COMPENSATION BUDGET PLANNING HOW TO

A good compensation philosophy supports the business operations, enhances competitive advantage, and supports the organization's strategic plans.

A compensation philosophy is the basic principle underlying the compensation plan. The initial step in creating a compensation plan is establishing the reward philosophy and strategy you would like to adopt as an organization. Here are the key steps in creating a compensation plan: 1.

COMPENSATION BUDGET PLANNING HOW TO

However, there is no one-size-fits-all plan applicable to all organizations and therefore knowing how to come up with one is essential for your business. One of the most fundamental functions of management is to craft a compensation plan that is equitable, competitive and encourages employees to produce stellar performances. Net Pay: Definition and Examples How to create a compensation plan On top of base salary and commissions, some workers may also be paid bonuses as a reward for exceptional performance. Some companies also provide a guaranteed base salary to commission workers regardless of performance. Commission-basedĬommission-based employees are compensated depending on the sales volume and the revenue they generate within a particular pay period, such as a month or a quarter. They are also not entitled to benefits enjoyed by salaried workers. Also referred to as non-exempt workers, hourly employees receive less than the minimum weekly wage per hour. To track the time spent working, hourly employees are required to use timecards or an automated tracking system. They also receive overtime compensation for hours worked exceeding 40 hours per week. Hourly compensation entails paying an employee a pre-agreed rate for every hour worked. Some companies also pay for overtime work hours spent by salaried employees.

Besides a steady paycheck, a salaried employee enjoys additional benefits such as leave days, bonuses, health insurance coverage, retirement benefits and entitlement to minimum wage. Salary is paid at a fixed rate to an employee regardless of the number of hours worked. The most common types of compensation plans are salary, hourly and commission-based compensation plans: Salary What are the types of compensation plans? Ultimately, a compensation plan harmonizes industry practices and company policies that guide the creation and distribution of rewards to employees. Relying on an ad hoc approach to compensation is likely to cause a high employee turnover. In the absence of a compensation plan, a company has no frame of reference on how to compensate employees.

A compensation plan varies from one organization to another, depending on its compensation philosophy and prevailing market conditions. What is a compensation plan?Ī compensation plan is a formal document that states an organization's stance on employee pay and rewards. In this article, we discuss in detail what a compensation plan is, the different types of compensation plans and how to create one. Developing a compensation plan is essential in attracting and retaining talent within your organization. A compensation plan is a package that encompasses employees' wages, salaries, benefits and terms of payment. Most businesses need to have a compensation plan detailing how to pay employees.

Compensation budget planning