to as a process of calculating and disbursing employees' wages or salaries that includes administrative tasks associated with managing employees' compensation and benefits. Payroll includes calculations of employee payments, deductions, and taxes.

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