What Should I Include in My Employee’s Compensation Plan?
Erez Greenberg| Jun 10, 2021
Your employee compensation plan is the full package that you offer your staff for the work that they do for you. You might immediately think about the base salary that you provide, but that’s just the start. The rest of the compensation plan could be dependent on many considerations, such as your location, your legal requirements, the growth stage of your company, and your own unique culture.
Keep on reading to learn everything that you need to know about creating a compensation plan, including what you could include, what your obligations might be, and how to create a compensation plan that works for a global workforce.
What are the Common Options That Businesses Include in a Compensation Plan?
Compensation can be split into two groups, monetary compensation and non-monetary compensation. Interestingly, although traditionally economic theory has suggested that cash-based compensation is always preferred, more recent studies have shown that there is little if any difference in performance in response to monetary, non-monetary or mixed incentives. However, gender differences may play a role, with the same study showing that women prefer non-monetary compensation, which makes them feel more appreciated, while men prefer monetary compensation for the same reason.
Whatever you choose, remember that there is unlikely to be a “one size fits all.” The package that you create will be dependent on your budget, your industry, and the talent that you’re trying to attract and retain. Let’s look at the two groups in more detail.
Monetary Compensation: What Are My Options?
Start by thinking about your base salary. This will be the fixed compensation that any employees on your payroll receive in return for their work. Salaries vary between countries, and you may need to take some advice before you decide on what salary is competitive for your region. For example, the average cost of a regional sales manager in the US is $117,039 per year, while in Russia, the equivalent candidate will expect $33,334 per year.
If you’re looking to take on contractors or part time workers, you might choose to pay hourly. Most countries have set a minimum wage that can be used as a starting point for your research.
In many companies, especially in the corporate and sales world, it can be common to offer a bonus or a commission based on your performance. At a car dealership this could be paid out if you achieve a quota of sales each month, while in an office environment it would be more likely to be tied to annual goals or company KPIs.
Other monetary compensation options to consider include overtime, and whether this will be paid at a higher rate, profit sharing schemes (usually based on performance), welcome or exit bonuses (sometimes known as Golden Handshakes or Golden Goodbyes) or cost of living adjustments such as raising a salary if an employee has to move from one regional office outside the city to another where the cost of living is significantly higher.
Non-Monetary Compensation: What Are My Options?
Non-monetary compensation may have a cash value attached, but is not direct income. The test is simple – its non-monetary compensation if you can’t use it to pay for your groceries. Depending on your location, some of these may be legal requirements, while others can be used as incentives to gain new talent, to bulk up a compensation package, or to reward high-performing employees.
Healthcare coverage is a common element of a benefits package, but will vary greatly depending on the country your employees are working in. In the US, under the Affordable Care Act, employers with more than 50 full-time employees must give health insurance to 95% of their employees, or be subject to a hefty fine of $3,860 per employee per year. However, if you have a small company with less than 50 employees, healthcare is at your discretion. In Abu Dhabi, as an employer you are responsible for providing health coverage for employees as well as for their families, up to three children under 18 years of age, as well as their spouse, while in Dubai, you only need to provide healthcare for employees themselves. In the UK, there is the National Health Service that provides public healthcare for all, so although private health insurance may be seen as a perk for some employees, it is not an essential addition to a compensation plan.
Stock options are another non-cash approach that you may want to include in your compensation plan. There are a few different types of equity you could offer, from traditional stock options (ESOPs) to Restricted Stock Units (RSUs), or Employee Stock Purchase Plans (ESPPs). In some cases these can be offered as a perk to buy with pre-tax income, which can help to make employees feel that their base rate has been boosted.
Note: If you’re managing a global workforce and utilizing an Employer of Record to take on the employment on your behalf, there can be complexities involved in offering Equity, so make sure to take legal advice where necessary.
Paid time off (PTO) also varies from country to country. According to the US Travel Association, paid vacation time is the second most important benefit after health insurance. In some countries you may have a mandatory minimum requirement, while for others it will be up to you what you add to your compensation plan. For example, you may choose to offer additional days of paid vacation once employees have been with the company for a set number of years, to reward loyalty. It’s also a good idea to consider and codify your plans for additional days off work, such as sick days, or maternity and paternity leave.
6% of companies have onboarded the idea of ‘unlimited vacation days’, but this should be considered with care, as it can often do the opposite of its intention, making employees feel that they can’t take any days off as they aren’t specified.
Pension and Retirement Schemes
42% of businesses say that their pension scheme has improved their ability to recruit and retain talent in their workplace, showing how important this option is for employee compensation. 401ks and pension plans have their pros and cons, so do your due diligence here and make sure that you know what you want to offer and how you’re going to encourage employees to engage with the plan that you lay out.
Additional benefits that you might consider adding to a compensation package include gym memberships, travel stipends or passes, lunch vouchers, company cars, wellness services, shopping vouchers or holiday season gifts, employee training, or assistance with tuition and education.
Compensation Packages as Part of a Global Strategy
Remember that if you’re working across borders, a compensation strategy may need some additional thought. In fact, when you’re building out your employee compensation plan across a multinational company, things can get complicated fast.
For example, you may want to offer 25 days of holiday as part of your package. In the US, that may seem generous as there is no legal requirement to give paid time off at all. In France, 25 days is already the legal minimum, so your employees won’t see this as a benefit, just compliance. In the UK, the legal minimum is 28 days, so you will be in breach of that if you don’t make the necessary adjustments.
See what we mean about things getting complicated? Now multiply that by each of the perks or compensation items on your list, such as maternity and paternity leave, health insurance, meal vouchers and pensions, and you’ll start to see why creating a thorough global benefits strategy can require some time and effort.
Even when it comes to monetary compensation such as base pay, it can be helpful to get advice, and ask questions such as,
- Should you pay your staff based on their location, or your own?
- Should you simply use a national average for their location, or does it make more sense to ask the candidate for salary expectations and go from there?
- How can you ensure that you’re creating a compensation package that is fair for the employee, compliant with any necessary regulations, as well as reasonable against your own bottom line?
Papaya Global has a wealth of experience with global benefits and building intelligent compensation packages, whether you have an existing program that you want to amend, or if you’re currently experiencing growth and expansion to new regions where you need inside knowledge.
We can connect you to benefits providers around the globe, and our automated workforce management technology automates benefits management as part of a full payroll automation strategy. To learn more about the options involved, check out this article on the advantages of building a global benefits strategy, and then reach out to speak to one of our experts.