Compensation program design

In order to attract and retain top talent, you need to market your total compensation package. Most employees are surprised when they see the bottom line; it almost always exceeds what they normally think of as their compensation.

This can also come in handy when a competitor tries to lure away one of your employees with promises of a bigger base pay. If your employee understands the full range of compensation and benefits that they enjoy at your company, they will be better equipped to evaluate offers from potential employers. Simple: Measure it. Then start tracking them and see whether the return on your compensation dollars matches your expectations.

This article was originally written with input from human resources and compensation experts Ron Fleisher, Catherine Meek and Karen Jorgensen. Category: Talent Management. Tags: compensation plan , employee benefits. Vistage members receive the most credible, data-driven and actionable thought leadership on the strategic issues facing CEOs.

Through collaboration with the Vistage community of…. Hourly: What's Better for Your Business? When compensation is based on volume, production or a predefined level of performance, this is a commission. Other expressions of this type of renumeration are "piecework" and "piecemeal.

Most commonly, there are two methods utilized and referred to as paid commission. One calculus is based on volume of services performed or products made. The second form is structured around sales volume. An example of a worker with this type of compensation is a real estate broker: They sell a house and will be compensated off of that sale.

It doesn't matter how long or what work activities it took to sell the house, only that the house was sold. Bonuses are used to motivate employees or increase their overall performance. This is a variable method of compensation that is commonly associated with sales professionals, who tend to be salaried or exempt personnel. For example, if a sales professional exceeds her quarterly target by a certain dollar amount, based on a predetermined matrix, she receives a commensurate bonus.

Bonuses can also be paid for company performance, as well as when difficult-to-fill positions are filled with employees with unique or highly sought-after skills or experience.

Indirect compensation can be any fringe benefit that employers offer. Most commonly, it refers to the various types of insurance offered by employers, including medical, dental, life, short- and long-term disability, and vision. Employee retirement programs, like k plans, are another common form of indirect compensation. Check out our recommendations for the best retirement programs. Equity-based programs are another compensation offering, though these aren't typically offered within the small business realm.

Equity-based compensation is generally some sort of share or stock in the company. PayScale's survey reveals the most common ways companies reward their top talent and their employees overall:. Key takeaway: The four types of direct compensation — salary, hourly pay, commission and bonus pay — are provided in return for completed work. Indirect compensation, on the other hand, can include PTO, healthcare and retirement benefits, flexible work schedules, and so on.

Think of the challenge of developing a compensation strategy less in terms of a "right way and wrong way" and more in terms of what's right for your team. Here are some suggestions to guide you along the way. Part of developing a compensation plan is ensuring it's fair for all your employees. This does not only pertain to gender, culture, race, ethnicity and so on, although that is part of it.

We are also talking about skill sets and experience that new team members bring to your company. Privacy Policy Disclaimer. This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

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January 15, Reading Time: 3 minutes. Share on facebook. Share on twitter. Download PDF file:. A compensation program that will actually improve and sustain key employee performances must conform to behavioral principles. Wages and salaries generally operate as negative reinforcers rather than positive. You receive your paycheck each pay period until you fail to perform. To determine whether your compensation program operates as negative or positive reinforcement you can apply the 'dead man' rule.

If one of your employees dropped dead, but no one informed the payroll department, would they continue to pay them? If the answer is yes, then your compensation system could not be based on actual performance or positive reinforcement.

To convert your compensation system from negative reinforcement to positive reinforcement you must pay for performance. A common remark made by managers when the subject of pay for performance is brought up is, "They are already paid for performance - they get a salary!

When you pay for time, you get time. When you pay for results, you get results. You get what you pay for. Unfortunately, the term 'pay for performance' is often applied to programs that do not conform to critical behavioral principles.