Compensating Employees

Employee compensation refers to all work‐related payments, including wages, commissions, insurance, and time off.

Wages and salaries are the most obvious forms of compensation and are based on job evaluations that determine the relative values of jobs to the organization. Under the hourly wage system, employees are paid a fixed amount for each hour they work. The system is generally used for lower skilled occupations. Salaried employees receive a fixed sum per week or month, no matter how many hours they work. Most professional positions are salaried; the reality is that these jobholders typically work in excess of a “minimum” 40‐hour workweek.

Some occupations are compensated through incentive pay programs. Salespeople typically receive commissions based upon the quantities of goods they sell. Some sales compensation plans contain elements of both a salary and commission. A production worker's pay may be based upon some combination of an hourly wage and an incentive for each “piece” he or she makes. Some employees are offered merit awards as a reward for sustained superior performance.

Employee benefits are supplements to wages or pay. Some benefits, such as unemployment and worker's compensation, are legally mandated. Other benefits are optional and help build employee loyalty to an organization, including the following:

  • Health insurance
  • Pension plans
  • Employee discounts
  • Vacation, sick, and personal days
  • Bonuses (incentive money paid to employees in addition to their regular compensation)
  • Profit‐sharing (money from a portion of the company profits used to supplement regular compensation)
  • Stock options (a plan that permits employees to buy shares of stock in the employee's firm at or below the present market value)

A top management executive is given benefits unique to his or her status. Additional executive benefits are termed perquisites (perks).