Difference Between Compensation and Benefits (With Table)

In the working industry, words like compensation and benefits are quite popular. The employees wish to get some good benefits from their employers with lucrative compensation. The majority of times, these two words, benefits and compensation, are used by layman interchangeably. However, they are different from each other. The layman needs to understand the basic differences between compensation and benefits so that they don’t get confused while using them.

Compensation vs Benefits

The difference between compensation and benefits is that compensation is paid to every worker working under the firm according to the skills, qualification and experience they possess. However, benefits are provided to the employees irrespective of their level and designation. Monetary value ard included when compensation is concerned. However, other non-monetary perks are given when benefits are concerned.

The term “compensation” refers to a kind of monetary value. This cash value is paid to the employee or the worker when the assigned work is done. Some types of compensation include Performance-based compensation, basic compensation, commission-based compensation. Workers do not have any chance to determine or select their payment. It depends upon the experience and qualification they possess. High compensation is generally provided to the skilled people to work with the organisation.

Benefits are generally of non-try value. They are offered as a type of indirect compensation. Some examples and types of benefits include holiday and sick pay, health insurance, unemployment compensation, vacation, etc. Workers can avail benefits even when their performance is moderate to low. Workers have the chance to choose the benefits package offered to them which fits according to their needs. It increases a worker’s satisfaction and job satisfaction.

Comparison Table Between Compensation and Benefits

Parameters of ComparisonCompensationBenefits
NatureMonetary valueNon-monetary value
TypesBasic compensation, performance-based compensation, piece-rate compensation, commission-based compensation.Holiday leave, sick leave, vacation, foreign tour, health insurance.
PerformancePerformance-based.Does not depend upon the performance.
ChoiceEmployees do not determine their compensation.Employees can select their benefits package.
GoalsThe main target is to retain experienced and skilled people.It increases employee’s satisfaction and job satisfaction.

What is Compensation?

Compensation is regarded as all forms of cash payments given to the employees. A lot of factors come up while determining the amount of compensation given to a worker. It is based upon his experience, qualification and skills. Compensation is of different types. It depends upon the nature of the work. Basic compensation refers to the basic salaries offered to the employees on a weekly, fortnightly or monthly basis. People working on the same level get an equal amount of pay.

However, people with more skills are ahead and get more pay. The main goal of compensation is to retain Skilled employees with a lucrative pay offer. There is performance-related compensation as well. If a worker performs his task extraordinarily then, he is paid a bonus pay on an annual basis.

In the case of a Piece-rate compensation plan, the salary of a worker solely depends upon the work he has done and thus paid accordingly. This plan is also called commission-based compensation. Some companies calculate the compensation on an hourly basis as well. In this plan, qualification and experience play a great role in determining the compensation rate.

What are Benefits?

In the present scenario, the employees generally expect something extra from the organisation or firm they work in, except the monetary value they are provided. Usually, these benefits do not include cash, but other perks like maternity leave, health insurance, loans, vacation leave, foreign tour and many more. Benefits are also called fringe benefits.

The main motto behind providing the benefits is to motivate the worker to work harder and efficiently. Workers are generally given a chance to choose the benefits package according to their needs. Benefits generally depend upon an individual’s stand in the company. Regardless of the type of performance done by a worker, he receives a gift. Benefits are membership-based, although they aren’t performance-based.

Insufficiency in benefits can demotivate an employee and can lead to dissatisfaction and absenteeism. Thus, the company needs to take utmost care while designing the benefit packages for the organisation’s workers. Benefits generally oriented towards the whole objectives placed by the organisation.

Main Differences Between Compensation and Benefits

  1. Compensation refers to a kind of monetary value that is paid to the employee when the assigned work is done. However, benefits are the non-monetary value that is offered in the form of indirect compensation.
  2. Some types of compensation include basic compensation, commission-based compensation. However, some types of benefits include unemployment compensation, holiday and sick pay, vacation, health insurance, etc.
  3. Compensation is purely performance-based. On the other hand, employees can avail benefits even when their performance is low or moderate.
  4. Employees do not have any chance to select or determine their payment. It depends upon experience and qualification. However, employees have the chance to choose the benefits package which fits their needs.
  5. Compensation is generally provided to the skilled people to work with the organisation. Its main goal is to retain Skilled employees with a lucrative pay offer. On the other hand, benefits increase an employee’s satisfaction and job satisfaction.

Conclusion

It would not be wrong to state that compensation and benefits are somehow related, as they both are provided to the employees. However, these two concepts are different from each other as well. Focusing on the main difference is the involvement of monetary value in compensation and the lack of monetary value and inclusion of other bonuses in benefits.

Compensation being dependant on the performance of an employee, but benefits are equal to everyone at a certain level. Even employees can choose their benefits package from the organisation as well. Thus, compensation and benefits are quite different from each other and can not be used interchangeably.

References

  1. https://www.tandfonline.com/doi/abs/10.1080/09585190600581675
  2. https://journals.sagepub.com/doi/pdf/10.1177/0886368707302905
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