Effective and Decent Compensation Plans

Effective Compensation Plans
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Effective Compensation Plans
Employee compensation refers to the benefits received in exchange for the service provided to the employer. It is the combination of salaries, wages and benefits received by employees in exchange for a job done. In addition to salary and wages, compensation involves other components such as bonus payments, stock options and incentives. Others include retirement contributions, health care coverage and short-term disability insurance. A complete compensation package normally comprises most of these components. According to Butrica & Karamcheva (2015), employees always have high expectations of the elements in their compensation packages. Sometimes, they demand certain benefits that are costly if the business is small. Regardless of the size and cost of the business, establishing a fair and reasonable compensation package is effective for attracting new employees and retaining the current ones.
One of the components of effective compensation plans is salary and wages. It is regarded as the largest component of a compensation package. According to Frye (2014), the salary needs to be aligned to individuals' skills and experience. That is to say, an employee with the highest skills and experience needs to receive the highest salary. Subsequent increment should be based on employees' performance, values and their contribution to the company. Another component is bonus. Clinch (2011) asserted that employee bonus is one way of providing performance incentives. Bonuses are usually paid out in a lump sum at the end of the year. The formal way of providing this benefit is through profit-sharing plans. Bonuses motivate and retain the employees. Most workers prefer companies that acknowledge their efforts. This acknowledgement can be done by giving employees bonuses for the work done.
Another component is long-term incentives provided by stock options. Stock options can also help retain competent employees through the start-up phase of the organization. Another component is health insurance. Frye (2014) noted that employer-sponsored health insurance is relatively standard among medium-sized companies. It benefits most employees. According to Sarmad et al. (2016), an employer-sponsored plan saves employee money and gives them peace of mind because they are sure that they cannot be denied coverage irrespective of the existing health problems. Providing insurance to employees implies that the employer cares about the health of the workers and that of their families. Health insurance is also a measure of productivity.
Another component of the compensation is retirement plans. Employers need to offer a 401 (k) plans because they are relatively simple to manage and are less costly than the traditional pension plans (Butrica & Karamcheva, 2015). Some employees prefer these plans because they control their contributions and investments. Time off and flexible schedules are other compensation plans. They include holidays, personal days and sick days. An employer who cannot provide competitive salaries can reduce the gap by providing more time o...