Introduction
Financial compensation may be a difficult concept to understand and measure, but it is by far the most important factor to consider when constructing an effective overall compensation strategy. Every employee strives for a reward system that will not only motivate them to their highest potential but also make them feel secure in the knowledge that their reward for hard work will provide them financial security and stability. Therefore, in determining the most effective overall compensation strategy, there must be an understanding of how to achieve the desired goals and objectives.
In most cases, an overall compensation strategy should not just focus on the immediate reward of money, but also incorporate incentive plans that can inspire and motivate employees. Therefore, in designing an overall compensation strategy, it is important to consider all of the components of total reward, which can include not only base salary, but also incentives, health benefits, equity compensation, and employee recognition.
Base Salary
Base salary is the most important component of overall compensation and should be commensurate with the experience and skills of the employee. Ideally, an employee will be offered a base salary that reflects the current market rates for their particular job and position. To make sure the employee is being paid a fair and competitive salary, employers should use compensation surveys to establish a salary range for individual employees as well as for the company as a whole.
Incentive Plans
Incentive plans are an important part of any overall compensation strategy, as they provide an additional financial reward to employees while rewarding good performance. Incentive plans can be tailored to the goals of the organization and can include such elements as revenue or profit sharing, performance bonuses, commission or gain-sharing plans.
Health Benefits
Health benefits are becoming increasingly important components of total compensation strategies for many employers. Health insurance is especially important for highly paid employees, as the cost of health care is rising. Employers should consider offering a comprehensive health benefits package that includes medical and dental insurance, health reimbursement accounts and flexible spending accounts, life insurance and disability benefits.
Equity Compensation
Equity compensation is a great way to reward and retain key employees. Equity compensation can include stock options, restricted stock awards, phantom stock plans and even founders stock. Equity compensation can be used to align the interests of key employees with those of the company, as well as provide them with long-term financial security.
Employee Recognition
Employee recognition is an important component of overall compensation and should be based on results and performance. Recognition can be formal or informal, but most importantly, should be genuine and consistent. Recognition can include awards, acknowledgements, appreciation luncheons and team building activities.
Conclusion
Compensation is an integral part of any successful organization’s overall strategy. To create an effective and comprehensive total rewards system, employers must consider all aspects of financial compensation and employee recognition. By incorporating monetary rewards, incentive plans, health benefits, equity compensation and employee recognition into an overall compensation plan, employers can ensure their employees are adequately rewarded for their contribution and hard work.
