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Subhasree Nag, 18 hours ago
Compensation of employees is a basic component of corporate relationships that serves as the primary motivator for employees. This is what keeps them engaged and stay committed to the work.
This compensation goes beyond hourly or monthly wage. That’s what we’re here to find out!
The following sections will explore the different types of compensation of employees and their purpose.
These sections will mainly focus on the financial rewards, briefly mentioning the non-financial rewards.
Such compensation of employees helps attract and retain talent which helps maximize the profits. Below are the various forms of compensation that employees can receive.
The following section explores the different types of employee compensation and their aim for a corporate individual. How does it help an employee financially grow? Find out here:
Purpose: It aims to deliver a consistent competitive market salary that matches the skills, contribution/performance, and expertise. It also delivers the internal value of the job.
Base salary is the fixed amount of money an employee receives regularly, typically weekly, bi-weekly, or monthly. It is the foundational component of an employee’s total compensation package and depends on factors such as job role, experience, industry standards, and geographical location.
The base salary provides employees with a predictable income for financial planning and stability. It reflects the value of an employee’s skills and contributions to the organization and serves as a benchmark for other forms of compensation.
Purpose: Helps determine fair compensation for the time and labor of an employee. Provides payment transparency that helps employers and employees track earnings based on working hours.
Hourly wages are payments made to employees based on the number of hours they work. This form of compensation is common in retail, hospitality, and manufacturing industries, where employees may have variable work hours. In addition, additive manufacturing will help in different type of compensation for the corporate individual.
Hourly wages provide flexibility for both employers and employees. This form of compensation can be advantageous for employees in roles that allow for overtime, where they can earn additional income for hours worked beyond the standard workweek. It offers employers a cost-effective way to manage labor costs based on demand.
Purpose: This helps reduce the labor expenses for those who spend extra hours to meet deadlines. They get respective monetary benefits that monetarily match their efforts.
Overtime pay is compensation to employees who work beyond their regular hours. In many jurisdictions, overtime pay is mandated by law and is typically calculated at 1.5 times or double the regular hourly rate.
This pay incentivizes employees to work extra hours when needed, ensuring businesses can meet high demand or complete urgent projects. For employees, it provides an opportunity to earn additional income.
Purpose: This additional pay helps increase productivity and employee retention by motivating them.
Bonuses are discretionary compensation of employees in addition to their regular salary or wages. They can be awarded based on individual performance, team performance, or the company’s overall profitability.
Some common types of bonuses given are:
Bonuses are a powerful tool for motivating employees, recognizing achievements, and promoting a performance-oriented culture. They align the interests of employees with the company’s goals and can lead to higher productivity and job satisfaction.
Purpose: Paid to support training or specific needs such as travel or living expenses.
Stipends are fixed, regular compensation of employees to cover specific expenses or support certain activities. Standard stipends include commuting, meals, remote work setup, and education.
Unlike salary, stipends are not tied directly to the number of hours worked and are typically considered supplementary income. Understanding the difference between giving stipends and paying salaries is essential to follow proper tax regulations (learn more at https://www.getbenepass.com/blog/stipend-vs-salary).
Stipends provide employees additional financial support for work-related expenses, enhancing their overall compensation package. For example, a commuting stipend can help employees offset transportation costs, while a remote work stipend can cover expenses related to home office setup.
Educational stipends encourage employees to pursue further education and professional development, benefiting both the employee and the employer. By addressing these specific needs, stipends can improve job satisfaction, reduce financial stress, and increase retention, as employees feel valued and supported.
Purpose: Motivating employees to work harder, increasing productivity and a sense of ownership. This also helps retain employees as they have a newfound commitment to the organizational goals.
Profit sharing is a form of variable compensation for employees where they receive a portion of the company’s profits. The amount distributed can depend on the company’s profitability and the employee’s role, tenure, or performance.
Profit sharing fosters a sense of ownership and aligns employees’ interests with the company’s financial success. It encourages teamwork, as employees are motivated to work together to improve the company’s performance and profitability.
Purpose: Helps increase the employee’s loyalty towards the company. It also attracts new talent that can contribute to the company’s success.
Benefits are non-wage compensation of employees besides their salaries or wages. Expected benefits include health insurance, retirement plans, paid time off, and life insurance. Perks are additional, often non-monetary benefits, such as flexible work hours, remote work options, gym memberships, or company cars.
Benefits and perks are crucial in an employee’s overall compensation package and can significantly impact job satisfaction and retention. They help employees manage their health, plan for retirement, and balance their personal and professional lives.
Offering competitive benefits is essential for attracting and retaining top talent in a competitive job market.
Purpose: Sense of security for the employee, helps fulfill the post-retirement needs of the employee.
Retirement plans, such as 401(k) plans in the United States or Registered Retirement Savings Plans (RRSPs) in Canada, are employer-sponsored savings plans that help employees save for retirement.
Employers may match a portion of the employee’s contributions. Pensions are defined benefit plans where employees receive a guaranteed income in retirement based on their salary and years of service.
Retirement plans and pensions provide employees with financial security in retirement. They are a critical component of a comprehensive compensation package and are particularly attractive to employees who prioritize long-term financial planning.
Purpose: Executive compensation aims to provide competitive opportunities to attract, retain and encourage officers with proper qualifications.
This is the compensation of employees in the senior management such as corporate-level directors, COOs, and others.
They can receive higher and more complex compensation than those in the succeeding levels. These can include non-financial benefits and other financial payments exclusively for them.
Compensation of employees encompasses various financial and non-financial rewards, from base salaries and hourly wages to bonuses, benefits, stipends, and retirement plans. Each form of compensation serves a different purpose and meets the various needs of both employers and employees.
A well-rounded compensation package that includes a mix of these elements can help companies attract and retain top talent, enhance employee satisfaction and motivation, and ultimately drive organizational success.
As the workforce continues to evolve, employers must remain flexible and innovative in their approach to compensation to remain competitive and meet the diverse needs of their employees.
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A self-proclaimed Swiftian, Instagram-holic, and blogger, Subhasree eats, breathes, and sleeps pop culture. When she is not imagining dates with Iron Man on Stark Tower (yes, she has the biggest crush on RDJ, which she won’t admit), she can be seen tweeting about the latest trends. Always the first one to break viral news, Subhasree is addicted to social media, and leaves out no opportunity of blogging about the same. She is our go-to source for the latest algorithm updates and our resident editor.