Employee compensation packages are the most common way of determining how much money a company pays their employees. These packages vary in size depending on the previous job experience and expertise, as well as what that employee contributes to the company. At their core, employee compensation packages consist of two primary elements: wages earned and benefits provided.
Wages are typically determined by the nature of a job along with market forces such as demand for labor and competition for talent. Benefits may include health insurance, retirement savings accounts and professional development opportunities. Understanding these components will allow employers to develop comprehensive compensation strategies that impact the overall financial success of their businesses.
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Benefits Components
In addition to wages, many employers provide additional benefits packages for their employees. Benefits are also an integral part of employee compensation packages and can be divided into two categories: welfare benefits and economic benefits.
Welfare benefits – are provided at no cost or at very low cost by employers; these include things such as health insurance, retirement plans, and other forms of subsidized support for employees. These programs usually have terms that extend over multiple years and may require the employee to contribute toward their coverage.
While the components may vary from company to company, other items that can be included in a comprehensive employee benefits package are vacation time, access to professional development opportunities, personal assistance programs, tuition reimbursement and/or student loan repayment plans, gym memberships/fitness classes, wellness, weekends away and parental leave policies among others.
Many companies offer bonuses for achievement of certain goals or objectives along with incentives such as spot awards or customized rewards programs at various intervals throughout an employee’s tenure.
Wage/Salary Components
The most straightforward component of every employee compensation is wages or salary earned from fulfilling the duties associated with their job. These sums are usually derived from a combination of factors including but not limited to years employed at a company, education obtained in relation to their role, skill set required on the job, certifications achieved while on payroll and comparable rates in similar industries within the local economic market. Generally, wages will be increased or decreased depending on the amount of responsibility a job entails and its direct impact to company objectives.
Economic benefits – refer to additional monetary compensation offered by employers as an incentive to attract key talent and entice retention of their current employees. Just like welfare benefits, economic benefits are usually paid at the end of a set period (typically a year) or each time it is earned by the employee. These include but are not limited to stock options, profit sharing, performance bonuses or commission income.
Workplace Flexibility
Workplace flexibility is becoming more prevalent with companies of every size and industry in every corner of the globe. This refers to both formal and informal arrangements made between employers and their employees that allow for increased freedom in when, where and how work gets done from day-to-day.
As an employer, workplace flexibility gives you the opportunity to make a real world impact on your employees’ efforts and enthusiasm. Employee compensation may be provided to employees that help them with time off from work, child care assistance and transportation options.
Fair Wages
The Fair Labor Standards Act (FLSA) is a federal regulation that establishes minimum wage requirements, overtime pay and record keeping practices for employees in the private sector and in federal, state and local governments. Employee compensation packages are subject to these laws. The FLSA applies to most employees engaged in interstate commerce, production of goods for interstate commerce or handling of interstate materials or articles.
Conclusion
Creating an effective employee compensation package requires knowledge and understanding of the external labor market and internal organizational goals. Wages earned should take into account experience, education, certifications required on the job along with factors such as difficultly in replacing that talent or its impact to company objectives; while benefits packages can range from corporate-sponsored health insurance plans to wider sustainability efforts (e.g., wellness initiatives).
