Derived from the Latin word Compensare, which means ‘to weigh against’. Essentially, it is the cash and non-monetary benefits you pay to your employees in exchange for their work or services.
The growth of your business lies in the employees you hire. Compensation is one of the deciding factors for attracting and retaining employees. With a fair compensation, your employees will be happy and remain loyal to you. They are more satisfied with their jobs and would be more productive in the workplace.
All of this, cumulatively, will help your business flourish!
Mainly, there are two types:
Monetary: The money paid to your employees. It could be in the form of wages, commissions, stock options, allowances, and so on.
Non-monetary: This is about providing a splendid employee experience, in the form of flexible work hours, free lunches and snack bars, employee development, and training.
We can further divide monetary compensation into:
Direct: Includes the base pay (usually fixed) in the form of hourly or daily wages and variable pay (bonuses, commissions, profit sharing and so on)
Indirect: These are benefits of monetary value, not paid in cash to employees, such as stock options, gym memberships, tuition aid, and so on.
Compensation is one of the biggest expenses for your company. It is impossible to run your company without incurring it. Here are a couple of things you need to know before you draft a fair compensation plan:
Do market research and learn how other companies are paying for the same job. Glassdoor is a great place to start!
Consider previous experience and achievements. Based on the experience and the expertise of the employee, you can offer an increased wage.
Match or increase their previous earnings.
Sometimes, benefits can outweigh the monetary compensation. Consider providing a great benefits package.
Know how much money you can allocate for compensation. It takes money to find, screen, and hire a new employee, besides the compensation. How much can you allocate for that? How does it affect your profit?
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