How To Create An Employee Compensation Strategy

The purpose of this blog post is to provide an overview of how to create an employee compensation strategy.

We’ll cover topics such as the types of compensation, how to determine salary and wages, the role of bonuses, and more. By the end of this post, you should understand how to create a compensation plan that will attract and retain top talent.

The purpose of a compensation plan

A compensation plan’s purpose is to give employees an incentive to work hard and achieve success. This can be done in various ways, such as by providing benefits, pay rates, and bonuses. The key is to find the right combination that will motivate employees while also being practical for the business.

How do you attract and retain top talent?

One important factor is offering competitive compensation packages that are aligned with the company’s values and goals. Additionally, a good compensation plan should have a positive company culture. This means that employees feel appreciated and engaged in their work, which leads to increased productivity and satisfaction.

What is the company culture like?

Another important consideration when designing a compensation plan is the company’s culture. For example, does the company reward individual achievement or team success? Does it have strict rules about vacation time or dress code? These types of details can make all the difference in employee morale and motivation.

What type of benefits do you offer?

When designing your compensation package, consider what benefits would be valuable to your employees. Many companies offer 401k plans, health insurance, paid leave policies, etc. The idea behind these benefits is to give employees something tangible to gain from working at your business.

Do you have a retirement plan?

Another benefit that many businesses offer their employees is a retirement plan. This saves workers money for future financial needs (such as children’s college tuition). It also gives workers peace of mind knowing they won’t need to worry about retiring on low-income levels due to a lack of savings options. Finally, a retirement plan can boost morale among older workers who may feel insecure about their job prospects later in life.

Do you offer overtime pay?

In addition to regular wages, many businesses offer overtime pay as an incentive for working extra hours or during busy periods. Overtime pay can add up over time, so it’s important that employers don’t forget this benefit!

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Do you offer executive pay grades?

Executive pay grades are another way companies reward top performers with higher salaries and bonuses. This system helps ensure that management remains confident in its ability to compensate high-performing individuals fairly. While not mandatory for every business, executive pay grades can help create an overall positive image for your organisation among potential recruits and customers.

Types of compensation

When it comes to employee compensation, businesses have a lot of options available to them. This includes salary, wages, bonuses, overtime, and retirement plan contributions. Each type of compensation has its own benefits and drawbacks that should be considered when creating a strategy.

Additionally, it’s essential to keep in mind the company’s budget constraints when deciding how much compensation for offering employees. Ultimately, the goal is to attract and retain top talent while staying within the budget the business owner or upper management sets.


This is the most common type of compensation offered to employees. A salary is typically based on experience, skills, and qualifications. Salaries can vary significantly depending on a person’s location and profession. The pay may also be supplemented with benefits such as health insurance, retirement plans, and sick days.


Wages are usually paid in cash or in kind (such as shares of stock). Wages can be adjusted frequently based on changes in market conditions or the company’s profitability. Usually, wages are increased when job responsibilities or qualifications increase, and they may be decreased when job responsibilities or qualifications decrease.


Are payments given to employees as an incentive for meeting specific goals or performing well above average? Bonuses can be relatively small (on the order of 10 percent) or large (up to 100 percent of an employee’s salary). Bonuses tend to be granted only after a long period of consistently good performance by the employee.


Refers to work hours beyond normal (i.e., 8 am-5 pm). Overtime is generally paid at a higher rate than regular rates because it is considered a more equitable treatment for an employee who must put in extra effort during busy times.

Overtime should not become a habit – overtime should only be used as an exceptional measure when all other options have been exhausted. However, production still needs to continue at a high level. Overtime should not exceed 40 hours per week unless upper management approves through written policy guidelines.

How to determine salary and wages

One of the most important aspects of running a successful business is ensuring that you compensate your employees adequately. To do this, it is crucial to understand the difference between salary and wages, as well as the various types of compensation plans that are available. Additionally, employee benefits play an important role in compensation, and it is essential to understand how they work to maximise their impact.

When determining what to pay your employees, take into account their skills and experience—additionally, factor in the market conditions at present, as well as projected trends for the future. Once you have determined an appropriate salary level, communicate this information clearly and consistently throughout the hiring process.

It can be difficult to retain top talent when salaries are not commensurate with those offered by competitors. To combat this challenge, consider offering additional benefits such as paid vacation time or 401k contributions. Additionally, creating a positive working environment can go a long way in attracting and retaining talented individuals.

