Understanding Compensation packages in the remote work era.
40% of employees are ready to quit their jobs in the next 3-6 months, according to a McKinsey report. Your compensation package may be the deciding factor between employees staying, or leaving their job. It’s clear that priorities have changed since the lockdown.
People want meaningful work at companies that align with their values. Sticking to a traditional approach with compensation packages won’t work for today’s non-traditional workers.
You need to structure your compensation packages in a way that will attract and keep the best talent. At NoHQ we know a thing or two about what remote workers need to be fulfilled in their jobs. No, it’s not just about the money.
Here’s exactly what goes into an attractive compensation package and how you can use it to attract top talent.
Compensation packages, what they are and what’s included
A compensation package is made up of all the monetary and non-monetary rewards that an employer pays in exchange for the work an employee does. A typical compensation package includes the salary and bonuses, in addition to benefits like paid time off, health insurance contribution, retirement plans, stock options, childcare, flexible hours etc.
A SHRM survey revealed that 92% of employees felt that compensation and benefits were critical to their job satisfaction.
This goes to show how your compensation packages have a direct impact on your employee morale and ability to retain top talent. As more companies try to move towards a remote-first approach, your compensation packages need to evolve to suit the needs of remote workers.
Components of a total compensation package
You can use the different components below to structure a desirable compensation package. It all depends on your industry or market standards as well as your company’s compensation philosophy.
1. Base Pay
This is the dollar amount that employees will be paid based on their job. It’s the salary or wage amount that people use as the starting point for negotiations and excludes any benefits, add-ons or deductions.
2. Incentive programs
Incentive programs are used to recognise and reward exceptional performance at an individual or company level. Examples of these are performance bonuses or profit sharing. You can even use retention bonuses as incentive to keep key employees from leaving. Another type of incentive is a signing bonus, used to entice top talent to accept your employment offer.
You want to motivate people to work at their full potential so that your company can meet its objectives. But you also want to measure the effectiveness of incentives in helping to achieve your desired results. It’s a delicate balance.
3. Salary add-ons
Salary add-ons are a form of additional pay over and above the base pay. Some of these add-ons are regulated by employment laws. For example overtime pay is a way to compensate your employees for going above the normal work schedule.
Other add-ons are used when you want to reimburse employees for expenses they incurred as part of doing the job like travel expenses. They depend on the type of work and industry you’re in.
4. Benefits & Perks
You have mandatory and non-mandatory benefits that you can offer. Mandatory benefits include social security, health insurance and unemployment insurance. Non-mandatory benefits are your chance to shine and use this as an opportunity to strengthen your brand in the market.
Benefits and perks are how you’ll attract the best talent if your competitors are offering more or less the same salary. It’s an opportunity to differentiate and show how you value employees.
Structuring a compensation package
Having a deliberate structured approach to compensation helps create consistency, and builds trust and transparency. It also shows your company’s values when it comes to compensation.
But focusing on a high salary alone is not always enough to keep your employees motivated. A compensation package should go beyond just the dollar amount of the salary. It’s about everything that’s being offered to make working for your company a fulfilling experience.
So how can you structure a competitive compensation package?
Determine the salary
The role: First look at the role you're trying to fill. Is there a clear job description? What skills are required? How many years of experience? Is it a junior, senior or executive role? The pay grade will depend on the skill level and rank within the company. For jobs where the skills are in demand, you'll need to have a decent budget to lure top talent.
Budget: next determine what your company can afford to pay for a role before starting the recruitment process. Calculate the salary for your specific role. Companies like Gitlab offer a compensation calculator for new and existing employees to help them determine their compensation packages.
Other companies like Buffer have openly published salaries for key employees on their site and use a salary formula to facilitate transparency and fairness so that people in the same or similar roles are paid equitably. These efforts go a long way in helping to bridge gender pay gaps and encouraging diverse candidates to receive fair compensation for their roles.
Fixed or variable pay: will it make sense to offer fixed or variable pay or a combination of both? Variable pay is usually calculated as a percentage of revenue attributed to a certain employee. It’s mostly used in the sales industry and ties pay to performance. It gives people a sense of control over what they can earn based on their efforts.
Benchmark: look at what the market is offering for similar roles. You don’t want to lowball people because it can increase your turnover rate. Benchmarking helps you determine what the job is worth and guides you to offering a competitive compensation package. Sites like Glassdoor help improve pay transparency across industries. They give an indication of what pay bands are for certain roles at your competitors. You can also get data from the Bureau of Labor Statistics.
Structure your benefits
Determine what’s important to employees
Your employees' lifestyle, personal responsibilities and interests play a huge role in determining what’s important or even non-negotiable when negotiating an offer. In fact, according to a Glassdoor survey, 79% of employees prefer increased benefits rather than a pay increase.
When you look at the type of benefits that are prioritized, healthcare was at the top of the list for 40% of employees, 37% preferred more paid time off and 35% of employees opted for performance bonuses rather than pay increases.
Add the perks that matter
You can really set your brand apart by including perks that improve your employees' well-being and motivation on the job. Look at examples like work from home stipends and wellness activities for remote workers to help you gain an advantage.
While the salary makes up the bulk of the total compensation package, benefits and incentives have become more valuable to employees. It’s a worthwhile investment to make for your company.
Evaluate the effectiveness of your compensation package
Is it working? Are you finding and keeping the right talent? Is your company meeting its objectives? The best way to find out is to evaluate the effectiveness of your compensation package. Conduct surveys with employees, do exit interviews and consider feedback from employee and manager 1-on-1 reviews. Then look at company profitability to see if overall performance is improving. Use metrics that matter to your business.
Right now unemployment rates are the lowest they’ve been in 50 years. People aren’t as desperate for jobs because they have options. They’re willing to test the market to find employers who align with their values. Employers who aren’t as flexible or don’t adapt their total compensation packages to lure the best candidates will continue having a difficult time finding and keeping the right talent.
For more information about compiling the best compensation packages for remote workers, visit the NoHQ blog. You’ll learn everything you need to stay abreast of remote work trends, best practices and valuable tools to help you succeed as a remote company.