Human Resources: Compensation and Benefits
Murphy's Law on Work - #229
All vacations and holidays create problems, except for one's own.



While job satisfaction these days ranks higher on a new employee's totem pole than it used to, compensation and a benefits package are still high on the candidates list of things to know before saying "yes" to a new job. Compensation traditionally relates to the hourly wage or salary for the position, and benefits include health, dental and life insurance, retirement plans, disability, vacation, holidays and paid time off, and other perks that may come with the job. There are some people who are motivated by money alone, but typically it's the big picture that will encourage someone to accept the job.

A. Determining Pay Rates for Positions
"Show me the money." The classic line from the movie, Jerry Maguire, clearly has left a mark in the world of getting paid for your work. Compensation is "something, such as money, given or received as payment or reparation, as for a service or loss."30 It is the paycheck at the end of the week, the tips earned as a waitress or the commission on the sale of a new car.

Setting a pay scale or range for a particular position is important as it offers a benchmark for future raises and compensation. It should also reflect not just the abilities of the person who will be filling the position, but also be on par or better than the "going rate" locally, regionally, or nationally for the same type of position in a company that has a similar employment structure, or that is in the same industry. Managers and HR departments can create these ranges by looking at trade and professional organizations, chambers of commerce, employment agencies, or by simply networking with peers to have a pulse on what's going on in the employment marketplace. Websites like and Yahoo! offer insight into salary ranges in a wide variety of fields. It's important to determine what the job is worth to the company, not what the experience is of the person you'd like to hire. But by creating a range, versus a fixed number, managers or those doing the hiring, are able to negotiate with potential candidates based on the job's role and the candidate's experience. This allows for flexibility for everyone.31 Pay structures are useful for standardizing similar jobs and include several levels, with each level containing a minimum salary/wage and then increments thereafter. Unions use this structure because pay is determined during collective bargaining. Salary surveys can also give insight into inflation statistics, cost of living, and budget averages. Knowing averages for the geographic location of the company is helpful, as well.

B. Hourly, Salary, and Incentive-Based Pay
Most forms of compensation are in hourly wages, salaries or tips, but compensation can also be extended through merit-based programs, commission structures and bonus programs, as well. It depends on the level of the position, typically the number of hours worked that the position requires, and whether the position is Exempt or Non-Exempt.

Exempt employees are typically professional, management, and other types of skilled jobs, and these employees get a fixed amount of money per pay period (or salary). Many times exempt positions receive a higher compensation and benefits package, but are also known for longer or more required hours of work. Non-exempt jobs are usually unskilled or entry-level positions that receive an hourly wage and earn extra money for overtime hours, typically over 40 hours a week. If there's more than one identical position that is non-exempt, one person can't have a higher pay than another person doing the same job. Hourly wages typically start at the minimum wage rate of the company's particular state, and then go up from there.32

Incentive-based programs may include some of the following:

Commission: Typically, positions in sales and marketing have some sort of commission structure attached to them, where the employee receives a pre-determined base pay, plus a certain percentage of his or her sales efforts.

- Merit Pay: This is a plan implemented on an institution-wide basis to give all employees an equal opportunity for consideration, regardless of funding source; many times a "raise" based on performance and the raise percentage falls into a pre-determined range for the entire company.

Interested in learning more? Why not take an online Human Resources Management course?

- Gainsharing: a technique that compensates workers based on improvements in the company's productivity.

- Profit Sharing: a program to award employees a percentage of the company's profits.

- Stock Options: the "right" to purchase stock at a given price at some time in the future.33

C. If Money Doesn't Motivate
Managers and supervisors continually struggle with how to motivate their employees. Many are motivated simply by the green stuff. If an employee realizes that if she does a great job, she'll be compensated accordingly for it, she's going to strive to do her best. Some managers believe that by using money as an incentive for employees, then employees are motivated to work their hardest and at their peak performance level. While this is the case with most people, there are some employees where money does not motivate them to work harder and more effectively. These people look more for recognition, rewards, and perks, such as incentives to go above and beyond their responsibilities.

A study by a team of behavioral scientists, led by Frederick Herzberg, showed there are two categories of what people want from their jobs: satisfiers and motivators. Satisfiers, also called maintenance factors, are what employees believe they have to do to complete the minimum amount of work required to complete their job. Once an employee is satisfied, giving them more of the same work won't motivate them, although managers mistake this fact – thinking that if an employee has completed his work, he must want more of the same thing. But this is not a motivator. Motivators are actually the things that really excite people to put out more energy, effort, and efficiency. Recognition, control over one's work, and garnering satisfaction from the actual position are just a few motivators.

Going beyond the traditional monetary recognition for a job well done, great managers must understand each individual employee – remember the "human" part of the job – and determine what really motivates each individual person. Other types of motivators and incentives may include incentives for sales staff, exceeding quotas, stock options, hiring bonuses, special awards for special achievement, and profit sharing, to name a few.

