What is an employee compensation plan and how to create one?

What is a compensation plan?

  • Salary — fixed regular payment employees receive every month or every two weeks, often expressed as an annual sum
  • Hourly wage — a predetermined amount in the local currency employees receive per hour of their work
  • Commission — compensation based on the employees’ performance, eg., the volume of services performed, products created, or sales made
  • Bonuses — compensation used to motivate employees, usually paid if employees (or the company) reach their sales, performance, or productivity goals
  • stock options
  • profit sharing
  • benefits (healthcare, paid leave, etc.)
  • non-monetary compensation (work meals, paid holidays, company car, etc.)
  • and more

How to make an employee compensation plan for your company?

Step 1: Analyze the existing situation in the market

  • Check out your local job posting sites (bear in mind that compensation amounts can differ by location, too)
  • Take a look at the job section on your competitors’ websites
  • Survey your own employees to find out what types of compensation are important to them
  • Invest in purchasing a salary survey, eg., from a consulting company, trade organization or association, or other survey organization
  • Set up a social media survey, for example on LinkedIn, to grasp a general idea of the expectations people have about compensations

Step 2: Decide how much you’ll be paying for what positions

Step 3: Identify the other benefits and incentives that you will provide

Step 4: Make sure your compensation plan makes sense

Should you adjust your compensation plan for remote employees?

Final words: compensation is not the only motivation for employees



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