Compensation Planning: Here's How to Get Employee Buy-In

In a survey on compensation trends, BambooHR found 44% of employees would stick with a job they disliked if the salary was high enough.

However, many considerations go into creating a successful compensation plan. Working relationships are a two-way street. If you expect employees to consistently give you their best work for the long haul, be sure you’re reciprocating with a holistic compensation package that’ll make them proud to work for your company, not just tolerate it.

But like leading horses to water, simply making the elements of your compensation plan available to your employees doesn’t guarantee they’ll fully understand, use, or appreciate them.

In this article, we’ll cover different elements of a compensation plan and practical ways to inform and excite your employees about all the ways your company invests in their wellbeing—making an irresistible case for your people to stay. With BambooHR, you can streamline your compensation processes by managing payroll, time tracking, and benefits all in one place.

What Is Compensation Planning?

An organization’s compensation planning process involves developing, implementing, and managing a compensation strategy that supports business goals and employee needs. The goal is to have the optimal mix of competitive base salaries, benefits, perks, and other forms of remuneration to attract and retain top talent.

A well-crafted compensation plan should reassure your employees they are being paid fairly, aligning with industry standards. HR and other company leaders need to be transparent about all the elements of the compensation plan to gain employees’ trust and commitment to the organization’s overall success.

Compensation vs. Salary: What's the Difference?

While compensation and salary are often used interchangeably, they are two different measures of your employees’ earnings. Compensation is someone’s base pay plus any fringe benefits your company offers them. On the other hand, salary refers to the money your company pays them yearly in exchange for their work.

Because compensation is a more complex calculation, it's important to understand what compensation employees really want. For example, some industries might have norms around flexible working hours, while others might be known for offering competitive health insurance plans. There's no one-size-fits-all formula—just what's right for your industry, company, and employees.

7 Most Common Types of Compensation

Types of compensation will vary depending on business size, industry, and employee needs and preferences. However, aside from salary, the most common offerings include:

• Healthcare: Medical, dental, vision, and mental wellness coverage
• Paid time off (PTO): Such as personal, sick, and vacation days
• Retirement plans: Some options include 401(a), 401(k), 403(b), and 457(b) plans
• Overtime: Time-and-a-half pay for each hour beyond a 40-hour workweek
• Equity: Partial ownership of the business, often granted to employees in the form of stock options or shares
• Commission: A percentage of sales or revenue generated by an employee
• Bonuses: Lump-sum payments given to employees as a reward for achieving specific goals

Bonus Structure Options

Since bonuses serve specific purposes, consider offering multiple types for a comprehensive compensation plan. Your business goals and your employees’ particular needs and preferences can help you determine the best structure for your company. Some options include:

• Sign-on bonuses: Given to candidates after they accept your job offer
• Spot bonuses: Spontaneous compensation to recognize exceptional performance
• Skills-based bonuses: Granted to employees for acquiring relevant new skills or certifications to encourage continuous learning
• Retention bonuses: Incentives to keep key employees with the company
• Profit-sharing bonuses: A percentage of your company’s profit that’s distributed among your employees

Compensation Examples to Know

Compensation models vary across job levels within a company. Here’s a brief overview of three different scenarios:

Employee Compensation

Regular employees receive a straightforward salary with standard benefits and perks. Here’s a breakdown example of what a project coordinator might earn:

• Base pay: $50,000 per year
• Benefits: Health insurance, retirement plan, and 21 days of PTO
• Perks: Catered lunch, flexible workspace, and access to wellness programs

Sales Compensation

Sales and employee compensation models have some overlap, but sales representatives are heavily incentivized by commission and bonuses based on revenue-generating performance. This might look like:

• Base pay: $45,000 per year
• Variable pay: 10% commission on total sales
• Bonus: Additional $3,000 for exceeding quarterly sales targets
• Benefits: Similar to regular employees
• Perks: Sales performance recognition events and company-sponsored trips for top performers in addition to the perks offered to regular employees

Executive Compensation

Executive compensation models are crafted for CEOs, CFOs, and other C-suite leaders. They’re more complex packages to get executives to be invested in your company’s long-term success and reward them for their leadership and strategic decision-making. For example, a CEO’s compensation package may include:

• Base salary: $200,000 per year
• Performance bonus: Up to 25% of their base salary based on achieving corporate performance goals
• Stock options: Granted annually, vested over three years
• Benefits: Tailored benefits, such as priority access to specialized medical professionals and executive deferred compensation plans
• Perks: Company car, executive education programs, and an executive assistant

What Does Total Compensation Include?

