Benefits and non-monetary compensation

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By Julie Wells

In order for most businesses to function, employees must be provided with a payment in exchange for their services. Cash is one way to compensate employees, but cash alone is rarely enough payment. “Compensation is becoming more variable as companies base a greater proportion of it on stock options and bonuses and a smaller proportion on base salary, not only for executives but also for people further and further down the hierarchy” (Pfeffer, Six Dangerous Myths About Pay, 2000). Benefits and other forms of non-monetary compensation are becoming more appropriate forms of compensation for employees in today’s workplace.

A benefit is a “general, indirect and non-cash compensation paid to an employee” that is offered to at least 80 per cent of staff (Employee Benefits Definition). On average, 40 per cent of payroll is dedicated to non-cash benefits (Kulik, 2004). In order to attract, retain, and motivate the best employees, benefits and other sources of non-monetary compensation should be considered. There are three things a company must fully consider before determining if and how they will issue employee benefits: the industry structure, the strengths of the company and its competitors, and the wage structure. A company should not issue benefits to employees if they have not considered the implications of these factors, specifically the wage structure. If a company offers employees extremely high wages compared to other businesses in the industry in addition to non-monetary compensation, costs may increase at a faster rate than profit. Benefits are also related to the type of industry in which the company does business. If the company has an understanding of what they can offer to employees and how those offerings will be received in the industry, benefits can increase a company’s workforce quality and general happiness of employees.