Performance Appraisal Tutorial | Compensation structure

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Compensation Structure

Money certainly is one of the top issues potential employees look at when interviewing new companies. A standard base pay program offers fixed salary ranges for each position type for employees performing the standard duties of their jobs.  Minimum and maximum levels are required to set up within those pay ranges to account for variations in experience and skill levels. When setting the base pay structure, determine where your company falls within your own industry as well as competing industries that may also offer job opportunities for your employees. Set up  pay levels to be competitive, or else you risk losing employees.

Once your base pay structure is in place, most companies then will set up a merit pay program. This will take the employee through the salary range for their position at a performance-driven speed. This comes into play when the employee’s managers do annual employee performance reviews. The downside of this is that employees may begin to see it as a given that they will get a salary increase after each evaluation. And it ceases to be a motivation to perform better in their jobs. Because of this reason, more companies are moving toward more of a reward-based compensation style, also called Incentive Compensation.

Forms of Compensation

Bonuses should be based on achievement. It should include all of the employees. Don’t limit your incentive program to certain employees, or you’ll limit your company’s potential. Your rewards should also be based on results and not simply the activity level of the employee. Just because they try doesn’t mean they should get the bonus that those who actually produce results get.

Tying your employees’ compensation to the results they produce will help them focus on the company’s bottom line. One can tie in long-term incentive compensation in the form of stock options and deferred compensation plans. These types of plans not only compensate your employees for good work, but also help retain them.

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