Developing Compensation Structures for Your Employees

The combination of money and benefits that are provided by owners to their employees in exchange for work is known as compensation. As an owner, developing an employee compensation structure will require you to balance three key factors:

  • what compensation can the business afford to provide
  • what employees deserve and need based on experience and qualifications
  • what comparable businesses are providing to their employees

The payment model for employees varies partially on the type of work being done. For positions that will require the employee to spend a set number of hours working or to produce a set number of items, the payment is usually provided as a wage. A wage is a payment based on the time worked (usually in hours) or the number of items produced.

taikun start, employee compensation and benefits, employee compensation planFor positions where the hours and schedule may vary, a salary structure is more typical. A salary is a set amount that is paid to employees on a weekly, bimonthly or monthly basis. As the owner you may also opt to include stock in the company as a part of the compensation structure, which will further motivate your employees by giving them ownership in the company. This directly will impact the take home pay of the employee, as their income will increase or decrease depending on the performance of the company.

Other Forms of Employee Compensation

Outside of money, there are other forms of compensation to consider for your business. Benefits are the compensation that are outside of salary or wages that still impact the employee. Some benefits have become standard offerings. These standard benefits that you will want to consider are health insurance, retirement plans and paid time off. Other benefits, such as family and medical leave, are required by law.

One challenge smaller companies face is their inability to match the benefits offerings of larger, more established companies. If you feel this is the case for your business, consider emphasizing additional benefits that will increase the desirability factor of your company to a potential employee. These additional benefits can include on-site day care, great location, flexible schedules, increased potential for advancement and a superior company culture. Understanding what your potential employees expect will give you a competitive edge when it comes to attracting the best workforce for your business. Thinking through these factors will help you to create the best employee compensation structure once you have hired and onboarded employees to your business.

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