This question has two parts; be sure to answer both. First, list and describe the three parts of compensation. Second, consider this situation: Felix earns a $45,000 yearly salary as the store manager of a local McDonald's franchise. The owner of the franchise pays for medical and dental insurance for Felix and his family. In addition, Felix can earn a $1,000 bonus for each month the store exceeds $250,000 in revenue. Explain how Felix's compensation breaks down into the three different parts of compensation.
What will be an ideal response?
Compensation has three parts: wages or salaries, incentives, and benefits.
In the category of wages or salaries, the concept of base pay consists of the basic wage or salary paid employees in exchange for doing their jobs.
Incentives include commissions, bonuses, profit-sharing plans, and stock options. The goal of incentives is to attract high-performing employees and to induce those already employed to be more productive.
Benefits (or fringe benefits) are additional nonmonetary forms of compensation, such as health insurance, retirement plans, and family leave. They are designed to enrich the lives of all employees in the organization, and their costs are paid all or in part by the organization.
Felix's annual salary is $45,000. His $1,000 monthly bonuses are a form of incentive pay. The medical and dental insurance that Felix receives from his employer are fringe benefits.
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