types of compensation plan

1. Types of Compensation plan

2. Base or Guaranteed Pay
• The basic cash amount you agreed to pay
an employee is that worker's base or
guaranteed pay.
• In most companies, base pay is
determined by an employee’s job
description and position.

3. • The company sets a minimum and
maximum range that an employee for a
specific position may earn for the year.
• This amount can increase, decrease or
stay the same, depending on the
employee’s performance.

4. Variable Earnings
• Piece-rate plans, merit-based programs,
incentive bonuses and profit-sharing plans
are types of variable compensation,
• based on an employee’s performance or
results obtained. Depending on the
position, an employer may combine base
and variable pay.

5. • This may happen with a salesperson who
receives a salary plus commission or sales
bonus. Note that a bonus can be
compensation or a benefit.
• For example, sales bonuses are
compensation but annual Christmas
bonuses are benefits

6. Considerations
• Compensation might also include
supplemental wages, which are paid in
addition to regular wages.
• non-performance based bonuses and
accumulated sick leave, are benefits.
• Others, such as commissions, overtime
pay and severance pay, are
compensation.

7. Equity Compensation
• Pay company shares, such as stock
options, restricted stock, stock
appreciation rights, profits interest and
restricted stock units.
• Startup companies that cannot afford to
pay their employees competitive wages or
salaries may offer equity-based
compensation instead,

8. • You can choose to pay your employees
with stock instead of cash
• This is a tricky process.
• Obtain legal advice if you decide to offer
stock options as compensation.

9. Voluntary Benefits
• Voluntary benefits are incentives you
choose to provide your employees; you
are not legally required to give them.
• They might include paid time off such as
vacation, sick, personal and bereavement
time and other forms of leave.

10. • You may also provide medical,
dental.disability and accident insurance; a
company vehicle and a cellphone;
educational assistance; dependent care
and adoption assistance programs;
retirement plans; and transportation
benefits. Moving, meal, travel and lodging
reimbursement, wellness programs,
athletic facilities, employee discounts and
stock.

11. Mandatory Benefits
• Legally required benefits include Social
Security and Medicare taxes, which are
used to fund programs that offer benefits
to eligible retirees and disabled people
and beneficiaries.
• Most employers must also pay federal
and state unemployment insurance, which
provides benefits to qualified unemployed
individuals.

12. • If you have employees, you must carry
workers’ compensation insurance, which
compensates employees who suffer job-
related illnesses or injuries.
• Depending on the state, you might also
need to provide disability insurance
coverage to employees who suffer non-
job-related illnesses or injuries.