Compensation and benefits

By Lee Rossini

The compensation and benefits attached to a job are extrinsically motivating for staff members and are offered as a reward in the form of salary and various other benefits. They also offer intrinsic motivation such as the achievement of personal goals and striving to meet more challenging job opportunities. For these reasons, the structure of compensation and benefits is an important part of managing employees.

Grobler and Warnich et al (2006) state that compensation includes extrinsic monetary rewards and benefits. The monetary rewards include salary, commissions, bonuses and pay incentives whilst the benefits may include pension or provident funds, medical benefits, insurance, paid leave, paid public holidays, education and training, subsidized food and various recreational activities. The intrinsic rewards include recognition, promotional opportunities, working conditions and interesting work.

When designing a compensation system, management must keep the objectives of the system in mind.  The main goal is to attract and retain staff who will be motivated, productive and loyal to the business. To achieve this, it is essential to keep abreast with what market-related salaries and/or commission levels are for similar jobs offered at competing employers. It can be difficult to compare salaries are as the job descriptions and benefits are likely to differ between FSPs. The best method is to find published salary information as it can be easily obtained at a low cost and with minimum effort. The sources of this information may include professional bodies, regulators, local chambers of commerce, research companies, the Department of Labour or business consultants.  Retaining motivated and productive staff plays an important role in limiting staff turnover which may result in a loss of key knowledge and skills. To prevent demotivation (and to comply with the Employment Equity Act and Basic Conditions of Employment Act), employees should be treated fairly and equitably regarding their compensation and benefits. To achieve internal consistency and to ensure that employees perceive the system to be fair, jobs should be evaluated according to skills and knowledge, effort, responsibility and working conditions required to effectively do the job.       

Employees have expectations of what rewards they will receive in exchange for their performance. Their performance will be evaluated, and they will receive rewards based on the outcome. If they are dissatisfied with the reward, their performance in the future may not be of the required standard. If they are satisfied with the reward, they will set their expectations even higher in the future. These expectations should be managed otherwise it may result in employees feeling the system is unfair and inequitable. Managing the expectations and perceptions of staff is a delicate balancing act for management.

No compensation system will keep all employees satisfied all the time. If a system is implemented which is fair, equitable and most importantly, explained to the employees, management will be in a better position to retain a motivated and productive workforce. A haphazard approach to compensation and benefits is unlikely to attract people with good knowledge and skills. It is may also lead to demotivated employees and possibly, a high turnover in staff. If you are faced with some of these issues and lack the expertise, it will be worth the money to engage an HR consultant to assist in setting up a compensation and benefits system.

Resource:
Grobler P, Warnich S, Carrell MR, Elbert NF and Hatfield RD, Human Resource Management in South Africa, 3 ed (2006), Thomson Learning.