Compensation refers to all forms of pay and rewards received by employees for performance in their jobs, including all forms of cash, benefits, services and perks. It is important to recognize and communicate the total compensation to your employees. This should be done so that the value of what you are offering in compensation is clear and thus attracts and retains the people you need.
Compensation is given in financial rewards that are either direct or indirect:
- Wages and salaries
- Bonuses and commissions
- Stock options
- Income protection programs such as Employment Insurance, Canadian Pension Plans and Workers Compensation.
Indirect benefits are costly to you, and their value should be communicated and acknowledged when discussing the compensation you offer.
When developing your business’s total compensation program, including program design, guidelines and procedures, it is important to understand and therefore include what is important to your business and its objectives. Consider creating a combination or variety of elements in your compensation program in accordance with your employee demographic and budgetary constraints.. This means trying to include the following:
- The different elements that will comprise the total compensation your business offers to its employees
- Compensation rates that are comparable or competitive within the industry
- Compensation that is internally fair; meaning, that there is a logical increase in pay based on things like length of service, job performed, or the skills or abilities required to successfully complete the job
- Established criteria that result in a pay increase
- A means of measuring and controlling your payroll costs
- A means of measuring the success of your compensation program. For example, being able to determine how competitive your compensation is in relation to similar businesses, and whether it accomplishes targeted outcomes of retention, performance and motivation.
THE OBJECTIVE OF COMPENSATION:
- Attract employees
- Meet legal requirements
- Retain valued employees
- Motivate performance
- Motivate personal growth
- Sustain high morale
It is essential to realize the importance of compensation and the flexibility you and your business have in creating a more customized compensation package. This in turn will promote the attraction, retention and development of quality people.