Compensation has become a far more complicated issue than just deciding how much to pay your employees. Employees also have greater expectations of what should be included in their compensation packages, and they may demand specific benefits. Costly or not, building a fair and attractive compensation packages is critical for attracting and retaining employees. When setting up your compensation package, we need to consider the following components -
Salary and wages. This is usually the single largest component of a compensation package and, not surprisingly, the most common point of comparison used by employees and potential employees. Salary should be tied to a person's skills and experience. Subsequent increases need to be based on an employee's performance, value and contribution to an organization.
Bonuses. Employee bonuses, which are usually paid in a single lump at the end of the year, are one way of providing performance incentives.
Long-term incentives. Stock options or stock grants not only provide long-term incentives to employees, but they can also help retain valuable team members.
Health insurance. Employer-sponsored health insurance is fairly standard among medium-size companies. And it's a benefit that has great value to employees.
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.
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.
Miscellaneous compensation. Other forms of compensation to consider include employee assistance programs, which can provide everything from psychological counseling to legal assistance; discounts on company products; use of a company cars etc.