The HR Dictionary

Indirect Compensation

The type of payment to an employee known as indirect compensation doesn't entail paying them a wage or salary directly. Offering life insurance, health insurance, or employee stipends are examples of indirect pay arrangements, and they are also known as fringe benefits. Indirect compensation and non-financial compensation are used to complement wages in order to foster employee loyalty and retention while direct compensation is used to compensate employees for their job. 

Why is Indirect Compensation Used?

To reduce employee turnover and attract top talent - A company can attract top personnel by providing a comprehensive benefits package. It is also a must to comprehend a company’s counterparts and the benefits they provide employees to attract and retain the best talent. Employees will be more inclined to apply to other organizations if the competitors provide better perks. 

Improve employee morale - A part of how employees are motivated is by offering them rewards. Employees will feel valued if a company takes good care of them. When a job vacancy arises, employees who enjoy working for the company and have high job satisfaction are more likely to recommend and attract others, lowering the recruitment costs for the organization.