hr training center
search
About Employee Compensation

Compensation: What Does it Mean? What Are The Types?

Every employee in an organization is vital to its success. An effective compensation strategy will attract and retain the best talent and motivate them to do their best work. For example, salary, benefits, paid leaves, family leave, and working hours are important to many workers.

It helps to think of compensation as anything an employer gives to an employee in exchange for their work.

It is crucial for workers to feel like they are being fairly compensated for their efforts. Different types of compensation can include:

1) Hourly

You get paid a certain amount for each hour you work. Your pay is directly related to how many hours you work.

Hourly compensation can be a great way to ensure you're getting paid for all your work, but it can also be tough to predict your income week-to-week or month-to-month.

Some ways to maintain a more predictable income as an hourly worker are to pick up extra shifts when available or get a part-time job in addition to your full-time gig.

According to the Fair Labor Standards Act (FLSA) overtime laws, hourly workers must be paid time and a half for all hours over 40 in a given week.

Hourly compensation can be excellent for people who:

  • Like the flexibility to work different hours each week
  • Want to pick up extra shifts or overtime to earn more money
  • Work in an industry where tips are common
  • Are comfortable with their income fluctuating week-to-week or month-to-month
2) Salary

Salary is the common type of compensation, especially in the United States. It is a set amount that an employee earns per year, and it is usually paid in monthly or bi-weekly installments. Salary is often determined by an employee's experience, education, and skillset.

In some cases, salary may also be negotiable. For example, if a company is recruiting an employee, they may be able to negotiate a higher salary than what was initially offered.

3) Commission

The commission includes a percentage of sales that the company earns. For example, if an employee sells $100 worth of goods in a day, and their commission is set at 20 percent, they would make $20 from that sale. Commissioning can significantly increase an employee's earnings potential, but only if sales are good.

Some types of the commission include:

  • Residual: This commission is based on repeat business or selling new products to existing customers
  • Straight: A straight commission is based on selling one product or service
  • For the commission to be a successful form of compensation, employees need to have confidence in their ability to sell and in the company?s products
  • Variable: A variable commission is based on several factors, such as the amount of time spent selling or the number of products sold
4) Bonuses

Whether you are a high-level executive or a line worker, you may be entitled to an annual bonus. Bonuses can be based on company performance, individual performance, or a combination of the two. They're often given out in the form of cash but can also come in the form of stocks, vacation days, or other perks.

Recommended Compensation Training

Our Compensation Training and Certification Program will teach you about the different types of compensation and how to administer them properly. This HR training program is designed to give you the skills and knowledge necessary to succeed in the field of human resources. By taking this course, you will be able to:
  • Recognize factors that influence a compensation plan
  • Cite the various compensation methods and uses (Executive Compensation, Sales Compensation, Incentive Pay, Bonuses, etc.)
  • Establish an effective compensation philosophy
  • Conduct job evaluations
  • Collect survey data and perform market analysis
  • Create job descriptions
  • Develop salary ranges and grades
  • Effectively communicate your compensation program
  • Understand the basic ongoing tasks necessary to administer a compensation program
  • Evaluate your compensation plan
  • Define the laws affecting compensation

Blog Home
Recent Blogs
HR Certification Courses FMLA ADA COBRA Cafeteria Plan HSA 401(k) All HR Certificate Programs HR Generalist FMLA / ADA Internal Investigations Advanced Internal Investigations Strategic Leadership HR Compliance Training HR Specialty Designations Certified Benefits Administrator Payroll Compliance Certified Payroll Administrator Certified Payroll Manager Certified TPA
HRcertification.com. 5755 North Point Parkway, Suite 227
Alpharetta, GA 30022
678-366-3959
Copyright HRcertification.com 2002
Web site development by OTAU