Key Compensation Components

Padma Rajagopal
February 01, 2006

The competitive job market is always ready to grab the suitable employees from one organization to another has consequently resulted in reduced life span of employees in a single organization to one or two years. So what makes the employees change jobs often and what will retain them with a single organization? One key instrument in the corporate strategy to attract and retain key employees is probably the compensation factor. Job satisfaction, of course, is related to more than pay. But to a great extent, the attraction and retention of key staff members is most likely a good compensation package.

The very survival of an employee in an organization is Compensation and that makes it all the more important to design an appropriate compensation package that would suit and satisfy the needs of every employee. In addition to the basic salary, employers are forced to consider many other components such as insurance plans, stock options, bonuses etc.

Expensive or not, building a fair and attractive compensation packages is critical for attracting and retaining employees. With half yearly appraisals just round the corner in most of the Companies, you could consider all or any of these components before deciding on the ideal compensation package.

Basic Salary / Wages:

This is usually the common point of comparison used by employees. This is also single largest component and is the basis for various other benefits. A percentage of basic pay is generally taken as a standard for many perks and incentives.

Bonuses:

Employee bonuses paid usually in the form of performance incentive, bonus, profit sharing etc could be paid on the basis on individual performance and employees meeting their goals could be rewarded with this.

Long-term incentives:

This could be considered for Middle and Senior Management positions and could be in the form of ESOPs or stock grants. This could also help the Organization in retaining the employees through the start-up phase besides acting as a motivating factor.

Health insurance:

Employer-sponsored health insurance is fairly standard among medium-size companies. And it's a benefit that has great value to employees. An employer-sponsored plan saves employees money and gives them peace of mind in knowing that they won't be denied coverage, even if they have existing health problems.

If you think you can't afford it, think again. Providing insurance to your employees sends the message that you care about their health and the health of their families. To minimize costs, consider having employees pick up part of the tab. Employees who have coverage through a spouse may want to opt out of a plan, particularly if there's a cost associated with it.

Life and/or disability insurance:

This is also a benefit that usually costs less when it's purchased by an employer rather than an individual.

Retirement plans:

401(k) plans have become popular because they are relatively easy to administer and are less expensive than traditional pension plans. Many employees like these plans because they maintain some control over the amount of their contribution and how the money is invested. Most small companies try to put some kind of savings or 401(k) plan in place, even if they don't contribute money to them.

Time off and flexible schedules:

This includes holidays, vacations, sick days and personal days. An employer unable to offer competitive salaries may close part of the gap by offering more time off or flexible work hours. Some employers make no distinction between sick, vacation and personal days and allow employees a set number of days off each year to be used at their discretion. This prevents employees from abusing sick days and keeps employees from feeling that they need to lie when a child is ill or a personal emergency arises.

Others:

Depending upon the compensation structure; Hospitalization / Mediclaim, Mobile Phones, Phone Reimbursements, Study Scholarship / Certification, Food Coupons / Subsidized Food etc could be other benefits that could be given to the employees.

Miscellaneous compensation:

Other forms of compensation to consider include employee assistance programs, discounts on company products, providing laptops, usage of a company cars etc.

You could also check our compensation and benefits surveys or contact us and we would help you understand better what the market standards are, what your competitors are paying and why you are losing people.

Check out to see if you are underpaying or overpaying your staff. Paying too much is an unnecessary drain on your resources, but paying too little will make it difficult to find and keep the best people.