How Do Employee Benefits Affect Compensation Value

The Payroll Company Recruitment, Payroll, Compensation Management, Retention, Employee Retention, Employee Benefits

How Do Employee Benefits Affect Compensation ValueThere is a common misconception that employee compensation in the form of a salary or a wage is completely distinct from benefits. The terms “compensation” and “benefits” don't always mean the same thing yet there is overlap between them.

Employee compensation and benefits work in unison, adding up to a whole that is greater than the sum of their parts. Employers that provide the right mix of compensation and employee benefit plans ultimately prove that much more competitive in the quest to recruit and retain quality employees.


Why Providing Employee Benefits is Important

The benefits provided by an employer have the potential to extend well beyond health insurance.  Employee benefits extend but are not limited to life insurance, retirement plans, sick days, paid time off (PTO), disability insurance and employee stock ownership plans (ESOP). 

Certain benefits such as workers’ compensation and unemployment insurance are federally mandated. Some employers also offer fringe benefits such as use of the company car, subsidized meals, on-site daycare, and additional perks.

Defining Employee Financial Compensation

Employee compensation is different from employee benefit plans in that it is a numerical figure paid to those employed by the organization in the form of currency. Financial compensation for work performed is either base pay or variable pay.


Base pay is the base yearly salary or the base pay per hour provided for an employee’s specific contributions to the organization. An employee’s role within the organization along with his or her unique expertise ultimately shapes the base pay provided.

Alternatively, variable pay is determined by the employee’s level of performance within the role he or she performs. Examples of variable pay include annual or quarterly bonuses, commissions for sales or other accomplishments, and incentive pay.

Striking the Right Balance Between Compensation and Benefits

The most successful businesses find and retain quality talent by providing the right combination of financial compensation and benefits. Employees provided with financial compensation for their hard work along with benefits are that much more likely to remain with the organization and spread the word about its merits as an employer.  

Offer the right level and extent of employee benefit plans to your hardworking team and they will view the job as more than a weekly paycheck. Plenty of employees will remain with their current employer or accept a new job opportunity even if the salary is less than desired simply because the position provides extensive benefits. Take some time to review the aggregate value of your employees’ financial compensation along with their benefits and you’ll have a better sense as to whether your organization is providing sufficient positive reinforcement to attract and retain talented employees.


Continue to review and improve your employee total compensation plan, meaning financial compensation in addition to benefits, budget accordingly and you’ll stand a much better chance of retaining talented employees across the long haul. When in doubt, err on the side of emphasizing financial compensation over benefits as most employees covet a high salary or wage as opposed to extensive benefits that they might not tap into throughout the duration of employment.

If you are uncertain as to whether a salary is fair, reference salary surveys for similar positions in the industry to get a sense of what constitutes a truly competitive figure.  Such surveys prove mutually beneficial to employers and employees as they provide a relevant reference point for both parties in the context of negotiating financial compensation.

The Cost of Not Offering Competitive Benefits

Though it is tempting to offer a lofty salary and minimal or no benefits, doing so will backfire in a big way. The most talented and hardworking employees desire a sufficient salary with extensive benefits. Though some employees favor an especially high salary, others will covet a wide range of benefits and gladly accept a lower salary.

The moral of this story is employers should be aware of the trap of attempting to save money by reducing or eliminating employee benefits. Cutting costs by shrinking benefits will ultimately cost the organization in other ways including the failure to attract new talent and the loss of talent to competing businesses.

Consider a Prospective Employee’s Perspective When Shaping Offers

The takeaway from this content is it is in your interest to carefully consider what prospective employees covet. Aside from opportunities for promotions, employees also seek the right package of financial compensation and employee benefit plans. Reach out to us today to learn more about the best approach to attracting and retaining employees and learn how to leverage our total compensation statements.


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