HR Policies: Compensation and Benefits

The work of human resources is more than just hiring people. When you're a part of the strategic planning of an organization, the role of HR is to lead the company into a successful future.

From the starting point of hiring team members, to developing them and bringing them into higher roles of leadership and management, the HR department is tasked with making sure a company is able to continue to support its customers and its clients – and that support comes from having the right team in place.

It's certainly a process that requires finding the right talent for the current (and future) needs, but it's also a process of attracting the right talent when positions need to be filled. The right compensation and benefits packages can help with these goals.

Why Employers Need to Worry About Compensation and Benefits

As an employer, you need to remember that you have people working for you for a few reasons. 1. They're good at what they do. 2. You need the talents they have. 3. The employee wants to be at the company.

The first two are simple to understand, but number three is often where companies falter in their strategic planning. By not realizing what employees need to stay at a job, the company can miss out on talent that could bolster their bottom line.

Employers who worry about compensation and benefits will:

  • Attract the right talent – Companies that have a strong compensation and benefits package to offer can bring in better talent, more often. While the company may not be able to pay as much as other companies, the benefits the employee can receive may be enough to bring them in the door and keep them in their role for a long period of time. An employee who has multiple job offers will often choose the one that speaks to their current needs and to their long-term goals.
  • Bring in diverse employees – When you can offer a compensation package and a benefits package that speaks to the needs of more kinds of employees -- one that is adjustable and includes family coverage -- a company will expand the number of people who apply. This sort of compensation and benefit strategy will also help bring in younger employees who may need to have more extensive packages as they move through their career, i.e. family coverage, spousal coverage, etc.
  • Keep talented employees on board – An employee who is taken care of by their employer is one that will stay in their company for a longer period of time. This is especially true when the compensation and benefits packages are structured to increase, or to shift over time. For example, if an employee knows their talents will garner them pay raises in the future, they will be willing – and able – to stay in the company. They will not need to continue to look for other jobs that pay more or cover their needs.
  • Reduces costs – Though some companies will look at compensation and benefits are merely costs to add to their budgets, smart companies will see the way that these packages will reduce costs. Think about how much it costs to train a new person and to bring them to the level of skill or knowledge that a long-term employee has. By finding ways to bring in talented people who are going to stick around, companies can reduce their labor costs.
  • Reduces other costs – Another way to look at the cost savings of benefits is health care. When employees have access to strong healthcare plans, they will use them. And when the employees use these benefits, they are more likely to become, and to stay, healthy. If they stay healthy, this means fewer sick days, fewer days away from the office, and more productivity when in the office. If an employee feels good at their job, they will be able to get things done, instead of worrying about their health (or taking time away to get back to wellness).
  • Stay competitive in their market – Though it might not seem like an important issue to smaller businesses (or might not seem relevant), the more competitive the compensation and benefits packages can be, the more competitive the company will become. They will gain a reputation of being the organization that people want to work for, which increases the company's effectiveness and will pull talent to that company versus another company.
  • See more long-term results – The more that a team is able to perform well and to feel as though they are supported in their job, the more they will be able to secure results. This adds up to more revenue and more positive outcomes over time.

When Compensation and Benefits Aren't Considered a Part of a Business' Strategy

After seeing the ways in which a good compensation and benefits strategy can help a company, it's clear what will happen when these plans aren't in place.

  • Less ability to attract talent – Those who do have the talents a company needs will not be inclined to apply, or to accept, a position with a company. Instead, they will seek out more attractive offers.
  • More turnover – Employees who are not happy with their compensation and benefits will often continue to look for better positions at other companies. They will not have long-term plans with the company, and will switch jobs to get the better deal.
  • Increased sick days – Those who do not have benefits to use, or who do not have good benefits, will often be sicker. They will often have to stay home from work, or they will not be able to come in regularly, as they may be taking care of themselves or their family. At the same time, those who do not have benefits to use may also come into work sick, spreading their germs around and making others sick.
  • Reduced competitive edge – In a market that is continuously changing and shifting, companies need to stay competitive. With a strong benefits and compensation package, a company will not be able to keep up.


Interested in learning more? Why not take an online HR Compensation and Benefits course?
Companies that are interested in staying competitive will need to look at whether they make their compensation and benefits packages a priority. Though companies can survive without a strong HR influence, these companies often experience high turnover rates and higher costs in the long run.

What Compensation and Benefits Are

To gain a better understanding of what companies can offer to their employees in terms of compensation and benefits, it helps to see what the current HR thought is about these different offerings. Since the scale of what can be offered (and what is expected to be offered) has changed, the definition of what a compensation and benefits package can include has also shifted.

