Type: Economics
Pages: 3 | Words: 607
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Direct and Indirect forms of Compensations

Direct compensations are forms of pay awarded to employees by employers for their respective service and revenue generation activities for the firm. On the other hand, indirect compensation refers to the forms of benefits and favors awarded to employees from employers for accepting to work with the entity. Furthermore, direct compensations are focused on the monetary values which are availed to employees while indirect forms of compensation are mainly focused on non-monetary forms of benefits and favors. Examples of direct forms of compensation are salaries, wages, and bonuses, as well as overtime pay, while indirect forms of compensation include paid-compulsory leaves, training benefits, health care covers, as well as retirement contribution plan. It should be noted that modern companies are shifting to indirect forms of compensation because of the ease with which it avails the benefits to its employees (HR Council for the Non-Profit Sector, 2009).

Developments of Comprehensive Compensation and Benefits Package

In the course of developing comprehensive compensation and benefits package, organizations embark on those strategies which promote fair internal equity as well as external forms of competition. Fairness or equity is defined as having to treat employees equally at their respective workplace. External forms of equity exist, whenever it is perceived that employees appreciate their current pay in relation to the pay offered to other employees of different entities performing a similar job. In case of unfair pay, it is believed that employees tend to lose morale for work and thus, low productivity is posted. In course of developing comprehensive compensation, design of such facets as the goals and objectives, competition required for attracting and retaining current staff, internal and external fairness, as well as the performance levels of each and every employee is put to task. In absence of this philosophy, an entity risks attracting new talents as well as maintaining its current workforce (HR Council for the Non-Profit Sector, 2009).

Similarities and Differences in Compensation and Benefits in the Private versus Public Sectors

In terms of pay, there is a notable wide gap between the private and public sector with private sector providing for a higher pay package. There is perceived insignificant difference in insurance covers provided by both the private and public sectors. However, in terms of pension schemes, the public sector is considered to be way ahead. This analysis provides a formidable ground to assume that public sector is focused on availing mostly the indirect forms of compensations to its employees while private sector is concentrated upon direct forms of compensation and benefit packages (Bender and Heywood, 2010).

Considerations for Determining compensation and Benefit Packages

Demographic aspects: organizations utilize such factors as age and education level in determining compensation packages. In both private and public sectors both age and education are considered to be the fundamental tools used in analyzing benefits. Public employed workers tend to possess higher levels of educational background as compared to their private counterparts.

Types of Benefit Packages That Are Most Attractive To Workers at Different Stages

Younger workers tend to prefer direct forms of compensation and thus, will go for salaries, wages as well as overtime bonuses. At the middle age, the workers tend to balance between direct and indirect forms of compensation and thus, they will opt between wages, salaries and health covers. Workers nearing retirement tend to focus more on indirect forms of benefits, since it is considered to be a long term venture and thus, likely to cover them even after lapse of the employment period. These indirect benefits include retirement benefit plans or contributions, long-term health cover and stocks of the company (Biggs and Richwine, 2011). 

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