About Effective Compensation & Benefits Systems

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Employee benefits and compensation are becoming increasingly complex and expensive, especially for small businesses. Employers should carefully consider both the company's financial requirements and the employees' needs when designing compensation and benefits plans. Employee benefits normally include health insurance, vacation time, disability coverage and retirement plans. Compensation includes a set wage or motivational salary programs such as commission, bonuses and merit income.


Increasingly, more employees are comparing one company to another not only in terms of salary but also benefits. Some people, in fact, are more interested in the benefits they receive than income due to family needs or aspects of their lifestyle, such as health care coverage and financial planning. If you own a business, your employee compensation and benefits package may just be the reason someone does or does not accept your job offer. To make your company competitive and attract highly qualified candidates, you need to offer a desirable benefits package. Make this an important part of your planning process, if you want to recruit, hire and retain top employees.

Pay Plans

Develop a standard-base pay plan that consists of fixed salary ranges for each category of employees in your company. The range will have a minimum and maximum salary to be paid depending on work experience and abilities. To determine the correct pay, conduct a study of similar size businesses in your same industry. These are your competitors who are fishing out of the same employee pool. Once you have defined your base pay, set up a merit pay plan that rewards your employees for specific performance measures. Determine how often your employees will be reviewed and the parameters that will be compared from one evaluation to another.


Bonuses are above and beyond an employee's salary and are based on achievement. All employees should be able to receive an incentive. If you reward some people and not others, you will only limit or even ruin your company's chance for success. If everyone is going after the same end goal---making their organization the best it can be---you have a better chance of continually seeing positive results. Also, do not limit the amount of the bonus, since that will only hold back your employees or make them feel it is time to sit back and rest. Give them the opportunity, and they will continue to produce.



An incentive-based pay structure is usually the most productive for your sales team. A strictly salaried salesperson may not be as gung-ho, and in the long run you will sell less. If income is specifically related to how well a person performs, then that individual will do the best job possible. If you hired the right people to begin with, you will have a group of salespeople who love the challenge. They will go as far as you let them. On the other hand, you do not want to pay only a commission, because the salespeople may lose sight of the customers' ultimate needs. You need to have a good balance between base pay and sales commissions.


Employee benefits should not be used to reward a person's performance as a bonus does. Benefits come with the job and in the most part will remain stable over time.

Determine which benefits your employees desire the most. Do not follow another company's benefit plan, since each organization has a different set of people with their own specific interests and needs. Spend time getting to know your employees and what they would like to see in the benefits package. If you have a younger employee base, for example, these people may want entirely different benefits than a company that is made up of baby boomers. This is one of the reasons flexible benefit plans are becoming more popular. A company can let each person put together his own plan.