This article discusses how leave loading works, the different types of leave loading, and how to calculate it.

Contents
What is leave loading?
HR’s role in leave loading
Payroll’s role in leave loading
How to calculate leave loading
How to determine leave loading entitlements
Annual leave loading vs. holiday leave loading
Does leave loading apply on termination?
Superannuation on leave loading
FAQ

What is leave loading?

Leave loading is an additional payment for employees on annual leave. It is typically calculated as a percentage of the base wage, usually 17.5%, though some awards may specify a different rate. Its goal is to make up for the income lost from overtime or penalty rates. Not every employee is eligible, as it depends on the specific employment agreement.

The implications of leave loading for HR and payroll teams include key considerations impacting employee entitlements, payroll calculations, compliance, and overall business costs.

Businesses must adhere to the Fair Work Act and relevant industrial agreements. Incorrect applications can breach workplace laws, lead to audits, or result in penalties from the Fair Work Ombudsman (FWO).

HR’s role in leave loading

HR must ensure agreements specify whether leave loading applies and at what rate, aligning with relevant awards or enterprise agreements. Misinterpreting entitlements can lead to disputes or legal non-compliance. Here’s a breakdown of HR’s role in leave loading:

• Determining eligibility: Check if the employee’s award, agreement, or contract includes leave loading.
• Clarifying rates: Confirm the correct rate (commonly 17.5% or a higher rate for shift workers) and document it.
• Communicating with employees: Explain how it works to ensure clarity and avoid any misunderstandings.
• Managing leave requests: Make sure leave requests follow company policy and inform payroll accordingly.

Payroll’s role in leave loading

Payroll plays a critical role in accurately calculating, processing, and reporting leave loading to ensure compliance and transparency. Payroll teams must manage these payments efficiently while aligning them with Fair Work requirements.

Payroll’s role includes:

• Automating calculations: Use payroll software to automatically and correctly calculate leave loading.
• Keeping accurate records: Track leave balances, pay rates, and loading amounts to ensure all relevant leave loading information is available.
• Ensuring tax and super compliance: Ensure extra pay is taxed correctly (PAYG withholding applies) and determine if superannuation is due.
• Auditing regularly: Check calculations to avoid errors and compliance risks.

How to calculate leave loading

Here are two examples to help you understand how to calculate and apply leave loading:

Example 1: A full-time employee on a weekly salary

• Weekly pay: $1,200
• Leave loading calculation: $1,200 × 17.5% = $210
• Total pay for one week of annual leave: $1,200 + $210 = $1,410

Example 2: A casual employee on an hourly rate

• Hourly base rate: $35/hour
• Weekly hours: 38
• Normal weekly earnings: $35 × 38 = $1,330
• Leave loading: $1,330 × 17.5% = $232.75
• Total pay for one week of annual leave: $1,330 + $232.75 = $1,562.75

HR tip

Use a leave loading calculator, or reliable payroll software that automatically applies leave loading when calculating fluctuating wages or multiple award rates. Remember though that you should always verify calculations against the FWO’s guidelines to ensure compliance.

How industry and agreement variations impact leave loading 

17.5% is the most common rate, however, some industries and agreements specify different leave loading percentages:

• Higher rates: Some industries (e.g., emergency services, mining, healthcare) may use a rate above 17.5%.
• No leave loading: Some contracts or awards do not include it.
• Flat amounts: A fixed dollar amount might be used instead of a percentage.
• Corporate and office-based roles: Some agreements and contracts may not include leave loading, as these roles typically have fixed salaries without overtime.
• Government and public sector: Leave loading is often a standard benefit in government employment agreements.

How to determine leave loading entitlements

Leave loading entitlements are typically determined through modern awards, enterprise agreements, and employment contracts.

Modern awards

Modern awards set minimum employment conditions. They often include leave loading calculated as a percentage of base pay (excluding overtime). If an award covers leave loading, it must be paid during annual leave and upon termination.

Not all workers are entitled to leave loading, as it depends on the specific award or agreement covering their employment. However, if an award includes leave loading, employers must provide it to eligible employees, typically alongside their regular pay during their annual leave. Additionally, employers must pay out accrued leave loading upon employment termination.

Enterprise agreements

Many enterprise agreements or EAs (i.e., negotiated desks between employers and employees) include leave loading. Some increase the rate beyond 17.5%, while others may replace it with different benefits.

EAs can modify or replace the terms in modern awards and can also include leave-loading provisions even if the relevant modern award does not. Additionally, an EA applies in place of any applicable modern award once the Fair Work Commission has approved it.

Employment contracts

If an award or agreement doesn’t cover an employee, their entitlement to leave loading depends on their employment contract. Employers must comply with the agreed terms if they offer it.

At the same time, salaried employees may have leave loading included in their salary packages. Both enterprise agreements and employment contracts must provide terms at least as favorable as those of the National Employment Standards (NES). Employers should review these agreements to ensure compliance with leave-loading obligations.

Annual leave loading vs. holiday leave loading

Annual leave loading is an additional payment (typically 17.5% of base pay) made when an employee takes paid annual leave, intended to compensate for lost overtime and penalty rates. Holiday leave loading, while sometimes used interchangeably, can refer more broadly to extra pay provided during specific holiday periods, which may be governed by different agreements or policies.

Let’s take a look at the difference: 

Does leave loading apply on termination?

Leave loading applies to accrued but unused annual leave upon termination. Under FWO guidelines, employees entitled to it must receive their accrued annual leave and the applicable leave loading in their final payment when their employment ends.

Under the Fair Work Act 2009, if an employee’s modern award, enterprise agreement, or employment contract includes leave loading, any accrued but unused annual leave must be paid with the applicable leave loading when the employee exits the business. In some cases, the following exceptions may apply:

• Some enterprise agreements or contracts explicitly state that leave loading doesn’t apply to termination payments
• If the award or agreement is silent, case law and FWO rulings often support including leave loading in final payments
• Employers must check the applicable award, agreement, or contract to determine if leave loading is payable on termination.

The legal risks of not paying leave loading on termination

Not paying leave loading when required can lead to:

• Fair Work Ombudsman investigations
• Back payments with interest and fines
• Legal disputes and reputational damage.

How HR can ensure compliance

Use the following checklist to determine if your organization is compliant with the above FWO guidelines:

1. Check if the employee’s contract stipulates leave loading in termination payouts.
2. Determine the total unused annual leave balance upon termination.
3. Use the standard 17.5% (or other specified) rate, if applicable.
4. Ensure final payments reflect the correct accrued leave and leave loading.
5. Provide a detailed payslip breakdown of accrued leave, leave loading (if applicable), and other entitlements.
6. Conduct periodic reviews to catch errors and ensure ongoing compliance.

Superannuation on leave loading

According to the Australian Taxation Office (ATO), whether leave loading is payable on superannuation depends on its purpose. It’s payable if leave loading is part of an employee’s ordinary time earnings (OTE) and if the employment contract, award, or enterprise agreement doesn’t specify leave loading as compensation for lost overtime.

However, it’s not payable if the employee’s award, employment contract, or enterprise agreement states that leave loading is paid to compensate for missed overtime, as it’s not considered OTE.

Misconceptions about super on leave loading

Below are some common misconceptions about superannuation on leave loading, as well as the facts on these aspects of superannuation:

• Leave loading always attracts superannuation: In reality, super on leave loading depends on its purpose. It’s not required for lost overtime but is required if it’s a general entitlement.
• Payroll software automatically applies the correct super: Many payroll systems actually exclude superannuation from leave loading by default. Always verify payroll settings to ensure compliance and correct wages.
• If an award is silent on leave loading, super doesn’t apply: If no award or contract specifies a purpose for leave loading, the ATO considers it part of OTE, which means super is payable.

HR tip

Superannuation compliance can be tricky, especially in large organizations with complex payroll systems. Consult superannuation experts or the ATO to clarify award terms and avoid costly payroll errors, penalties, or audits.

To sum up

Leave loading is a critical extra payment that ensures employees are fairly compensated for lost overtime and penalty rates during their annual leave. HR teams must confirm eligibility, communicate entitlements clearly, and ensure contracts reflect the correct terms, while payroll must calculate and record these payments accurately.

Accurate leave loading management helps avoid legal penalties, costly back payments, and reputational harm. As such, HR and payroll should work together to maintain compliance with the Fair Work Act through regular audits and automated systems. This not only safeguards the business financially but also builds trust by ensuring employees receive their full entitlements.

FAQ

The post What Is Leave Loading? Your 101 Guide To Leave Loading Types appeared first on AIHR.

Contents
What is compensation?
What are the different types of employee compensation?
– Direct compensation
– Indirect compensation
– Total compensation

What is compensation?

Compensation refers to any payment given by an employer to an employee during their period of employment. In return, the employee will provide their time, labor, and skills.

This compensation can be in the form of a salary, wage, benefits, bonuses, paid leave, pension funds, stock options, and more. Compensation is also sometimes referred to as remuneration outside of the U.S. and Canada.

Understanding the different types of compensation is critical to creating an attractive compensation package for your current employees. Not only will this help you retain your top talent, but it will also help you attract new talent to your organization—as long as you set yourself apart from your competition.

If you haven’t yet given much thought to your compensation and benefits strategy, you’re potentially missing out on improving your employees’ overall happiness and engagement, along with your employee retention figures and employer brand.

Conducting a compensation analysis and creating a solid compensation strategy are the responsibilities of HR and compensation and benefits professionals. Where there isn’t a Human Resources team in place, this will usually fall on the business owner or manager.

What are the different types of employee compensation?

Compensation plans vary from country to country. For example, in the U.S., health benefits often make up a large part of an employee’s compensation and benefits package. Whereas in parts of Europe, parental leave, childcare, and lunch expenses are more common.

There are two main types of compensation:

1. Direct compensation (financial)
2. Indirect compensation (financial & non-financial).

Everyone involved in creating an employee compensation plan and pay structure must first understand the different types of compensation. The organization is responsible for explaining the full value of the compensation plan to all candidates and employees.

It is especially important during the hiring process, as well as performance and salary reviews. With so many different options available within the main two types of compensation, employees can easily become confused.

Here are some common types of compensation:

Let’s explore these and more types of compensation in more detail.

Direct compensation

Direct compensation is a financial (or monetary) form of compensation. Here are the main types of direct compensation:

Hourly

Hourly wages are often provided to unskilled, semi-skilled, temporary, part-time, or contract workers in exchange for their time and labor. Jobs where some employees receive hourly wages include the retail, hospitality, and construction industries.

Employees who receive hourly wages are usually able to earn overtime pay. This pay consists of any additional hours worked outside of their set contract.

When setting your employees’ wages, you need to be compliant with the local minimum wage legislation.

Salary

Annual salaries are typically provided to most full-time or skilled employees and those who fill management positions. A salary often indicates that the organization has invested in this employee for the long term.

Examples of employees who receive a salary include teachers, accountants, doctors, and retail and hospitality managers.

Both hourly wages and salary make up an employee’s base pay or base salary.

Commission

Commission is a common form of compensation provided to employees in sales roles. It will usually be based on a predetermined quota or target. The higher the quota reached, the higher the commission pay will be. 

Commission rates are often based on various specified factors, including revenue and profit margins.

Some employees will work on commission only or obtain a base salary with commission. 

Bonuses

Companies often offer bonuses to employees based on year-end business results or the individual meeting their set goals. Sometimes, the decision is at the manager’s discretion. In that case, it’s referred to as discretionary bonus.

Bonuses can be paid annually, quarterly, or even after the completion of each project.

Both commission and bonuses fall under incentive pay, along with piece rate, profit sharing, stock options, and shift differentials.

However, bonuses can also be paid without an employee meeting a particular target. For example, if the business has had a great year and decides to reward everybody. In this case, the bonus would be classified as variable pay.

Merit pay is often given to an employee who meets their targets or performs well in their role. 

Specific types of bonuses include:

• Signing bonus: A one-time payment offered to new hires as an incentive to join a company. These are often used in competitive job markets or high-demand roles to attract top talent.
• Retention bonus: A bonus given to employees who stay with a company for a certain period.

Other types of direct compensation

Tips are also a common form of compensation in people-based industries, particularly hospitality. Some businesses implement tip pooling or tip sharing, where tips are distributed among employees.

Another type of direct compensation is deferred compensation, which includes:

• Annuities: Structured payments made to employees after a certain period, often as part of an executive compensation package.
• Deferred bonus plans: Performance-based bonuses that are paid in future years rather than immediately.
• Piece-rate pay is when employees earn wages based on their output rather than time worked. This is common in industries such as manufacturing (e.g., paid per unit produced) and agriculture (e.g., paid per basket of fruit harvested).

Indirect compensation

Indirect compensation is still a financial form of compensation since it has a monetary value. However, employees do not directly receive it in cash form, at least not immediately. That’s why certain types of indirect compensation are viewed as monetary, while others are deemed non-monetary. This often varies between organizations. 

