17 The Total Compensation Plan
Total employee compensation is more than the sum of wages and benefits. It comprises three parts:
- Base wage and other monetary compensation
- Recognition and non-monetary compensation
Combined, these elements create a total package that keeps quality staff on board and happy, plus it ensures internal pay equity and external competitiveness, as well as fairness and adherence to laws and regulations. Your total compensation package is one of your most valuable employee retention tools. Each part of the total compensation package is discussed below.
Base wage and other monetary compensation
The base wage is the fixed and regular wage/salary paid to your employees for work they perform for you. The base wage can be paid at an hourly or annual rate, usually depending on the position (i.e., more senior positions are normally paid an annual salary, while entry-level and junior positions are often paid an hourly rate). Pay rates are assigned to jobs based on the responsibilities and requirements of the position, as well as the skills and competencies required of the individual doing the job.
To determine base pay, you need to have a thorough understanding of the job, so you should start the process by conducting a job analysis and then drafting a job description prior to hiring, as discussed in Part Two. Accurate job analyses and descriptions are important in determining things such as qualifications, job content, workload, training needs, salary ranges, and an employee’s perception of the job versus the job of another employee working for you.
There are many different methods used to decide rates of pay. The goal is to determine the worth of each job in relation to the other jobs in your organization, and then design an appropriate pay structure for each. In general, the factors that determine the base pay of jobs within any method include:
- Level of responsibility
- Working conditions
It is important to ensure internal equity within an organization as everyone wants to feel they are being paid fairly in relation to their co-workers. This is done by reviewing the job analysis and the job description. By comparing one job to another, looking at responsibility, qualifications, experience, working conditions, and tasks, you can separate jobs into different pay levels.
It is also important to identify the value of the same jobs in the external marketplace to ensure that wages are set competitively and are aligned with industry norms, making adjustments if required.
Once all the internal and external information is collected and jobs are graded, ranges for wages can then be determined. Typically, you should have a minimum, mid-point, and maximum rate within each range. You should also have a corresponding policy for the initial placement of employees, and how and why they would move through the range.
In addition to fixed wages your employee’s compensation package may include the following monetary benefits:
- Signing bonuses are a one-time cash payment provided when candidates accept job offers. Signing bonuses can be used to recruit employees who are critical to your operation.
- Retention bonuses are a one-time cash payment provided when an employee has worked for a specified period of time (e.g., one year). Retention bonuses can be offered to key positions to keep employees for a certain length of time.
- Gratuities/tips are cash payments provided by customers for services provided. Tips may be earned depending on the occupation/position of worker and the type of business that operate. Some tourism businesses (e.g., hotels, restaurants) have sharing policies for gratuities. Keep in mind that tips are not considered part of minimum wage, although some provinces (including B.C.) have different minimum wages for employees who normally receive gratuities as a part of their job.
- Performance-based bonus or commissions are additional compensation paid as a reward for achieving specific goals or predetermined targets.
Bonuses can also be used as incentives for individual performance or to motivate the staff to work together to achieve the overall goals of the business. Although bonus systems have traditionally been used mostly for managerial employees, it is now common to see this type of compensation at all levels within an organization. If you use a bonus program, ensure that the rules are fair and the bonuses are considered competitive within the industry.
Benefits include compensation other than pay for work performed that are provided to employees and funded in whole or in part by the employer (e.g., health benefits, dental coverage, one free meal per work shift). Benefits are an integral part of an employee’s overall compensation package. Employers should be aware that the traditional “one-size-fits-all” approach to employee benefits no longer provides a competitive edge in terms of attracting and retaining top-performing employees or increasing productivity, reducing absenteeism and improving overall employee engagement. With the mix of generations within the workforce today, from baby boomers to millennials, companies of all sizes must be more creative than ever with their benefit plans to ensure they appeal to a wide employee demographic.
As an employer, you are required to provide certain benefits by law (e.g., vacation, maternity/parental leave, statutory holidays), while others are discretionary. You need to evaluate the established benefit norms for your industry, as well as other competitive industries, before selecting among various benefit plans. As benefits and plans can be expensive to offer and administer, consider using a good broker or benefits consultant to ensure you are getting the service and coverage that is most appropriate to the size and scope of your business. Additionally, benefits consultants can help to educate your employees about your benefit plan (e.g., through group presentations).
Typical benefits include:
- Provincial medical services plan (MSP) premiums payment
- Group extended health care
- Group dental insurance
- Group life insurance
- Group disability plans
- Extra vacation days
- Free/discounted meals
- Employee discounts
- Professional development
- Employee assistance programs
Recognition and non-monetary benefits
Finding the right mix to include in your total compensation package is complicated and should focus on what is important to your employees. Consider what will motivate them not only to stay with you, but to perform in a way that helps your business to succeed. Offering non-monetary benefits and recognition programs is an excellent way to complement your total compensation package in such a way that you have an easier time attracting and retaining top employees, often with minimal financial impact to your overall bottom line.
Today’s diverse employee base puts a high value on life-work balance, advancement and development opportunities, and recognition. Options in this area are endless and employers can be creative in developing programs and incentives that are in keeping with the vision, mission, culture, and operational strategy of the organization.
Some non-cash benefits you may consider include:
- Flexible work schedules
- Social activities (annual golf tournament, children’s Christmas party, movie nights)
- Transit passes
- Free or discounted meals
- Spot rewards (gift certificates, store discounts)
- Employee and family pricing for hotel rooms
- Service recognition awards
- Health and wellness allowances
As labour market conditions change and generations of workers enter and leave the workforce, there will continue to be changes in what should be included in an effective total compensation package. You need to understand what your employees really want and need in order to come to work for you, and subsequently remain motivated and engaged. Taking the time to develop a total compensation package that fits your organization and its employees will go a long way toward attracting, motivating, and retaining staff.