D. Time Off
Although most everyone in this world has to work to make ends meet, what everyone really wants is time off. And believe it or not, time off is actually one of the benefits not legally mandated. It's up to the discretion of the individual company as to what to provide as paid time off. Companies typically offer some sort of paid time off for vacation, although many have waiting periods before new employees can take advantage of this benefit. Some offer a fixed amount of vacation, say two weeks, per year, which goes into effect at the beginning of each calendar or fiscal year. Others use an accrual system, where employees earn a certain number of paid vacation/sick time based on hours worked. For example, an employee may accrue 4.6 hours of vacation/sick time per pay period (every two weeks), which would equal three weeks (or 15 days) of paid time off for the full time employee. More and more employers are offering a lump sum of paid time off (whether fixed or accrued) for the employee to use as needed, whether it's for vacation, sick days, doctors appointments, personal days, or when having to stay home with a sick child.

There are no paid holidays for employees in the private sector under federal law, not even the Fourth of July, Thanksgiving or Christmas, although some laws do require paid holidays for state and federal government employees.35 Though not required by law, most companies offer paid holidays to their employees. The standard ones include: New Year's Day, Labor Day, President's Day, Memorial Day, Independence Day, Thanksgiving and Christmas. Others may include Columbus Day, Veteran's Day and Martin Luther King Day. If the holiday falls on a weekend day, many companies observe the Friday or Monday before or after the actual holiday.36

Companies are required by law under the Family and Medical Leave Act to provide up tot 12 weeks of unpaid time off in a 12-month period for certain circumstances. More about this law will be discussed in Lesson 5.

E. Health, Dental & Life Insurance
With health insurance a hot-button topic for politicians these days, it's no wonder that a new employee is going to ask about health benefits. Most companies, with the exception of the smallest, offer some sort of health insurance plan, and many offer dental and life insurance, as well. The scary fact is that according to the U.S. Chamber of Commerce, the employers' share of health care benefits represents 11.1 percent of payroll costs. This cost has been increasing more than twice the rate of increase in the cost of living index.37 So it clearly is up to the employer as to how much they choose to contribute to an employee's plan.

If you've ever heard of someone accidentally going to a doctor that's "out of network," and paying the full boat for the doctor's visit, you know the insurance plan probably is part of one of the many Health Maintenance Organizations (HMOs). In most HMOs, employees are required to see doctors that are in the plan in order to get the best benefits and lowest rates. There are pros and cons to HMOs and not all are alike. Companies should research options wisely before signing on with an HMO, so they are providing the best possible plan to their employees, while not breaking the bank for the company at the same time. Typically employee and employer share these costs in some capacity. Very rarely do you hear of an employer paying for 100 percent of health benefits.

One of the most rapidly growing benefits is dental insurance. Other types of insurance include optical care that covers the cost of eye exams, eyeglasses, and even contact lenses. Most companies offer other benefits, like life insurance, where group coverage policies include accidents and permanent disabilities, like loss of limbs, eyesight, or hearing.38

F. Retirement Plans
Most everyone works hard, but just like wanting that vacation, everyone wants to retire, some earlier than others do. One of the most popular benefits a company can offer an employee is some sort of pension or retirement plan to assist in helping an employee work toward that retirement goal. With the threat of Social Security dwindling and possibly in trouble by 2017, more and more people are looking for alternative ways for investing and planning for retirement. Astute employees, and people in general, realize that they can't just rely on what their Social Security benefits may or may not provide when they "come of age."

One of the most popular retirement options companies have offered in recent years is the tax-deferred savings plan named after Section 401(k) of the Internal Revenue code. The 401(k) allows employees to save through payroll deductions. Employees can select stock and mutual funds within a particular investment program and have them deducted from their paycheck, right into their investments, pre-tax. Some employers elect to match up to a certain percentage of what the employee invests. This is up to the discretion of the company. Smaller companies may choose to offer a 401(k) program to employees, but as an employer, don't participate. Either way, it's a favorite benefit that most employees take advantage of.39

G. Other Perks
Benefits can be straightforward or creative. Many employees expect to find companies offering health insurance, paid vacation and holidays, and a competitive salary. The dynamics, stress, and strain of today's society has prompted the option for many companies to offer Employee Assistance Programs as a benefit. EAP is a company-sponsored counseling service that may specialize in legal services, financial counseling, marriage and family counseling, and alcohol and drug problems. All matters are handled confidentially. After an employer creates awareness for the EAP program to its employees, the communication stops there. The employer never receives reports or information that an employee shares with a counselor. An employer's feedback is seeing the improvement in the employee's attitude and that the counseling has helped.
Other "perks" are endless and it truly depends on how creative managers or HR teams want to be. Coffee and snack rooms, child care, tuition reimbursement and scholarship, flextime, casual dress, pets at work, exercise and recreation rooms, and discounts off the company's products are just some of the incentives employees can offer as perks and motivators to its employees.