Direct Compensation and Fringe Benefits Fringe Benefits Essay

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Direct Compensation and Fringe Benefits

Fringe benefits refer to those elements of the total compensation package which are apart from the monetary payment made to an employee by the employer (Schuler and Jackson, 1996). These can include "employer's contribution to social security, workers compensation, unemployment compensation, health, life and dental insurance, private pension plans and cafeteria style benefits plan. " (Brookshire and Smith, 2008 p. 69)

Unionized organizations have often been faced with the problem of choosing between fringe benefits and direct compensation. But over the years, this trend has also been witnessed in non-unionized organizations where employees demand more monetary compensation as opposed to fringe benefits believing that the latter do not matter as much as the former. This has had companies in a quandary: should they let go of fringe benefits when some employees do not seem to value them?

The answer is an emphatic" No" in my view. This is because contributions made by the employers towards things like social security and insurance tend to be far more critical than money when it comes to an emergency. A family member gets sick and needs to be taken to the hospital. At this critical hour, what will be immensely important is not how much money a person has and what he can pay but how good his insurance plan is. Normally employers provided medical insurance would far exceed the coverage than an individually purchased plan and hence these contributions are vital and cannot be replaced with direct compensation.

In any organization, the compensation plan is of great significance.

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Employees are more attracted to a firm that has a comprehensive compensation plan which includes both fringe as well as monetary benefits. There are various types of reward plans in place too which tend to act as a great incentive when employees are being asked to meet company targets. Without an attractive compensation and reward plan, it is not possible to attract or retain talented employees. We must understand that a firm that pays huge monetary bonuses with no fringe benefits is likely to attract a very different class of employees. These employees will over a period of time demonstrate a low credit ratings because they failed to pay huge medical bills and will usually appear more tired and unmotivated because they had to pay for their own vacations and hence never took any. The employees may fail to see that the company has actually been paying them for medical and travel but since it is offered as a monetary plan, it was never utilized as such.

Even though people may sometimes want to see more cash than indirect benefits, it must be noted that literature and research reveal that it is the package as a total of both direct and indirect benefits that tend to help a company differentiate itself from others. It has also been noted that it is this complete package which adds to the attractiveness of a company. It also has several other positive effects as Berger and Berger (2000) note:

"There is an overwhelming consensus among academics and consultants who….....

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