What is Employee Compensation?
Let’s define terms. Employee compensation is simply the monetary benefit staffers get in exchange for their membership and work performed that is in line with company goals. Compensation is more than just salary, however.
What are the Essential Forms of Compensation?
Compensation typically falls in the categories of salary, bonuses (short-term incentives), long-term incentives, healthcare and other benefits, perks, and insurance.
Let’s look at these components separately:
- Salary. This is the renumeration conveyed to an employee at set intervals (weekly, monthly, etc.) by the employer. Salary is increasingly viewed as a component of “total rewards,” which include bonuses, perquisites, and more.
- Bonuses. Also known as short-term incentives, bonuses are discretionary awards given to a staffer as part of their employee compensation during a period of up to a year.
- Long-term incentives. These are generally given to employees for achieving certain goals that result in heightened shareholder value. They may include stock options or other incentives.
- Benefits. These can and do vary, but they generally refer to healthcare, retirement benefit plans, transportation benefits, dependent support, relocation assistance and childcare benefits, as well as medical, vision, prescription, and dental plans. They can also include a solid work-life balance as well as legal assistance plans and paid time off (also known as PTO). What you’re aiming to do is bolster employee satisfaction and therefore loyalty – to you.
- Perquisites. More informally known as perks, perquisites used to be called fringe benefits. In any case, such perquisites refer to niceties some employees get for their seniority or for some outstanding performance. Such perks can include use of the corporate jet or “holiday” villa, country club membership, wellness activities like meditation and yoga, free healthful snacks, museum passes, flexible hours, time off for volunteering, use of a company vehicle, mentor programs and paid sabbaticals.
- Insurance. We’ve alluded to it, but insurance takes on a category of its own. It’s defined as insurance that employers offer employees in the form of a group program. Such a plan typically includes medical health insurance, a prescription drug plan, group term life insurance, an accidental death policy, and retirement plans.
When formulating your pay or total rewards programs, it’s obviously important to first know the various forms of employee compensation. It’s also very important, again, that you know how crucial it is in this time of economic and societal upheaval to get your employee comp program right. After all, employees have more say than ever in terms of where they want to work, and why.
So, be sure you have the right plan in place to help you lure and keep top talent. And you would do well to remember that compensation is more than mere salary. Employees increasingly need a wide spectrum of supports to work and live comfortably. If you need help putting your program together, we recommend the HR consultant Mercer for its expertise and experience.