Presenting a Compelling Compensation Package

Money matters. But it isn't everything, even in compensation.

While wages are an essential part of the employment relationship, understanding how all the elements of a compensation package go together is how you design a compensation strategy that attracts and retains great people.

What is a Total Compensation Package?

There are two main types of compensation, direct and indirect. Most people think about them as wages and benefits.

Direct compensation includes base pay, merit pay, incentives, and bonuses.

Indirect compensation includes employee benefits like health, life, and disability insurance, retirement funds, paid time off, and any other type of employee support or perk.

In coming up with a compensation strategy, it's essential to get input and advice from a compensation expert and often an employment attorney to understand the financial and legal implications of your choices. Your friendly compensation expert can also help you understand what will help attract candidates and how compensation can improve your retention.

Questions to Ask in Putting Together a Compelling Compensation Package

Coming up with a compelling compensation package is all about finding the right balance between resources, mission and strategy, and staying competitive in your market.

• What are you spending now? Does that allocation make sense for your strategy and priorities going forward?
• Have you considered pay equity? Do you have a gender pay gap or other pay equity issues (there will be issues)? If so, get a plan in place and make it a priority. This is a compliance issue that will not only save you discrimination claims, it will also help create a more diverse and inclusive workplace.
• Is your company growing (or not), and what are your near and longer term projections? As you consider choices for your compensation package, think through the impact over time in costs, contract terms, stability, and the ability for employees to choose things that are important to them.
• How do compensation choices affect labor costs over time? What compensation package choices will compound (like raises to base pay). What compensation package choices are a percentage of overall costs of benefits (like health care) or direct compensation (like bonuses)?
• What are the wage and hour requirements in each state where you have employees? Each state and some cities have their own laws and regulations about paid sick leave, parental leave, overtime, incentive plans and many factors that affect compensation. Make sure you factor those into your compensation package analysis.
• What are the administrative and timing considerations for your compensation package choices? When do you want to pay incentive and other bonuses? What are the dates for retirement contributions? Will you have a cranky and burnt out HR and Finance departments when they have to deal with multiple issues on top of open enrollment and year-end merit bonuses. Figure out the timing of the work involved to help your people get it all done well.
• What are the tax consequences of your compensation package to the organization and employees? Are there administrative costs that go with certain choices, like additional employee tax forms related to an HSA or retirement fund?
• What benefits in your compensation package get used most? The pet insurance may not have been a big deal before 2020, but it may be now. Look at what people use and don't use. Think about whether it's important anyway, like health insurance, or whether something like reimbursement for spin bike or rowing subscriptions might be better than paying for a gym membership.
• What have people asked for in a compensation package? There will be some good ideas that you can probably do.
• Can you give people compensation package options to improve diversity? Maybe not everyone wants a retirement plan. They might prefer help with student loans. Would reimbursing commuting costs or offering flexible work hours improve the diversity of the people you can recruit?
• Is there something unique about your company or location that would suggest a great benefit or perk for your compensation package? Is your organization close to a state or national park? What about an annual park pass? Is your area known for a special food or produce? Are there local businesses you would like to support? Make a variety of local gift certificates benefits options.

What Should Be Included in a Total Compensation Package?

Your organization's compensation philosophy and strategy will dictate which types of rewards you include in your total compensation package. Here are specific types of compensation to consider.

Base pay - do the research to know whether your base pay is competitive for your market and industry.
Bonuses - bonuses can be a great way to encourage productivity and show appreciation for great work. Common bonuses include:

• year-end bonus to reward performance
• retention bonus to encourage people to stay
• performance or merit bonus tied to achieving specific goals
• referral bonus when an employee refers someone you hire
• a one-time signing bonus when you hire someone to sweeten the deal

Commissions - this is most common with sales teams. If you decide to offer commissions, be sure to have a written commission agreement that sets out when commissions are earned, when they are paid, and what happens when employees leave.
Equity - stock and stock options give employees a direct financial incentive in the success of the company. Vesting schedules can help people stick around. It's important for employees to understand the tax consequences of these types of benefits.
Insurance - Health insurance is the big one. If possible, offer a variety of plans and coverage because people need and want coverage choices at different stages of their lives.  Other forms of insurance include dental and vision expenses, life insurance, short and long term disability, critical illness and cancer insurance that cover extra expenses and treatment, and pet insurance.
Retirement funds - Get professional help to set this up because it's complicated (and not very fun unless you know what you're doing). Decide who will and can contribute, whether the employer will match all or part of employee contributions, and how employer contributions will vest. Having a generous plan and vesting over time can help with employee retention.
Time Off - time off is either paid or unpaid. Both sick leave and vacation time are kinds of paid leave, but they can vest differently and can be treated differently on termination. Get professional advice about the pros and cons of PTO versus sick & vacation leave.

Other kinds of time off include firm holidays, parental leave, family medical leave, leave for military service, voting, jury duty, volunteer first responders, crime victims, and bereavement leave. Many of these may be mandated by state or federal law.

Then there are sabbaticals and other personal leave, which are usually discretionary and could cover almost anything.

Wellness, commute benefits, and other perks - Offering reimbursements for gym membership, exercise equipment or classes is a great way to encourage people to move, especially if they sit a lot at work. Commute benefits can make a big difference to employees and there are sometimes programs that give government subsidies to employers who reimburse the costs of using public transportation.

Putting together a compelling total compensation package can take time and work, but it's an important opportunity to make the organization stand out and show employees you understand what they need and want.

We have created a total compensation package example to serve as a starting template for HR teams.