Indirect compensation is often viewed as employee benefits or perks of the job. 

Here are some common examples of indirect compensation:

Equity package

Equity as part of a compensation package essentially means the employee is offered equity (ownership) in the company, either through shares of stock. Employees receive a portion of the company’s equity outright or through a vesting schedule. This is a common practice in startups and high-growth companies that may not have large cash reserves for competitive salaries but want to offer long-term financial incentives.

Stock options

Stock options do not provide immediate ownership. Instead, they give employees the right to buy shares at a fixed price (strike price) in the future. In other words, they offer the right to purchase ownership. If the company’s stock value rises above the strike price, employees can buy the shares at a discount and profit from the difference.

Many stock options require employees to work between three to five years before they can access this compensation, which is referred to as the vesting period. For example, a robotics company might grant stock options with a four-year vesting schedule to encourage employee retention.

Restricted Stock Units (RSUs)

RSUs are actual shares of company stock granted to employees once they meet certain conditions (such as tenure or performance goals). Unlike stock options, employees do not need to buy RSUs—they are awarded directly once vested.

This option is popular, for example, with large public companies that want to offer predictable value. A Fortune 500 retailer might offer RSUs to executives instead of stock options for more stable, guaranteed ownership.

Stock Appreciation Rights (SARs)

Stock Appreciation Rights (SARs) are similar to stock options but without requiring employees to purchase shares. Instead, employees receive the value of stock price growth as a cash or stock payout.

SARs are a great option for companies that want to reward employees without equity dilution.

Benefits

Typical employee benefits usually include health insurance, life insurance, retirement plans, disability insurance, legal insurance, and pet insurance.

Health insurance is a common employee-sponsored benefit in the U.S., as discussed since it’s expensive to purchase. On the other hand, in most European countries, healthcare is public, funded by taxes, and provides universal or near-universal coverage.

Retirement funds and pension plans are also common benefits that employees look for when considering a new role at a new organization.

A survey found that 48% of job seekers in the U.S. said they would be more likely to apply for a job that came with good benefits. So although the base pay you offer is important, thinking about your overall compensation package is essential. 

401(k) matching

401(k) matching is increasingly seen as a must-have benefit in the U.S. It’s an employer contribution to an employee’s 401(k) retirement savings plan based on the employee’s own contributions. This benefit helps employees build retirement savings faster, as the employer is essentially adding “free money” to their account. It helps recruit and retain employees while offering tax advantages to employers.

Employer contributions are tax-deductible, reducing company tax liabilities. Many businesses see this as a cost-effective way to boost employee compensation.

Here are the common types of employer matches:

• Dollar-for-dollar match: The company matches 100% of contributions up to a set percentage (e.g., 5% of salary).
• Partial match: The company matches 50% of contributions up to a certain limit (e.g., 50% of the first 6% of salary contributed).
• Discretionary match: Employers decide annually whether to provide a match, often based on company performance.

Non-monetary compensation

Non-monetary compensation includes benefits like:

• Paid or non-paid time off
• Flexi-time
• Learning and development opportunities
• Parental leave
• Childcare
• Company cars
• Phones or laptops
• Company-provided meals.

A survey by Fractl found that American employees value healthcare most as a benefit. Still, additional forms of indirect compensation, including extra vacation time, daycare, and tuition reimbursement, also made the most-wanted list.

Silicon Valley companies offer their employees a wide variety of ever-enticing perks, including concerts, onsite yoga classes, massages, free accommodation stays while on vacation, foosball tables, and catered lunches.

Although some of these forms of compensation seem small or superfluous, they can make a tremendous difference in your employees’ days, improving their overall happiness in and outside of the workplace.

It’s important that you offer a variety of benefits that will appeal to different types of people you employ and are looking to hire in the future. For example, if any of your employees have just become new parents or are looking to start or grow a family within the next few years, they will highly value benefits like parental leave and childcare.

In addition, certain forms of compensation can be viewed both as a perk and a disadvantage, depending on the rules you apply to it. For instance, if you provide all employees with a company laptop, are they required to keep this solely for business purposes, or are they free to use it for personal use? Some individuals could view having two laptops as a hassle. Others may not like the idea of the company tracking and monitoring their entire private browsing history. This is why it’s essential to get clear on who your core employees are and what they want before creating a compensation plan.

Once again, there are differences in what counts as non-monetary compensation between organizations. 

Total compensation

An employee’s total compensation consists of all the financial rewards they receive from their employer. This includes salary, bonuses, stock options, and employer-paid benefits—all of which vary by job level and role.

Providing employees with a clear breakdown of their total compensation helps them understand their earnings and incentives from the start.

How to present total compensation

Using a total compensation statement template can help streamline the process of communicating and documenting compensation, ensuring employees receive a clear, standardized breakdown of their earnings, benefits, and incentives in an easy-to-understand format.

You can present the total compensation package in two ways:

Option 1: Two main categories

Total compensation overview can be divided into:

• Direct compensation: Base salary, bonuses, commissions, stock options.
• Indirect compensation: Benefits like healthcare, company car, retirement plans, paid time off.

Option 2: Detailed breakdown

You can also break it down further into subcategories, such as:

• Financial compensation: Salary, bonuses, commissions, stock options.
• Retirement & long-term benefits: 401(k) matching, pension funds, profit-sharing.
• Health & wellness benefits: Insurance, mental health support, gym memberships.
• Learning & development benefits: Professional development budget, tuition reimbursement.

Each new hire should receive a clear report of their total compensation so they know:

• What they automatically receive (e.g., base salary, healthcare)
• What they can earn through performance (e.g., bonuses, commission).

Why transparency in total compensation matters

When companies are open and strategic about their compensation structures, they see:

• Higher employee engagement: Employees value knowing their full benefits.
• Lower turnover: Clear compensation plans help improve retention.
• Stronger employer branding: A well-structured total compensation package attracts top talent.

Additionally, HR must ensure compliance with federal and state compensation laws. While a basic set of compensation is required by law, a competitive package will set you apart from competitors and help you retain top employees.

The right compensation package will help you attract and retain talent

Understanding employee benefits and types of compensation and creating attractive compensation packages for all your employees is essential to attracting top talent to your organization and keeping those employees happy. 

Many companies offer similar base salaries, so when employees compare job offers, they look beyond wages to evaluate the full compensation package. Employer-paid benefits—such as health insurance, retirement contributions, performance-based bonuses, and stock options—can make a significant difference in their decision.

A competitive compensation plan is a key part of your employee value proposition and directly impacts your ability to build and retain a strong workforce. A well-structured package that includes a mix of direct pay and valuable benefits can set your organization apart.

If you haven’t yet created or updated your compensation strategy, now is the time to develop a plan that supports both employee wellbeing and long-term business success.

The post Types of Compensation: A 2025 Guide for HR appeared first on AIHR.

A thoughtfully designed total compensation statement template gives employees a clear, comprehensive view of their rewards, helping you attract and retain top talent while promoting a culture of appreciation.

Contents
What is a total compensation statement?
The benefits of having a total compensation statement
What to include in a total compensation statement template
How to create a good total compensation statement
Free total compensation statement template

What is a total compensation statement?

A total compensation statement is a detailed summary of an employee’s compensation package beyond their base salary. It outlines all the financial and employer-paid benefits an employee receives, including bonuses, incentives, retirement contributions, health insurance, paid time off, and other perks like wellness programs or tuition reimbursement.

It’s an effective tool for communicating the full value of employment to employees, helping them understand the true financial worth of their compensation package.

Compensation remains the top priority for job seekers, with higher pay being the leading reason U.S. workers aged 25-54 search for a new job. Organizations must offer competitive pay and rethink how they structure and present their total compensation and benefits packages to bring in and retain top talent.

Sometimes, the terms total compensation statement and total rewards statement are used interchangeably, but there is a slight difference.

A total compensation statement aims to demonstrate the full financial value of employment, while a total rewards statement focuses on showcasing the overall value proposition and employee experience. As such, it would also include elements like career growth, recognition, and culture.

The benefits of having a total compensation statement

As an HR professional, total compensation statements are a strategic resource that can help you improve transparency and enhance employee engagement. They can be used during performance reviews, onboarding, or retention conversations to demonstrate the organization’s commitment to employees and to highlight the competitive advantages of the company’s offerings.

For organizations, total compensation statements are a strategic asset to boost retention, attract talent, and maximize the use of offered benefits. For employees, they provide a holistic understanding of their compensation, empowering them to make informed financial and career choices.

Let’s take a look at the key reasons why your organization should use total compensation statements and how this will benefit employees.

As an organization, use total compensation statements to:

• Improve engagement and retention by demonstrating the organization’s investment in employees, increasing satisfaction and loyalty
• Support career growth discussions through a foundation for meaningful conversations about career progression and compensation
• Enhance transparency and build trust by clearly outlining all components of the employee’s compensation package
• Attract talent through a tool that showcases the organization’s competitive benefits during recruitment
• Promote benefit utilization by identifying and highlighting underutilized benefits, ensuring employees take full advantage of available resources.

Educate employees on how they can use total compensation statements to:

• Boost their financial planning through a clearer view of total earnings
• Make better use of their benefits because they understand what’s available to them
• Gain a comprehensive overview of rewards, which can aid in career planning and job satisfaction
• See the full value of their compensation, which enhances their perception of the organization’s support and ultimately increases appreciation
• Make informed choices about their financial future through a better understanding of retirement contributions and health plans.

What to include in a total compensation statement template

Creating an effective total compensation statement is about more than listing numbers like base salaries, overtime, and 401(k) contributions. A great total compensation statement should be detailed, clear, and tailored to the needs of both employees and organizations.

Here are the key sections that your template should include.

1. Basic information

• Employee’s name and job title
• Statement period (e.g., annual, semi-annual, or monthly)
• Company name and contact information for HR or benefits queries.

→ Do this: Use clear formatting and ensure the time period covered is prominently highlighted. Tailor the statement to align with payroll cycles for consistency and avoid confusion about when the compensation applies.

2. Direct compensation

• Base salary or hourly wages
• Bonuses, commissions, or other performance-based incentives
• Overtime pay (if applicable).

→ Do this: Break down direct compensation into categories to show transparency. This includes year-to-date totals and projections, where possible, to help employees see the bigger picture of their earnings.

Pay remains the number one motivation for employees to stay at their jobs, so it’s important to make it stand out in the compensation statement. This is followed by job security (41%), health benefits (36%), and flexible work arrangements (31%).

3. Indirect compensation

• Health, dental, and vision insurance premiums paid by the company
• Life insurance, disability insurance, and other coverage
• Wellness programs or Employee Assistance Programs (EAPs).

→ Do this: Use visuals like pie charts to illustrate the company-paid portion of benefits. This makes it easier for employees to see the value they’re receiving beyond their paycheck.

4. Paid time off (PTO)

• Total days or hours allocated for vacation, sick leave, and personal days
• Unused PTO carried over (if applicable) and its dollar equivalent
• Additional time off, such as holidays, parental leave, or volunteer days.

→ Do this: Include a breakdown showing the dollar value of unused PTO, emphasizing its role as part of the total compensation package.

Employers rate leave benefits as one of the top three most valued benefit categories, with a growing emphasis on mental health leave, personal time off, and family leave to meet employee expectations.

Forward-thinking organizations are staying ahead by offering innovative options like floating holidays, menopause leave, and time off to care for grandchildren. If you offer any of these types of leave, showcase that in your template.

5. Retirement benefits

• Employer contributions to 401(k) or pension plans, expressed in dollar terms
• Details of matching contributions, including thresholds for maximizing the match
• Vesting schedule and details on how much is accessible based on tenure.

→ Do this: Create a ‘retirement snapshot’ that projects potential savings in one, five, or 10 years with employer contributions. Include a side-by-side comparison of scenarios with and without employee contributions to encourage participation and showcase the significant value these benefits deliver to employees by supporting their long-term financial security. 

6. Perks and other benefits

• Discounts on services like fitness memberships, childcare, or meal delivery
• Professional development reimbursements (e.g., certifications or tuition)
• On-site perks like free meals, parking, or wellness programs.

→ Do this: Include a “Did You Know?” section to highlight lesser-known perks and provide actionable steps or links to access these benefits, ensuring employees can easily take advantage of them.

7. Other monetary benefits

• Employee stock options or equity shares
• Commuter allowances or transportation reimbursements
• Relocation or signing bonuses.

→ Do this: Use a separate section to highlight one-time or periodic benefits like bonuses, making them stand out. Provide a brief explanation of eligibility criteria to add clarity.

8. Employer-paid taxes and contributions

• Social Security contributions
• Medicare taxes
• Unemployment insurance premiums and workers’ compensation.

Do this: Present this information in a straightforward table format. Align the time period (e.g., annual or monthly) with payroll cycles and include totals to make it clear how these contributions benefit the employee.

