What Is a Staffing Compensation Plan?

First of all, what is compensation? Well, in business terms, it refers to a reward, which is usually monetary to an employee, in exchange for their services towards a particular company. Compensation is usually a package and can include other elements such as incentives, allowances, perks such as gym memberships, health insurance, and any other non-cash benefits.

A staffing compensation plan refers to a business document that consists of all the compensation components of a company’s structure for their respective staff which can typically include wages, salaries, perks. other incentives, and overall terms and conditions for payment. These documents also typically include schedules for a salary increase, fringe benefits, and any other union benefits or vendor discounts that are shouldered by the company.

Important Components of a Staffing Compensation Plan

To begin with, a compensation plan typically lists every information possible regarding wages and any other types of benefits. It can contain some important elements too, which are listed and discussed below:

Overall Objectives. This section of the compensation plan should clearly explain the process in which the compensation package should support the needs of the business, the employees, its shareholders, and its customers. Additionally, each reward package should have a clearly defined role stated. Relative Importance. This element of the staffing compensation plan should clarify how the incentives differ from those of other business identities. In other words, it should identify or respond to queries such as if your business is renowned for something specific, such as technology, culture, size, or leadership. Other questions that can be answered include: Is your business well-known for its compensation programs? Do you believe your company’s compensation plan to be an essential aspect of its reputation?Performance Measures. This part of the compensation plan should also outline the measurement levels as well as the performance criteria to be awarded. It should specify the extent to which rewards are intended to motivate employee behavior.Competitive References. This part should specify any comparison group for the compensation plan and package. A comparison group can be competitors in your sector or in your local area, for example. The purpose of listing competitive references in the compensation plan is to establish software benchmarks.Competitive Positioning. In writing this part of the compensation plan, you have to describe your ideal position in relation to the competitive references you’ve previously cited. As an example, you can position yourself as a firm that offers more salary than the competition. In writing this part of the compensation plan, Be open and honest about your intentions, regardless of your position. If your desired placement is lower than the industry norm, explain why, as this will only lead to unnecessary rumors and noise.Equity and Consistency. This section of the staff compensation plan should address whether or not the pay approach will be consistent, as well as whether or not the compensation strategy will apply to all employee groupings. The staff of a company will always expect fair and consistent treatment, with no prejudice across groups. You must also determine whether you will prioritize internal or outward consistency or attempt to balance the two.Employee Involvement. This section specifies how much program information will be made public. While the intricacies are important, you shouldn’t get bogged down too much with point-by-point program technicalities while creating your compensation plan statements. Instead, the emphasis should stay on defining and communicating the core parts. It should also be clear who is in charge of program creation and administration, whether it is the HR department or management.

Different Categories of Compensation

Discussed below are the two different categories of compensation:

Different Types of Compensation

Listed below are the different types of compensation/compensation plans that are given to the staff or employees of the company that they work for:

Straight Salary. The term “straight salary” refers to the essential salaries and wages paid to employees. The basic wage in most firms is defined by the worker’s job title and job role. In a straight salary system, the corporation establishes a minimum and maximum range that can be increased, decreased, or maintained based on the worker’s performance. Straight compensation plans can help establish a sense of equality among salespeople who operate in teams or small groups since everyone is paid equally and each team member’s contribution is also expected to be equal. Salespeople are examples of people that are paid a fixed income.Salary and Commission. One of the most dependable forms of compensation plans is a salary plus compensation plan. An employee who accepts this sort of remuneration will get a basic wage as well as a bonus if their performance meets or exceeds their earnings objectives. Employees who receive a salary plus commission pay greater income taxes than self-employed agents. Employees under a salary plus commission compensation scheme are assured to get at least the base wage to pay the bills, even if their sales are very minimal.Commission Only. This is the most common way for independent sales representatives to get compensated. It is a very appealing concept, especially for start-ups looking to enter a certain market. Companies that provide commission-only work provide a support system in the form of a draw against commission, in which the company pays their salespeople a specific sum known as a pre-determined draw at the start of each pay period. This prepayment is deducted from the salesperson’s commission earnings at the conclusion of the pay period. This might be unfavorable at times since if an employee does not make any sales during a month, he is not compensated.Territory Volume Compensation. This type of compensation plan is ideal for individuals that operate in a team-oriented environment. In a territory volume compensation plan. the compensation is normally computed by determining the volume of the region. The sales figures are totaled, and all commissions are distributed evenly among all sales personnel. This form of compensation scheme has the advantage of putting less strain on individuals and encouraging teamwork. However, one existing disadvantage is that it might lead to serious antagonism among coworkers if certain individuals believe that effort isn’t being distributed evenly.Revenue Based Compensation. One of the most common kinds of compensation plans that are utilized by start-up firms is revenue-based compensation. Companies that use this compensation plan compensate their staff fully on the basis of the company’s profitability. Because of the complexities and compliance difficulties involved, very few firms provide equity or stock. Startup businesses that adopt a revenue-based compensation plan might also include long-term incentives like shares to establish loyalty and a lucrative sales base.Residual Commission. Every salesperson will benefit greatly from this sort of compensation plan. But how? Under this type of compensation plan, the salespeople continue to collect commissions as long as their accounts generate income for the business. However, there is a disadvantage because businesses are typically hesitant to offer employees a residual commission contract. Furthermore, under this sort of pay structure, top-performing salespeople might continue to get residual commissions even after leaving the firm via negotiation.Bonuses. Bonuses are given to employees to inspire them or to improve their overall performance. This is a type of variable pay that is usually linked with sales professionals, who are typically salaried or exempt employees. Additionally, bonuses can also be given for corporate performance and whenever difficult-to-fill jobs are filled with individuals who have distinctive or highly sought-after talents or expertise.

