Compensation and Benefits

1. What is the definition of Compensation and its components?

Compensation is the total of all rewards provided to employees in return for their services.

There are two components of Compensation i.e. Financial and Nonfinancial. Financial Compensation comprised of Direct (wages, salaries, commissions and bonuses) and Indirect Compensation (all financial rewards that are not included in direct compensation, for example: Social Security, Family and Medical Leave, Health Benefits, Security Benefits etc.).

Nonfinancial Compensation consists of the satisfaction that a person receives from the job itself from the psychological and/or physical environment in which the person works i.e. The Job (Skill Variety, Autonomy, Feedback, etc.) and Job Environment (Comfortable Working Conditions, Competent Employees, etc.)


What is the definition of Benefits?

Benefits or Indirect Financial Compensation are all financial rewards that generally are not paid directly to an employee.


How to put the requirement of eligibility to the benefits?
Although there are various types of benefits that can be given to the employees, employers usually would consider the status of the employee, the requirements of the job, adequate welfare and most of all the affordability of the organisation before committing to the provision of benefits.


What is Productivity-Linked Wage System (PLWS).and how it benefits to the customers?
Productivity-Linked Wage System (PLWS) is a system that establishes a closer link between wages and productivity. This system will ensure that any increase in wages is commensurate with higher increase in productivity. It also helps the management to form a comprehensive reward system for improved productivity and wages through the active participation and cooperation of all employees.


How PLWS benefits to the users?

  • Provides a more flexible wage structure that is able to withstand economic changes.
  • Enables firms to streamline policies to meet current economic needs.
  • Provide job stability and reduces the likelihood of retrenchment in the event of economic slowdown.
  • Ensures that employees obtain a fair share of gains from performance improvement.
  • Provides motivation for peak performance and increase job satisfaction.
  • Improve quality of life and skill-related career path.
1. How is compensation used?

Compensation is a tool used by management for a variety of purposes to further the existence of the company. Compensation may be adjusted according the business needs, goals, and available resources. Compensation may be used to:

  • Recruit and retain qualified employees.
  • Increase or maintain morale/satisfaction.
  • Reward and encourage peak performance.
  • Achieve internal and external equity.
  • Reduce turnover and encourage company loyalty.
  • Modify (through negotiations) practices of unions.
2. What are the different types of compensation?

The different types of compensation include:

  • Basic Pay
  • Commissions
  • Overtime Pay
  • Bonuses, Profit Sharing, Merit Pay
  • Stock Options
  • Travel/Meal/Housing Allowance
  • Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes etc.
3. What are the main influencers that may affect employee compensation?

There are two main influencers that may affect employee compensation:

a) Internal Influencer
    Internal Influencer refers to business goal, Labour Unions, Internal Equity, Organisational Culture & Structure.

b) External Influencer
     External Influencer refers to state of economy, inflation, unemployment rate, relevant labour market, labour tax and the        relevant industry habit and trends.

4. What is Compensation Strategy?

Compensation strategy is a plan that determines how employee been paid and rewarded for their work. Basically it's relying on the current market for the people with the same skill and total available funding of the corporation is capable to expand on payroll.

5. How frequent should employer formally reviewing compensation and benefit to employee?

The best practise is to review every 2 years, however if the organisation has made a number of changes to jobs; or has fallen on benchmarking pay in the fast few years; is competing  to find talent or focused on retaining average;  then annually review is the best. The most important thing is organisation must make sure that the benefit offered is in line with the current market.

6. How bonus plan benefit employer?

Bonus plan may benefit the employer in three  situations:

a) Adjust Labour Cost to Financial Results
    By establish bonus plan budget based on financial result whereby company pay more in good time and less/no bonus in       bad time will automatically reduce company labour cost.

b) Drive Employee Performance
     Employee will improve their performance or achieved desired goal set by organisation in order to secure higher bonus          and it will improve business performance.

c) Employee Retention
    Good bonus plan offered by organisation will bring values to employee retention because of  employee will incline not to     leave employer because they satisfy with their job, in the meantime the competitor will face higher hurdle to offering job       to them.

7. What are the reasons for Employer in offering good benefit to employee?

Reasons for employer to offer good benefit to employee are:

a)         Increase Organisation Image

Offering best plan for benefit exhibit organisation capable enough to invest for their employee and prove the stability.

b)        Minimise Organisation Turnover Rate

Investing in your employees show that organisation has best interest and value employee performance. It also can help organisation build a tight -knit team of professional that will stay for years.

c)         Better Morale

Adequate benefit can keep employees happy because nothing can damper on productivity quicker other than bad attitude.

d)        Healthier Employees

Offering solid health insurance to employee will encourage them to make regular check up and take preventive medical step therefore it should help ensuring they don't take many sick leave. In the meantime it will help provided healthy workforce.

e)         Better Job Performance

By offering attractive benefits, employees will care about   organisation and remain loyal. As a result they will work harder; therefore it leads to greater productivity and higher performance.

8. What Are Fringe Benefits for an Employee?
  Fringe benefits are forms of compensation that employer offers to employee instead of stated wage or salary. Common examples of fringe benefits include medical and dental insurance, housing allowance, educational assistance, car allowance, sick pay, meals allowance etc.
9. What are the main techniques for Job Evaluations?

Job evaluations is regarding to the system that comparing     jobs for the purpose of determining right compensation           levels for individual jobs or job element. There are four main techniques involves in Job Evaluation:

a) Ranking

Ranking refer to the method whereby jobs are compared to each other based on the overall worth of the job to the organisation. The 'worth' of a job is usually based on judgements of skill, effort, responsibility and working conditions.

b) Classification

In classification technique it will group similar position           into job classes based on pre- defined class specification.

c) Factor Comparison

It refers to a set of compensable factors that are identified as determining the worth of jobs. Normally the number of compensable factors is small. Examples of compensable factors are skills, responsibilities, effort and working condition.

d) Point Method

The point method can be related with the factor comparison since it comprise set of compensable factors which identified as determining the worth of jobs. Typically, the compensable factors include the major categories of skills, responsibilities, effort and working condition.

10. What are the results of job evaluation process?

There are five result of job evaluation process:

a)         Fixing a salary range for the employees in the organisation.

b)         Creating a position hierarchy in the organisation.

c)         A foundation for salary increase and/or promotion of   an employee in        the position.

d)         Reclassifying the position to higher or lower rank with or without a change in salary                           of the position incumbent.

e)         Confirmation that positions is properly classified.