Types of Compensation and Benefits Packages to Employees

Tue, 09/29/2015 - 01:28 -- Umar Farooq

Following are the different types of comepnsation packages for employees.

Total Cash Compensation

Total cash compensation refers to total amount in cash an employee earns annually and includes various variable factors like the annual base salary, the annual stipend, auto allowance, education compensation etc. Now, the factor to understand here is that different salary structures have different impacts on employees. For example, firm A paying $40,000 as a base salary will have a different factor to consider over firm B with a pay structure of $35,000 base salary and $5,000 bonus. At the end, the point to be kept in mind is that designing these policies are an art, not a science. You have to understand them deeply before you can take the right decisions.

Mandatory Employee Benefits

Setting up a firm can be difficult if you do not know your mandatory benefits to be provided. These include the following:

  • Medicare and Social Security benefits to be funded through payroll taxes from both the employer and employee.
  • Compensation to be paid to workers who are unable to work because of a reason related to something on the job.
  • Unemployment insurance in the form of some form of remuneration to be paid in case an employee gets unemployed, until new employment is found.
  • Health insurance to be offered as affordable packages.
  • For private firms with more than 50 employees and all public ones 12 weeks of unpaid, job-protected leaves.

Employee stock option Packages

This is a non-standardized form of a complex benefit that is offered to certain employees in a firm. The point is to offer stock option packages to certain employees at a subsidized rate as part of the employees benefit program. It is often regarded as taking direct part in the development of the firm by an employee because the person is in some way contributing directly to the company by working. As such, it gives a sense of working hard on an individual level so that the firm rises in position, resulting in the rise of the individual stock as well. In general, a certain rule is followed for valuation of the stock. A prime example would be to take the lowest cost in a 30 day period, and offering that price. This stock option is only available to certain employees and usually after they have been associated with the firm in question for a minimum stipulated amount of time.

Variable Compensation Package

A variable package, as opposed to a fixed pay package is related to payment over and above what they would earn routinely as part of their monthly or weekly compensation. Variable compensation is a concept which works only in corporate sectors where the employees are properly motivated to follow the structure and know what they stand to gain. In general, the variable package stands at about 20% of the total pay, and really motivates the workers.

While designing any type of employee compensation and benefits, factors like setting achievable targets and properly designing the model to cover the costs is highly important.

In general, benefit and compensation plans require to be thought through before implementation. Always factor in the highest possible expense while designing the benefits model to minimize random losses from cropping up in the worst case scenario.