When most people hear the word “compensation,” they automatically think of a paycheck. While money is certainly part of the compensation equation, most people’s total compensation is comprised of a number of different elements, some of which aren’t necessarily tangible.
According to the BLS, in 2016, wages and salaries accounted for 68.4% of employees’ compensation, while benefits made up the remaining 31.6%. In other words, benefits often comprise a far greater portion of pay than most people realize.
As an employer, it’s important to know exactly what’s going into your employees’ total compensation packages so you can explain their aggregate benefits, should you ever be asked. Arming yourself with this knowledge can also help answer questions about compensation and market competitiveness.
Here’s a look at some common — and commonly overlooked — forms of employee compensation:
Base Pay & Overtime Pay
These two are obvious, but they certainly deserve their spot on this list. Base pay is often a person’s reason for getting up and going to work every day. They rely on that paycheck to pay for basic living expenses. Overtime often factors into monetary compensation as well, particularly in certain industries. Warehouse workers, for example, boost their highest national average earnings from $17.62 to $26.48 when overtime comes into the picture, according to Payscale.com.
Most often found in sales positions, commissions can make up the majority of some employees’ salaries. Naturally, depending on the industry, commission percentages can vary quite widely. Even within the same industry, commissions can have an enormous differential depending on the region.
Realtors are a great example of commission-driven professionals which vary by region. The national average has lingered right around 5% for the last several years, but if the agent is in a high-sales region such as Denver, 5% can mean ample amounts of cash. Conversely, quiet towns in the Midwest, which don’t see much turnover, may not deliver much in terms of total commission dollars.
Commission percentages may also vary based on the industry, the employee’s experience level or the goals of the company. For example, many entry-level sales employees have a lower commission percentage which grows as they advance. Early in their career, they may draw more salary from their base pay, but this ratio changes with experience.
In short, commissions are often the most variable of all the employee compensation types.
Bonuses & Merit Pay
Employees who do a great job throughout the year amy be compensated for their efforts. Annual reviews tend to come with the anticipation of an increase in pay as well. Currently, the national average merit increase is around 3%, but it’s important to be mindful of your employees’ performances so you can adjust this number accordingly. Being frugal with your best people will lead them to your competitors’ doors.
Setting up a bonus program which outlines goals for the employee will drive them to help work on the priorities you’ve set for them. Similar to commissions, bonus program vary greatly among industry and experience level. It’s important to make sure that the parameters around your bonus program is outlined and communicated at the beginning of each plan year.
Stock options are a great way to compensation employees and encourage employees to do work towards the company’s goals, since they’re actually shareholders in the business. The more successful the company, the greater the value of the options.
Traveling for work can offer benefits that employees don’t often think of.. Allowing employees to personally bank their hotel points and airline miles definitely has its perks. People who travel for work often, such as sales people and auditors, can end up adding a lot towards their compensation.