10 Types of Compensation to Attract and Retain Employees

People choose to work for many reasons. While personal satisfaction and the need to accomplish something are primary drivers, most employees work to improve their financial picture. In a recent Gallup poll of 13,085 U.S. employees, 64% of respondents named an “increase in income or benefits” as a critical factor in taking a new job.¹

As the poll showed, compensation is a significant determinant of whether a person accepts and stays in a position. Structuring a total compensation package assists the company in keeping employee satisfaction high and seats filled.

However, employee compensation is more than their hourly wage. There are numerous ways companies can pay their employees. Some compensation types are every bit as valuable as the dollar amount on their paychecks. Let’s look at 10 types of compensation available to employers, and how each can be leveraged to improve employee retention.

Why it’s important to understand the different types of compensation

When HR recognizes there’s more than 1 way to compensate employees, they gain an advantage. By putting together multiple ways of being paid, they are more likely to create a solid compensation plan that’s attractive to top talent. This plan might include direct compensation, which is money in the person’s pocket. It may also incorporate indirect compensation, which is pay that isn’t paid directly to the employee but still has plenty of monetary value.

A good compensation strategy motivates employees to work hard, maintain company loyalty, and function as productive team members long-term.

Different types of compensation for employees

As mentioned above, there are many types of compensation. Companies frequently blend financial compensation and non-monetary compensation elements to create an attractive, complete package.

Here are 10 types of compensation organizations can use to create a solid strategy.

Base pay

This pay is the set amount an employee will make in their position. It may be an hourly wage or a weekly, monthly, or annual salary. A position’s base pay is a direct form of compensation based on the education, experience, and demands of the job. A base salary and hourly wages are typically the foundation of most compensation packages.

Overtime pay

Standards set by the Fair Labor Standards Act outline limits on a normal workweek. Employees paid hourly may qualify for overtime pay if they work extra hours.

Bonuses

Many employers offer bonuses for different aspects of an employee’s job. If they met goals or exceeded set expectations they may receive a monetary reward, sometimes called merit pay, for their accomplishments. This type of compensation may also be given at the end of the year as a holiday bonus. Or it may be awarded on the employee’s work anniversary as a longevity bonus.

Commissions

Salespeople are the main employees who receive commissions. This form of direct compensation is usually based on the amount of sales an employee closes for the company. Employers may add commissions to salespeople’s annual salaries, or the employee may be paid “straight commission.” Since a salesperson’s performance determines their commission, it’s considered variable pay.

Benefits

A benefits package is another vital component of total compensation. Benefits refer to nonfinancial compensation like employer-sponsored health insurance, paid leave, company-paid gym memberships, and more. Hopeful candidates look closely at the benefits of any job opportunity.

Stock options

Employees with stock options can purchase set amounts of stock in the company for a specific price. Over time, these purchases can add up to a significant amount of wealth for the employee.

Profit sharing

When a company does well, it may choose to disburse some of the profits to its employees. This payment may come in a check or direct deposit, or the funds may go into a profit sharing retirement account. In some years employees may receive higher amounts, while in other, lean years there may not be any at all.

Tuition assistance

Pursuing educational opportunities may be a high priority for many team members. A degree or advanced certificate can boost their career opportunities and help them earn higher wages. Tuition assistance is a company-sponsored way for employees to return to school without shouldering the entire financial burden themselves.

Workers’ compensation insurance

Workers’ compensation covers medical expenses and income loss incurred due to work-related illness or injury. For example, injured workers are entitled to compensation from their place of employment. An eligible employee receives pay while they recover, or indefinitely if they’re permanently disabled.

Not all states require the business owner to carry workers’ compensation insurance. But for employers, employees, and even contract workers who end up needing it, this coverage makes a significant difference.

Mental health support

Different benefits emerge every year, and this is a newish one. With stress and burnout so rampant, some companies have begun addressing their employees’ mental health with nontraditional benefits. Mental health days off, in-office massages, meditation rooms, and yoga classes are a few ways companies are helping their employees stay mentally strong.

The types of compensation can make or break the package’s success

Employers and HR professionals must consider every compensation type when building competitive payment packages for employees. The best plan may be a mix of direct pay, traditional employee benefits, and nontraditional fringe benefits. Practicing thoughtful compensation management attracts high-quality talent, shows employees they’re appreciated, and cultivates long-term loyalty in the team.

For more on employee compensation and other aspects of HR and business management, visit Workest by Zenefits daily.

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