A compensation structure is a system that an organization uses to determine how much to pay its employees. It is typically made up of a base salary, bonus, and benefits.
The base salary is the fixed amount of money that an employee receives each pay period. The bonus is variable pay, or an amount of money that an employee can earn based on their performance. Benefits are non-salary compensation, such as health insurance, retirement plans, and paid time off.
Here are 7 different examples of compensation structures:
Salary-only: The simplest type of compensation structure, salary-only packages pay employees a fixed salary each pay period, without bonuses or benefits.
Salary plus bonus: This structure is more common than salary-only. Employees are paid a fixed salary each pay period, and they can earn a bonus based on their performance.
Salary plus benefits: The most common type of compensation structure, salary plus benefits pay employees a fixed salary each pay period, and they receive a variety of benefits, such as health insurance, retirement plans, and paid time off.
Hourly wage: Most common for jobs that are not salaried, such as retail and food service, hourly wage structures pay employees a set amount of money for each hour they work.
Commission: This structure is common for sales jobs. Employees earn a commission on the amount of sales they make. (Here is some help on the best way to track commissions.)
Piece rate: In a piece rate structure, which is common for jobs that involve producing a certain number of units, such as manufacturing, employees earn a set amount of money for each unit they produce.
Hybrid: This structure combines two or more of the other structures. For example, an employee might be paid a salary plus a bonus, an hourly wage plus commission, or based on a shared commission structure.
The best compensation structure for an organization will depend on a number of factors, such as the type of work the organization does, the size of the organization, and the organization’s budget.