AIHR

Compensation and Benefits

The Complete Guide

Compensation and benefits (also known as comp & ben) refer to the rewards an organization provides to its employees in exchange for their labor. An attractive compensation and benefits plan can help you attract and retain top talent and keep them happy, motivated, and engaged at work. Therefore, compensation and benefits are a key part of Human Resource Management. 

In this guide, you’ll find everything you need to know about compensation and benefits.

Compensation and Benefits

What is compensation and benefits?

Compensation and benefits refers to the monetary and non-monetary rewards an employee receives from their employer in exchange for their work. Together, they make up a total compensation package, which may include salary, bonuses, insurance, retirement contributions, and various other perks aimed at attracting, motivating, and retaining employees.

Overall compensation is the top factor that job seekers consider when accepting a new job. At the same time, compensation, benefits, and related taxes can account for up to 70% of business costs, highlighting the importance of getting comp & ben right at your company.

While salary is important, two jobs that offer the same salary may have vastly different total compensation, making one a better financial proposition overall than the other. That’s why offering the right package is crucial to attracting and retaining the right candidates for your organization. 

For example, perks like bonuses, stock options, 401k matches, pension plans, paid time off, and even free lunches are all attractive to different people and make up an essential part of the compensation and benefits package.

Different countries place more focus on different types of benefits. For example, in the United States, health insurance makes up a key component of benefits. Who your employer is, determines your health care options–even down to which doctors you can see and which medications are covered.

On the other hand, in Europe, there is often a focus on more social benefits, including parental leave, severance pay, and termination notice. In countries like France and Finland, it is not uncommon for employers to provide restaurant vouchers that cover part of the employee’s lunch.

A definition of both compensation and benefits and the meaning they have together.

What is the difference between compensation and benefits?

The main difference between compensation and benefits is that compensation is a financial form of remuneration, while benefits are non-financial.

Compensation is the money an employee receives in exchange for their labor, which could be a salary, wages, commission, and bonuses. This money is subject to taxation. HR uses compensation to attract top talent and boost retention rates.

Benefits are extra perks or rewards that an organization provides to an employee, and they may have a financial value, but the employee doesn’t receive any cash directly. This includes health insurance, stock options, gym memberships, flexible working hours, “summer Fridays,” learning and development opportunities, and retirement savings plans. Some benefits are exempt from taxation.

HR utilizes benefits to motivate employees, increase engagement and performance, and accommodate the different needs that different candidates and team members have.

For example, an employee in their 40s is likely to value a pension plan or parental leave more than a recent graduate would. These desires may change depending on personal life circumstances as well as changes in the economy.


Types of compensation

Let’s explore the different types of direct and indirect compensation in more detail and explore what monetary compensation entails.

Direct compensation 

Direct compensation is the financial compensation, or cash, given from the employer to the employee for their services.

Base pay

Base pay (also known as basic salary or base salary) refers to the fixed financial amount that an organization pays its employees in exchange for the services they perform. This amount is negotiated during the hiring process and agreed upon before the employment contract begins. It is typically an annual or monthly salary or an hourly rate.

Overtime pay

Overtime pay is the amount of extra pay an employee receives for working extra hours on top of their scheduled contract hours.

Every company should establish a set of normal working hours to clarify overtime. For example, if the normal working week hours are 30, then an employee who works 40 hours is eligible for overtime pay for those additional 10 hours. 

All employees covered by The Fair Labor Standards Act (FLSA) – nonexempt employees – who work over 40 hours per week are eligible for overtime pay. The Federal Overtime law states that employers must compensate workers at least time and a half for the overtime worked.

Variable compensation

Variable compensation (also known as variable pay) is compensation given to an employee that is based on performance. The aim of variable compensation is to reward and encourage a specific behavior or result.

These pay programs are typically implemented with sales teams and are often given in the form of bonuses and commissions. For example, if an individual employee achieves a professional milestone, an entire team meets a goal, or the entire company meets a specific target, then those people are rewarded accordingly.

These performance goals will be pre-determined and outlined with a target date. There may also be a range of payouts, which is based on how close the results are to the original target. 

Sales compensation

A sales compensation strategy is often used to motivate a sales team to achieve its goals. It will typically comprise a base salary and be topped up with commissions, bonuses, and other performance-based incentives, all of which are tailored to the role and company in question.

