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Employee Compensation

Compensation and salary is one part of a company's employee retention strategy. Find best practices in employment compensation and retention programs and use our compensation analysis tools to research current market rates.

The total compensation for an employee includes more than monetary compensation, including benefits, retirement contributions, stock options, deferred compensation, paid vacation, and the cost of special employee perks. Average total compensation as a metric is distinct from the cost per employee or employee overhead, which can include figures such as the cost of location and technology for each employee.
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Employee compensation is what employees receive in return for what they contribute to the organization. The first thing that comes to mind is, of course, wages or salary. But there are many other ways to compensate employees for their work. Some individuals may be willing to take slightly lower pay in return for better benefits or hours.

Compensation is determined first by laws put forth by the federal government that make sure that all employees are treated equitably. For example, compensation should not vary based upon race, creed, or gender. Next, it is determined by state laws. Once federal and state laws have been met, compensation is determined by the policies of the organization. Lastly, the human resources department and managers determine the final compensation that an employee will receive. Experience and education influence this decision.

The most obvious reason for compensating employees is that an organization should not expect something for nothing. But by giving generous compensation, an organization attracts better employees and retains them for longer. Compensation is what organizations use to compete for top talent.

Both monetary and non-monetary compensation options are available for organizations to consider. They include bonuses, cell phones, child care, clothing, commission, dental insurance, disability insurance, elder care, employee assistance, flexible working schedules, gain-share, health insurance, holiday pay, hourly wages, laundry service, life insurance, magazine subscriptions, moving expenses, personal days, retirement programs, salary, sick days, subsidized housing, subsidized utilities, tickets to events, use of vehicles, vision insurance, and wellness programs. Organizations and managers can be as creative as they need to be in order to generously compensate employees.