9. Career development opportunities

• Training and certification programs covered or subsidized by the employer
• Access to online learning platforms (e.g., LinkedIn Learning)
• Tuition reimbursement programs.

→ Do this: Showcase potential savings by comparing the cost of external training with the amount covered by the organization, helping employees see the value of career development support.

Ensure that your total compensation statement is aligned with what you promise in your EVP. These elements become the proof points of your EVP internally, showing employees how you deliver on the promises made. Misalignment here could lead to distrust and disappointment but also signal missed opportunities to refine your total compensation statement.

Dr. Marna van der Merwe, Subject Matter Expert, AIHR

11. Flexible work benefits

• Remote work allowances or stipends for home office equipment
• Reimbursement for co-working spaces.

→ Do this: If offering remote or hybrid work perks, include a dollar estimate of savings (e.g., commuting costs avoided) to make the benefit tangible.

12. Recognition and rewards

• Monetary rewards, such as gift cards or spot bonuses
• Opportunities to earn points or credits for company-specific rewards.

→ Do this: Highlight any formal recognition programs and specify the monetary value or financial benefits offered. For example, include details like the average value of gift cards or bonuses distributed or the potential financial impact of point-based reward systems.

Sample total compensation plan

Summary of your total compensation

Next steps

We are committed to supporting your financial, professional, and personal wellbeing. If you have any questions about this plan or would like to make adjustments, please contact (HR contact name) at (email) or (phone).

How to create a good total compensation statement

Adopting best practices ensures that your total compensation statement is informative and a reflection of your organization’s commitment to its workforce.

• Keep it simple and clear: Use straightforward language to explain compensation components. Avoid jargon or overly technical terms that could confuse employees.
• Personalization matters: Address the statement to the employee by name. Reference their specific role, contributions, or achievements to make the statement feel tailored and relevant.
• Be transparent: Clearly explain how each component of the compensation package was determined (e.g., market benchmarks, performance metrics). Break down each benefit and its value to enhance understanding and build trust.
• Use visual aids: Incorporate charts, graphs, or infographics to represent data visually. For example, use a pie chart to illustrate the proportion of direct and indirect compensation or a bar graph to show year-over-year changes.
• Highlight tax advantages: Show how certain benefits, such as retirement contributions or healthcare plans, reduce taxable income. Include examples or scenarios to demonstrate the real value of tax-advantaged benefits.
• Educate employees: Provide a glossary or FAQ section explaining terms like ‘vesting,’ ‘equity,’ ‘matching contributions,’ and ‘pre-tax benefits.’ Include links or resources for employees to learn more about their benefits or take action, such as enrolling in retirement plans.
• Update regularly: Issue total compensation statements annually to reflect the most current information. Provide updated statements whenever there are significant changes, such as promotions, role changes, or adjustments to benefit plans.
• Focus on the full value: Emphasize the total value of compensation, not just salary. Include less visible benefits like employer-paid taxes and professional development opportunities.
• Make it accessible: Deliver statements in both digital and print formats to accommodate employee preferences. Use employee self-service portals for easy access and updates.
• Ensure data accuracy: Double-check all figures and details to avoid errors that could undermine trust. Work closely with payroll and benefits teams to ensure consistency.
• Customize for audience needs: Tailor the tone and format to the workforce. For example, younger employees might appreciate more details about student loan repayment programs, while senior employees may focus on retirement benefits.
• Include a call to action: Encourage employees to take the next step, such as increasing 401(k) contributions, enrolling in underutilized benefits, or attending HR-led informational sessions.
• Solicit feedback: Regularly gather employee feedback on the usefulness and clarity of the statement. Adjust the format and content as needed to address concerns and improve effectiveness.

Free total compensation statement template

Use a pre-developed total compensation statement template to make sure your organization has a clear and structured way to showcase the company’s investment in its employees. 

Templates make the entire process simpler, smoother, and more consistent – which is a win for improving transparency and trust.

To sum up

Most organizations today have total compensation strategies in place. However, without a total compensation statement, employees are not aware of their full benefits. It’s a small upfront investment for HR professionals with a large return in terms of transparency, building trust, and driving loyalty. 

As an HR professional, invest time upfront in developing a total compensation statement based on a proven template and best practices to align your compensation strategy with your organizational goals.

These documents play a critical role in career growth discussions, promoting benefit utilization and aiding in financial planning. By presenting data clearly and comprehensively, HR professionals can emphasize the full value of employment beyond just the direct compensation.

The post How To Create Your Total Compensation Statement Template [FREE Download] appeared first on AIHR.

Attractive financial incentives can attract and retain top performers and drive sales, production, and transformation improvements. Successful incentive compensation plans involve self-funding since employees receive their bonuses only after meeting their targets.

However, if not correctly designed or managed, they can also spell disaster, as Wells Fargo experienced. This article provides the key details and examples of incentive compensation and discusses how to develop fair, sustainable incentive compensation plans.

Contents
What is incentive compensation?
The pros and cons of incentive compensation
9 examples of incentive compensation
Differences between short- and long-term incentives
How is incentive pay calculated?
How to design fair, sustainable incentive compensation plans

What is incentive compensation?

Incentive compensation (also called incentive pay) is a structured rewards system tied to achieving specific performance targets. Linking compensation to desired outcomes aligns employee goals with organizational objectives.

Unlike a traditional bonus, which is typically a one-time annual reward, incentive compensation is a long-term compensation strategy designed to drive consistently high performance.

Well-structured incentive compensation plans offer companies multiple benefits, such as better employee performance, retention rates, and morale. It’s also an effective method for building a more engaged, productive, and outcomes-driven workforce.

The pros and cons of incentive compensation

By understanding the pros and cons of incentive pay, you can add it to your company’s compensation and benefits plan. This approach helps align employee performance with your organization’s goals effectively.

The pros

• Encourages employee performance: Tying an employee’s rewards directly to specific performance metrics can boost their motivation, making them more likely to invest more time and effort into their performance.
• Supports goal alignment: Incentive compensation aligns employee goals with organizational objectives and rewards behaviors that increase the company’s overall success. This creates a culture of shared purpose and collaboration.
• Attracts top talent: Competitive incentive compensation packages can help attract and retain top talent by differentiating the company from its competitors.

The cons 

• Unhealthy competition: Combining incentives with salary can lead to unhealthy employee competition. If not managed carefully, this can lead to a hostile work environment that erodes team morale.
• Unethical or harmful behavior: When incentive plans over-emphasize the urgency of closing deals, for instance, salespeople may prioritize short-term financial gain over client needs. This can affect client relationships and future sales opportunities.
• Added complexity: Designing and managing an incentive compensation program can be complex and time-consuming. You must carefully consider performance metrics, payout formulas, and administrative processes to ensure the program is fair, equitable, and aligned with company goals.
• Additional costs: Implementing an incentive compensation program can also increase costs. While the potential benefits often outweigh the costs, optimizing such a program is essential to ensure a positive return on investment (ROI).

9 examples of incentive compensation

Here are nine common incentive pay examples you can review before selecting the ones best suited to your company’s strategic objectives:

Example 1: Sales commissions

Sales commissions directly reward salespeople for meeting or exceeding their sales targets. For instance, a tech company might offer a 10% commission on every software license sold, motivating its salespeople to close more deals. 

Make sure that the targets you set are realistic and attainable to increase the effectiveness of your sales commissions. Also, consider offering a base salary to provide a safety net for your salespeople.

Example 2: Performance-based bonuses

Performance-based bonuses are tied to individual, team, or company-wide performance metrics. For example, a manufacturing business might offer an annual bonus based on the team’s achievement of productivity and quality metrics targets. 

Team leaders should clearly communicate all relevant performance criteria to their entire teams to ensure fairness and transparency. Encourage employees to ask questions if they’re unclear on the details.

Examples 3: Profit-sharing plans

Profit-sharing plans reward top performers with a share of the company’s profits. For instance, to attract top talent and drive performance, a small business might allocate a portion of its annual profits to employees based on their salary or tenure. 

You can maximize employee engagement by clearly communicating how the profit-sharing plan works and how individual contributions can impact the overall pool of profits.

Example 4: Stock options

Stock options grant employees the right to purchase company stock at a predetermined price. For instance, a tech start-up might offer stock options to key employees as part of their total compensation package. In doing so, they align their executives’ interests with the company’s long-term growth. 

Offering stock option incentives can be tricky due to their complexity and potential costs. Granting options can significantly dilute existing shareholder value, and managing them involves legal complexities.

There can also be unintended consequences, such as an obligation to sell shares to an employee whose relationship with the company has deteriorated. To make stock options effective, ensure the price is fair and that employees understand the potential risks and rewards.

Example 5: Retention bonuses

A company may offer retention bonuses to retain key talent during critical periods, such as mergers, acquisitions, or other major organizational changes. For instance, experienced employees might receive retention bonuses to prevent turnover during peak periods. 

You can improve the effectiveness of your company’s retention bonuses by offering them in periodic installments to encourage employees to remain with the company for the desired tenure. Alternatively, you can set a maturity date in the future on which they will receive their bonuses.

Example 6: Project-based incentives

Project-based incentives reward employees for completing specific projects or achieving project milestones. For example, a consulting firm might offer bonuses to a project team for successfully delivering a project on time and within budget.

Establish clear performance and delivery criteria and a transparent evaluation process to ensure fairness and transparency.

Example 7: Non-monetary incentives

Non-monetary incentives—such as recognition, flexible work arrangements, and professional development opportunities—can be as impactful as financial rewards. Some companies recognize high-performing employees through public acknowledgments, awards, or special perks.

To maximize the impact of non-monetary incentives, you can tailor them to suit individual preferences and ensure employees perceive them as fair, valuable, and meaningful.

Example 8: Team incentives

Team incentives reward a team’s collective efforts. For instance, a company may reward all the members of its client service team for successfully reducing caller wait times and achieving targets for satisfaction ratings. 

By clearly communicating key metrics and providing the support teams require to reach their goals, you can help ensure fairness and maximize employee motivation through team incentives.

Example 9: Individual incentives

These incentives recognize and reward an individual’s specific contributions and achievements. For example, a sales representative might be rewarded for exceeding their quarterly sales quota. 

Communicate the desired behaviors and outcomes clearly to employees to align individual incentives with organizational goals. At the same time, to enhance employee engagement, consider implementing a peer-review process to assess and reward individual contributions.

Differences between short- and long-term incentives

Incentive programs can drive short-term results and long-term gains. This table explains the differences between short- and long-term incentives to help you select the right compensation plan for your company.

How is incentive pay calculated?

Calculating incentive pay is a complex task that requires you to carefully consider various factors. Here are three standard approaches to help you define your incentive compensation parameters:

1. Percentage-based calculation

This calculation method is popular in sales-driven organizations. For instance, a salesperson might earn a 10% commission on every sale closed once they exceed a minimum target. In sales compensation, balancing commission structures to prevent excessive risk-taking and short-term focus is important.

You can also use this calculation for performance bonuses, which are often tied to a percentage of an employee’s base salary. For instance, a high-performing employee might earn a 15% bonus. To maximize effectiveness, ensure clearly defined, objectively measured performance metrics employees perceive as fair.

2. Fixed rewards

An example of fixed rewards is fixed bonuses—predetermined amounts employees receive for meeting specific performance targets. While they’re relatively easy to implement, they may not be as motivating as variable pay (e.g., uncapped commission).

Another example is milestone-based rewards, whereby employees receive fixed rewards for achieving specific milestones. This can help maintain focus and momentum on long-term projects and goals, but realistic and challenging milestones are required to work.

3. Tiered rewards

Progressive rewards fall under this category. This approach rewards employees based on increasing levels of performance. For example, an employee might receive a 5% bonus for meeting expectations, 10% for exceeding them, and 15% for outstanding performance beyond their set targets.

Threshold-based rewards, on the other hand, go to employees only if they meet a specific performance threshold. This can be a powerful performance motivator. If offering this kind of reward, be sure to set your threshold at a challenging yet achievable level.

How to design fair, sustainable incentive compensation plans

These guidelines can help you design and implement incentive compensation plans that motivate your employees to achieve goals aligned with organizational success.

Step 1: Define clear objectives aligned with company goals

A good incentive pay plan always starts with an organization’s strategic goals. Is your company striving for profitable revenue growth, a turnaround, or an entire transformation? Each scenario calls for a different plan design.

Before proceeding, define your company’s strategic objectives clearly and outline how incentive compensation can align.

Step 2: Identify measurable performance metrics

First, evaluate the effectiveness of existing compensation plans, including base salaries, bonuses, and benefits. Next, analyze job roles and responsibilities to identify key performance indicators (KPIs) for each position. You can then determine how to tie incentives to these metrics to support organizational goals.

Consider using SMART (specific, measurable, achievable, relevant, and time-bound) goals to define performance expectations and ensure employees can meet them.