In this form of direct compensation, the base salary will often be minimal, while the commissions and bonuses are lucrative. That is to incentivize employees to achieve certain performance goals and contribute to the success of the company.

Indirect compensation 

Indirect compensation refers to monetary and non-monetary incentives given to an employee to increase their overall engagement and motivation at work. This type of compensation still has a financial value, but employees don’t receive it in cash form.

Here are some of the common forms of indirect compensation. Note that there’s an overlap between what’s considered indirect compensation and what’s regarded as benefits.

Equity

The employee is offered equity in the company via shares of stock or the option to buy shares. This is a common part of compensation packages within startups where cash is low, and they desire to reward employees who are the first through the door.

When the company succeeds, the employee succeeds too, which incentivizes them to work to achieve the company’s goals. 

A graph describing a total compensation package, which is a combination of direct and indirect forms of compensation.

Stock options

An employee is entitled to purchase a number of shares in the company at a fixed price after working for the company for a set period (typically three to five years). They won’t have any ownership of the company.

Microsoft’s innovative compensation strategy emphasizes equity and long-term benefits, aligning employee and company success. By offering stock-based compensation and long-term rewards like retirement plans, Microsoft fosters employee loyalty and commitment.

This approach helps them build a dedicated workforce motivated to drive sustainable company growth.

Benefits to protect employees

Employees often offer a wide range of benefits that are meant to protect employees’ future, including health insurance, life insurance, pet insurance, pension plans, and more. 

Health insurance is a big consideration for people working in countries without access to free healthcare, such as the US. However, private healthcare can still be a huge incentive to people living in countries with access to free healthcare because it can mean reduced waiting times and access to more specialist consultants.

According to research by Harvard Business Review, 88% of people surveyed said that private health insurance would be a factor when considering a job offer. 

Non-monetary incentives

Non-monetary perks include experiential rewards, time to work on self-determined projects, additional time off, flexible working, extra opportunities for development, wellness programs, restaurant vouchers, free snacks or meals at the office, and branded merchandise.

The new generation of workers care more about the benefits offered in a compensation package than ever before, and companies are listening.

For example, Atlassian prioritizes its employee’s health and wellbeing and offers care plans to manage and improve mental health. Beauty Pie gives employees a full day off on their birthday, in addition to mental health days.

Facebook provides four months of parental leave for parents within the first year of birth or adoption and reimbursement for egg-freezing and adoption fees. 

Incentives like these can go a long way to improving the happiness and wellbeing of your employees in and out of the workplace. However, it’s essential that you offer a variety of incentives that your ideal candidate (now and in the future) is looking for.

Total compensation

A total compensation package is the combination of direct and indirect forms of compensation, which is then presented to an employee as part of their contract. It’s an important part of a company’s talent acquisition strategy. Benefits are often also considered part of the total compensation package.

Every new hire should receive a clear report of their compensation package and know who to contact if they have any questions. Splitting direct and indirect compensation into two columns can make it easier for your employees to understand what they will receive and are entitled to.

The law requires all companies to provide a basic set of compensation to employees, but an attractive compensation package will help you stand out from the crowd and win the war on talent, as well as retain your best employees. 

Types of employee benefits

There are many different types of employee benefits that improve the lives of your staff in different ways. Some of the benefits are legally required, while others are at the discretion of the employer.

Employee Benefits: Legally Required and Discretionary Benefits

Total rewards platform Benify has identified four distinct categories, which are:

  • Benefits at work
  • Benefits for health
  • Benefits for financial security
  • Lifestyle benefits

Let’s take a closer look at these benefit categories.

Benefits at work

Flexible working hours 

Flexible working hours mean that employees are able to have some control over their schedule and work at times most convenient for them. This is especially important for parents, pet owners and carers.

According to a survey by Future Forum, 95% of respondents care more about flexible hours than remote work, while a report by Adobe found that 84% of enterprise employees would like some flexibility.

On top of this, HBR’s survey found more flexible hours to be second on the list of the most desirable employee benefits. 

Paid time off

Paid time off is usually given to salaried employees and termed as annual leave. This is typically in the range of two to four weeks each year, which the employee can use as and when they like. 

Some companies, such as Airbnb, have introduced an unlimited PTO benefit, which gives employees much more flexibility to manage their own leave as long as they continue to meet their responsibilities.