Though not all companies will offer the same compensation scale or benefits, the more that can be offered, the more employees will have to choose from, allowing them to make the best possible personal choice for their needs. As said before, to attract talent, the "right" compensation and benefits should be offered. This might depend on the industry, and on the talent, which means HR departments need to continue to research what their market expects to see in job offers.


Though compensation seems to be the easiest part of this strategic planning to understand, it needs to be made clear there are actually different ways of looking at compensation.

There are a few types of compensation that can be offered, and while some can be offered to different kinds of employees, having a consistent compensation approach is ideal to ensure employees see they are valued as the rest of their team is valued.

Compensation approaches include:

  • Fixed – This type of compensation is the compensation that is based on a salary or an hourly rate. The employee knows exactly what they will be making when they come to work, and this number will not change until the next performance review or a position change.
  • Variable – For other employees, they might be offered a variable compensation rate, which means they may get paid based on how they perform. This is seen most often in sales and marketing roles, where the results are measured and then used to determine what the employee makes. This might be a percentage of sales, or it might be a bonus for certain accomplishments. Sometimes, this can also be used in conjunction with a fixed compensation rate. For example, an employee might get a certain amount of salary by simply doing their job, but they may have an opportunity for commissions or bonuses if they exceed expectations.
  • Equity-based – In larger companies, employees may also be compensated by having equity-based opportunities. This most often looks like stock options. By being able to buy the company's stock at a lesser rate, or being given a certain amount of stock, the employee is encouraged to perform well, as that will impact the stock price, leading to more compensation.

Compensation is something that can be negotiated during the hiring process and it should be measured against several variables:

  • The current market expectation for that position's salary/hourly rate
  • The value of the experience and talents of the employee
  • The labor budget of the company

To remain competitive in the market, companies should consider looking at what is already expected as the salary or hourly rate. Since many applicants will research into their expected salary, the company needs to be able to meet this expectation. At the same time, it might be possible to offer a lower salary if there are opportunities for bonuses and commissions, and/or when the benefits package will "make up" for any disparity with other salaries at other related companies.


Speaking of benefits, this is a category of compensation, even if it doesn't add to one's paycheck. Since these benefits do have monetary value, they are going to add to the overall attractiveness of a hiring package. A person could always buy benefits for their personal use on their own, but when a company is able to partner with a company, these partnerships often mean lower prices that are then passed onto the employee.

The employee gets the benefits they want, but at a greatly reduced rate.

Larger companies are often able (and willing) to offer more benefits than smaller companies due to their ability to negotiate lower rates for more plan holders. But smaller companies also have options when it comes to giving their employees more benefits.

Some of the benefits that can be included in a benefits package include:

  • Medical Insurance – This includes healthcare benefits, including preventative care, emergency care, hospital care, pregnancy and delivery, etc.
  • Dental Insurance – These plans will include preventative and emergent care, as well as appliances, braces, etc.
  • Vision Insurance – A vision plan often includes regular checkups and some support for buying contacts or eyeglasses.
  • Life Insurance – The life insurance plan will help support the family or other loved ones in the event of the employee's untimely death.
  • Flexible Spending Accounts – These accounts are designed to help with healthcare costs. An employee can set up an account and deposit money into this account (tax free), then use that money for healthcare costs.
  • Long-Term Disability Insurance – This insurance will help provide funds should an employee become disabled for a long period of time.
  • COBRA Benefits – Companies will offer the opportunity for employees to seek out COBRA plans in the event they are asked to leave or decide to leave the company. These are healthcare plans that are typically more expensive, but they can help to continue coverage until a new job is found.
  • Retirement Savings Plans – For employees who want to stay with a company for a long period of time, a retirement savings plan will help to ensure the maximum savings are available.
  • Tuition Assistance Programs – Some companies will also offer tuition assistance, if the program will help enhance their value in their current or a future role with the company.
  • Home and Auto Insurance – Other businesses may be able to negotiate discounted rates with insurance companies to help offset those costs.
  • Long Term Care Insurance – In the even that an employee needs long-term care for an illness or as the result of age, this insurance can help defray the costs.
  • Wellness Programs – Often, larger companies will help promote health and wellness by offering wellness program plans and assistance.

All of these benefits will certainly add up to costs for the employee from their paycheck if the company doesn't have the ability to pay these costs directly. However, some larger companies and more competitive companies are willing (and able) to offer some of these plans without charge.


When companies are deciding on the best benefits plans for their employees, it can help to look at what is expected, what is appreciated, and what is financially viable for the company.