How to Develop a Staffing Compensation Plan

The right method of developing an effective staffing compensation plan is to start off with lots and lots of research. With that being said, listed below are some steps you can use as a guide in developing an effective staffing compensation plan.

  • 1. Outlines and Appointments

    In the first step of developing a staffing compensation plan, what you need to do is to set a goal and specific targets for your compensation program. It is also recommended that you start with job descriptions for each role on the team and create a basic budget for your staff. Then, employ a compensation manager. This role, which is often filled by a human resources professional, aligns the program and studies what each position pays within the sector, how job categories will be decided, and how the type of compensation will be chosen.

  • 2. Compensation Philosophy

    After sorting out the outlines and appointments, begin with this step. What you need to do here is to determine how competitive your company is with regard to how it is placed in the job market of your industry. Examples of determining factors that can make your company stand out from the competition include being the market leader in terms of direct compensation or having a great benefits package in combination with a modest salary.

  • 3. Classifying Jobs

    In the third step of developing a staffing compensation plan, outline, for example, what, if any, pay tiers should exist in compensation structures for CEOs and salespeople. You should also consider potential levels within each job categorization. After that, rank them in order of seniority. It is critical to provide possibilities for progress in one’s job. You can develop senior-level and entry-level jobs that will have an influence on the salary matrix but will provide opportunities for progression for employees.

  • 4. Fine-tuning Salaries and Policies

    Once an effective staff compensation platform has been developed, perform this step. You need to determine the rates of pay and their respective range for each job position. This is the stage at which you fine-tune your organization’s budget. After that, finish the essential policies. A staffing compensation plan can have an influence on a variety of payroll, fringe benefits, and other pay-related rules. Policies can be created for paid vacations, healthcare benefits, payroll administration, and company-issued payment advancements that must be factored into, or at least aligned with, the company’s compensation policy.

  • 5. Developing a Communication Plan

    Following through the development of the compensation plan with this step is important since every single one of your staff should be informed about it at the same time. To disseminate the strategy, use a variety of communication means such as email, social media, fliers in popular locations, and so on. You can also make this message available in several languages if you want. Additionally, you should be prepared to answer a lot of questions since the nuances of total pay are not readily comprehended by everyone – yet every employee must understand their compensation package.

  • 6. Monitoring

    After everything else has been said and done concerning the development of the staffing compensation plan, it is also important to keep an eye on the compensation plan so that it may be adjusted or evolved as needed. In monitoring this document, you need to be prepared to make changes to your remuneration. Adjustments will be required over time in order for you to remain compliant with the law and competitive.


Why Is a Compensation Plan needed?

A compensation plan is needed because companies must have a well-thought-out pay structure in place in order to remain competitive in their sector and recruit and retain top people. Employers who just pay their employees whatever they believe they should be paid will gradually lose the talent competition they are waging with their competition. Furthermore, managing a team without a specified budget is deemed ridiculous. Compensation plans should enable budgeting and planning to be regular and predictable.

Is there a difference between Base Pay and Total Compensation?

Yes, there is a difference between the two. Base pay is considered to be a portion of an employee’s total compensation package. It is also referred to as the initial pay that is given to an employee before deductions are given such as taxes and insurance. On the other hand, overtime pay, bonuses, tips, and commissions, while similarly part of an employee’s total compensation package, is not considered to be a part of an employee’s base pay.

What are Incentives?

Incentive pay is a type of remuneration that is typically indirect or non-financial in nature and is based on merit rather than time spent. Incentives are used to encourage and motivate individuals to strive to improve in their work. They generally refer to a specific objective, such as if an employee meets the stated goal, he or she receives the incentive, which might be in the form of travel, items, or even bonus cash.

An effective staffing compensation plan allows different companies to retain their top talent and recruit additional excellent staff. As said earlier, the right way of creating this type of document relies on lots of hours of research and paying emphasis to the critical steps that are needed to develop it. In this article, you can find various examples of staffing compensation plans to serve as a reference in making one.