Step 3: Ensure equity and transparency

Focus on developing a fair and equitable compensation system that consistently treats all employees. Clearly communicate the performance metrics, reward criteria, and payout formulas to all employees. Transparency builds trust and ensures employees understand how the organization will reward their efforts.

It’s crucial to know what behavior your incentives will drive and whether they align with your values and intended outcomes. For example, are you rewarding speed over quality or incentivizing high-touch customer services? A good incentive drives the right behavior to achieve the intended result, focusing on the why, what, and how.

Dr. Dieter Veldsman, Chief Scientist (HR & OD), AIHR

Step 4: Design competitive rewards using market benchmarks

Conduct regular market research to inform your incentive compensation plan design. This can help you ensure the plan is competitive and attractive to top talent. By benchmarking your compensation plan against industry standards; you can avoid offering employees excessive or insufficient rewards.

Step 5: Communicate the plan clearly to employees

Once you’ve completed your incentive compensation plan design, clearly communicate it to all employees. This should include the plan’s eligibility criteria, performance metrics, and reward structures.

Be sure to also regularly provide updates on your plan’s performance and any changes you may need to make to it.

Step 6: Monitor and adjust the plan

Regularly monitor employee performance and track the incentive compensation plan’s effectiveness. Be prepared to adjust your plan as needed to adapt to changes in the business environment, employee needs, or strategic priorities.

At the same time, encourage employee feedback and consider them seriously so you can make any necessary changes to the plan.

To sum up

Incentive compensation can drive results when clear, fair, and aligned with business goals. Companies can boost productivity, morale, and retention by tying rewards to performance while keeping employees focused on what matters most. The key to success in this area is to set clear objectives, use measurable metrics, and be transparent.

To make it work, balance is essential. A good plan motivates employees without creating unhealthy competition or bad behaviors. When done right, incentive compensation builds a culture of accountability and achievement, benefiting employees and the business.

The post What Is Incentive Compensation? Your 101 Guide in 2025 appeared first on AIHR.

This article discusses how to ensure a fair and effective compensation review process and how to tactfully communicate salary changes to employees.

Contents
What is a compensation review?
Types of compensation reviews
The compensation review process
How to prepare managers for a compensation review
11 steps to conduct a fair, effective compensation review

What is a compensation review?

A compensation review—also known as a comp review, salary review, or pay review—is a systematic evaluation of an employee’s total compensation package. It is typically conducted at least once a year to ensure fair, competitive compensation aligned with industry standards, organizational goals, and the company’s compensation philosophy.

Companies often link compensation evaluations to performance and use them to reward employees for meeting or exceeding their goals. However, they are not the same as performance reviews, which solely focus on employee performance.

Types of compensation reviews

Some of the most common compensation reviews include:

• Annual compensation reviews: Typically conducted in the fourth quarter of each year, an annual compensation review considers all aspects of compensation and benefits an employee receives. This regularly scheduled review applies to all employees, regardless of their role or seniority.
• Promotional compensation reviews: Assesses compensation based on a promotion an employee has just received or is about to receive.
• Performance-based compensation reviews: Focuses on employee performance and rewards top performers with raises or bonuses.
• Market-based compensation reviews: Uses industry benchmarks, competitor data, or economic factors to make decisions on compensation adjustments.

Factors to consider during a compensation review

Here are a number of factors to consider when conducting a compensation review:

• Market benchmarks: Does your organization offer competitive compensation packages by industry standards to help you attract and retain top performers? 
• Internal equity: Compensation evaluations can help you ensure the company pays all employees fairly for their work.
• Job responsibilities and complexity: Roles and responsibilities can change at any anytime, so it’s important to ensure the organization updates its compensation offerings to match current job expectations.
• Performance and productivity: If an employee consistently exceeds expectations and performs exceptionally, a compensation review can help ensure they’re rewarded for it. 
• Budget constraints: Wage reviews must account for the company’s budget to prevent overspending. 
• Economic and regional factors: The cost of living rises as inflation increases, making this an important factor in salary adjustments.
• Employee tenure: Many organizations reward long-serving employees. For example, their compensation may increase by a predetermined percentage for each year of employment, which in turn encourages longer tenures.
• Total rewards package: Consider all the monetary and non-monetary pay and benefits an employee receives if there are budget constraints or their pay is above the market rate. This will help you decide if any employee benefits need adjusting and, if so, by how much.

The compensation review process

It’s important to carry out this cyclical process at least once a year to ensure the organization is offering the fairest and most competitive compensation it can to all employees. Here are the five steps of a typical compensation review process:

1. Gather data: Study market and internal salary benchmarks to see how your current compensation offerings compare to competitors’ or averages in your industry.
2. Analyze roles: Review all roles, job descriptions, key responsibilities, and performance metrics. This will help you assess if the company is adequately compensating employees based on their workload, job complexity, and performance expectations. A common method to do this is job evaluation.
3. Evaluate budgets: Get a clear, detailed picture of your company’s budget and priorities so you can align your compensation adjustments with them. 
4. Implement adjustments: Once the relevant managers approve any compensation adjustments, implement them by getting HR and finance to update the payroll accordingly.
5. Communicate changes: Finally, communicate compensation changes to all employees involved, and be transparent about your decision-making process so they understand the reasons behind the adjustments clearly.

Typical compensation review outcomes

Common annual compensation review outcomes include salary increases, bonuses, incentive adjustments, non-monetary compensation adjustments, pay equity corrections, and promotions and role changes.

A bonus or incentive adjustment could come in the form of a one-off payment or reward for outstanding performance, such as a new job title or future promotion. On the other hand, non-monetary compensation adjustments may include extra leave, flexible working arrangements, paid birthday leave, wellness days off, or time off to do volunteer work.

Pay equity corrections involve correcting any compensation discrepancies found among employees doing work of equal value. Additionally, compensation reviews are often linked to promotions and changes in roles and responsibilities.

How to prepare managers for a compensation review

Here are some tips for HR to prepare managers to conduct effective compensation reviews with their team: 

• Provide clear guidelines: Ensure your company’s compensation review framework clarifies how the review process aligns with strategic goals. This provides managers with clear guidelines for conducting compensation reviews. 
• Train managers on fairness and equality: Bias is common in the workplace and can lead to pay inequity. Train managers to help them identify and mitigate biases while emphasizing the importance of pay equity. 
• Educate managers on compensation metrics: Train managers on how to use key compensation data by providing examples of how to do so. For instance, knowing how to work out the compa ratio can help them determine if employees are receiving fair compensation.
• Use compensation analysis tools: Tools can make the compensation review more efficient, whether it’s Excel or specialist compensation analysis software. Introduce managers to these tools to aid in faster decision-making. 
• Define performance expectations: Ensure every role has clear performance expectations so managers can refer to them when making compensation decisions. 
• Set up check-ins with managers: Regularly speak to managers to answer any questions they may have about the compensation review process.
• Promote consistency across teams: Ensure all managers receive the same training, guidelines, and tools to facilitate consistency across the organization.
• Use technology workflows: You can use these to set reminders and initiate actions during the review process, removing some of the administrative burden from HR.
• Focus on compensation reviews in manager onboarding: Doing this can help you set up new managers for success from the beginning.

11 steps to conduct a fair, effective compensation review

Here’s a step-by-step guide to conducting a fair and effective compensation review in the workplace:

Step 1: Set clear objectives for the review

The first step is to clarify your purpose for conducting the salary review. For example, your main goal could be improving workplace equity, retaining top performers, or addressing market competitiveness.

Additionally, make sure your compensation practices align with the organization’s wider values. If the company prides itself on rewarding high performers or excellent work, you must ensure a pay practice that reflects this. 

Step 2: Use accurate data and market benchmarks

Make sure you have accurate data sources to help you review your company’s compensation packages. Reliable market benchmarks will show how the organization’s compensation offerings compare to others in the same industry and geographical location.

Compare these to your company’s internal salary data to determine if any employees are underpaid based on their roles, skills, and experience. You should also know the budget allocated for total compensation packages to better estimate how far you can adjust salaries.

Step 3: Train managers to avoid bias

Train managers to avoid biases in the compensation review process. This includes affinity, expedience, recency, and contrast bias, which can all lead to pay inequity and unhappy employees. It can also result in potential legal implications for the company.

Teach managers how to assess salaries and bonuses fairly and how to approach conversations on compensation with their employees. They should be able to highlight the benefits of the review process, build trust within their team, and help promote employee retention.

Step 4: Engage employees to emphasize transparency

Only 54% of organizations check to ensure their employees understand their pay, even amid increasing queries about pay. This demonstrates a lack of transparency from businesses and can lead to employees being disgruntled and distrustful.

As part of your compensation review, establish open and honest communication with your workforce about pay structures, criteria, and the reasons for adjustments to help them better understand such decisions. Explain how compensation evaluations can benefit everyone, and communicate clearly and promptly at every stage of the process to avoid sudden surprises.

HR tip

Ensure there is an appeal process in place for any employee who is not satisfied with their pay review so they can voice their concerns and have them addressed. This ensures fairness and trust, shows the company values employee input, reduces dissatisfaction, and helps maintain a positive workplace culture.

Step 5: Audit regularly to ensure fair compensation

Many organizations conduct compensation reviews annually, but more frequent reviews (i.e., every three to six months) are also common nowadays. More frequent compensation increases can also help employees stay motivated and engaged at work.

However, auditing is time-consuming, so remember to weigh the costs and benefits of doing so, and decide on a schedule that suits your organization. Regular audits will ensure your compensation packages are fair and competitive, and help increase retention. 

Step 6: Segment your workforce for pay equity

One of the key steps in a compensation and benefits review is to ensure pay equity. To do this, you must segment your workforce according to different salary bands. You could do this based on differences in pay practices, nature of work performed, location, and tenure.

This allows you to clearly see and assess the different compensation packages and practices in different workforce segments, pinpoint any concerns, and make any necessary adjustments promptly and precisely.

Step 7: Integrate performance metrics to reward top performers

Your organization may link compensation evaluations to performance, with compensation adjustments reflecting an employee’s performance ratings. This helps reward employees for their hard work in achieving organizational goals and drives exceptional performance.

To help you make fair performance-based salary increases, integrate performance metrics into your compensation reviews. This will give you a firm idea of how employees are performing and whether they’re meeting goals. You can then help ensure the company rewards top performers and tries to incentivize under-performers.

Step 8: Incorporate market trends to remain competitive

Market-based compensation reviews analyze market benchmarks to ensure a company’s compensation packages are competitive within its market. An example of a company that takes this approach is Netflix, whose employees’ salaries are always above the market median rate. In return, it expects consistently excellent performance from all employees.

A main benefit of a market-based approach is its use of salary data to help you make fair, unbiased pay decisions. It also ensures compensation is competitive, reduces bias, and builds trust while helping attract and retain top talent.

In the broader employee experience, the compensation review matters a lot to employees. Therefore, a big part of the process should be focused on enabling line managers to have the right conversations and create trust and transparency. Often, when employees are unhappy about the compensation review process, it has more to do with their experience of the process rather than the outcomes.

Dr Marna van der Merwe, Subject Matter Expert, AIHR

Step 9: Account for total rewards, not just salary

When evaluating compensation, don’t just look at salary—review the total benefits package each employee receives. Candidates today often look at more than just salary; certain benefits, such as flexible working options and health insurance, can be just as valuable as pay.

Use employee surveys and key metrics to see if your compensation package is helping you attract and retain high-quality candidates and employees. If it isn’t, what changes can you make?

Step 10: Use compensation analysis software to streamline the process

Compensation analysis tools and software often include access to updated market prices, benchmarks, and salary survey data, making it easy to check your company’s salaries against market rates and adjust them as needed.

Visualization features can also help you spot patterns and trends, reduce manual workload, and allow HR and managers to make faster compensation decisions. However, remember to weigh the cost of such software against the potential cost of losing top talent to competitors before spending any money—smaller companies may not be able to justify this expense.

Step 11: Document and communicate findings with the relevant parties

Throughout the compensation review process, be sure to document your findings in detail. If you’ve discovered compensation gaps that need fixing, propose a plan of action. For instance, should the company offer compensation increases to all employees to reflect inflation or only to top performers? If there are inequities you must address, how will you do so?

Communicate your findings to stakeholders, make your final decisions, update employees, and discuss the amended compensation arrangements with them. Ensure these adjustments are reflected in all official documentation and HR systems, including payroll.

Tools and software for effective compensation analysis

The right compensation analysis tools and software can save you time, enhance accuracy, and improve decision-making. Here are some popular tools HR can use to streamline the process:

• AIHR’s free compensation plan template: This free customizable template can help you ensure fairness and consistency in your compensation review process and align pay with strategic organizational goals.
• AIHR’s free compensation package templates: This template, which you can download for free and customize in two formats, can help you detail and visualize all the details—from financial compensation and benefits to PTO and retirement planning.
• Mercer Comptryx: An online solution focused on international job benchmarking for tech and non-tech positions, Mercer Comptryx can offer insights into global pay and workforce metrics data. 
• PayScale: This AI-powered compensation software offers solutions like pay transparency, pay equity, compensation planning, and pay communications. 
• Salary.com: This all-in-one compensation software offers users access to global market data and surveys.

