c
cc


cc
c 

? 
? ????
?
????
 ?? ?
?? ????  ?!?
?"??"???#?$ ?"??
"?$ ?

%&??

Companies want to attract, retain and motivate brains to meet objectives. Today
Humans are regarded as one of every company͛s assets so they need to be efficiently and
effectively managed. One of the tools companies use to attract, retain and motivate its
people is Compensation Management. Basic salary is just not enough to recruit and retain
top talent for the organis ations, providing an attractive compensation plan is just as
important. Compensations are given to employees by employer to motivate them and
improve their performance. As the labour market has been flooded over last few years,
retaining qualified employees is the main priority to the organisations.

Some employees undervalue the cost of benefits, so question arises should a

company drop benefits and simply add more direct compensation? I would be disagreeing
with this statement. Here, we will see why employee benefits are important and how it will
help both employees as well as company to grow. How these benefit plans are worked out
and applied to different organisations with some organisational examples , wherever
necessary and finally conclusion of the above statement.

Maslow's motivation theory is that human beings are motiv ated by unsatisfied
needs, and that certain lower factors need to be satisfied before higher needs can be
satisfied. According to Maslow, there are general types of needs (physiological, survival,
safety, love, and esteem) that must be satisfied before a person can act unselfishly. He
called these needs "deficiency needs." As long as we are motivated to satisfy these cravings,
we are moving towards growth, toward self-actualization. Satisfying needs is healthy, while
preventing gratification makes us sick or act evilly.

? ?

?
? ?
 c
cc

cc
c 

As a result, for adequate workplace motivation, it is important that leadership

understands the active needs active for individual employee motivation. In this
manner, Maslow's model indicates that fundamental, lower -order needs like safety and
physiological requirements have to be satisfied in order to pursue higher-
level motivators along the lines of self-fulfilment. As depicted in the following hierarchical
diagram, sometimes called 'Maslow's Needs Pyramid' or 'Maslow's Needs Triangle', after a
need is satisfied it stops acting as a motivator and the next need one rank higher starts to
motivate.

Comparing above statement with this theory Physiological needs will be satisfied by
the basic salary, and other general benefits will satisfy Safety and Social needs. Some
companies give some benefits to higher level executive managers only, when someone
reach to this stage these benefits will satisfy their rest two Esteem and Self Actualisation
needs.

Figure 1. Maslow͛s hierarchy of needs pyramid(Maslow, 1970)

? ?

?
? ?
 c
cc

cc
c 

‰&?' ??(??

Compensation and reward system plays vital role in business organisation. Employee
compensation refers to all forms of pay or rewards going to employees and arising from
their employment.

‰%? ?
?' ?

There are two types of compensation systems, a. Direct(Pay in the form of wages,
salaries, incentives, commissions, and bonuses) and b. Indirect(Pay in the form of financial
benefits such as insurance, vacations and daycare).

?!?' ?

Employees are usually paid directly on the basis of the amount of time they work,
the amount they produce, or some combination of time and output. An hourly rate of pay or
monthly salary is considered base pay, or an amount of pay received by the employee
regardless of output level. In many jobs, such as sales and manufacturing, an employee can
earn additional pay as a result of an incentive pay arrangement. (Gitman, L. And McDaniel,
C., 2009)

$ ?% The accelerated commission schedule for a salesperson shown below indicates
that as sales increases, the incentive becomes increasingly more attractive and rewarding,
and therefore, pay can function as a powerful motivator. In this example, a salesperson
receives a base monthly salary of £1,000, and then earns 3% on the first £50,000 of product
sold, 4% on the next £30,000, and 5% on any sales beyond £80,000.

Base Pay £1,000

3% X £50,000 £1,500
4% X £30,000 £1,200
5% X £20,000 £1,000
£4,700

? ?

?
? ?
 c
cc

cc
c 

Two other incentive pay arrangements are bonuses and profit sharing. Employees
may be paid bonuses for reaching certain monthly or annual performance goals or achieving
a specific cost-saving objective. In this instance, employees are rewarded some portion of
the amount of cost savings.

In a profit-sharing plan, employees may receive some portion of the firm͛s profit.
Employee profit shares are usually based on annual financial performance and are therefore
paid once a year. With either a bonus or a profit share, an important incentive pay
consideration is whether the bonus or profit share is the same for all employees or whether
it is differentiated by level in the organisation, base pay or some other criterion.

