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What is the difference between direct and indirect financial

Resolved Question:

What is the difference between direct and indirect financial compensation? Provide ways in which companies are adjusting their indirect compensation components to be competitive in current markets?

250 words needed for this answer.
Submitted: 3 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 3 years ago.

Dear Friend,

 

In terms of HR, Financial Compensation can be of two types - Direct financial compensation and Indirect financial compensation.

 

Direct financial compensation consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals. This broadly includes equitable salaries and wages, Market adjustments or increase in cost of living, fair commissions or Merit increases / performance bonuses.

 

Indirect financial compensation including all financial rewards that are not included in direct compensation and can be understood to form part of the social contract between the employer and employee such as benefits, leaves, retirement plans, education, and employee services. Such benefits may include Insurance plans, which may in turn include Life, Supplementary Health, Vision, Dental, etc., Indirect financial compensation can also include Social Security benefits, Retirement Plans, Employee Insurance Workers compensations, and can also include paid absence like vacations, sick leaves, holiday leaves, educational leave, etc. Non-financial compensation referring to topics such as career development and advancement opportunities, opportunities for recognition, as well as work environment and conditions

 

However, in Non-financial compensation referring to topics such as career development and advancement opportunities, opportunities for recognition, as well as work environment and conditions.

 

SO far as adjustment of these components by the company goes, some companies do so by providing personalized indirect financial compensation based on needs and specific requirements of their employees. For example, some may require to work from home, some may require help with childcare, and by adjusting such benefits, the companies are able to hire loyal and bright employees for a longer duration. These are the tools adopted by smaller companies which are not able to match direct financial compensations.

 

I am sure this would help...

Warm Regards,

Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 3924
Experience: Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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