(FREE) Mastering Employee Compensation: Accurate Calculation, Part 1
Holistic compensation. Bonuses and perks. Communicating with employees.
Commentary directly from the video (regular type)
My commentary (italics)
This video is short, but the spreadsheet that was borne from it is pretty involved. So, as is typical, this topic was broken into two parts. Next week’s post will be on this same video but will go into more depth on the accompanying spreadsheet.
Intro
When discussing compensation packages with employees, it is important to go beyond just salary. Many individuals tend to associate compensation solely with salary, but there are numerous other elements that should be included. As discussed in previous posts - wages are essential, but the nature of your benefits can determine whether you attract/retain quality employees. The cost of turnover is, often, greater than the cost of benefits.
When presenting compensation information to employees, it is crucial to provide a comprehensive overview of the package. Your (potential) employees will appreciate the transparency. Additionally, it could help paint your small business in a favorable light if the employee/candidate is weighing other offers.
Compensation packages
Essential components to include in compensation packages are:
Potential for overtime
Employer contributions to group health insurance
Employer contributions to short and long-term disability
Employer contributions to savings or retirement funds
Paid holidays
Personal time off (PTO)
Possibility of a signing bonus
Not to mention any other bonuses
Availability of tuition assistance
Benefits like paid cell phone bills or car allowances
The purpose of incorporating these elements is to enable the employee to fully evaluate the comprehensive value of the employer's offering.
Use the Mastering Employee Compensation spreadsheet to accurately calculate these amounts.
Bonuses and additional perks
Various types of bonuses, such as retention, spot, annual, and holiday bonuses, should be included in the compensation package. I think she means all of these bonuses should be included in your employees’ compensation calculation. I’ve never known a business to pay more than one of these types of bonuses, much less all. But… it’s your company, so you pay as much as makes sense to retain talent that provides a good ROI for your business.
Consider offering company shares, profit sharing, memberships, and additional perks. Payment for different types of memberships, like gym memberships, can also be included. As I mentioned in my previous post, company shares in small businesses are generally discouraged. Consider CASH bonuses carefully first.
However, just because company shares are GENERALLY discouraged - that doesn’t mean it’s wrong for your small business. If you have an absolutely critical employee that is insisting on equity in the business - be sure to seek a lot of qualified professional guidance on the matter.
Not every additional perk is quantifiable. Flexibility in working hours and occasional work-from-home opportunities should be addressed. Opportunities for advancement within the company can also be discussed. I would caution you to proceed carefully with this one. Some employees might easily interpret this as a “false promise.” It could come off as insincere and erode trust if promises aren’t met.
Finally, you can highlight unique factors like company culture, work environment, or promotional practices.
Ask applicants about their expectations in a compensation package. Compare those expectations to what you calculated in the Mastering Employee Compensation spreadsheet.
Discuss the total compensation package with the applicant over the phone and consider tailoring it to their needs. Allow the applicant time to review and consider the information provided.
However, know when to conclude negotiations based on your company's budget constraints. Again, the Mastering Employee Compensation spreadsheet, along with your company’s forecast, can help in determining what the ceiling is as far as compensation goes.
If you’re unable to meet the applicant's compensation requirements, communicate that the package is no longer negotiable and move on to the next qualified applicant.
Comment below
Do you discuss the ENTIRE compensation package with employees and candidates? Or, just the salary/bonus?
Do you discuss opportunities for advancement with employees and candidates? Does it motivate employees or has it backfired?