According to Valentine (2006) Funds that are transferred from surplus to deficit units via financial institutions which act as intermediaries, borrowing from surplus units to lend deficit units is called intermediation or indirect financing. Indirect incentives play an important role these days in company, because it is difficult for a company to compete with large amounts of wages given to an employee, which is why giving other types of indirect benefits, help show as if the company is giving more.
The indirect benefits are divided again in to two, which are legally required by the company and secondly, the voluntary rewards. The legal rewards for example are the social security, unemployment compensation, life insurance, workers compensation and the family and medical leave. The social security is created for retirement benefits; it is to fund unemployment and retirement benefits. The unemployment compensation however is where and individual is laid off by the company and the company which is covered by the Social Security Act may receive compensation for a certain amount of time. Life insurance is also a benefit commonly provided to the family of the employee in the event of his or her death.
The workers compensation on the other hand is benefits given by the company to protect the employee who incurs expenses resulting in a job relating accident or illness. Last but not least is the family and medical leave benefit, where it allows the employee to have up to 12 weeks of unpaid leave per year for absences due to employee’s own serious health conditions or the need to care for a sick family or etc.
The voluntary rewards are much more, for example, the payment for time not worked, health benefits, employee services, premium pay and benefits for part-time employees. In the paid leave, the employer recognizes that the employee needs time away from the job for many purposes, this includes, paid vacations, payment for holidays not worked, sick days and etc. Health benefits that are given to an employee are mostly specified in health care, dental and vision care. Health care however, is one of the most expensive costs in the area of indirect financial compensation.
Employee services encompass a number of areas including relocation benefits, child care, educational assistance and food services/subsidized cafeterias. A relocation benefit is the payment made by the company to move all household goods and the cost of temporary living expenses and child care is an extra service that the organization provides. Educational assistance is also reimbursed to the employees in order for then to pursue further education. Lastly, food services is given to the employees so that they will not waste the 1 hour break time they have going out of the company to find for food, plus they can control the food diet to increase productivity and the health of the employees.
Another reward given is the premium pay, which awards the employee for working long hours or under dangerous and undesirable conditions. Most organizations pay employees hazard pay or shift differential pay and also employers pay employees depending according to the hours worked. Lastly is the benefit for part-time employees, where the employer gives more benefits to these employees, because they do not work all the time and it depends on the job availability of the company.
The non financial remuneration is the job itself of the employee. Some jobs are so exciting that the employee can’t wait to go to work each day. The job itself is the central issue in many theories of motivation and a vital component in the compensation program. There are six main points that have been identified in explaining the importance of job characteristic theory which are, skill theory, task identity, task significance, autonomy, feedback and cyber work. The environment of the job also plays an important role, such as its sound policies, competent employees, congenial co-workers, appropriate status symbols and working conditions. The
flexibility of the workplace is equally important, such as flex time, compressed work week, job sharing and etc.
To conclude, both indirect and direct remuneration is good for the company and without either, the organization will not be able to afford and keep their employees satisfied. A satisfied employee helps increase the productivity of the firm.
References :
International Edition (Eighth edition of Human Resource Management Book) Robert M. Noe
www.prenhall.com/mondy