The added benefit of this to the organization is that they don’t have to pay back employees for any unused paid time off when they leave the organization, which can be costly. 

Leave

There are many other types of leave that an organization can offer its employees, including sick leave, parental leave, public holidays, bereavement leave, study leave, adverse weather leave, volunteer time off, and more.

Sometimes, this leave will be paid, and other times, it won’t, depending on the company policy.

Skills development

Another benefit that employers can offer is funding for extra tuition or student loans, as well as budgeting for online courses, workshops, and certification programs that help employees learn new skills and progress in their careers. 

Food & beverages

Offering free or discounted food and beverages at work is a popular voluntary benefit, particularly in Europe, and can go a long way in improving the happiness of your staff.

Whether you offer snacks or free tea and coffee in the break room, subsidized meals, or vouchers that cover your employee’s food while at work, this can really set you apart from your competition. Plus, offering healthy snacks, food, and plenty of water machines or free bottles of water will keep your employees energized and productive throughout the day. 

Gifts & activities

Whether it’s a team bonding experience, an evening out, company swag, recognition rewards, or even a birthday gift, these small perks all contribute to a happy and positive work environment. For example, Zappos recognizes employees achievements by rewarding them with “Zollars,” which can be spent in store, at the movies, or used to make a donation to charity. 

Benefits for health

Healthcare

This includes common healthcare such as health insurance, dental plans, and vision plans. But some companies go the extra mile by offering more specialized services such as massage therapy, physiotherapy, acupuncture, fertility treatment, and more. 

Apple’s major campuses provide all employees with access to an on-site doctor, nurse, dietician, and acupuncturist. 

Wellness incentives

As a society, we are starting to acknowledge that health does not just relate to the physical body but also the emotional, mental, and spiritual body. Therefore, many companies are taking a more holistic approach to health and offering more encompassing wellness incentives for employees. This includes therapy sessions, a care plan for each employee, sleep pods to take a quick power nap at work, and more.

Career platform Zippia compiled numerous statistics and reports that effective employee wellness programs reduce absenteeism by 14-19%, and over 85% of employees in these programs intend to stay in their jobs. 

4 Types of employee benefits: Benefits at work, benefits for health, benefits for financial security & lifestyle benefits.

Benefits for financial security

Retirement and pension plans

Participating in a sponsored retirement plan with their employer often feels easier to people than trying to save and invest on their own. In Morgan Stanley at Work’s Workplace Financial Benefits Study, 93% of employees consider retirement planning assistance a priority when choosing an organization to work for.

In the US, the 401(k) is the most common employer-sponsored pension plan, which enables employees to invest a percentage of their earnings, tax-free, into a fund of their choosing. Employers will often match this amount up to a certain figure to further incentivize employees to prepare for the future.

Insurances

Aside from health insurance, life insurance can be a great perk for employees with dependents. It usually pays out a large one-time sum if the employee passes away.

Meanwhile, short and long-term disability insurance provides a percentage of a worker’s salary to them if they are sick or injured and unable to work.

Financial growth benefits

This includes stock options, stock ownership, and profit-sharing plans, all of which can boost productivity and inspire employees to work harder and achieve their goals. 

Personal finance benefits

Some companies now offer financial literacy programs to employees, which provide online resources, tools, and coaching to help them better manage their money and improve their financial situation.

Plus, the Earned Wage Access (EWA) allows workers to access some of their earned wages before payday if they’re ever short on funds. 

Lifestyle benefits

Remote work

Remote work means that employees have the freedom to work from wherever they choose, either all the time or for a set number of days per week or per year.

Since the pandemic, many organizations have tried and tested remote and hybrid working models, with some opting to keep remote work and others choosing to revert back to all employees being in the office at all times.

Those who do offer remote options will often provide an allowance toward setting up an office at home or using a co-working space. 

Commuter benefits

Commuter benefits include providing a company vehicle, subsidizing public transportation or car park fees, and running a carpooling scheme.

Work-life balance

This includes perks that help employees achieve better work-life balance. For example, providing on-site childcare, on-site grocery deliveries, dry cleaning services, and more.

These benefits help workers effectively manage other areas of their lives, building a stronger relationship between employees and their organization.

