With 41% of the global workforce considering leaving their current
employers within the next year, an appealing and generous compensation
package can make a world of difference in attracting and retaining the right talent.
But what is a compensation package, how do you assemble one, and what
should your compensation package include to stand out from other organizations?
Let’s find out.
*MUSIC*
Hi, Neelie here. Welcome to another episode of Learning Bites. In this video, we’ll discuss
what a compensation package is, what you should include in it,
and how you can craft the right package for your organization.
To get further insights on salary range and pay equity, be sure to download our
cheat sheet on key compensation metrics using the link in the description. And don’t forget
to like our video, hit the notification button, and subscribe to our channel!
Now let’s get down to business.
A compensation package is all the rewards and benefits that
employees receive for performing the work they are hired for.
When deciding what to include in your compensation package,
you need to understand what your organization can offer and what your potential employees
value. You then need to organize this information in an easy-to-read document
that outlines all the direct and indirect rewards the employees will get.
Direct compensation (or cash) includes salary or hourly wages, retirement savings,
pension contributions, performance bonuses, or relocation bonuses.
Indirect compensation (or non-cash) can be career development,
insurance, wellness programs, or childcare.
Research from the US Bureau of Labor Statistics shows that 70.2% of the employer costs for
employee compensation are for wages and salaries, 3.5% for retirement & savings, and 3.4% for
supplemental pay. The rest is spent on indirect compensation. You can use this as a guideline
for when you are building your compensation package, but keep in mind that how much you
spend on what benefit depends on three things. Market factors: Pay attention to factors that
can affect your attractiveness as an employer, such as company size, growth stage, and location.
Employee value proposition: An appealing compensation package is an important part
of your employee value proposition. It is a great way to highlight the unique
employee experience and work culture that you offer. If you want to know more about EVP,
check out our Learning Bite on this topic. Growth opportunities: When it comes to salary,
some companies can compensate for lower wages by offering value in other ways,
such as brand-name recognition or opportunities for rapid career growth.
Here are the steps that you need to go through to build a compensation package.
Take inventory
You first need to start with taking inventory of all the current direct and indirect rewards
that you offer to existing and potential employees. Make sure the compensation is fair
because once this information is distributed,
employees will know if they are not getting what they’re entitled to.
You don’t have to reveal more confidential information of direct compensation to your
existing employees. However, this can be a good time to evaluate how well your company is doing
with keeping up with current market salary rates for employees in specific job types.
Conduct a compensation analysis to determine if any employees are overdue for a raise.
Customize the package
Indirect compensation elements are generally the same for all
employees. However, direct rewards include a few aspects that are unique to the employee,
such as their salary, how much the company contributes to benefits premiums, and how they
are reimbursed for travel, for instance. Compile your indirect compensation list
Review your indirect compensation offerings and document them. This is also a great moment to
decide whether you want to add more value to your employee indirect compensation plan. If you do,
low-cost/high-value perks are a good place to start. For example,
offering remote work arrangements can save employees on gas and commute time,
while also strengthening your talent acquisition and retention strategy,
now that 70% of global workers want flexible remote work options to stay.
Create your compensation statement
A simple total compensation statement can help you organize the direct
and indirect compensation items into sections.
Include the financial value for each reward or perk offered. This will make it easy for
you to calculate a total reward amount and for your employees to understand the
cash equivalent value of benefits and other rewards provided by the company.
A fair compensation package is a good tool not only to attract new talent but also to retain
and motivate existing employees. While it does take effort to create one that’s right for
your workforce, it’s worth it as employees can see how much you value their efforts.
Do you have more thoughts on this topic or best practices on building a compensation
package that you want to share? Feel free to put them in the comment section below.
And remember, you can get your free compensation metrics guide -- including clear instructions
on creating insightful charts in Excel -- using the link in the description below.
As always, give us a like for our video, hit the notification button, and subscribe to our channel.
Bye for now.