Direct and Indirect Compensation: Purpose of Compensation and Benefits

Direct and Indirect Compensation
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Direct and Indirect Compensation
Compensation refers to the rewards or benefits employees receive from their employers. The remunerations could be in the form of wages, benefits, or other incentives, that is, direct or indirect compensation. Ordinarily, the employees receive them in exchange for services they render to organizations. In any organization, compensation is one of the biggest expenditures. Yet, it is indispensable because it serves various critical purposes.
Purpose of Compensation and Benefits
One of the fundamental purposes of compensation is to enhance employees' engagement. When an organization offers better packages to the employees, they feel valued and appreciated. Research has shown that attractive compensation packages improve employee satisfaction. This, in turn, results in high motivation rates (Vizano et al., 2021). When employees become motivated, they work with more dedication and commitment, which leads to high-level productivity.
Further, attractive compensation packages help attract and retain talented and skilled employees. Many talented employees understand their value and often settle for an organization that pays what they feel they are worth. In the present dynamic and competitive business world, it is paramount for an organization to have outstanding employees. This is because such employees play a central role in giving an organization a competitive edge (Vizano et al., 2021). Skilled employees, for instance, help make critical decisions and solve complex problems. In addition, they are innovative, which enables an organization to remain relevant and competitive. Similarly, compensation helps retain employees, which keeps turnover rates at a minimum. This saves an organization from incurring unnecessary costs of hiring new employees. Moreover, it improves the overall image of an organization.
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