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A Final Note on Compensation and Benefits Strategy

30 October, 2015 - 14:42

When creating your compensation plan, of course the ability to recruit and retain should be an important factor. But also, consideration of your workforce needs is crucial to any successful compensation plan. The first step in development of a plan is to ask the employees what they care about. Some employees would rather receive more pay with fewer benefits or better benefits with fewer days off. Surveying the employees allows you, as the HR professional, to better understand the needs of your specific workforce. Once you have developed your plan, understand that it may change to best meet the needs of your business as it changes over time.

Once the plan is developed, communicating the plan with your employees is also essential. Inform your employees via an HR blog, e-mails, and traditional methods such as face to face. Your employees might not always be aware of the benefits cost to the company, so making sure they know is your responsibility. For example, if you pay for 80 percent of the medical insurance premiums, let your employees know. This type of communication can go a long way to allowing the employees to see their value to you within the organization.

Key Takeaways

  • Before beginning work on a pay system, some general questions need to be answered. Questions such as what is a fair wage from the employee’s perspective and how much can be paid but still retain financial health are important starting points.
  • After some pay questions are answered, development of a pay philosophy must be developed. For example, an organization may decide to pay lower salaries but offer more benefits.
  • Once these tasks are done, the HR manager can then build a pay system that works for the size and industry of the organization.
  • Besides salary, one of the biggest expenses for compensation is medical benefits. These can include health benefits, vision, dental, and disability benefits.
  • Social Security and unemployment insurance are both required by federal law. Both are paid as a percentage of income by the employee and employer.
  • Depending on the state, workers’ compensation might be a requirement. A percentage is paid on behalf of the employee in case he or she is hurt on the job.
  • A mandatory benefit, COBRA was enacted to allow employees to continue their health insurance coverage, even if they leave their job.
  • There are three main types of health-care plans. A fee-based plan allows the insured to see any doctor and submit reimbursement after a visit. An HMO plan restricts employees to certain doctors and facilities and may require a copayment and/or deductibles. A PPO plan is similar to the HMO but allows for more flexibility in which providers the employee can see.
  • Pension funds were once popular, but as people tend to change jobs more, 401(k) plans are becoming more popular, since they can move with the employee.
  • Profit sharing is a benefit in which employees receive a percentage of profit the organization earns. Stock ownership plans are plans in which employees can purchase stock or are granted stock and become an owner in the organization.
  • Team rewards are also a popular way to motivate employees. These can be in the form of compensation if a group or the company meets certain target goals.
  • Paid time off, or PTO, can come in the form of holidays, vacation time, and sick leave. Usually, employees earn more days as they stay with the company.
  • Communication with employees is key to a successful benefits strategy.


  1. Of the benefits we discussed, which ones are required by law? Which are not?
  2. Research current Federal Insurance Contributions Act (FICA) tax rates and Social Security limits, as these change frequently. Write down each of these rates and be prepared to share in class.
  3. Describe the considerations when developing medical benefits. Which do you think would be the most important to you as the HR manager?
  4. Visit websites of three companies you might be interested in working for. Review the incentives they offer and be prepared to discuss your findings in class.