Direct and Indirect Compensation

Compensation is one of the significant activities of the Human Resource department. It is considered a pecuniary value that employees received as gratitude for their effort and work. The HR uses compensation as the motivation for its workers and increase job satisfaction as well as performance. Usually, workers are rewards either directly and indirectly. Whereby, direct compensation of workers involves financial rewards for their services such as wages, salary increments, bonuses and commissions (Taras, 2012). Indirect compensation is directed at non-monetary rewards such as paid vacations, holidays, promotions, and so on. The influence of compensation among workers it reflected on the company’s growth and steady performance. In context, this essay will focus on the history, future outcome, strategic alignments, and techniques as well as the worker’s viewpoint of compensation.
History of Compensation
The rise of industrial revolution signified a new phase of working environment that was characterized by the increased workload, extreme working conditions hazards, and injuries. As such, legal case of workers complaining of injury increased in the judicial system. Consequently, legal frameworks were formed to determine the injuries that were susceptible to compensation such as the contributory negligence, the assumption of risk and the fellow servant rule. These legal principles were unfavorable for workers who only recourse was to fill a personal injury suit through Tort. By the late 19th century, the employer liability act was passed which favored workers who were injured during work. In the early 20th century, Edward Hay, a renowned Human resource specialist laid the foundation for the first compensation management that included direct and indirect compensation of workers. According to Hay, workers were to be compensated based on their quality of work. This was to maintain the cycle of improving performance and maintaining the company’s standards through motivated workers. Nonetheless, new reforms have taken effect since then such as the comprehensive worker’s compensation act.

Future and objective of compensation
The future of compensation is centered on developing a fair working relationship between the employer and the employee. Direct and indirect rewards are being redefined to meet the new standards and changing cultures of organization and the workforces. In an economy fueled by talent, the future of compensation is shifting more towards indirect compensation rather than direct monetary compensation. In the near, future companies will be aligning their appreciation or rewards based on their goals and innovation (Sullivan, 1972). Thus, the future for compensation will shift more on indirect compensation to increase intellectual capital, which is becoming the main market competitor for innovative companies like Google, Apple, and Microsoft among others. Subsequently, compensation objective is also shifting to target talent economy by rewarding workers in line with their goals. Compensations are becoming purpose oriented to impact personal growth in the field of expertize.
Strategy for alignment of compensation
Compensation is aligned by different factors, which can be either internal or external strategies. The common strategy for aligning compensation is performance. This is the rate or degree of work that employers are subject to in ensuring productivity. Additionally, organization policies influence the state of compensation within an organization. That is, some organization offer direct compensation instead of indirect compensation according to their policies and vise verse. The skill-based strategy also affects the state of compensation. This is where employees are compensated based on the basis of their abilities (Ungerman & Honzákova, 2014). This strategy determines the level of compensation for skilled, semi-skilled and unskilled workers. Another strategy that aligns compensation is the broad banding. This involves the different grades of workers and their position within the organization such as the clerical band, managerial and professional bands. Broad banding strategy applies only to direct compensation where workers are compensated based on salary income level.
Tools and techniques for measuring and evaluating compensation
The evaluation and measurement of direct or indirect compensation among employees can be determined by different factors such as employee performance where good performance is highly rewarded than poor performance. Another tool for measuring compensation is based on seniority. Junior and senior employees are compensated differently, and this is based on their level of experience and relationship with the organization. Compensation is also based on experience of workers. Perfection is a vital constituent of production. Therefore, workers with diverse and valuable insight experience are compensated differently from the inexperienced. Furthermore, less experienced workers are subjected to training, which affects the company cost and time, and thus less compensated. Job experience varies, and this influences the distribution of compensation among workers to increase motivation and satisfaction.
Employee viewpoint on Compensation
Most employees prefer direct compensation to indirect compensation. Monetary compensation and additional benefits increase performance and motivation for workers. This influences employees to engage more and be accountable to their company. Compensation boosts satisfaction, which is what employees are seeking. Additionally, compensation has increased employees morale and involvement in their business. Employers benefit as well from offering compensation as they record low employee turnover, low absenteeism and increase efficiency and productivity in the organization.
In conclusion, direct and indirect compensation has the agent of increasing productivity and efficiency in companies today. In fact, the relationship between the employees and the employer is boosted by the rate of compensation. This has helped enhance positive attitude within the working environment and socializing. Furthermore, the results of compensation lead to better performance between worker and the management. Providing compensation to workers should be maintained as an organizational culture to keep workers motivated and satisfy which benefit both the employees and the employers.

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