Compensation Structure as a tool to attract and retain talent

Introduction: In the current context of competitive environment, it makes difficult to acquire and retain the top talent. The compensation strategy is the extremely important part of overall HR Strategy to keep the organization competitive and successful. Building a fair and competitive, attractive compensation package is critical for attracting and retaining top talent. Compensation structure is influenced by organization’s industry. 

A Good compensation structure does not provoke employees to search for a job. It makes them to focus on delivering the results. It also encourages employees to talk about the organization and their success with their friends. 

Definition of Compensation:

Compensation is the total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required.

Compensation is based on:

• market research about the worth of similar jobs in the marketplace,
• employee contributions and accomplishments,
• the availability of employees with like skills in the marketplace,
• the desire of the employer to attract and retain a particular employee for the value they are perceived to add to the employment relationship, and
• the profitability of the company or the funds available in a non-profit or public sector setting, and thus, the ability of an employer to pay market-rate compensation.

What does a Compensation structure include?

Compensation is not just in terms of monetary. Compensation also includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and checks, and sales commission. Compensation can also include non-monetary perks such as a company-paid car, stock options in certain instances, company-paid housing, and other non-monetary, but taxable, income items.

It can be categorized as below:

• Base Salary: This is single largest point in the entire compensation structure and often this would be most compared point for employees and prospective employees. This can also be called as gross salary or fixed salary.

• Variable salary: A variable salary is linked with performance of an employee and organization. Sometimes, this can also be called as performance incentives or performance bonus. While the performance of an employee and organization is mostly observed in service oriented or product development companies, the incentive based salary is observed in marketing, sales, business development and in out-bound call centers.

• Reimbursements: These include components like medical expenses, internet expenses, child education expenses, telephone expenses, periodicals or magazine expenses and etc. This can vary in each organization and can vary based on the local laws prevailing in countries.

• Perks: These include laundry services, day care facilities, health check-up’s, eye check-up’s, dental check-up’s, health club memberships or gym memberships, sponsorship for higher education.

• Retirement plans: These differ in each country. In India, the retirement plans include provident fund, superannuation, and gratuity.

• Stocks: This is mostly used as a long term incentive and can include like stock options, stock purchase plans and restricted stock units.

• Welfare (Insurance): These can include right from Employee Statutory Insurance (in India) to medical insurance, personal accident insurance, term life insurance.

• Others: It can include leave and leave encashment, rewards, providing occasional gifts on birthday, wedding anniversary, new born baby, vacation plan allowances, rewards, sponsoring a vacation and etc.

The compensation structure may vary from organization to organization. There is no rule to include all the above in the compensation structure or there can be some more components to be included. Compensation structures vary based on the organization’s industry. It also varies in different countries.  Companies do engage compensation professionals or agencies to get the competitive compensation package for job levels in their organizations. 

Disclaimer: The contents of this article cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this article or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, the author will not be liable in any manner whatsoever for such loss or damage.