The role of bonuses in compensation

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The role of bonuses in compensation

Bonuses have been a common form of employee compensation for centuries, and they continue to be popular today. In this section, we’ll briefly overview bonuses and their various types. We’ll also discuss how bonuses can fit into your company’s overall compensation strategy, as well as the advantages and disadvantages of using them.

Finally, we’ll address when might be the best time to offer bonuses (spur motivation, show appreciation, attract/retain top talent, etc.), based on specific business needs.

Types of bonuses

  • Discretionary – is based on an employee’s individual performance
  • Fixed –  are set in advance and cannot be changed.
  • Hybrid bonuses –  combine elements of both discretionary and fixed payouts.

The main advantage of using a bonus system is that it can provide employees with a financial incentive to achieve specific goals or objectives.

The disadvantages of using bonuses include the potential for misuse (bribes, kickbacks, etc.), as well as headaches/concerns associated with administering them correctly (tracking progress, issuing payments on time, etc.).

Additionally, offering too many small bonuses can lead to dissatisfaction (as people feel they’re not appreciated) and decreased motivation (since people don’t see the big picture). On the other hand, providing too few bonuses could also result in employees feeling unmotivated or undervalued.

Retirement plans and employee compensation

Retirement plans are an essential part of any company’s compensation strategy. They play an important role in attracting and retaining top talent, as well as helping to create a positive company culture. In this section, we will discuss the purpose of different types of employee compensation, as well as how to attract and retain top talent with your compensation strategy.

Additionally, we will discuss the benefits of offering a retirement plan and how employee compensation can impact company culture.

Some companies choose to offer traditional retirement plans, which allow employees to save for their future on a tax-deferred basis. Other companies may choose to offer company stock options or restricted stock units (RSUs). In either case, offering employees financial benefits is an important part of creating a positive company culture.

There are many benefits associated with offering employee compensation in the form of retirement plans and RSUs. First and foremost, these types of plans help attract and retain top talent. By providing employees with tangible rewards for working hard, companies create a strong sense of community within their workplace.

Additionally, retirement plans can provide significant income potential down the road – should an employee decide to retire early. Offering RSUs can also act as guaranteed payouts if an employee leaves your company before their vesting period has been completed. All of these factors make staff retention essential for any successful business operation.

In addition to retaining key personnel, offering retirement plans and RSUs can positively impact company culture. Offering employees financial stability and security is often viewed as one of the most important aspects of a good work-life balance.

A comfortable retirement plan can help prevent high-level staffers from leaving for greener pastures early in their careers, fostering loyalty and commitment toward your organisation.

Pay grades and total compensation packages

When it comes to paying grades and total compensation packages, businesses have a lot of flexibility in how they can offer these to their employees. There are various options that businesses can choose from, and the type of package offered can be tailored to the business’s specific needs.

For example, a business may want to offer employees different pay grades based on their experience or skill set. Or, they may want to create a total compensation package that includes benefits such as health insurance or retirement savings plans.

In either case, offering a competitive compensation plan can help to attract and retain top talent. Not only does this benefit the business in terms of increased productivity and efficiency, but it also helps to increase employee morale and motivation.

There are many different types of pay grades that businesses can offer their employees. These include:

  • Basic – consists of hourly wages
  • Non-qualified and Qualified – include bonuses and other benefits.
  • Executive levels – typically involve higher hourly wages and additional benefits such as 401(k) plans or health insurance coverage.

The type of total compensation package that a business offers can also be tailored to the needs of the specific employee group. For example, some companies may offer retirement savings plans in addition to other benefit packages.

Other businesses may choose to focus exclusively on offering health insurance options to their employees. In either case, offering a diverse range of total compensation options can help to attract and retain top talent for the company.

By providing competitive pay scales and comprehensive benefits packages, businesses can create a dynamic environment where employees are motivated to contribute their best work efforts. This in turn helps to increase productivity and efficiency on the part of the employee, as well as improve company morale overall.

In Summary

There is no one-size-fits-all solution for employee compensation, but the tips and information in this blog post will help you create a strategy that works for your business. Keep in mind the different types of compensation available, as well as the company’s budget constraints.

Also, consider offering additional benefits such as paid vacation time or 401k contributions. Creating a positive working environment can also go a long way in attracting and retaining top talent. By following these guidelines, you’ll be on your way to designing a compensation plan that motivates employees and helps your business succeed.

About the Author

Erika Rykun is a book nerd and editor at Booklyst. When she’s not busy reading books, she writes about them.

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