To sum up

A fair and transparent compensation review process builds trust, boosts retention, and ensures employees feel valued. By using accurate data and clear communication, you can reduce dissatisfaction, reward talent, and stay competitive.

Investing in this process benefits everyone—leadership, managers, stakeholders, and employees. It also keeps the workforce motivated, strengthens workplace culture, and supports long-term success for your organization.

The post Compensation Review: Your 11-Step Guide to a Fair and Effective Evaluation appeared first on AIHR.

This article discusses the importance of a detailed compensation plan template and how you can use it to benefit your company’s workforce. It also includes a free downloadable template to help you get started.

Contents
What is a compensation plan?
What is a compensation plan template?
Key elements of a good compensation plan template
7 steps to using a compensation plan template
Free compensation plan template
5 types of compensation plan templates
FAQ

What is a compensation plan?

A compensation plan is the sum of all cash and non-cash benefits an employee receives from their employer. In its most basic form, a compensation package consists solely of a salary. More comprehensive compensation packages include base pay and additional benefits, such as company bonuses, stock options, insurance, pension programs, parental leave, and more.

Compensation plans also detail how an organization pays its workers, when employees are eligible for raises, and the company’s bonus structure. 

Compensation planning is typically HR’s responsibility, though a larger organization may have a dedicated compensation and benefits team. It involves finding a strategic approach to balance the company’s financial interests and operational goals with attracting, retaining, and rewarding its employees through fair and competitive pay.

A strategic compensation plan can give organizations a competitive edge in attracting top talent, driving employee satisfaction and retention, and maintaining transparency and fairness.

What is a compensation plan template?

A compensation plan template gives organizations a framework for setting compensation objectives, goals, and targets.

The template is usually divided into various sections or tabs, including financial (or direct) compensation, benefits, retirement planning, and other benefits (e.g., gym memberships, meal plans, EAP programs, etc.).   

A compensation plan template enables companies to detail their compensation plan in a structured, standardized way. This offers organizations greater clarity, saves them time, and helps them ensure they don’t leave any component out of their compensation plans. 

Key elements of a good compensation plan template

A compensation plan is usually part of the tangible benefits a company’s employee value proposition (EVP) provides. Its definition, what it includes, and what the organization communicates to existing and prospective employees must align with the broader EVP. This ensures they receive the same message and information on what the company offers them.

“This is especially important if an organization can’t afford to include a wide range of benefits and perks in its compensation plan. In this case, the intangible parts of the EVP (e.g., career development, social impact, culture, etc.) must be in place to ensure the organization remains attractive to talent,” says Dr Marna van der Merwe, Subject Matter Expert at AIHR.

Here are some critical elements every compensation plan template should have: 

1. Financial compensation: The first section of the template should outline financial compensation for the employee. This refers to the employee’s salary, overtime pay, and raises.
2. Incentives and bonuses: This section should include potential commissions, performance bonuses, and other bonuses (such as signing or referral bonuses). 
3. Benefits: The second part of the template should describe the primary benefits included in the compensation package. Examples include health insurance, medical leave, dental care, workers’ compensation, disability coverage, and parental leave.  
4. Other benefits (and perks): These benefits will vary depending on the company designing compensation plans, but examples include professional development, meal plans, various memberships, flexible work options, and employee assistance programs.
5. Paid time off: The compensation plan should also include paid time off (PTO) to detail how many paid sick days, vacation days, paid federal holidays, and personal days the employee is entitled to per year.
6. Equity compensation: This template section should contain information about the company’s stock-related components if/when issuing equity or stock to their employees.
7. Retirement planning: This part of the template covers things like the employee’s 401(k) plan, pension, profit-sharing plans, and stock options (if applicable).

Together, these elements ensure an organization’s compensation plan is comprehensive, transparent, and adaptable to different business needs.

7 steps to using a compensation plan template

According to Dr Van der Merwe, the steps to using a compensation plan template can be split into three clusters: analyze, design, finalize, implement, and monitor. Doing so will help you better structure your template and offer greater clarity on the different aspects of the compensation package.

Here are the following steps to follow when using this template:

First, analyze

Step 1: Decide on the right template for your company’s needs

The appropriate compensation plan template is crucial in creating an effective compensation plan. Think critically about which template aligns best with business objectives, different employee roles, and industry standards. 

To select the correct template, you must clearly understand your company’s compensation philosophy. For instance, if the organization prioritizes high performance, an incentive compensation plan template is likely the most suitable.

For broader employee compensation, opt for a total compensation plan template. Choosing the wrong template could result in misaligned compensation structures, employee dissatisfaction, or financial inefficiencies.

Step 2: Gather the necessary data

You’ll also need to gather data on your existing compensation structure to create a compensation plan template that includes all the relevant elements of your current plan.

“This analysis should include the ‘as-is’ of your current compensation plan, as well as industry benchmarks and an understanding of employee needs or what your talent audience most values,” says Dr Van der Merwe.

Take into account information about:

• Financial compensation (salary, commissions, bonuses)
• Benefits (health insurance, various types of leave)
• Other benefits (professional development, transportation)
• Retirement planning (401k plans, profit-sharing)
• Equity compensation 
• Legal and compliance requirements.

To ensure your organization stays competitive in terms of compensation and benefits, use this opportunity to review industry standards and, where possible, align with them to make your company more attractive to talent.

Then, design

Step 3: Customize the template 

Existing templates are a great starting point, but you must customize them to meet your organization’s needs fully. This ensures they correctly reflect your company’s compensation philosophy and every component of employees’ pay packages.   

For example, if your company doesn’t offer equity compensation and the standard template you use includes this section, you can simply remove it. If you’re a U.S.-based company offering 401(k) plans that aren’t included in the basic template, you should add this element.

If your organization operates in multiple locations globally, you should make your compensation plan template easily adaptable to match the legal requirements and employee needs in each location.     

Step 4: Define performance metrics 

If any aspect of your company’s employee compensation is tied to performance, the template should also include the employee performance metrics used to assess employee performance.

Ideally, your organization would evaluate employee performance based on predetermined and approved performance metrics. In this case, the definitions of those metrics in the compensation plan template should match those used in the performance management process.

Finalize, implement, and monitor

Step 5: Ensure both the compensation plan and its template are legally compliant

Before implementing a compensation plan template, ensure it complies with the laws and regulations of your company’s geographical location(s).

In France, for instance, employers are legally required to provide employees with meal vouchers unless their workplace has a canteen or the employer provides a meal stipend. Therefore, if your company operates in France, its compensation plan template should include these meal vouchers in the ‘Other benefits’ section.

To ensure your compensation plan template aligns with local labor laws, you must familiarize yourself with the relevant regulations. If your company has a larger budget, suggest engaging professional legal services or expert consultants. This will help your organization avoid costly legal issues that could significantly affect its employer brand.   

Step 6: Review and validate the framework 

Once you’ve finalized the compensation plan template, review and validate the designed framework to ensure it’s relevant to the target audience. You can do this by testing the template on a small group of employees (e.g., a specific team or staff in similar roles).

Piloting the template within your company’s People team is a good idea, as fellow HR practitioners are well-suited to help you refine it before rolling it out to the rest of the organization.

Step 7: Test different scenarios

Compensation plans and templates may need adjusting from time to time. Whether the organization runs into unforeseen issues or an employee’s personal circumstances change, you may have to alter your company’s plan to adapt to these changes.

Some examples where this would apply include promotions, transfers, and mergers and acquisitions. In all these cases, you must update the compensation plan template to reflect the new situation adequately.   

Consider these possible scenarios when developing a compensation plan and templates, then test them wherever possible. Additionally, consider which scenarios are more likely to happen. For instance, since employee promotion is more likely to occur than another organization acquiring your company, it makes more sense to prioritize testing your template in this context.

Free compensation plan template

We’ve developed a free compensation plan template (Word doc) that you can use to develop your own company compensation package.

HR tip

When developing a compensation plan template, involve employees in the review phase. For example, ask them if the definitions you included in the template are clear and if they have any suggestions to improve the document.

5 types of compensation plan templates

Here are five commonly used types of compensation templates:

1. Variable compensation plan template: Companies use this template when employee pay includes performance-based incentives (e.g., commissions and bonuses).
2. Employee compensation plan template: This type of template is suitable for small departments. It usually covers all benefits, individual employee compensation, and the role’s performance expectations.
3. Incentive compensation plan template: You can use this template to lay out your organization’s sales compensation structure. Companies use it to align their incentives with higher objectives and describe their sales commission structure.  
4. Executive compensation plan template: Companies often use this template to structure compensation plans for executives, like the VP of Marketing or Sales. 
5. Total compensation plan template: This template provides a comprehensive overview of an employee’s total compensation package.  

To sum up

Using a clear compensation plan template can make a big difference in how your company handles pay and benefits. By laying out each part of the compensation package, you can ensure everyone knows the details and help your organization stay remain compliant. 

Additionally, customizing the template to fit your company’s needs means nothing is left out, making the whole process of pay and benefits more manageable. This also helps your organization make smarter decisions, stay flexible, achieve financial goals, and meet employee expectations.

FAQ

The post Your 7-Step Guide To Using a Compensation Plan Template (Plus Free Template) appeared first on AIHR.

Organizations must make sure they’re paying their employees correctly and on time, and comply with ever-changing employment laws and payroll regulations. Although Payroll is sometimes a separate department from Human Resources, they must both work together on payroll audits to ensure accuracy and compliance.

In this article, we’ll explore what a payroll audit is, different types of payroll audits, their purpose, and how to conduct one. We’ve also included a handy downloadable payroll audit checklist.

Contents
What is a payroll audit?
What are the main payroll audit objectives?
How to conduct an effective payroll audit
Payroll audit checklist

What is a payroll audit?

A payroll audit is a regular review of all payroll records to ensure all employees are paid correctly, all deductions and reports are accurate, all information is up to date, and the organization is compliant with tax laws. Sometimes, mistakes can continue for months or even years without discovery, which can result in legal issues or incorrect financial statements. The good news is you can catch mistakes early with a payroll audit, which should be an indispensable part of your company’s compensation and benefits strategy.

While audits may sound intimidating, most payroll audits are simple internal checks on the accuracy of the organization’s data. Payroll audit procedures can take a few minutes to a few weeks, depending on the size of your organization and the extent of the audit. For faster responses, Payroll and HR can automate some audit checks.

Although the Payroll department is typically responsible for running payroll audits in larger organizations, HR must also be involved. Why? Because HR communicates pay to employees, and there can be errors between what HR or a manager tells an employee and what ends up in the payroll system. For instance, a hiring manager may negotiate a higher salary for a candidate than stated in the initial offer letter but fail to notify HR. Pay is also a sensitive subject, so HR must be involved in resolving employee concerns and ensuring all necessary communications take place. 

Types of payroll audits

There are different types of payroll audits, each with different purposes. The two main types are:

Internal payroll audits

An organization’s staff conducts an internal payroll audit to assess and improve payroll processes. This lets the business know where it stands, and helps it to identify and rectify problems as early as possible. 

External payroll audits

In this case, an organization hires third-party auditors to conduct an external payroll audit to provide an independent assessment of the its payroll practices. Having fresh eyes can be beneficial for spotting errors internal employees may have overlooked. Typically, the company’s management, board of directors, or audit committee hires these external auditors to ensure compliance, accuracy, and integrity in payroll processing.

Another type of payroll audit is an audit by a government agency or another regulatory body. In the U.S., the following organizations are examples of authorities conducting payroll audits:

• Internal Revenue Service (IRS): Conducts audits to ensure compliance with federal tax regulations.
• Department of Labor (DOL): Ensures compliance with wage and hour laws, such as the Fair Labor Standards Act (FLSA).
• State Labor Departments: Each state may have its own labor department responsible for enforcing state-specific payroll regulations.

What are the main payroll audit objectives?

Everyone wants accurate pay, properly withheld taxes, correctly calculated health insurance, and legal, accurate deductions. Let’s dive deeper into the main objectives of conducting a payroll audit.

Ensure accurate tax reporting and deposits

• In the U.S., for instance, each employee has to fill out a W-4 tax form, which allows payroll to apply the proper tax deductions. You can check this during a payroll audit.
• The system must match employee requests. Each state has different tax laws, and in some states, each town has different deductions for payroll taxes. 
• One important part of the payroll audit is working location. If employees work from home permanently, their state and local tax deductions may differ from those applicable to employees who work at a designated office or place of business. That’s why you need to know not only an employee’s salary but also their working location.