The family-friendly benefits of the outdoor clothing retailer Patagonia have had a notable impact on both the employees and the company. Paid parental leave and on-site childcare in two business locations has helped them attract and promote more women into management positions, increase employee retention, and boost loyalty and trust. What’s more, they’ve been able to recoup as much as 91% of the costs of these programs.

Compensation and benefits examples

Here are some examples of compensation and benefits packages for different types of employees.

Example 1: A full-time hourly employee in retail

CompensationBenefits
Base pay: $12 per hour (up to 40 hours per week)
Overtime pay: $18 per hour for any overtime worked
3 weeks of paid leave per year for full-time employees
$200 clothing allowance
15% discount on everything in store and online, and 25% discount after 12 months of employment

Example 2: A salaried employee in a large business

CompensationBenefits
Base pay: $48,000 per year (contracted as 35 working hours per week), paid in monthly installments of $4,00028 days paid leave
Paid sick leave 
Health insurance with Kaiser Permanente
Retirement plan (the employee can contribute up to 10% off their salary each month into a retirement savings account, and the company will match this contribution)
Parental leave of 8 weeks
50% parking discount (at specific car parks)
Subsidized food and refreshments in the office canteen

Example 3: a sales employee in a SaaS company

CompensationBenefits
Base pay: $12,000 per year (contracted as 35 working hours per week), paid in monthly installments of $1,000. 
Sales commission: A one-off commission of $250 for every customer the employee signs up for the company’s services
Referral bonus: A one-off bonus of $250 for every candidate the employee refers to the company who becomes an employee
Company phone and laptop
Transport allowance (up to $200/month)
Flexible working options (work from home and choose your own hours)
50% discount on a monthly gym membership (at Planet Fitness)

Example 4: A part-time employee in a restaurant

CompensationBenefits
Base pay: $18 per hour
Premium pay on holidays and call-backs: $24 per hour
Flexible scheduling
Earned wage access through DailyPay
50% discount on all food for you, family and friends in the restaurant (valid Mon – Thu only)
25% discount card to use at participating restaurants (Mon – Thu before 5pm only)

Why is compensation and benefits important?

Creating the right compensation and benefits package for each role in your organization matters for many reasons. Let’s explore some of the key advantages below. 

Attracting top talent

Top talent will always be in demand. Therefore, they are likely to know their value and negotiate with companies for a compensation and benefits package that matches this.

Creating a desirable mix of direct and indirect compensation options and relevant benefits can help you bring top talent into your organization, give you a competitive edge, and meet your organizational goals.

Employee motivation & job satisfaction

An undesirable compensation and benefits package that is below average in the industry will leave employees feeling dissatisfied, unappreciated, and unmotivated at work. This can lead to increased absenteeism and turnover and negatively affect team morale.

If your organization isn’t in a position to improve its direct compensation offering, think about the other non-monetary perks you can offer employees to motivate them to perform. 

Increased loyalty and engagement

When employees feel valued and appreciated, they are likely to stay loyal to the company, buy into its mission, and be more engaged at work.

Benefits like flexible working options, child care, health and wellness memberships, and product discounts can all help to ensure your staff feel more valued and more committed to the company’s mission.

6 Reasons why compensation and benefits it's important for your organization.

Improved productivity

A HubSpot report showed that lost productivity costs US businesses $1.8 trillion every year.

The right compensation and benefits plan rewards employees for their effort and success at work, which can encourage and motivate them to be more efficient and productive. This includes sales-based commission, performance-related bonuses, and team rewards. 

Retention

Reports suggest that the average cost of replacing an employee is between one to two times the employee’s annual salary, and it’s even more for C-suite positions. Aside from the financial costs, turnover can lead to a loss in productivity, morale, and institutional knowledge. Compensation and benefits packages can also help to retain your existing employees, reduce recruitment costs, and prevent any significant absences in the company.

Fairness & adhering to market standards

Aside from national and local laws that stipulate the minimum compensation a worker is entitled to, compensation and benefits help you treat employees fairly in exchange for their services and ensure the company adheres to market standards. 


What is HR’s role in compensation and benefits?

Compensation and benefits commonly fall under the responsibility of the Human Resources department.

In a small company, an HR generalist would handle all aspects of this process, while in a large company, there would be a dedicated compensation and benefits department.

Let’s explore some of HR’s main responsibilities when it comes to compensation and benefits.

