Compensation and benefits

Welcome to this column. Again, this is trusting all is well. We are all still in awe of how Nigeria has seemed to escape the worst of the pandemic. We cannot explain it but are grateful for God’s mercies. Today we will be looking at an overview of a topic that is in the heart of the matter but many do not like to discuss.

Compensation is far more than just the regular paycheck. The money we receive at the end of the month or work period is what we call direct pay. Benefits on the other hand cover what we call indirect pay. This includes health insurance or medical allowance (even though more companies should opt for health insurance these days), car allowance, school fees allowance, stock options, or any myriad of things offered to employees. All of these things are critical in any job offer. Two jobs that offer identical salaries may differ in the benefits category, making one a better financial proposition than the other.

Overtime pay, stock options, days off, and even free lunches make up an essential part of the compensation and benefits package. Some benefits are country-specific. In Nigeria, pension makes up a key component of benefits. So is maternity leave and maternity leave allowance. The termination notice is also a benefit.

Compensation and benefits are the responsibility of the Human Resources department. In a small company, a human resource generalist would handle all aspects of this process. In the past, a large company would have dedicated departments to manage these. Now technology is taking over these computations.

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There are two important reasons Compensation and benefits are important. One is that except they are volunteers or interns nobody works for free.  Unless you’re a non-profit organisation, it’s illegal to ask them to work for you for free. There is a social contract between the employer and employee, where the employee puts in the work and the employer rewards this. Compensation and benefits are an important part of that equation. They are crucial to employee motivation.

Secondly, benefits make up a large percentage of the cost of employing someone, businesses cannot overlook. Careful attention to a fair compensation and benefits structure is of utmost importance.

Apparently, pay increases have to be very significant to increase the chances that an employee would stay at the company for their next role, rather than moving on. Even though this may be right, this alone may not be enough to convince a company to give an employee a significant salary increase. Even though the salary is important, there are usually other factors that go into it. For the employee.

Pay clarity is strong when employees understand that their compensation is fair, it increases their engagement. Engagement profoundly influences retention.

Compensation fairness consists of two elements. Distributive fairness which refers to the perceived fairness of the amount of compensation the employee receives and Procedural fairness which refers to the perceived fairness of the means used to determine those amounts. Again, apparently, both lead to higher employee retention. However, when it comes to employee engagement (or motivation), procedural fairness seems more important than distributive fairness.

To be candid from experience it is more about communication and honesty than money. Many companies typically keep salary information shrouded in mystery. Some managers even punish employees for sharing information about their salaries with co-workers. Secrecy can backfire because employees are concerned about their pay being fair.

When an employee clearly understands that their compensation is commensurate with their skills, position in the company, and broader job market, they are more likely to be engaged in their work.

Benefits as listed above, help increase employee retention. Some benefits require a period before the employee is vested. That is, you don’t receive the money or benefit from these forms of compensation until you’ve worked a minimum amount of time. If you quit before this date, you give up the stock options for example.

Some organisations delay compensation and have found to some degree this decreased turn over, but it was only until the compensation fell due. Employees will act strategically by choosing to leave their jobs after being paid. This should not be confused with employee retention.

Some benefits increase both retention and engagement because they increase employee happiness and peace of mind. Flexibility, such as paid time off, and other family-friendly benefits, medical/health insurance, for example, rice and groundnut oil at Christmas, strongly influenced employee satisfaction with their jobs. These benefits may not translate into very much money, but they generate so much satisfaction.

Organisations are advised to always benchmark their compensation and benefits with companies that can compete for their staff in the same region, so as to maximise the benefits from these benefit programs.