In today’s competitive business environment, you need the right people to propel your organisation forward. However, finding the right talent is not enough; you also need to provide the right remuneration to retain them. 

Employee compensation indicates the combination of basic salary and additional payments such as bonuses, benefits, and perks for the employees' job performance. Every organisation follows specific strategies and industry standards to decide the pay structure. 

So, as a business owner, you need to know the major components of employee salary, its importance, and recent trends. This knowledge will help you devise a framework that suits your firm and keeps your employees happy.

Key Components of Employee Compensation

Here are the key components of the employee compensation –

• Basic pay or salary: This is an employee's fixed payment amount for his/her regular work. It is determined based on the employee's skill, experience, responsibilities, education, etc. 
• Benefits: These compensations come with non-wage formats such as paid time off, healthcare coverage, retirement perks, etc. 
• Bonuses: Bonuses are additional, one-time employee performance payments. They are based on individual or group performance or other criteria specific to the company. 
• Perks: Perks are another non-wage payment type that doesn't depend on the employee performance. Rather than these, there are facilities like free meals, gym memberships, and other benefits. 
• Equity compensation: When the company's ownership or granting of stock options comes as a form of compensation, it can be referred to as equity compensation. Generally, employees at managerial or executive levels can obtain these compensations. 

Importance of Fair Pay and Employee Compensation 

A transparent salary and compensation structure encourages an employee to perform better and impacts his/her overall well-being. Every worker expects a respectable remuneration from their employers. Besides financial security, proper compensation affects employee performance, satisfaction, and motivation. Thus, an organisation with a fair pay and comprehensive compensation structure gets the best talents, enhances productivity, and has a better ROI. 

Employee Compensation Trends

Here are some employee compensation trends that you should know about –

• Skill-Based Pay

With AI redefining job roles, skill-based payment is an emerging compensation trend. Also, as the job market has a shortage of skilled and talented workers, employers are shifting towards paying for job-relevant skills. Thus, they promote continuous learning and upskilling opportunities. 

According to a study by Mercer, 63% of organisations now prefer this approach, which compensates employees based on their skills, contributions, and competencies, encouraging them to upskill and adapt to this volatile job market. 

• Variable Pay 

Now, employers realise that variable compensation encourages employees to do their best. Variable payment includes bonuses, profits, and commissions. This approach also enhances the flexibility of the compensation system. Research from Gallagher shows that 22%- 25% of employers prefer variable pay for low-level employees, and 32%- 35% of employers opt for variable pay for executive and managerial roles. 

• Personalised Benefits

The job market has two sides. First, there is a multicultural and multigenerational workforce that doesn't fit all employers' requirements. Second, the employee's needs and demands are ever-evolving factors. Thus, employers should consider their workforce's unique needs. Based on these, they can provide personalised compensation. However, only a few employers believe in this approach and provide customised benefits for their workers. 

• Payment Transparency

Payment transparency is a new addition to employee compensation trends. This trend provokes organisations to create more transparent policies that directly disclose the primary pay ranges, promotion criteria, and compensation structures. This helps build trust between the organisation and its workforce. Furthermore, now, employees ask the organisations to clarify the salary structure as per the industry norm before onboarding. This helps them understand how transparent the company's payment strategy has been. Also, in this way, they can identify any payment anomalies. 

• Shift Towards Remote Work

Due to the rise of remote and hybrid jobs, companies have refined their patent strategies. Now, employers realise the importance of fair pay. Thus, they pay based on the remote workers' living costs for their locations/regions. This avoids any kind of compensation issue. Moreover, many companies provide stipends for flexible working hours and home-office equipment. 

• Technology-Driven Solutions

Another major trend is integrating technology-driven solutions to make informed decisions for compensation management. Now, most companies have adopted automation technology for human resource-related tasks. The automation tools help them to track real-time data related to compensation, salary adjustment, bonuses, and more. This way, technology plays a crucial role in efficiently handling compensation management strategies. 

What Is The Total Reward Strategy?

The total reward strategy improves organisational business by developing a motivated workforce. This workforce aims to attract success through excellence and a consistent growth mentality. For this, they will drive a reward known as the organisation's total reward strategy. The core components of total rewards include compensation (base and variable), well-being, benefits, employee development, and recognition.  

Conclusion

The job market is competitive, and there is a huge need for talented workers. However, companies must construct a well-designed employee compensation structure to hire the best talent. A perfect compensation strategy requires in-depth knowledge of the elements of compensation and recent market trends. It helps the organization make an informed decision and ensures its employees remain satisfied and motivated to bring the best results for the firm.

To learn more about this topic, you must take an advanced HR analytics course. So, enrol in the HRMA course of Imarticus Learning today and get more insights.