Ensure compliance with employment laws and other regulations

• A payroll audit helps you determine the following: Did everyone who was entitled to overtime pay receive it? What about employees who work piece-rate? Do you have both their productivity data and their hours?
• If employees are subject to a tip credit, you should ensure their combined tips and hourly pay add up to at least the state minimum wage.
• If a company provides employees with health insurance, Health Savings Accounts, or retirement plans, you must make sure the deductions are correct. You also need to ensure the money goes where it is supposed to — is the health insurance company receiving the proper payments? Is the retirement money placed directly in each employee’s 401k account?
• If an employee has a court-ordered garnishment, you must ensure it’s correct. Garnishments can be for anything (from an unpaid debt to child support) and can change with court orders. You must make sure you’ve accurately applied all court-ordered garnishments

Provide workers with accurate data

• Employees need accurate pay records. Each paycheck should come with a paystub (either on paper or electronically) that covers all details of their pay, including hours worked, overtime paid, and explanations of all deductions.
• At year-end, Payroll needs to provide tax documents with this information. Employees should conduct a self-audit and notify payroll if anything is amiss, but this doesn’t always happen. Periodic payroll audits throughout the year can prevent many of these problems.

Uncover potential errors and inaccuracies 

• A thorough audit can help you uncover payroll fraud. Is everyone receiving a paycheck an actual employee? People have embezzled from companies through ghost employees. Are any terminated employees still on your payroll?
• Is everyone working precisely 40 hours a week? It’s unusual for everyone paid by the hour to work precise hours every week. This can indicate they are not receiving earned overtime or are being paid more than is due to them.
• Was an extra zero added to someone’s paycheck? Typos happen!

Uncover common payroll issues

• Have you classified your workers accurately? Within an organization, employees often have different types of contracts that include different compensation conditions. 
• Employees are either nonexempt or exempt from minimum wage and overtime pay. Those who are nonexempt must receive at least minimum wage for every hour worked and overtime when working more than 40 hours in a week. in the U.S., improper employee classification can leave the employer liable to pay affected employees all unpaid overtime for up to three years before the date of their claims.
• It’s easy to make miscalculations when it comes to hours worked, overtime rate, and differential pay, especially if these rates change (for example, a higher rate for Sundays or public holidays). 
• Are all your employees in the correct tax bracket for their earnings? Promotions can move an employee into a new tax bracket. 
• Late payroll reporting or non-reporting can lead to a delay in salary payout, as well as government penalties.

Preparing for a successful payroll audit

Here are some steps to help you prepare for a payroll audit. 

Create your timeline

Although you can conduct a payroll audit at any time, most companies complete this at the end of their financial year. The “lookback” period is typically one year, though this varies from one business to another. The longer the audited period, the longer the payroll audit will take to complete. 

If you are about to conduct your first payroll audit or experiencing issues with your current payroll processes, you could benefit from conducting an audit quarterly or semi-annually so you can diagnose and resolve problems sooner. 

Assemble your team

The next step is to decide who will conduct your payroll audit. Businesses with a dedicated payroll, HR, accounting and executive management team will likely complete the audit themselves. Smaller businesses may enlist help from an external auditor.

If you have a combination of people from different departments involved in the auditing process, make sure deadlines are set for everyone’s separate tasks to keep the process on track. 

Identify key areas of focus for the audit

If you have some problems in your current payroll processes, you should focus on key areas like your payroll systems, tax contributions, financial ledgers, and time and attendance records.

Gather necessary documentation and information

Here are some documents and types of information you should gather for your payroll audit:

• Employee rosters
• Payroll registers (including employee pay, overtime, deductions, taxes, etc.)
• Timesheet data (hours worked and days off)
• Financial ledger and bank account reconciliations

You should be able to get most of this information from your payroll or ERP software.

How to conduct an effective payroll audit

Follow these steps in order to run a comprehensive payroll audit in your organization:

1. Review employee data

This step requires communication between HR and Payroll to ensure the data payroll matches the information the employee receives. Unlike sending spreadsheets back and forth, connected systems minimize the chances of error and make this step more efficient.

If your Applicant Tracking System (ATS) is not integrated with your HR and Payroll systems, you should verify the relevant information against employee offer letters. Check whether everyone on the payroll is an active employee and whether they are classified correctly (exempt vs. nonexempt, full-time vs. part-time, etc.). Ensure people who are on leaves of absence receive the correct pay as well, especially if this differs from their regular paycheck.

2. Review hours worked and paid

Verify hours worked using timesheets and ensure they’re in line with the amounts paid. This is especially important for employees earning hourly wages. Too many employees with identical time cards can mean someone is editing the time cards, in which case, HR should investigate potential time theft. Watch out for indications of buddy punching, too.

3. Check variable payment and different types of compensation

You must thoroughly check overtime pay, bonuses, commissions, and piece-rate information. If the organization hires tipped employees, make sure they report their actual earnings for more accurate data. If your company does vacation pay or shift differentials, be sure to check this as well.

Remember, overpaying can be just as stressful as underpaying. No employee wants to have to repay money they may have already spent or saved because of mistakes on Payroll’s part six months ago that led to employees being overpaid.

4. Examine and document atypical payroll transactions

This is another area with high fraud potential, and usually invovles signing bonuses, relocation pay, back pay, and previous corrections. If you process reimbursements through the company’s payroll, double-check that this is accurate. It may require liaising with the finance department or whoever handles reimbursements.

5. Check tax withholdings and deposits

Are you withholding the correct amount for your employees? Are you paying the right amount of income taxes? These numbers can change, especially if people move or the rules change. Keep in mind that due to differences in work locations, an employee who is classified as working at the office may have completely different tax withholdings from an employee who is classified as working from home.

6. Reconcile payroll

Review your organization’s bank activity. Do its bank statements match its payroll records? Do you have proper documentation for all direct deposit change requests? Double-check all your documentation and make sure everything adds up.

7. Consider payroll rules

Payroll rules are especially critical if the government audits your company. These rules vary by state and country, so make sure your organization is compliant with the regulations where it operates. Of course, these rules are even more complex for multinational organizations. Failure to adhere to these regulations can result in significant fines and legal repercussions.

8. Report the findings

Create a payroll audit report and share it with key members of staff, including the heads of HR and Finance. Keeping documentation of audits can be useful in case problems, such as a lawsuit, arise later.

9. Identify improvement opportunities

Think about how you can improve your payroll processes going forward. What has your payroll audit taught you? What are you doing well, and what can be improved? Automation is becoming increasingly popular in payroll management as it helps minimize inaccuracies and errors. An all-in-one HRIS (Human Resources Information System), payroll system, or accounting software can substantially reduce data errors. 

10. Create a plan for implementing improvements

Once you know which improvements must take place, create a plan of action for making those improvements. Consider timelines, budget, and key stakeholders who need to sign off on proposed changes. Implement improvements based on order of priority, beginning with the most pressing changes that will make the biggest impact. 

Payroll audit checklist

Based on the payroll audit process outlined above, we’ve created a payroll audit checklist template in Excel to follow so you can stay on track and ensure you conduct a thorough, effective audit for your organization:

Here’s the full payroll audit checklist, which you can adapt to suit your organization’s needs:

Over to you

A fundamental understanding of payroll audit allows HR professionals to identify opportunities for improvement and ultimately, ensure compliance and boost employee experience.

Payroll and HR need to maintain a good working relationship to ensure that everyone is paid fairly and on time. Your employees deserve it.

Use our downloadable payroll audit checklist to stay on track, ensure your payroll audit procedures are effective, and remain compliant. 

FAQ

The post Payroll Audit: Checklist & How To Run It [Free Template] appeared first on AIHR.

In addition to increasing productivity and decreasing turnover rates, a well-structured employee incentive program can attract quality candidates to a company. It shows them that the employer appreciates and seeks to reward employees who exceed expectations, and it would likely motivate them to join the organization and perform well.

Contents
What is an employee incentive program?
The benefits of employee incentive programs
21 examples of employee incentive programs
– Wellness incentive programs
– Points-based incentive programs
– Sales incentive programs
– Gift card incentive programs
Developing an effective employee incentive program: Best practices

What is an employee incentive program?

An employee incentive program is a concrete way to recognize and reward employees for outstanding workplace performance that exceeds expectations. These could include exceeding sales targets, creating novel solutions, exceptional customer service, or going above and beyond to help fellow employees. Top performers may receive rewards in the form of financial bonuses, gift cards, extra days off, or professional development opportunities.

HR professionals can implement employee incentive programs regularly (monthly, quarterly, or annually) or on an ad hoc basis. They can also design these programs to cater to individual, team, and departmental achievements, with specific types of rewards for employees in these different categories.

For instance, individual awards celebrate outstanding performance by individual employees, while team rewards recognize team effort and promote collaboration. Departmental rewards, on the other hand, acknowledge excellent results from specific departments, fostering a sense of ownership and accountability within each one.

Generally, employee incentives come in monetary or non-monetary forms to suit diverse preferences.

• Monetary incentives, like bonuses or profit-sharing, offer employees concrete financial rewards
• Non-monetary incentives, such as public recognition or paid time off, can further motivate employees and make them feel valued.

The benefits of employee incentive programs

Apart from improved employee morale and motivation, employee incentive programs present a few other significant benefits:

• Greater productivity: Employees who feel valued usually also feel more motivated to be productive and perform to the best of their abilities.
• Cost reduction: While employee incentive programs require financial investment, they ultimately help companies save money by decreasing turnover and absenteeism, improving efficiency and work quality, and enhancing customer satisfaction.
• Talent retention: Companies with high employee satisfaction can avoid unnecessary hiring costs, as their turnover rates tend to be low. Employees who know they’re appreciated are more likely to stay with a company. 
• Greater talent attraction: A robust employee incentive program signals to potential hires that your organization invests in its employees’ success, making it even more attractive to them. 
• Improved company culture: Employee incentive programs can help create and reinforce a culture of motivation, self-management, ownership, belonging, and responsibility among employees. 
• Strategic goal achievement: Employee incentive programs can target specific goals to support your organization’s strategic development
• More effective collaboration: A variety of incentive programs aimed at individuals, teams, and departments can encourage employees to collaborate cross-functionally and more effectively.

21 examples of employee incentive programs

Below are 21 employee incentive program examples to inspire you when developing similar programs for your organization. They fall into four broad categories:

• Wellness incentive programs
• Points-based incentive programs
• Sales incentive programs
• Gift card incentive programs.

Employee wellness incentive programs

Employee wellness incentive programs usually cover physical, emotional, and mental wellbeing initiatives. They revolve around the idea that when employees feel their best, they are much more likely to give their best at work.

1. Fitness incentives

Employees receive free or discounted gym memberships or subsidies for exercise classes like spin, yoga, or Pilates. Organizations also provide company-wide fitness challenges or sponsor local races, creating a sense of camaraderie and healthy competition among employees.

HR tip

When working on fitness incentives, highlight their benefits and communicate their availability to employees. Offer flexible hours for exercise schedules to increase participation rates.

2. Health incentives

Employers reward employees for adopting healthy habits and achieving health goals. Some examples include losing weight, normalizing blood pressure, lowering cholesterol levels, or quitting smoking. A RAND Corporation study found that employers who offered their employees health incentives reported a 22% higher average participation rate in wellbeing programs than employers who didn’t offer similar incentives.

3. Mental and emotional wellness

Companies can offer Employee Assistance Programs that provide confidential counseling to help employees manage work anxiety or personal challenges. It can also include conducting mindfulness workshops to teach mindfulness techniques and stress management strategies. Employees may also get paid mental health breaks or free access to meditation or mindfulness apps to support mental wellbeing.

4. Financial wellness

Financial wellness incentives usually cover financial literacy, goal and debt management, and retirement planning. Companies may host budgeting, saving, and debt management workshops. They may also offer financial aid to assist employees in managing their student loan debts or provide emergency relief funds to support them through sudden financial loss.

5. Social and community wellness

Some companies grant employees paid time off to volunteer for causes they care about, fostering social connection and purpose. They may also host charity events requiring company-wide participation to promote philanthropy, social interaction, and team bonding.

Points-based employee incentive programs

Points-based incentive programs reward employees for goal achievement, project completion, or exceptional performance. Employees can earn points for their accomplishments (similar to how customers earn points with loyalty programs).

6. Milestone rewards

Employees receive rewards in the form of points when they hit major career milestones, such as work anniversaries or significant contributions to important projects. Employees can cash their accumulated points for monetary or non-monetary rewards like cash or gift/dining/shopping vouchers, etc.

7. Peer-to-peer appreciation

You can encourage your employees to appreciate and reward their peers with points for exceptional teamwork or cooperative behavior. These points can then be redeemed for a range of gifts or perks. This type of employee incentive program enhances collaboration and promotes company culture among employees. 

8. Meeting customer satisfaction goals

Employees who consistently receive high customer satisfaction ratings earn points redeemable for experiences like spa days, weekend getaways, or buffet dinners. Some companies may also allow these employees to exchange their points for additional paid time off or exclusive company merchandise.

