1.

Introduction
Before analyzing the cost of benefits which employees undervalue and
replacing it by direct compensation it is advisable to discuss about the benefits and
compensation first. Lets start from a question, why does one work? There may be
many idioms to answer this question like to get experience, to update self
according as the demand of time, expand the knowledge, for security, for
socialization, for self esteem and to get self actualization. But apart from these the
most important and first answer, common to all, will be to get something which
directly compensates the employee. According to Maslows Hierarchy of Need,
human nature and performance is based on different needs. So to fulfill these needs
anyone is pushed by internal drive. So an employer always should take an account
of the needs of the employees and make the policy of motivation. So, one of the
motivations is benefits which an employee deserves on the basis of organizational
culture of human resource management. Employee benefits are various non-wage
compensations provided by the employers which are in addition to their normal
wages or salaries. An employee exchanges wages for some other form of benefit
which may refer to as a salary exchange. Some of the common benefits are legally
required benefits, unemployment insurance, vacation and holidays, sick leave,
parental leave and family leave etc. For example, I work for a nursing home which
provides me the paid annual leave for 5 weeks in a year.
Any forms of the pay provided to an employee by an employer in return of
their work are referred as the employee compensation. Employment compensation
can be either direct financial payments or indirect financial payments and other
facilities. As the direct financial payments an employee may obtain wages, salaries,
incentives, commissions and bonuses whereas as indirect financial payments one
may obtain free insurance paid by employer, vacation and so on. The direct
financial compensation is made on two ways. They are on basis of time and on
basis of work performance. In todays time most of the organization made their
payments to employees on time basis. Even compensation made on time can be
categorized in different types. One is the daily or hourly wages specially paid to
clerical and lower level employees and sometime even high level employees, and
the managerial level payment is made on either weekly or monthly or yearly
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leaving some exceptions. Similarly, another way of paying an employee is on the

basis of amount or number of production he/she makes. For example, most of the
students who are working legally in UK get their direct financial compensation on
hour basis. The regulation of United Kingdom doesnt allow them to get annual
payment. Similarly, on performance base of payment one should complete the
minimum number of production or sales in given period of time and he or she will
be paid extra if the number exceeds the limit. Indirect compensation depends upon
the human resource management culture and awarding system of the related
organization. For example, Barclays provides indirect compensation to its
employees in different ways like: Remuneration, discounts, health and wellbeing
benefits, employee networks, different flexibilities, share purchase etc.
So there is always a system of allocating the compensation to an employee
What may be the reason because of which an employee undervalue the benefit and
what may be the alternatives to cope with the issues, what are the foundation on
which compensation system is based, is direct benefit system is suitable in all
organization, what are its loopholes and strengths, how many organizations use the
compensation providing strategies in different situations and who should be the
responsible if a company makes the decision to drop out the benefits and emerge
only direct compensation will be discussed on next chapter.

2. Literature Review
In todays time compensation has become a challenging issue for many
organizations. Highly growing competition on market has compelled an
organization to come with a distinct strategy which gives the specific values to the
mission and vision of the organization. This doesnt cover only the marketing
strategy or financial strength or sales success in the relevant market environment.
Any organization future can not be predicted if it is not run with different
alternatives plan in the entire departments. Human resource management is one of
those departments which are always seeking the innovation on their functions and
responsibilities.
The compensation to an employee in any responsible organization can not be
put straight away according to the perception of the owner or the management.
They must go through the certain complied criteria. In the first part of this chapter
it is tried to make clear on what basis compensation is made which helps to
interpret regarded issue of the assignment.
2.1 Basis of determining the compensation provided to an
employee.
It is already mentioned that an organization can only indicate the
compensation or pay rate if it fulfills the common regulations and
system in the relevant market. The common fundamental bases
are discussed as follows:
2.1.1 Legal Consideration

This includes the laws which specify the aspect of compensation like
minimum wages, overtime rates and benefits. For example in most of the
developed countries the time limitation for working hour is 40 hours per week and
there must be the facilities of extra payment in case of overtime work to be done
by an employee which is under Fair Labor Standards Act. Usually if an employee
is asked to do more then the limited hours then the company should pay 50% more
on the payment that the company is paying on minimum pay rate. Suppose an
employee is getting $8 per hour on as the basic pay for first forty hours in USA,
the company should pay $12 per hour for the extra hours which the employee does
in a week. If a company doesnt follow such regulation then it may be pulled on
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court for allegation. For example we can take the payment of $640 million made
by Wal-Mart on January 2009 to settle 63 wage and hour suits alleging for failing
to pay overtime and break time facilities. Similarly, there are some more acts like
equal pay act, employee retirement income security act and other legislation
affecting compensation.
2.1.2 Influences of Union on compensation Decision

In many countries before making the decision about the compensation or benefit, a
company may have to go with the related union of the similar organization or the
employees. As an example: In Nepal the Union of reputed schools have negotiation
that they will increase the pay rate to their employees by fifty percent more than
what government makes the rise in its pay to government employees. In many
countries an organization should provide written explanation to the union about the
pay plan to the employees.
2.1.3 Impact of Competitive strategies, corporate policies and
compensation
What can an
organization do
to accomplish
the specific
mission