$ ?‰ Trufast, a manufacturer of fasteners, uses a point system to award bonuses.
Each quarter, workers are graded by their managers, who can award up to 25 points in each
of four categories: initiative, aptitude, flexibility, and attitude. Employees who earn 70
points or more receive incentive pay(bo nus), and the higher the score, the higher the bonus.
On average, workers receive 75̭ more per hour worked during the grading period, but
exceptional performers can earn up to $1.50 more per hour. Employees who score less than
70 two quarters in a row are terminated.

??' ? ?

Indirect compensation includes things like pensions, health insurance, and vacations.
Some forms of indirect compensations are required by law: unemployment compensation,
worker͛s compensation, and social security, w hich are all paid in part by employers.
Unemployment compensation provides former employees with money for a certain period
while they are unemployed. To be eligible, the employee must have worked a minimum
number of weeks, be without a job, and be willing to accept a suitable position offered by
the government compensation authority. Worker͛s compensation pays employees for lost
work time caused by work-related injuries and may also cover rehabilitation after a serious
injury. Social Security is mainly a government pension plan, but it also provides disability
and survivor benefits and benefits for people undergoing kidney dialysis and transplants.
Medicare(health care for the elderly) and Medicaid(healthcare for poor) are also part of
Social Security.

? ?

?
? ?
 c
cc

cc
c 

Many employers also offer benefits not required by law. Among these are paid time
off(vacations, holidays, sick days, even pay for jury duty), insurance(health and
hospitalisation, disability, life, dental, vision, and accidental death and dismemberment),
pensions and retirement savings accounts, and stock purchase options.

Some firms with numerous benefits allow employees to mix and match benefit items
or select items based on individual needs. This is a cafeteria -style benefit plan. A younger
employee with a family may desire to purchase medical, disability, and life insurance,
whereas an older employee may want to put more benefit money into a retirement savings
plan. All employees are allocated the same number of benefit money, but can spend this
money on different items and different amounts. (Gitman, L. And McDaniel, C., 2009)

$ ?) Intercontinental Hotels Group(IHG) has re -launched its employee discount
scheme to include a wider range of discounts and cash -back offer for its 7,500 U.K.
employees. In this scheme they have offered more than 5,000 discounts on goods and
services, including high street shops, supermarkets, travel insurance and experience days, as
well as offers at local retailers.

David Lawrence, vice-president, compensation and ben efits for Europe, the Middle East and
Africa (EMEA) at IHG, said: ͞One of the most important things we can do is look to improve
and provide good pay and benefits to our existing and potential future employees. We are
keen to ensure we are an employer of choice. We continue to strive to improve upon that
and Thinking Benefits goes some way to provide that to employees.͟

(Barton, T., 2011)

$ ?* Plumbing products manufacturer and supplier Wavin has introduced bikes -for-
work and a discount scheme across its six UK sites.

The bikes-for-work scheme has seen a 6% take-up since its launch in January.

Wavin encouraged staff to log on to the discount scheme, provided by Fair Care, by offering
retail vouchers to the 100th, 200th and 300th to do so. Brian Baker, compensation and

? ?

?
? ?
 c
cc

cc
c 

benefits manager at Wavin, said: ͞In the current economic climate, giving staff the
opportunity to save money on shopping and fuel was key to its success.͟

(Paterson, J., 2011)

? ?

? 
? ?
 c
cc

cc
c 

)&?+? ????

?
#?

Employees undervalue their benefits for many reasons including:

À? employers communicate the value of the benefits poorly and infrequently,

À? the employees have little or no choice in selecting benefits packages or options, and
À? the employees misunderstand the market value of their benefits and the additional cost
of their compensation package to employers.

$ ?,?A quarter of employees working in IT are dissatisfied with their benefits
package, and 61% think their employer could be more generous with its benefits provision,
according to research conducted by Hays.
Out of the 315 workers surveyed, 40% report that they never receive a pay review
and 35% are not offered a performance review. In addition, the findings show that the
majority (84%) of staff want more annual leave, but only 39% receive it. Almost three -
quarters (73%) of employees want to take advantage of flexible working, but only 59% are
offered it.

Andy Bristow, a manager at Hays, said: ͞The mismatch between what employers are
offering and what candidates consider important shows that many employers are out of
touch with the benefits that candidates find useful.

(Sullivan, N., 2011)

$ ?-?Many people do not understand language and terms relating to pensions,
according to research commissioned by the national employment savings Trust (Nest).

Of the 1,967 respondents to the survey, conducted by YouGov, just 10% said they
completely understood the term open market option, while only 23% said they were fully
clued up on the term annuity. In addition, only 14% of those surveyed said they completely
understood the term lifestyling.

(Sullivan, N., 2011)

? ?

?