9. Employee referral program

Employees who successfully refer their friends and colleagues (former or current) to their employers for open positions can receive points they can use for cash gifts, additional paid time off, or company merchandise.

An employer may decide to reward points for referrals on a tiered basis, meaning an employee receives points when their referral:

• Completes and submits a job application
• Completes or passes an interview
• Is hired
• Completes their onboarding process.

10. Learning and development program

Employees get points for completing online courses or attending workshops. They can then redeem these points for subscriptions to industry publications, professional certifications, or coaching sessions.

Employee sales incentive programs

This type of incentive program rewards sales staff for performing at a higher-than-expected level and exceeding their monthly, quarterly, or yearly sales targets. Often part of a broader sales compensation plan, a sales incentive program may offer specific rewards for particular achievements (e.g., a 10% increase in conversion rates).

11. Role-specific incentives

Such initiatives reward sales reps based on their capabilities using a tiered monetary incentive scheme, which features a higher reward for every subsequent milestone reached. The purpose of this type of initiative is to motivate sales leaders to outperform themselves.

12. Omnichannel sales incentives

Omnichannel sales incentives reward sales representatives for their contributions at different stages of the buyer’s journey, including interactions through digital sales channels. The aim is to recognize and compensate the reps not only for closing sales but also for their roles as online consultants and advisors during the early stages of the purchasing process, even when they are not involved in the entire transaction.

13. Sales commissions

Sales commissions are rewards for sales staff based directly on their sales volume. Commission structures and amounts vary by industry and are typically calculated as a percentage of each sale amount (in addition to fixed monthly pay). You can also arrange tiered incentives for exceeding targets or achieving sales for specific products. 

14. Sales spiffs

These entail short-term bonuses for achieving specific goals within a limited timeframe. An example of this is awarding cash bonuses to sales reps for selling a certain number of high-margin products in a single week.

HR tip

Implement a leaderboard that tracks individual sales performance to create competition and excitement in your incentive program. Top performers can win prizes, bragging rights, and early access to new products or sales territories. You can also gamify the process with points, badges, and virtual challenges. 

15. Team sales goals

Some sales managers or leaders set collective sales targets for their whole team and reward them once they reach these targets, with possible additional rewards for exceeding them. This fosters collaboration and a sense of shared responsibility, ownership, and success across the entire sales team.

16. Team profit sharing

This involves implementing a profit-sharing model in which team members share a particular portion of the profits generated from team sales. This directly links their efforts to financial rewards and motivates sales reps to hit and even exceed their targets.

Employee incentive gift card programs

Many companies use employee incentive gift card programs, allowing staff to choose rewards. 69% of employees say they would appreciate gift cards from their employers.

Here are some examples: 

17. Closed-loop gift cards

Closed-loop gift cards are exclusive to one specific store or brand. You can arrange their issuance and distribution via a partnership between the organization and other businesses (usually retail, F&B, tech, or grocery stores).

18. Open-loop gift cards

Typically branded with a credit card network like Visa or Mastercard, these gift cards can be redeemed across multiple brands (unless specifically restricted). Unlike closed-loop gift cards, employees have the flexibility to redeem these wherever the affiliated cards are accepted.

19. Employee of the Month gift cards

Gift cards are a popular choice of reward for employee of the month programs as they allow the recipients to choose rewards they personally appreciate. Some online retailers, such as Amazon and eBay, offer these types of gift cards.

20. Perfect attendance gift cards

Some companies use gift cards to reward employees who achieve perfect attendance, either for a whole quarter or a year. These gift cards are often for relaxation or entertainment purposes (e.g., spa days or cinema vouchers).

21. Spot bonuses

Some employers issue immediate digital gift cards or gift certificates to top-performing individual employees for on-the-spot recognition of their outstanding work. Known as a spot bonus or spot award, this is a quick and easy but effective way to boost employee motivation and morale, as it typically leads to greater productivity and job satisfaction.

Developing an effective employee incentive program: Best practices

Determine your goals

The first step in creating the kind of incentive program your company needs to develop is to identify what you are trying to accomplish. Remember that the employee incentives you develop should support the business’s overall objectives. For instance, if your company strives for innovation, the program could reward employees who introduce new ideas.

Find out employees’ priorities

Employees have different needs and preferences, so a one-size-fits-all approach rarely works. Understanding what your staff values can help you craft an incentive program that resonates with them to get the most out of it. 

Use employee engagement surveys to help you decide on the most effective incentives: cash bonuses, gift cards, or additional paid time off. Do your company’s employees value entertainment perks or flexible work schedules? And do they prefer public recognition programs or more private types of appreciation? 

A flexible package may be the best option, as it would allow employees to choose the incentives they like most. Include a mix of financial incentives, time-off options, wellness perks, and professional development opportunities. Communicate how the incentives work and how they can choose the rewards. 

Evaluate your options based on gathered data

Understanding employees’ priorities helps you make informed decisions about your incentive program. It’s essential to identify which incentives fit their needs while ensuring they align with your organization’s goals. For example, if the main objective is to boost company sales, prioritize incentives that motivate employees to close more deals. 

Other things to consider when designing your incentive programs include:

• How much are you willing to spend to get the most value?
• How easy is it to implement your incentive program?
• Can it be adjusted to accommodate changing business needs or a growing workforce?

Get feedback on your shortlisted ideas

Once you’ve narrowed down your options, get employee feedback on your program ideas to decide which one to develop and implement.

Be sure to get employees’ opinions on each aspect of your different program ideas so you can get a well-rounded, comprehensive picture of what they want (you can use conjoint analysis for this). Once you’ve evaluated your options, consider pilot testing them first to identify any issues early, then introduce them in stages so you can adjust them based on continued employee feedback.

Ensure fairness throughout the process

Ensure rewards and incentives are distributed fairly to avoid demotivating employees, which would reduce your incentives’ effectiveness. Establish clear and transparent criteria for earning rewards to ensure fairness in your program.

For instance, if the goal is to improve sales, rewards could be based on exceeding sales targets. Communicate the program rules, criteria, and reward distribution process openly to all employees and apply them consistently. 

Maintain and update the program regularly

Request feedback regularly so you can modify or update the program according to your employees’ changing needs. Track which incentives are the most effective so you can continue using them, and eradicate those you find to be the least effective.

If possible, automate feedback collection to make submission more efficient and convenient. One way to achieve this is to distribute surveys at regular intervals.

To sum up

A well-designed employee incentive program isn’t just about handing out rewards. It’s about understanding your workforce, aligning incentives with company goals, and fostering a culture of recognition and appreciation.

By prioritizing employee needs and preferences, ensuring fairness, and measuring program effectiveness, you can create a powerful employee incentive program to motivate your team, boost morale, and drive business success.

The post The 21 Best Employee Incentive Programs [+ Real-Life Examples] appeared first on AIHR.

Fair compensation is necessary as it is a fundamental driver of employee morale and job satisfaction. Consider that 44% of organizations lose employees because they don’t provide competitive salaries, while employees who believe they are paid fairly are 30% more likely to be satisfied with their jobs.

Contents
What is salary benchmarking?
Why is salary benchmarking important?
How to benchmark salaries
Best salary benchmarking tools and free calculators

What is salary benchmarking? 

Salary benchmarking — also known as compensation benchmarking or pay benchmarking — is the process of evaluating a company’s internal salaries based on their external value. This involves comparing job descriptions and pay ranges with those of similar positions in other organizations within the same industry.

Organizations use compensation surveys, government labor databases, and compensation consulting services to gather accurate job market data. This data helps establish competitive salary packages that ensure employees receive pay comparable to what competitors offer for similar roles.

HR professionals use salary benchmarking to assess and enhance the competitiveness of their organization’s compensation packages. Collecting and analyzing this data allows them to create salary packages aligned with company budgets, helping their organizations remain productive and profitable.

Factors that influence salary benchmarking

1. Industry: Salaries can vary significantly between industries due to differences in market demand, profitability, and the complexity of roles within each sector.
2. Geographical location: The cost of living, availability of talent, and local economic conditions in different regions can significantly influence salary levels for similar positions.
3. Company size: Larger organizations often have more resources and may offer higher salaries than smaller companies, which usually have smaller budgets.
4. Education levels: Positions requiring higher levels of education and expertise tend to command higher salaries.
5. Cost of living: Companies with offices in areas with a higher cost of living often offer higher salaries to attract and retain employees.
6. Scope of responsibilities: Jobs with broader or more complex responsibilities typically offer higher compensation to reflect their heightened expectations of employees in those positions.
7. Specialized credentials or required skills: Roles that require unique skills or certifications tend to offer higher pay to attract individuals with the necessary qualifications and expertise.

Why is salary benchmarking important? 

Salary benchmarking is essential to help your organization remain competitive and retain top talent by providing you with crucial information on the salaries your competitors offer. Understanding these benchmarks will help you develop attractive compensation packages, streamline your recruitment process and minimize the need for prolonged or aggressive hiring efforts.

Offering competitive salaries based on benchmarking data also boosts employee morale and job satisfaction. When employees feel they are compensated fairly and in line with industry standards, they are more likely to be engaged and motivated, leading to improved performance and retention.

Regular salary benchmarking keeps your organization’s pay structures fair and aligned with current market trends. This is vital in a dynamic job market as it helps you remain responsive to changes in industry pay standards. Additionally, it helps you determine costs associated with new hires so you can develop effective strategies to attract and retain top talent while remaining within budget constraints.

Understanding market compensation trends enables you to make informed decisions on salary offers, ensuring both competitiveness and financial prudence. Salary benchmarking is also crucial for compliance with state and federal labor regulations. It ensures your company’s pay practices meet legal requirements, reducing the risk of potential disputes or penalties arising from compensation discrepancies.

HR tip

While sharing salary information amongst industry peers can be risky and sensitive, you can obtain such information through less conventional methods, like Reddit threads. However, do bear in mind that this is just one source of data you can use in your salary benchmarking research — you should not treat it as a single source of truth.

How to benchmark salaries

Develop a salary benchmarking plan

A comprehensive salary benchmarking plan is essential for a successful benchmarking process. You must clearly define both long- and short-term objectives and align them with your organization’s strategic goals. Establishing and adhering to a strict timeline is also crucial for salary benchmarking, especially in a rapidly changing job market where data can quickly become obsolete.

Include a detailed budget to ensure you have sufficient financial resources to acquire quality data. This might include subscribing to salary surveys, investing in benchmarking software, or engaging consultants. Identifying necessary resources (including team members, tools, and technology) can help prevent delays and facilitate the smooth execution of each phase.

Create clear job descriptions

Clear and accurate job descriptions form the basis for comparing your internal roles with external market benchmarks. Detailed descriptions outlining responsibilities, required skills, and relevant qualifications help you match internal positions more precisely with similar roles in other organizations. This precision is critical because job titles alone can be misleading, often encompassing different responsibilities across different organizations.

In-depth job descriptions also enhance internal clarity by aiding employees’ understanding of their roles, which can boost job satisfaction and performance. Regularly updating job descriptions ensures they align with current industry standards and evolving role expectations, enhancing your benchmarking data’s relevance and applicability.

Consider your data sources

Appropriate data sources are crucial for effective salary benchmarking, as the quality and relevance of your data directly impact the accuracy of your benchmarks. Using multiple reliable sources—such as industry-specific salary surveys, government labor databases, and aggregated employer-reported data—provides a comprehensive view of salary trends across different sectors and regions.

Employee-reported crowdsourced data offers additional insights into broader market trends and emerging salary expectations. Regularly updating your data sources ensures your benchmarks reflect current market conditions. This helps you align your compensation strategies with prevailing salary norms and maintain organizational competitiveness.

Analyze compensation data

Effective salary benchmarking starts with identifying roles that require benchmarking and then gathering relevant data from reliable sources. Comprehensive data collection helps your benchmarks accurately reflect market conditions. Additionally, prioritizing roles of strategic importance or with high turnover rates allows you to focus on positions that significantly impact organizational success.

Using multiple sources, such as salary surveys, industry reports, and data-sharing networks, provides diverse salary data covering different aspects of compensation. Benchmarking software, like Pave and Hibob’s compensation management tool, can facilitate efficient data aggregation and analysis, simplifying the interpretation and application of setting attractive salary ranges.

At the same time, regular updates to data collection methods and incorporating emerging data sources will ensure your benchmarks remain accurate and relevant. Trusted salary data sources include surveys from Mercer, Payscale, and the Bureau of Labor Statistics.

Establish a compensation strategy

Aligning salary benchmarks with your organization’s goals is essential for developing a strong compensation strategy. This alignment ensures that salary structures support broader objectives like growth, retention, and competitive positioning — all while remaining financially sustainable. HR professionals can integrate benchmarking data to create salary packages tailored to the organization’s needs.

