Factoring Compensation into a Comprehensive Total Rewards Strategy

After the initial assessment of design plan considerations for creating a total rewards package, most employers choose base pay as an ideal starting point. In fact, findings from an HRsoft poll reveal 92% of companies focus on base pay first.

While there is nothing wrong with beginning with other components of compensation, it is a logical starting point for the majority of companies because it is typically the largest cost. With that said, priorities for building total rewards programs should be determined based on the company’s culture and employee value proposition.

Base pay can come in many forms, including fixed salary, hourly, and piece rates. It is a major driver in attracting new employees, but base pay decisions should be made carefully and based on sustainability, because it is a large fixed cost for employers. It is important to consider potential overtime costs as well. In stable environments with minimal overtime, paying salary may be feasible. Salary is also a popular approach due to ease of administration. For project-based organizations with many employees, hourly pay sometimes works better, as it may require fewer calculation adjustments during payroll processing. Yet, hourly rates could encourage a culture of clock watching. Thus, there are pros and cons to weigh with any approach, and again, employers should return to their business strategy and culture to help inform these decisions.

Regardless of which form of pay is chosen, employers should monitor base pay regularly to ensure that actual pay correlates to the defined compensation structure. Additionally, it is important to keep pace with the market for competitiveness and to avoid overpaying.

While each company has its own unique needs and priorities, assessing the ways in which other companies approach base pay (as well as additional elements of total rewards) can be helpful in building a relevant and effective compensation program to drive results.

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