? ?
 c
cc

cc
c 

$ ?.?Communication around defined contribution (DC) pension sc hemes often fails
because it is mis-targeted.
According to research carried out by Blackrock among focus groups of 18-65-year-
olds from different socio -economic groups, their basic information needs are not being met.
These failing to communicate details about how much employees should be saving, and the
provision of easily-understandable pension statements

The findings also show that the level of ignorance about pensions is high among all
age groups, with many employees showing no understanding about the basic structure of a
pension or the benefits involved.

(Sullivan, N., 2008)

)%?/????# ?

For employees to understand the value of the benefits they receive, employers must
educate employees and family members and provide benefits statements that share the
true cost of the benefits.

1.? Tell them what they have. Seems simple, but just writing out a list on a mimeographed
piece of paper or burying information five clicks deep on your website doesn͛t count
toward ͞telling them.͟
2.? Write in plain English. Fancy words and legalese don͛t work. W rite like you talk.
3.? Make clear and simple pictures of what you invest versus your competition . Too many
times employees leave for ͞a pound more an hour͟ only to discover that they͛re giving
up a LOT more. People think in pictures in their heads. Know that.
4.? Tell them more than once. Yes, it͛s great to tell employees about their benefits at
orientation and then again at open enrollment. But that͛s not enough. The way to
reinforce the value of benefits is to communicate regularly about benefits. Maybe just
one at a time would do. How about pushing information about your long -term disability
insurance? That͛s one that often takes a small investment by the employee but can be

? ?

?
? ?
 c
cc

cc
c 

highly valued and essential if they are ever injured. Make your communication come in
bite-sized pieces and frequently.
(Armstrong, M., 2009)
$ ?0?Teach First plans to introduce online total reward statements, access to an
employee discounts website, and is adding a salary sacrifice arrangement to its trust -based
defined contribution (DC) pension scheme.
The charity will also be consulting with its 180 staff, via surveys and focus groups, to
determine what type of flexible benefits they are interested in, with an aim to roll out flex in
October.

Will Davies, HR director at Teach First, said: ͞Part of our culture at Teach First is very
much collaboration. I didn͛t want to launch a flex scheme without giving employees the
opportunity to contribute to what it would look like.͟

(Paterson, J., 2011)

$ ?1?The Civil Aviation Authority (C AA) recently held employee benefit days to raise
awareness of the benefits packages available and also to improve morale following a pay
freeze in 2009.

The CAA held two benefit days at its main offices in London and Gatwick at the end
of March, which were attended by almost 200 employees. The days gave internal( pension
scheme, recreational society and occupational health service) and external
providers(providers of healthcare schemes, private medical insurance, eye-care vouchers
and cycle to work schemes) the opportunity to showcase schemes available while also
raising their own profile.

(Barton, T., 2010)

$ ?%&?Outsourcing and call centre provider Response has launched a benefits book
for its 2,200 Glasgow-based staff. The A5 book includes details o f voluntary benefits, such as
retail discounts, a health cash plan, hotels and short breaks.

? ?

?
? ?
 c
cc

cc
c 

Staff chooses their discounts from the book, and then visit a dedicated website to
download vouchers. The book was launched following road shows and discussions with the
firm's employee representative group.

(Jones, B., 2010)

?
? ?
?   ?
 c
cc

cc
c 

*&?2"?
? ?
?

Social responsibility may not be the best name for the response by employers to the
needs of their employees, but it does get the point across. In early days organizations began
to realize that their employees were assets that needed to be preserved rather than
exploited. This awareness has varied over time. More recently, the trend has been to
consider the employee a partner in the development and operation of benefit programs.
The employee is making decisions about his/her own life and needs, and the organization
provides the programs to accomplish this. For instance, there is a trend in providing
employee services. Today it is seen that an employee who is healthy, both physically and
mentally, is a more productive person. This has led to a series of employee services, such as
athletic facilities and counselling in areas such as smoking and drug abuse, intended to
create and maintain a healthy workforce.( Frone, et al, 1992)

All organizations are subject to a competitive labour market. Hiring and retaining
employees requires that the organization be competitive, at least to some degree, in the
labour market. When other organizations offer b enefits, so must your organization. But this
is not simple. Paying competitive wages is a single figure. Offering competitive benefits
involves decisions about the type of benefits to offer as well as the cost of those benefits.
The type and level of benefits offered makes the organization attractive or unattractive to
different potential employees. There is also a trade -off between wages and benefits. Some
individuals prefer high wages and care little about benefits while others need or desire
certain types of benefits. As will be discussed later, benefits can act as "golden handcuffs,"
keeping employees from leaving for other jobs.

