Indirect Compensation

Organizations are becoming more and more creative in their compensation offerings. Gone are the days when the only question that job seekers would have is “how much is the hourly pay?” In today’s business space, companies compete not just with competitive wages but with attractive benefits in addition. From company gadgets, gym memberships, to annual leaves, companies have free reigns on what they are willing to provide. It’s no wonder that indirect compensation matters. Do you know what indirect compensation is? Let’s learn more about it in this article.

What is indirect compensation? 

Indirect compensation refers to any type of non-monetary benefit or non-monetary pay that an organization gives its employees. There is a wide range of indirect compensation that a company can offer. Also, the kind and extent of indirect compensation varies from company to company and depends on their overall compensation plan. 

What are some examples of indirect compensation? 

Employers are free to come up with indirect compensation that will best suit the needs of their employees. As mentioned, there is no uniform indirect compensation that companies must conform to. Employers can be as creative and generous as they wish. 

Here some examples of indirect compensation: 

• Insurance: one of the most common types of indirect compensation, insurance can be life, health, or dental insurance. 
• Childcare: companies can help ease the burden of childcare costs of employees who are working parents. 
• Paid Time Off (PTO): a company can offer PTO and incorporate it in their leave policy. As PTO is not legally required for employers to give, this is something that employees will enjoy. 
• Equity programs such as profit-sharing or stock options: offering an equity program can be an incentive for employees and promote their financial interests. 
• Parental leave: companies in the United States are not legally required to give paid parental leave. However, this is a type of leave benefit that can promote work-life balance especially for working parents who have to balance responsibilities both at home and at work.  
• Retirement plans
• Gadgets such as company mobile phones or laptops
• Company car
• Gym membership
• Tuition reimbursement

Why is indirect compensation important? 

Offering indirect compensation is beneficial for companies. To start with, indirect compensation is a way for employers to make their employees feel valued and cared for. By offering indirect compensation, employers can show that they are willing to go the extra mile to show their appreciation to employees. For employees, they can enjoy different benefits that suit their needs. It uplifts employee morale and can motivate employees to do their best. 

Also, offering indirect compensation gives companies an edge to stand out among a sea of other companies. Benefits can make a compensation package more attractive to job seekers. Today, it’s not just about the hourly pay or the regular salary, candidates look for good benefits that a company can offer. In a competitive business world, indirect compensation can mean the difference between signing the best candidate or not. 

Aside from attracting top talent, indirect compensation can also help companies retain top talent. Employees who feel valued and appreciated will feel more engaged and loyal to the organization. In this way, indirect compensation can help increase employee retention and reduce a company’s turnover. 

What is the difference between direct compensation and indirect compensation?

Direct compensation refers to the compensation that employers directly give their employees. Forms of direct compensation are hourly wages, salary, tips, bonuses, and commissions. Direct compensation is monetary, has financial value, and can be directly calculated. On the other hand, indirect compensation is usually non-monetary and often known as “employee benefits.”