Employee Compensation And Benefits- A Complete Guide

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Employee Compensation And Benefits
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When it comes to compensating employees, every manager knows that there is no one-size-fits-all solution. Figuring out the correct way will not only motivate every employee but will also help in aligning your organizational goals and profitability.


So let’s look at the most frequently asked questions. What is compensation? Is it only monetary or are any other benefits included?


In both retail (hourly) and corporate (salary), an employee is compensated on the basis of monthly salary, or hourly and any extra benefits or incentives added differ from company to company.



Finding The Right Balance Between Employee Pay And Benefits

Many organizations feel that they can justify less salary if they include a strong compensation and benefits package. These benefits can vary from monetary benefits like parental leave, overtime pay, holiday pay, etc. to lifestyle benefits such as flexible working hours, work from benefit, etc.


The reason for this variation is that different people have different priorities. Some would prefer the monetary benefit, while others would prefer a more relaxed lifestyle. A generational shift has caused this too. Soon to be parents would want time off, on the other hand, millennials would want a chilled out and relaxed work environment.



Top Compensation Packages

At all times, every manager or employer should know their target audience or target employees, and keep in mind their needs and requirements. For example, if an employee is pursuing a part-time course or attending any college, flexible timings would be the best compensation for them. On the other hand, if an employee is the sole bread earner, they should be compensated financially. It is paramount that employers should keep in mind the needs of every employee before providing them with a compensation and benefits package. There are usually eight types of compensation packages provided in companies, which are as follows-


  • Straight Salary

This kind of compensation package refers to a fixed annual income, and it can be divided on a daily, weekly, or monthly basis. There are no additional benefits or incentives added to the employee’s earning. Straight salary compensation is usually followed by organizations where the structure does not involve sales. Additionally, companies who have employees working on different projects with different teams might use this structure as performance analysis is hard in such cases.



Also Read: Why Employee Recognition And Rewards Are Needed Now More Than Ever?



  • Salary Plus Commission

This type of compensation includes both a stable salary and a performance-based commission. It is similar to straight salary compensation as the salary is guaranteed, but this has additional performance-based incentives, unlike a straight salary. This incentive can include a particular percentage of either personal sales or team sales. Having this structure is very beneficial for the organization as a stable salary plus incentive will motivate employees to work harder, which will ultimately help in the company’s growth.


  • Straight Hourly Compensation

In this kind of structure, the employees are given fixed wages on an hourly basis for their work. This kind of compensation is usually seen in entry-level jobs, or workers employed in restaurants, retail industry, or service industry.



  • Straight Hourly Plus Incentives

In this compensation structure, apart from receiving an hourly wage, the employees also receive incentives based on their sales. These types of compensation and benefits normally include barbers, restaurant employees, customer service reps, cosmetologists, and retail sales. This compensation is beneficial for the companies who want to keep the payroll expenses less, but at the same time want the best out of their employees by motivating them through incentives.



  • Only Commission

This type of benefit structure has no fixed salary or wages and is purely based on the sales made by the employee. Commission-only plans are easier and smoother on payroll, unlike compensation with hourly pay rates. People who are confident about their sales usually go for this type of compensation benefit.



  • TVC (Territory Value Compensation)

In TVC, the compensation is based on the territory volume at the end of a year or a certain period. Total sales earned are then split amongst all the sales reps involved. This type of compensation requires very carefully thought out territories and outlines that generate enough money to support competitive wages.



Also Read: Employee Benefits and Perks: What are the different types?



  • Revenue-based Compensation

In a PMR (Profit Margin Revenue) – based structure, the employees are compensated or paid based on the profits earned by the company. Profit Margin Revenue plan is common in the sales industry and is recommended for start-ups with financial restrictions. This compensation increases the loyalty of the employees, as they know they will earn only when the company earns.



  • Residual Commission Compensation

The RCC or Residual Commission Compensation is a salesman’s perfect structure. This plan pays the employees as long as accounts are generating revenues. A great benefit of this plan is that even if an employee is not working on the account, they will still receive their cut as long as the account is performing successfully.




Thus, no matter what type of company, compensation and benefits are essential to keep the employees engaged and maintain their productivity.



To know more about how employees should be rewarded, read our blogs here. You can also give us a shout-out at our Twitter and Facebook handles or write to us at sales@pockethrms.com.

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