Compensation Packages: Examples and How to Make One

Proper compensation is the foundation of a successful company culture. And with 83% of the 250 biggest S&P companies having a solid, formulaic compensation plan in place, setting one up for small to medium-sized companies can help them create a healthier, more positive working environment in the long run.

That being said, what are effective compensation package examples for companies to follow? What are the factors that should be considered before making one for your company – and most importantly – how can you make one?

Read on to learn more about compensation package examples, how compensation strategies are important to a company’s success, and the fundamental steps to making a total compensation plan that can help businesses grow further.

What is a compensation package?

A compensation package is the overall value of compensation an employee can get while working. A compensation package’s example can include the following:

• an employee’s base salary

• direct compensation, benefits

• health insurance

• tuition reimbursement

• vacation pays

• retirement plans

• equity compensation

and anything else that an employer pays their employee. However, it does not include income taxes and other deductibles from an employee’s salary like employer contributions.

Due to its rather complex nature, it’s highly suggested for companies to use a compensation planning tool to not only alleviate its complexity but also provide companies with a more flexible approach to compensation and benefits package as a whole to make their job offer more tempting for top talents to join the company, while still living up to current employee expectations.

Why are compensation packages important?

Listed below are some advantages that competitive compensation packages can provide for companies that are willing to expand to a better strategy.

• More motivated employees

  A good baseline compensation plan can help make more motivated employees. In fact, a study has shown that companies with a good compensation plan in place see 22% better employee performance vs other companies.

• Better employee retention

  A well-planned total compensation package also helps provide companies with better employee retention as well. This is because 20% of employees negotiate their salary, and a well-thought-out employee compensation package can help not just get them onboard the company but also keep them within the ranks as well.

• Happier work culture

  Robust compensation packages can also create a smoother, more streamlined working culture. A good pay structure adds value to an employee’s life, which results in more engaging and happier employees moving forward.

Compensation packages examples

Below are different kinds of compensation package examples that companies can use to foster a better working environment for their employees.

• Financial compensation

  One of the more straightforward compensation plans, financial compensation or an employee’s salary, is the monetary value an employee receives for their work. There are plenty of regulations regarding financial compensation in the U.S.

  For instance, only Alabama and Florida do not have any pay frequency laws, while the rest of the states are legally required to pay their employees either weekly, biweekly, semimonthly, or monthly, depending on the company. Companies should also take note of minimum wage laws as hourly pay varies from one state to another.

  It’s highly suggested for companies to use an effective total compensation management system to ease the overall complexity involved with financial compensation, along with helping streamline the process as well.

• Benefits

  Benefits can also be counted as an example of a good compensation package as these are added to an employee’s overall compensation package. Examples of benefits include the following:

  • Sign-on bonus

  • Retention bonus

  • Referral bonus

  • Retirement savings plans, retirement contributions, or retirement benefits

  • Stock options

  • Health benefits

  • Paid time off

  • Disability insurance and disability coverage

  • Dental insurance

  • Vision insurance

  That said, companies can deviate from the norm and provide their employees with more fringe, non-monetary benefits like student loan assistance, more flexible work arrangements, gym memberships, and gift certificates to a popular lunch spot as an indirect compensation plan.

  Companies can also use wellness programs, like providing them with wellness benefits and gym memberships on top of other perks as employee benefits as well. This can help employees save money on their personal wellness initiative while still providing to the company's success.

• Commissions

  Performance-based compensation or commissions are also a valid example of a compensation package. This can be done to further motivate employees to sell more and be more productive during their working hours.

How to make effective compensation packages for your employees

To make a comprehensive compensation package, there should be no grey areas to ensure fairness among all employees, regardless of their position within the company. Hence, listed below are steps that companies can take to make their own compensation package.

1. Step 1: Research market data

   Making use of market data ensures fair pay among everyone with the same position in the same city and state. Companies can then use the data to create a more competitive compensation plan moving forward and ensure a more competitive salary, which can help companies gather more talented employees as well.

   
2. Step 2: Determine your current budget

   Not every company shares the same compensation policy. As mentioned earlier, some companies pay their employees via hourly wages, whereas others prefer commission-based compensation. Thus, it’s important for companies to decide whether to use a fixed amount or variable pay for their compensation strategy to align their total compensation package with their company vision and business strategy to create a better workforce culture.

3. Step 3: Align your compensation packages with your company vision

   Not every company shares the same compensation policy. As mentioned earlier, some companies pay their employees by the hour or biweekly, whereas others prefer commission-based compensation. Thus, it’s important for companies to align their total compensation package with their company vision to create a better workforce culture.

4. Step 4: Create an effective pay structure

   The next step is to create an effective pay structure. Most companies can utilize an easy-to-use salary planning tool to ensure an easier overall process. However, it can also be done manually by utilizing the steps mentioned above, plus adding some structures regarding bonuses and incentives for employees to ensure that every employee can get equal pay.

5. Step 5: Establish a performance-based compensation package

   Though completely optional, rewarding employees through performance bonuses, or a performance-based fair compensation package can help boost productivity along with helping create healthy competition among employees, which can help create a better working environment in the long run. Most companies can also use this as a blueprint for their bonus strategies moving forward, which can help streamline the process in the future.

How can compensation packages boost employee retention?

Simple – it's because when an employee is paid well, they feel that the company they’re in values them not just as an employee, but as an individual as well, which can boost employee satisfaction. Not only that but providing them with a more flexible total compensation package, example being a simple rewards program, can help boost an employee’s confidence further.

Having a flexible total compensation package also allows employees to have a healthier work-life balance and better professional development opportunities and career advancement while providing long-term financial security, ensuring better job satisfaction on top of employee retention.