Varieties of employee compensation

3 min read · 10 years ago


Money is only one way to compensate your employees for a job well done.

While there are few, if any, employees who will work for free, there are different ways to compensate employees for their labor. Particularly for the small business, having a variety of compensation options at your disposal will help you creatively keep your employees around.

Wages and Salary

The most obvious form of compensation is wages and salary. These are hourly and weekly payments in cash for the amount of time spent at work. When an employee thinks of “compensation” this is most likely the first thing that comes to mind. To attract top-notch talent your wages and salary must be comparable with those of the rest of the field, particularly larger businesses.

Health Insurance

In many Western countries the government provides all citizens health care. In the United States, it is far more common for employees to receive health care from their employers. Providing your employees with health insurance is a must for companies wishing to attract the top talent in the field. Further, your health insurance plan must be as good or better than your competitors. Look around at different health care plans and find one that provides comprehensive coverage and a number of doctors to choose from. Balance this against having a plan with premiums that your employees can afford without breaking the bank.

Life Insurance

Similar to health insurance, many employees receive life insurance as part of a group plan through their employer. Particularly if you run a business with a high rate of on-the-job casualties, such as construction, you will want to provide your employees with the opportunity to buy life insurance.

Retirement Plans

Pensions are largely a thing of the past, in part because individual retirement accounts (IRAs) and 401(k) plans are more flexible and attractive to employees. All workers dream of the day that they no longer have to work and can spend the rest of their days relaxing. Helping your employees to save for retirement through retirement plans and matching funds is an attractive form of compensation.

Stocks and Profit Sharing

One way to give your employees a sense of ownership is to actually make them owners. Stock options are a form of deferred compensation that come with attractive tax benefits, as well as giving your employees a stake in the company. Profit sharing motivates employees to work harder because the better the company does, the bigger the paycheck. These are forms of compensation that come at little cost to the employer up front.

Bonuses and Commission

Providing your employees with clear expectations and bonuses for exceeding them is a way to motivate employees to work harder. Commissions for sales employees are essential for motivation in this field. Bonuses can be applied to any field. Come up with clear metrics for employees to meet and reward them for surpassing these goals.

Training and Development

Employees can become restless and frustrated when they feel that their career development has become arrested. Providing opportunities for training and development can make employees feel that you have an investment in their future with your company. Sending employees to a place like Hawaii for training is a sure way to win loyalty.

Paid Time Off

One way to increase employee compensation without incurring addition expenses is with extra time off. Paid holidays and vacations give employees a way to rest up and re-enegize themselves for when they come back.

Telecommuting and Flex Time

While not ideal for all businesses, allowing employees to work at times convenient for them is a powerful form of free employee compensation. Letting employees work from home in their pajamas is a way to compensate employees who work well with little or no supervision.

Keeping Your Employees

The right balance of monetary and non-monetary compensation are the key to retaining top-quality talent. While increased salary and wages are a noticeable form of compensation, there are other ways that smaller companies with less money to throw around can make their employees feel appreciated.