Do Your Employees Understand Their Compensation Definition?

Do Your Employees Understand Their Compensation Definition?

The ability to understand your company’s compensation definition, or the way pay is calculated, is important for employee satisfaction. Because compensation meanings and calculations can differ in every company, your workforce should have a clear line of sight into how they’re being compensated, and just as importantly, why.

The Modern Compensation Definition

At the most basic level, compensation is defined as the ways in which employees are paid by an employer in exchange for the work performed as required. This should include not only base pay, but also PTO, health insurance, bonuses, and any other perks offered to employees.

Today, employers are becoming increasingly creative in the ways in which they compensate employees. To meet the needs and expectations of the many different generations in the workforce, many companies now offer tuition reimbursement, childcare options, and retirement planning resources, among others. Yet, beyond simply understanding what’s offered to them, employees should also have an understanding as to why they’re paid the way they are.

What Is Compensation Based On?

On a macro level, organizations calculate compensation packages based on market factors, including the company size, growth stage, location, and competition. They might also consider how they provide a differentiated employee experience through features such as a rewarding company culture, volunteering opportunities, and growth and development opportunities.

At a more individual level, companies typically use salary ranges to determine employee compensation. This allows them to create competitive and equitable pay decisions appropriate for each employee based on factors such as experience, education level, skill, and performance.

Communicating with Employees

No matter how you choose to determine compensation, employees should be able to understand how and why their pay is calculated. To that end, after you’ve established clear pay principles, managers should be trained to have conversations with their teams about how pay is determined, including what type of performance is expected from employees.

HRsoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement.

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