The Importance of Employee Compensation and Its Purpose.



As a businessman or someone who work in the company, compensation is something that you must know. Let’s start by understanding what compensation is. What is compensation? Compensation is honorarium received by employees for their services or work at the company. These benefits can be in the form of money or goods, either directly or indirectly. Compensation in the form of money, meaning that employees will be given an amount of currency for their work. While compensation in the form of goods, means that employees will be given certain goods for their services or work.

There are 3 types of employee compensation which could be given by company. Those types are :

1. Direct financial compensation, in the form of salaries or basic wages, performance payments, incentive payments (including bonuses, commissions, profit sharing / stock options and options) and deferred payments (such as savings programs and stock purchase annuities).

2. Indirect financial compensation, in the form of protection programs (including health insurance, life insurance, pensions, labor insurance), non-working day payments (such as holidays, holidays, annual leave and maternity leave) and facilities such as vehicles, office spaces and parking lots.

3. Non-financial compensation, which is in the form of work (such as interesting tasks, challenges, responsibilities, recognition and a sense of achievement). Work environment (such as healthy policies, competent supervisors, pleasant relatives, comfortable work environment).

After knowing about three types of employee compensation are, let’s find out about the purpose of compensation. Providing employee compensation by the company has a specific purpose.
Among them are to reward employee performance, ensure fairness of employee salaries, retain employees or reduce employee turnover, obtain quality employees, control costs, and comply with regulations. Compensation has an important function in smoothing the running of the company's wheels. The compensation functions include:

1. Use of HR more efficiently and more effectively. The more employees who are given high compensation, it means that more and more employees are high achievers. The number of high-achieving employees will reduce the cost of unnecessary work.

2. Encouraging company stability and economic growth. A good compensation system can help the stability of the company and can also indirectly encourage stability and economic growth.

3. As part of HR management, the compensation function is to obtain employees who meet the requirements. High compensation is needed to attract job applicants. It also can retain existing employees.

By knowing what compensation is and its system, it can make it easier for companies to manage their finances and administration. The main thing is the use of compensation must be done carefully so as not to suffer losses.

Image source : https://www.linkedin.com/learning/understanding-your-compensation-and-benefits

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