Formulating compensation philosophy

A compensation philosophy (also known as a pay philosophy) is a document created by HR, compensation and benefits experts, and business leaders, which provides guidance on compensation choices. This includes guidance on compensation structures and packages, benefits programs, and how to motivate and retain top talent in your organization.

A strong compensation philosophy helps companies present themselves as attractive employers and bring in skilled talent.

A fair and honest pay philosophy will also help motivate current employees to go above and beyond their duties and remain in the business. It also ensures that everyone receives equal pay for equal work and that the organization remains compliant with ever-changing laws and regulations around compensation.

In addition, it shows employees that you are committed to equity, inclusion, and generously rewarding employees for great work.

A definition of compensation philosophy and a guidance on compensation choices.

Buffer, a social media management platform, has adopted a transparent compensation philosophy guided by principles of simplicity and fairness. This structured, straightforward approach aims to minimize bias in compensation decisions and address the gender wage gap.

The company has an open salary policy where all salaries are shared to foster trust and accountability.

Their salary benchmarks are set at the 50th percentile of San Francisco market data. Further, Buffer adjusts salaries based on the cost of living in four different geographical areas compared to San Francisco.

Determining compensation strategy

HR also plays a role in determining the practical approach the company takes toward compensation and benefits for employees. For example, rules for base salary and employee benefits, the company’s position compared to the market, and more.

The executive management team will typically own the compensation strategy because of the large influence it has on the entire company’s budget. HR and compensation and benefits specialists will provide their knowledge and experience to shape the strategy.

Your compensation strategy plays a key role in shaping the culture of your organization and promoting its values. So, your core values must be reflected in your compensation strategy, otherwise, employees will end up confused and dissatisfied.

For instance, if collaboration is one of your core values, offering bonuses for individual performance might not be the best idea. Conversely, if you have a hierarchical culture, you might want to consider tiering benefits based on job level.

HR must come together with the leadership team and discuss what behaviors represent your ideal culture, and then determine your compensation strategy with these in mind.

Creating an employee benefits strategy

Creating an environment and structure that people love to work in and feel appreciated and valued is how to attract, retain, and nurture your employees. Having a winning employee benefits strategy in place is integral to this and a part of HR’s job.

Offering the right employee benefits to the right people helps you attract amazing talent to your business and gain a competitive edge. It will also help you hold on to your best employees, saving you money in recruitment costs and boosting productivity and team morale.

It’s essential to align the employee benefits strategy with the long-term strategy of the business. Think about what you want to achieve from your benefits program and how you will measure success.

Learn about the needs and wants of your ideal employee so that you can offer a benefits package that appeals to them. Use data to track which benefits are being used and which ones are unpopular and pivot accordingly.

Addressing compensation issues

If you ignore compensation issues at your organization, it will quickly lead to unhappy, unmotivated, disengaged employees, which in turn affects productivity and morale and leads to increased turnover. This is why HR and/or the compensation and benefits team must be committed to uncovering and addressing any compensation issues in the business. 

Common compensation issues businesses need to handle include internal equity, external equity, perceived equity, executive compensation, geographical differentials, rewarding niche jobs, and salary growth.

There are many steps you can take to address these. For example:

  • Find out where you sit in the current market by using resources like Payscale and Glassdoor.
  • Conduct a pay equity analysis each year to pinpoint any disparities.
  • Track metrics to measure how effective your compensation practices and policies are and whether they need improving.
Common compensation issues to handle include: Internal and external equity, executive compensation, salary growth & more.

Involvement in compensation planning 

HR is also responsible for compensation planning, which requires taking a strategic approach to balancing the financial interests of the company and its goals with attracting, retaining, developing, and rewarding employees.

A compensation plan will include how employees are paid, your bonus structure, information on eligibility for raises, and more.

Analyzing your internal compensation data will show you where you currently are, and from here, you can align your planning with the goals of the business.

Creating a salary structure with salary ranges is key to effective compensation planning. It enables you to manage compensation expenses more effectively and pay your employees equitably. Within your salary ranges, you can add salary grades, which help you distinguish between different levels of experience in the same role.

You can track salaries and compensation manually using Excel. Growing organizations will benefit from a dedicated compensation management tool that can also help monitor bonuses and benefits use and provide real-time data.

A 7 step process for a compensation planning.