Most benefits are in the form of insurance. These benefits can be obtained at a
lower cost by having savings in underwriting a nd administration through group contracts
rather than by having each employee contract individually.

To the employee, the advantages of benefits can be many. Certainly the two most
prevalent are the tax advantages mentioned and the lower cost of receiving the benefit by
belonging to a group. The fact that over half of all benefits are intended to reduce economic
insecurity suggests that both employers and employees are aware that life in an industrial

?
? ?
?  ?
 c
cc

cc
c 

society requires these protections. At best, however, em ployee attitudes toward benefits
are ambivalent. On one hand, people seem very interested in benefits, since this is a major
item of consideration in the recruiting process. On the other hand, most employees do not
know what benefits the organization is providing them and particularly the cost to the
organization of those benefits. In a way, benefits appear to be a classic case of what
Frederick Herzberg calls a hygiene factor or dissatisfier. When the benefit is absent, the
person wants it. When it is pres ent, it has little positive motivational force.(Herzberg, F.,
1966)

Employees differ considerably in their demand for benefits and even more clearly in
the types of benefits they demand. This seems to vary most noticeably with the personal
circumstances of the employee. Logic would indicate that young employees would desire
fewer benefits compared with wages and time off. Employees with dependents will value
medical benefits greatly, and the desire for good retirement plan benefits will rise with age.
In all these cases, it should be noted that employees base their decision on their perceived
need, and not on the cost of the benefit to the organization.

?
? ?
?  ?
 c
cc

cc
c 

,&?'?

Employee benefits are certainly advantageous for both, employer as well as

employee. Thus, I disagree with the above statement of dropping out the benefits of
employee. Employee benefits helps employer to generate financial savings through tax and
National Insurance efficiencies, aid recruitment and retention. It also helps to in crease
employee motivation and engagement. Some companies give employees͛ choice of benefit
package to best suit their lifestyle and needs. With employee benefits employee will get
significant discounts because of organisation buying power. Employee can ex tend the value
of their pay by purchasing tax-efficient benefits such as child care vouchers.

If employee benefits are so important and advantageous for both employer and
employee then it is better to go with benefits rather direct compensation, and help e very
employee to understand the importance and advantages of benefits to them and their
family.

?
? ?
?  ?
 c
cc

cc
c 

-&?(
?

Books

1. ? Armstrong, M. (2009) Human Resource Management Practice, 11 th Edition, Kogan

Page Limited, United Kingdom, p849 ʹ p873
2. ? Lawrence, J. And Gitman, C.M. (2009) The Future of Business: The Essentials, 4th
Edition, Cengage Learning, United States of America, p214 -p248

Internet

3. ? http://www.cipd.co.uk/hr-resources/factsheets/employee-benefits.aspx (19th April

2011)

4. ? http://www.performance-appraisals.org/faq (19th April 2011)

5. ? Intercontinental Hotel Group expands employee discount scheme (4 th April 2011)

http://www.employeebenefits.co.uk/item/12608/pg_dtl_art_news/pg_hdr_art/pg_f
tr_art (20th April 2011)

6. ? Wavin taps discounts for employees (3 rd July 2011)

http://www.employeebenefits.co.uk/item/12401/pg_dtl_art_news/pg_hdr_art/pg_f
tr_art (20th April 2011)

7. ? Hays research: IT workers want better benefits (14 th April 2011)

http://www.employeebenefits.co.uk/item/12691/23/312/3 (21st April 2011)

8. ? Employees fail to understand all pension terms (12 th January 2011)

http://www.employeebenefits.co.uk/item/12035/pg_dtl_art_news/270/pg_ftr_art
(21st April 2011)

9. ? Wrongly targeting pensions communication fails to engage staff (24 th July 2008)
http://www.employeebenefits.co.uk/item/7430/pg_dtl_art_news/270/pg_ftr_art
(21st April 2011)

10. ?Teach first to introduce online reward statements and pension salary sacrifice (13 th
April 2011)

?
? ?
?  ?
 c
cc

cc
c 

http://www.employeebenefits.co.uk/item/12679/pg_dtl_art_news/270/pg_ftr_art
(21st April 2011)

11. ?Civil Aviation Authority hosts benefits awareness events (1 st June 2010)
http://www.employeebenefits.co.uk/item/10674/pg_dtl_art_news/270/pg_ftr_art
(21st April 2011)

12. ?Response launches benefits book for staff (5 th May 2010)

http://www.employeebenefits.co.uk/item/10504/pg_dtl_art_news/270/pg_ftr_art
(21st April 2011)

?
? ?
?  ?