Total compensation is the sum of cash and non-cash rewards you give employees for their work and services. In other words, it’s the combined value of the base salary, benefits, PTO, stock options, professional development opportunities, relocation assistance, and any other incentives you offer each employee.

There are several behind-the-scenes aspects of total compensation that employees may not think about when they receive their paychecks. Provide them with informative resources and clarify any questions they may have. Doing so will allow employees to understand and take full advantage of their benefits and perks, helping to boost employee satisfaction and morale.

The many elements of a compensation plan can generally fall under three umbrellas:

Payroll

For employees to trust your compensation plan, getting paid should never be an issue. In 2023, PayrollOrg found 78% of employees were living paycheck to paycheck. Economic stressors such as inflation and mass layoffs across industries can understandably shake employees out of their comfort zones and lead them to seek out other potential employers, especially if their organization doesn’t consistently pay them on time.

Leveraging an automated payroll system with transparent pay stubs, reporting features, and other benefits frees your administrators from error-prone manual processes and ensures your employees get their hard-earned paychecks on time, every time. What’s more, consider implementing earned wage access (EWA) to give your people even greater peace of mind. In fact, 34% of respondents in PayrollOrg’s survey said they want earlier access to their wages. EWA is mutually beneficial as it allows employees to mitigate unexpected expenses and avoid costly penalties—this immediate relief helps improve overall workplace engagement and productivity.

Paid Time Off

Employees want balance in their lives—a situation where they feel they’re doing meaningful work while still having time for personal pursuits. Yet, according to Pew Research Center, about 46% of workers don’t take all their PTO. Reasons for this include fears of falling behind at work or being terminated.

To dispel these concerns, strongly encourage your employees to use the PTO they’re entitled to, and take advantage of your own PTO to model healthy work-life balance for them. Many employers even have an annual company-wide shutdown on top of their employees’ regular PTO.

Deloitte, for example, has “Collective Disconnect” days. Since everyone is off simultaneously, people don’t feel the need to constantly check their notifications while on vacation, and no one is bombarded with work the second they return to the office. This is a great way to reduce employee burnout while showing gratitude for their hard work.

Benefits

A competitive base salary alone isn’t enough to keep good talent on board. According to a Forbes Advisor survey, 40% of employers believe employees quit to find better benefits elsewhere.

When deciding on what benefits to offer, it can be helpful to think of a well-rounded program as a series of interconnected pillars supporting employees’ lives:

• Physical: Medical, dental, and vision coverage, workplace safety protocols, anti-harassment training
• Wellbeing: Mental health resources, fitness perks, employee assistance programs
• Career: Professional development, tuition reimbursement, promoting from within
• Community: Time off for volunteering, remote work policies to help parents and caregivers
• Financial: Retirement plans, financial education, health savings account (HSA) company match

Prioritize benefits that support multiple pillars in your compensation plan. For example, providing an HSA match might encourage employees to look after their physical health while improving their financial health as well.

Employees may not recognize the value of their employer-provided benefits. In many cases, this hidden compensation piece is a significant chunk of your investment in each employee. Leveraging benefits administration software that surfaces this contribution is another way to promote the total value of your compensation plan.

For instance, in BambooHR’s benefits display, each benefit highlights the amounts the employee and employer contribute, helping them understand the company's investment in their personal safety and success.

Your Compensation Plan, Your Culture

A well-executed compensation plan is so much more than finding the right numbers to put on a page. It has the potential to create a highly attractive workplace where employees know how much their employer values them. With BambooHR’s all-in-one platform, you can emphasize that value, showcasing the compensation and perks employees receive along with the total contribution you make to both their everyday workplace experiences and their ability to thrive in the future.