Compensation metrics

Compensation metrics are essential to successfully analyzing and managing compensation. A compensation analysis enables you to measure and analyze your current compensation practices, address pay equity issues, and create a fair compensation structure that will help you attract and retain employees.

Here are some of the key compensation metrics you may want to track. 

Salary range penetration

Salary range penetration helps HR and compensation experts compare pay across the entire organization and know the position of a salary in its pay band.

It is similar to the compa ratio metric but looks at the salary compared to the entire pay range as opposed to only the midpoint of the salary range. 

Compa ratio

Compa ratio, also known as comparative ratio, is one of the most helpful and commonly used compensation metrics. It compares an individual’s or group’s salary with the midpoint of a defined salary range. Simply said, this metric shows you whether an employee, or group of employees, are paid below or above market rates.

A low compa ratio could mean a risk of losing your best employees to organizations offering higher compensation rates. A high compa ratio may indicate you’re overpaying employees, which could negatively impact your bottom line.

An overview of 7 compensation metrics: salary range penetration, compa ratio, range minimum and maximum, and more.

Range spread

A range spread refers to the range of pay used to compensate an employee for their services.

Each position will have a different range, with a minimum, maximum, and mid-range pay rate. 

These rates are set by analyzing market pay rates and using external benchmarking.

For example, a sales advisor position may have a minimum annual salary of $30,000, a midpoint of $40,000, and a maximum of $50,000. A salary range spread helps to inform job postings, create compensation targets, establish pay equity, ensure clear communication with employees, and plan salary increases and promotions. 

Range maximum

Range maximum refers to the highest rate an employer is willing to pay someone for a particular role. This is usually displayed as a fixed amount or a range on the top of the maximum.

An employee would usually be paid the range maximum because they’re a high-potential employee displaying behaviors and skills required to move into critical roles. Another reason could be that they have spent a long time within the business and become a valuable asset, and to lose them would have a detrimental effect on the business. 

Compensation and benefits terms you should know

There are many specialized terms used within the comp & ben sector, but here are some of the key compensation and benefits terms you should know as an HR professional or compensation expert. 

  • Total rewards: The total rewards strategy is a package of all the benefits, incentives, perks, processes, programs, and more that an employer offers to its employees. A total rewards statement (TRS) is a document that demonstrates the value an organization offers to the employee through the working relationship.
  • Gross wages: Gross wages, also known as gross pay, is the taxable compensation earned by an employee before tax and other deductions are removed from the paycheck. This can include overtime, tips, commissions, and other bonus payments. 
  • Net pay: Net pay, also known as take-home pay, is the income an employee receives after voluntary or mandatory benefits and taxes are deducted. 
  • Fixed pay: Fixed pay (also known as fixed salary) is the fixed amount paid to an employee at the end of each payroll cycle, regardless of the hours worked or level of work completed. This is typically a monthly salary but may also include contributions like health insurance, a retirement fund, or other allowances, depending on the policy of the company. 
  • Differential pay: Differential pay is the compensation paid to an employee for working beyond their contracted hours or for taking on additional work. This helps employers motivate employees to take on undesirable shifts or tasks and compensate them fairly for it. 
  • Biweekly pay: Biweekly pay is a payment method where employees receive their compensation every two weeks (14 days), which results in approximately 26 payouts each year. 
  • Monthly pay period: A monthly pay period refers to when a company pays employees once each month (typically on the last day or last Friday of the month), which results in 12 paychecks each year.
  • Merit increase: Merit increase is the increase in salary awarded to an employee for good performance or some other form of achievement. Sometimes this is given on an annual basis, while other times it’s given in direct response to performance. 
  • Broadbanding: Broadbanding consolidates a range of similar job classifications into one single pay band. It typically has a much broader range of compensation levels than a regular salary structure, which reduces the number of pay grades. 
  • Gainsharing: Gainsharing is where employees receive a financial share of the profit a company gains due to the performance improvement an employee helped to design. This encourages employees to work harder and improve their performance, which also leads to increased profitability for the company. 
  • Total target cash: Total target cash (TTC) is the total value of all cash-based compensation an employee receives if they achieve the results expected of them. This includes their annual base salary and target performance-based bonus.
  • Pay mix: Pay mix is the ratio of fixed pay to variable pay in the compensation an employee receives. This is often used by sales teams to motivate employees to meet or exceed targets. For example, a 70:30 pay mix means that 70% of the salary is fixed, while 30% is variable.
An overview of compensation and benefits terms HR professionals should know.

