Tailoring the Compensation Package

by | September 3, 2012

Compensation is a tricky subject that can be highly emotional for both employer and employee.  Employees are looking for to what their peers are making in both salary and “perks.”  Employers are looking at how to keep great talent and the costs of doing so.  Employers look at a combination of salary, cash bonuses, and benefits such as vacation, 401K, medical, dental and other traditional “perks.” However, I think now more than ever employers have an opportunity to show off the intangible benefits of their companies as part of their compensation package along with the traditional compensation elements.

More and more companies are offering flexible and virtual work arrangements to help employees balance work and home demands.  Even the simple recognition that coming into work during off-peak hours could enhance productivity because more core hours are spent working rather than sitting in traffic.  Similarly, allowing employees the flexibility to participate in their kids’ school or sports activities, even if they infringe a bit on the traditional work schedule, creates a lot of goodwill among employees and enhances the goodwill and reputation of the employer.  When there’s alignment between employees’ needs and the perks offered, the employer can create loyalty and longevity among its employees, which reduces overall costs of employment.

Again, these intangible perks do not stand alone but are paired with traditional compensation which must also be competitive in the industry.   Overall compensation will combine salary and bonuses along with perks matched to the employee.  With more senior employees, employers often tie company performance along with individual performance in bonus structures.  These bonuses can be set up as a percentage of salary, a percentage of company profits or some combination.  Companies often also consider offering ownership incentives as either stock purchase plans or stock option plans to align employees’ actions with results of the company.   Stock issuance can be a complex proposition and isn’t for everyone, so it’s important to review these ideas with the company’s professional team before venturing forward.

When a small business is thinking about appropriate compensation, the important considerations are to 1) offer competitive overall packages for the specific position; 2) tailor the package, where appropriate, for the individual employee’s needs; and 3) be sure to include your professional team (i.e. your business lawyer, accountant, financial planner) in planning as they will provide insights as to tax and incentive structures that will best accomplish your goals.