Determining the
behaviors or
actions required
on employees
to complete the
mission

What is the
measurement
of comparative
fulfillment of
current

Required
compensation
program to
reinforce those
behaviors on
employees

The measurable
relationship
between the
compensation
provided and
Fig: 2.1 Developing an Aligned Reward
goal
its Strategy
own mission
and values. To achieve
accomplishment

An organization has
that it creates the
overall reinforcement package through direct compensation or pay or benefits and
so on. The organization has certain strategy which helps to make the effective pay
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system and called as aligned reward strategy. Aligned reward strategy has effective
impact on the pay policy. Figure 2.1 shows how an organization should create the
reward policy.
2.1.4 Impact of equity on determining pay

The motivation of employees is highly affected by the comparative pay made to

them. They always perceive the input or contribution made to organization and the
reward they are getting in return. The public image of the organization may be
affected by equity on determining pay. For example, Mc Donald has fought
unsuccessfully to get it back on the comparative market and get removed from the
Oxford dictionary where it is defined as an unstimulating , low-paid job with few
prospects. Staff turnover may be affected by the strategic pay plan in a company.
The four forms of equities to be considered in determining the pay as shown in the
fig 2.2

Equity

Internal Equity:
Pay made to same
level but in
different
department

External Equity:
compared to
organization
outside.

Individual Equity:
compared to the coworker who have very
similar work
responsibility.

Procedural Equity:
The fairness on
the process of
allocating pay.

Fig: 2.2 Forms of equity

2.3 Why direct compensation is made to employees.

The direct compensation includes the pay made according to their level or res
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Primark
What we offer
Salaries are competitive and subject to annual review. Other benefits include:

Structured training and development programmes

Promotional opportunities for everyone

Contributory pension scheme

Childcare Voucher scheme

Store Management
23 days' holiday (increasing to 25 days after 3 years' service)
Health insurance (Assistant Manager level and above)
Bonus scheme (Deputy Manager and above)

Buying & Merchandising

20 days' holiday (increasing to 23 days after 3 years' service)
Flexi-time scheme
Health insurance (Assistant Buyer level and above)
Bonus scheme (Buyer level and above)

Retail assistants
Variety of shift patterns available to suit your lifestyle

Tesco
Share our Success
At Tesco, we like to ensure our staff are cared for financially. So whether you have been with us
3 months or 3 years we run three successful share schemes, all helping you end up with more
cash in your pocket.

Shares in Success
So, to thank our people for the success they've brought the business, we give free shares to
everyone who's worked here for one year at the end of the financial year (February). We share a
proportion of our profit amongst our staff, based on salaries. These Tesco shares are held in trust
for 5 years, and after that you can take them, tax-free.

Save As You Earn

Every October those people who've been here a year get the option to save up to 50 every 4
weeks for either 3 or 5 years and receive a tax-free bonus at the end. You can use your savings
and bonus to buy Tesco shares at up to 20% less than the market price, or take the cash.

Buy As You Earn

After three months working with us you'll have the chance to join the BAYE scheme. You buy
shares at the market price every 4 weeks, saving tax and National Insurance on the salary you
use to do this. You can start, stop or change the amount you invest at any time. And if you keep
the shares in trust for 5 years you'll get even more tax advantages.

Staff Privilegecard
To reward you for your loyalty, after a year working at Tesco you will be given your Privilegecard
- the staff loyalty card that gives you 10% discount and Clubcard points on most Tesco products.
And eligible staff also have access to exclusive staff discounts with Tesco Personal Finance and
Tesco Telecoms

Pension
We look after your future too
None of us know what the future holds, but you can be sure that peace of mind and financial
security for our staff is very important to us. Planning ahead to your retirement is easy with our
award winning, Tesco pension scheme.
With a Tesco pension you are able to understand how financially secure you will be when you
decide to retire. As well as pension provision you have access to a life assurance scheme that will
provide financial protection for your family.

Your leisure time

Our staff work hard, so we believe they should be able to make the most of their leisure time. To
help with this we have negotiated discounts and special offers that are available exclusively to
Tesco staff.

There are discounts on theme parks, holidays and gym membership that are available all year
round. There are also special offers throughout the year, to make sure there's always something
for everyone.

Protecting your health

To ensure that staying fit and healthy doesn't cost our people an arm and a leg, we have some
great discounts with top healthcare companies. We offer exclusive discounted rates for staff on
health cash plans, dental cover and private medical insurance, to help take the burn out of
healthcare costs.

Supporting your lifestyle

We recognise that Tesco staff have busy lives outside of the workplace, so we've introduced a
range of policies that will help you find a better balance between your work life and home life.
From saving money with childcare vouchers to taking time off work for a career break or
extended holiday, at Tesco there are a variety of options available to support your lifestyle.