HR tip

Use exit interviews to understand why employees leave, especially if there are compensation-related reasons. This feedback can provide direct insights into whether your organization’s salaries are competitive. Ask departing employees about their new offers and what influenced their decision to leave, then use this information to adjust your compensation packages and increase your chances of retaining future talent.

Balancing competitive salaries with budget constraints helps attract and retain talent without compromising financial health. Consider factors such as company size, geographic location, and current salary structures to ensure salary decisions are in line with market conditions and organizational objectives.

Set salary ranges

Setting salary ranges involves defining the minimum and maximum pay for each role based on market data and job requirements. This process ensures competitive and equitable compensation, which is crucial for attracting and retaining talent. Using benchmarking data, you can set salary ranges that reflect market values while accommodating different experience levels and skills.

HR tip

Regularly review competitors’ job advertisements to understand the salary ranges they are offering for similar positions. This provides a benchmark for your own salary structures. Set up alerts on job boards and company career pages for roles similar to those in your organization to monitor changes and trends in offered salaries, ensuring you remain competitive in the job market.

Creating salary bands for entry-level, mid-level, and senior positions within each role provides both flexibility and structure, ensuring fairness and internal competitiveness. Regularly reviewing and adjusting salary ranges also helps maintain alignment with market trends and internal changes, as well as overall fairness.

Additionally, adjusting salaries for geographical differences aligns compensation with cost-of-living variations. However, do note that this practice is now changing, as some companies with remote workforces tend to keep salaries for similar positions the same regardless of their employees’ locations.

Document everything

Documenting your salary benchmarking process and its outcomes is essential for transparency and organizational trust. A detailed report must outline your methodology, data sources, and findings in order to support salary adjustments or recommendations with solid evidence.

Maintaining detailed records of surveys, data sources, and analyses ensures consistency and provides a valuable reference for future salary reviews and adjustments. This thorough documentation is critical for demonstrating that salary decisions are not arbitrary but grounded in rigorous analysis.

Sharing this documentation with management and stakeholders helps build understanding and support for proposed salary changes. It ensures everyone involved is informed about the basis of these decisions and bolsters the credibility of the salary benchmarking process.

Best salary benchmarking tools and free calculators

To sum up

Salary benchmarking helps build a stable, motivated workforce and reduces employee turnover costs. By aligning your compensation plans with market standards, you make employees feel valued and satisfied. Competitive salary packages help attract top talent, streamline the hiring process, and enhance overall employee morale and job satisfaction. The results are higher engagement, better performance, and improved retention rates — all crucial for organizational success.

Salary benchmarking also ensures compliance with state and federal labor regulations, reducing the risk of legal disputes or penalties related to compensation discrepancies. Regularly updating your salary benchmarks keeps your pay structures fair, competitive, and aligned with current market trends. This helps your organization stay responsive to changes in industry pay standards, supporting broader organizational goals and building a culture of fairness and transparency.

The post Salary Benchmarking Guide: How To Pay Your Employees Fairly appeared first on AIHR.

A good compensation philosophy reflects a company’s culture, strategy, and human capital needs. It also provides a framework for setting competitive pay standards, defining the roles of various compensation elements, and aligning these with the company’s values and objectives. However, organizations that do not have compensation policies in place or are not transparent about how they pay employees can quickly lose trust (and talent). According to a Gartner survey, only 32% of employees believe their pay is fair and that organizational trust is the main driver of employee perceptions of pay equity.

The good news is that, as an HR professional, you can help your organization become an employer of choice by following in the footsteps of market leaders.

Contents
What is a compensation philosophy?
Compensation philosophy template
Compensation philosophy examples: Companies regularly voted ‘best places to work’
Hubspot
Wells Fargo
Buffer
TD Bank
Gitlab
Sourcegraph
Affirm
Basecamp
DHL Express
IKEA
AbbVie
NVIDIA
Adobe
Accenture
8 steps to develop your company’s compensation philosophy

What is a compensation philosophy?

A compensation philosophy is a formal statement that defines an organization’s approach to employee compensation. It aligns pay and reward practices with the company’s values, goals, and competitive strategies. The philosophy serves as a framework to ensure that compensation supports the organization’s business objectives and meets workforce needs (including base pay, variable compensation, and benefits).

The philosophy also emphasizes equity and fairness in pay practices, ensuring compliance with legal standards and competitive market positioning. By clearly communicating this philosophy, HR can help enhance job satisfaction, build trust, and drive performance, contributing to overall success and sustainability.

Compensation philosophy objectives and quality criteria

Compensation philosophy objectives include:

• Identifying the organization’s pay programs and total reward strategies
• Determining how pay programs and strategies align with the organization’s business strategy, competitive outlook, operational objectives, and human capital needs
• Attracting new talent to the organization
• Motivating employees to perform at their highest competencies, abilities, and skill sets
• Retaining key talent and rewarding high-performing employees
• Establishing the organization’s competitive market position regarding base pay, variable compensation, and benefits
• Defining the organization’s approach to competitive pay and rewards based on business conditions, competition, and ability to pay
• Ensuring equal pay for equal work, with allowable differences based on lawful factors.

Quality criteria for an effective compensation philosophy include:

• Overall equity
• Defensible and perceived as fair by employees
• Fiscal sensitivity
• Legal compliance
• Easy to comprehend and communicate
• Fairness, competitiveness, and consistency.

HR tip

From a career perspective, compensation specialists are still fairly niche, even though pay transparency and compensation strategies are increasingly important from a regulatory and competitive perspective. As an HR professional, this is the ideal time to focus on upping your compensation knowledge and skills. AIHR offers a Compensation and Benefits Certificate Program to help you become a total rewards expert.

Compensation philosophy template

This free compensation philosophy sample in a Word document will serve as a foundation for creating your own:

Compensation philosophy examples: Companies voted ‘best places to work’

1. Hubspot

HubSpot’s compensation philosophy centers around transparency, fairness, and flexibility. Candidates are asked about compensation expectations instead of compensation history, promoting fairer and more consistent salary discussions.

Compensation bands are also anchored to one major city per country, providing stability for employees regardless of their relocation within the country. This decision supports employee mobility and flexibility without affecting their compensation, reflecting HubSpot’s commitment to adapting to a hybrid working model.

2. Wells Fargo

Wells Fargo conducts an annual objective statistical pay equity analysis encompassing both gender and ethnicity. The results of these reviews are reported to the Board’s Human Resources Committee, after which they take appropriate actions to maintain fair, equitable employee compensation. Through these regular reviews, Wells Fargo can improve their processes to uphold pay equity.

3. Buffer

Buffer is well-known for implementing and maintaining transparent salary practices since 2013, ahead of current trends and practices. The company’s compensation formula has evolved to reflect the labor market better, especially for a remote-first environment. By openly sharing its approach to compensation, Buffer aims to build trust, hold itself accountable, and provide a resource for the industry.

4. TD Bank

TD Bank’s compensation philosophy aims to attract, retain, and motivate talented employees, ensuring market competitiveness. The company follows the principles of paying for performance, promoting internal equity, and supporting long-term value creation for stakeholders. It regularly reviews and adjusts its compensation practices to maintain fairness and market alignment.

5. Gitlab

Gitlab’s compensation model is data-driven and iterative, making adjustments based on survey data, feedback, and market changes. Transparency is a key element in the company’s approach, thanks to a compensation calculator that ensures consistent and transparent pay. 

GitLab’s compensation model includes restricted stock units (RSUs) for most positions and bases salary increases on performance within market pay bands. It continuously monitors other companies’ pay philosophies to stay competitive in the tech industry, especially as remote work becomes more prevalent.

6. Sourcegraph

Sourcegraph aims to offer more competitive salaries than other companies. It uses data from thousands of technology companies in high-cost labor zones to set its compensation bands in the 75th percentile. This guarantees above-average pay for Sourcegraph employees. Salary bands are determined by role, level, and location, and are re-evaluated every 12 months to remain competitive.

However, even if compensation bands decrease, employee salaries remain the same. Sourcegraph avoids compensation negotiations to prevent inequitable, biased outcomes. However, in business-critical cases, negotiation is permitted and subject to multiple rounds of approval. The People Team owns Sourcegraph’s compensation strategy and makes final determinations if primary data sources do not align with business needs.

7. Affirm

Affirm’s compensation philosophy is structured around three key elements: Competitive salaries based on market data, skills, and experience; providing pay raises, advancement opportunities, and discretionary bonuses for outstanding performance; and ensuring employees benefit from company growth through equity awards, promoting an ownership culture.

8. Basecamp

Basecamp does not negotiate salaries or raises — instead, the company pays everyone in the same role and level of seniority equally. Raises are given automatically once a year, based on the 90th percentile of San Francisco market rates and regardless of employees’ location. This ensures that all employees are paid in the top 10% for their position. Promotions are accompanied by raises that align with the market rates.

Basecamp does not offer traditional bonuses or stock options but has implemented a profit growth sharing scheme, where 25% of profit growth is distributed to employees annually. This approach supports a remote-first work culture by allowing employees to choose where they live without impacting their compensation.

9. DHL Express

DHL’s compensation philosophy revolves around recognizing and rewarding each employee’s unique contributions, promoting a culture of innovation, dialogue, and respect.

By integrating employee input into workflow design and extending leadership principles throughout the organization, DHL aims to create an engaging work environment. The company uses performance-based remuneration, complemented by non-financial incentives, to retain talent and encourage employees to excel in their roles.

10. IKEA

IKEA’s approach to compensation is rooted in its vision of creating opportunities for “decent and meaningful work.” This philosophy extends beyond its products and includes its employees.

The company maintains a healthy, safe, and inclusive workplace while advocating for fair wages and working conditions, both within IKEA and across its supply chain. It also prioritizes personal development, job security, and predictable working hours to enhance its workforce’s overall wellbeing and satisfaction.

11. AbbVie

AbbVie’s compensation philosophy centers around providing competitive, differentiated rewards and benefits that cater to employees’ diverse and evolving needs throughout their careers and lives.

The company offers a comprehensive package that includes competitive base pay, short- and long-term incentives, extensive health coverage, retirement plans, and various work-life balance options. AbbVie also emphasizes support for families and holistic wellbeing, ensuring employees have the resources and flexibility they need to thrive both personally and professionally.

12. NVIDIA

NVIDIA values diversity and inclusion, offering reasonable accommodations for applicants with disabilities. NVIDIA’s work culture emphasizes collaboration, innovation and respect, with a commitment to enabling employees to make meaningful contributions to technological advancements and community support.

The company’s comprehensive benefits package includes health plans, flexible time off, and family support tailored to meet the diverse needs of employees at every life stage.

13. Adobe

Adobe achieved global gender pay parity in 2018 and pay parity between underrepresented minorities (URM) and non-URM employees in the U.S. in 2020. Adobe continues to monitor and maintain this parity by reviewing compensation practices, adjusting pay where necessary, and eliminating practices that may perpetuate inequities. The company also shares its process and lessons learned to help other organizations advance their pay equity initiatives.

14. Accenture

Accenture offers a comprehensive range of insurance options, financial rewards, and wellness programs to promote the wellbeing of employees and their families. Benefits include medical, dental, and life insurance, long-term disability coverage, retirement plans with matching contributions, and financial perks (like share purchase programs). Employees can customize these to meet their individual needs.

8 steps to develop your company’s compensation philosophy

1. Understand your organization’s strategy and goals: Align your compensation philosophy with the company’s overarching strategy and objectives to ensure that pay practices support business priorities.
2. Conduct market research: Analyze industry standards, competitor pay practices, and regional salary data to inform your compensation strategy and make it competitive.
3. Define your company’s compensation and benefits strategy: Outline specific compensation elements (e.g., base pay, bonuses, benefits) and how they align with the company’s goals and employee expectations.
4. Establish guiding principles: Develop core principles, such as market competitiveness, internal equity, pay for performance, and transparency, to guide the compensation philosophy and ensure consistency.
5. Design the compensation structure: Create a structured framework that includes pay grades, salary ranges, and criteria for performance-based incentives. This framework should also be scalable and adaptable.
6. Communicate the philosophy: Clearly communicate the compensation philosophy to all employees to ensure transparency and understanding and foster trust and engagement.
7. Monitor and adjust regularly: Continuously evaluate the effectiveness of this compensation strategy through employee feedback and market trends, making necessary adjustments to stay competitive and fair.
8. Ensure legal compliance: Review and update your compensation practices to comply with local, state, and federal regulations. Ensuring legal compliance helps to avoid potential legal issues and demonstrates the company’s commitment to fair and equitable treatment of employees.

Getting started

Developing a comprehensive compensation philosophy is crucial for aligning your organization’s pay practices with its strategic goals. It will also help you attract, motivate, and retain top talent.

Get to know your company’s strategy, conduct thorough market research, define clear compensation and benefits strategies, and establish guiding principles to help lay a solid foundation for fair and competitive pay at your organization.

The post 14 Compensation Philosophy Examples [+ Free Template] appeared first on AIHR.