Compensation and benefits jobs

Larger organizations often have specialists or even dedicated departments to manage compensation and benefits.

Let’s explore some of the most common roles within the compensation and benefits sector and what each job entails, along with average salary expectations.

Compensation and benefits manager

A compensation and benefits manager is typically responsible for managing other members of the compensation and benefits team in a larger business.

They ensure that the company has fair compensation across the board. This includes salaries, bonuses, stock options, pensions, and all other benefits.

They’re in charge of:

  • Determining market rates for each position
  • Building pay bands, evaluating jobs
  • Monitoring internal and external equity analytics
  • Building bonus structures
  • Creating retirement plans
  • Negotiating health insurance plans, and
  • Managing any relevant software needed to perform these tasks.

According to Glassdoor, the average salary for a compensation and benefits manager in the US is $111,000 per year. 

Compensation analyst

A compensation analyst helps the company develop a fair compensation structure and attract and retain top talent by analyzing data.

For example, they will research job requirements and competitor’s compensation and benefit packages to ensure the organization remains compliant and competitive. They will regularly review employees’ compensation packages and ensure they are fair and within the means of the company.

Compensation analysts will also help determine when to give raises. They need to stay on top of emerging trends that will shape compensation and recommend how to respond to these trends.

Skills and knowledge, including business acumen, data literacy, people analytics, qualitative and quantitative research methods, and a strong understanding of HR policies, are all important for this role, which is typically only found in larger organizations.

Glassdoor reports that the average salary for a compensation analyst in the US is $90,000 per year.

The benefits coordinator roles & responsibilities are benefits administration & enrollment, cost analysis, and more.

Benefits coordinator

A benefits coordinator manages and administers employee benefits, including health insurance, retirement plans, wellness programs, life insurance, and more.

They also:

  • Handle any changes or updates in employee benefits that are affected by life events like marriage, childbirth, or serious illness
  • Maintain an open line of communication with vendors
  • Monitor all payroll deductions, and
  • Update benefit packages according to the needs of employees.

Benefits coordinators are often responsible for giving presentations or creating a guide that helps employees understand their benefits packages, walks them through the options and the enrollment process, and answers any questions employees may have.

The benefits coordinator must ensure the company’s benefits program remains compliant with policies and laws and that accurate records are kept for all employees.

According to Glassdoor, the average salary for a benefits coordinator in the US is $53,000 per year.

Compensation and benefits certification

If you’re an HR professional who wants to learn more about the compensation and benefits sector, you might consider taking an online course and obtaining a certification.

With more and more companies facing significant talent shortages, attracting and retaining top talent is only becoming increasingly important, and the right compensation strategy is integral to this.

AIHR’s Compensation & Benefits Certificate Program will help you understand the process of shaping a total rewards strategy, discover how sales compensation impacts the business, how to define the sales pay structure, dive into job evaluation and grading, and interpret data to identify pay gaps and draft an action plan towards pay equity inclusion.

You will immerse yourself in 27.5 hours of self-paced learning across 12 key modules and test your knowledge with competency assessments.

Upon enrollment, you’ll also gain access to our HR resource library with hundreds of off-the-shelf templates, playbooks, and tools to use in your job, and our worldwide community where you can network with industry peers. You’ll have 12 months to complete the program so that you can fit your studies around your current job or other responsibilities.


FAQs

What is the compensation of employees?

Compensation refers to the money an employee receives for their services, which can consist of a salary, wages, commission, and bonuses.

What would be an example of an employee’s compensation and benefits?

An example of an employee’s compensation and benefits would be a $30,000 per year salary, a health insurance plan, 3 weeks of paid annual leave, a free gym membership, and access to free snacks and meals in the office canteen. Together, this compensation and benefits make up the total compensation package that an employee receives.

How do employers determine compensation and benefits?

Employers determine compensation and benefits by first ensuring they are compliant with any company policies or laws. Then, they must find out what the market is offering employees for similar roles, as well as what their ideal candidate is looking for.

This must also be weighed against the available budget the company has to spend. Data can help businesses track their most popular benefits over time so that they can make adjustments as needed.

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