Explain Types of Compensation

Explain types of compensation

Ans.    Compensation provided to employees can direct in the form of monetary benefits and/or indirect in the form of non-monetary benefits known as perks, time off, etc. Compensation does not include only salary but it is the sum total of all rewards -and allowances provided to the employees in return for their services. If the compensation offered is effectively managed, it contributes to high organizational productivity.

1.      Direct Compensation :

Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the ‘organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf /Gratuity, etc. They are given at a regular interval at a definite time.

a)      Basic Salary :

Salary is the amount received by the employee in lieu of the work done by him/her for a certain period say a day, a week, a month, etc. It is the money an employee receives from his/her employer by rendering his/her services

b)      House Rent Allowance :

Organizations either provide accommodations to its employees who are from different state or country or they provide house rent allowances to its employees. This is done to provide them social security and motivate them to work.

c)      Conveyance :

Organizations provide for cab facilities to their employees. Few organizations also provide vehicles and petrol allowances to their employees to motivate them.

d)      Leave Travel Allowance :

These allowances are provided to retain the best talent in the organization. The employees are given allowances to visit any place they wish with their families. The allowances are scaled as per the position of employee in the organization.

e)      Medical Reimbursement :

Organizations also look after the health conditions of their employees. The employees are provided with medi-claims for them and their family members. These medi-claims include health-insurances and treatment bills reimbursements.

f)       Bonus :

Bonus is paid to the employees during festive seasons to motivate them and provide them the social security. The bonus amount usually amounts to one month’s salary of the employee.

g)      Special Allowance :  Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees to provide them social security and motivate them which improve the organizational productivity.

2.      Indirect Compensation :

Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.

a)      Leave Policy :

It is the right of employee to get adequate number of leave while working with the organization. The organizations provide for paid leaves such as, casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay, etc.

b)      Hospitalization :

The employees should be provided allowances to get their regular check-ups, say at an interval of one year. Even their dependents should be eligible for the medi-claims that provide them emotional and social security.

c)      Insurance :

Organizations also provide for accidental insurance and life insurance for employees. This gives them the emotional security and they feel themselves valued in the organization.

d)      Leave Travel :

The employees are provided with leaves and travel allowances to go for holiday with their families. Some organizations arrange for a tour for the employees of the organization. This is usually done to make the employees stress free.

e)      Retirement Benefits :

Organisations provide for pension plans and other benefits for their employees which benefits them after they retire from the organisation at the prescribed age.

f)       Holiday Homes :

Organisations provide for holiday homes and guest house for their employees at different locations. These holiday homes are usually located in hill station  and other most wanted holiday spots. The organisations make sure that the employees do not face any kind of difficulties during their stay in the guest house.

g)      Flexible Timings :

Organisations provide for flexible timings to the employees who cannot come to work during normal shifts due to their personal problems and valid reasons.