HR best practices for compensation and benefits

HR best practices for compensation and benefits

HR best practices for compensation and benefits

Compensation & benefits play a key role in attracting, retaining, and motivating employees. 

In many cases, employers give little thought to what their target employees have in mind. They simply adopt the latest employment trends. But, if employers are to attract the best talent, a lot of thought needs to be put in to align the compensation and benefits of a position with the needs of the applicants. 

Here’s our guide to the best HR practices when it comes to compensation and benefits.

What are compensation and benefits?

The first thing that most people look for in job adverts is the salary. Yet, far too many employers leave it out when posting an ad.

While compensation commonly refers to the monetary salary that an employee earns while working in a role, benefits allude to the non-monetary payments that the employee receives. Benefits can cover a wide range of options. Common perks include health insurance, remote work options, paid maternity/paternity leave, or even a free coffee machine in the office.

If a potential applicant is looking at a company’s job advert and comparing it to another’s with the same salary, the benefits may be the deciding factor.

Compensation and benefits and employee motivation

With an improved compensation package, employees are more likely to be engaged, more loyal to the company, and more productive. It’s not just about salary either. Additional benefits such as pensions or stock options and profit-sharing can also boost retention rates. 

Benefits packages also help increase employee well-being and contentment. Paid vacation options, family-friendly benefits, and even retirement plans can have a huge effect on employee satisfaction. 

How do HR departments calculate compensation and benefits?

Although the market rate is rarely defined, it is generally the least that someone must expect to pay for a particular product or service. Employers are notoriously silent when it comes to discussing salaries though. This makes the market rate difficult to determine.

Although plenty of third-party compensation specialist firms are available, good HR teams have in-company compensation specialists onboard. They run salary surveys regularly. The results help them set market rates for positions in the company as they become available. 

Packages can vary greatly depending on the size of the organization though, and of course, seniority and the breadth of experience a candidate has. Someone working as an email marketing specialist at a global corporation, let’s say, will usually be earning more than someone working the same job for a mom-and-pop store.

Some factors to consider when determining salary and benefits

Determining salary and benefits means ensuring that the right candidate fits within an established, market-rate salary range. Lots of variables need to be considered, including, but not limited to:

  • Education level
  • Experience in the role
  • Previous work for the company
  • Current compensation and benefits package
  • Expected working hours
  • Location

Mistakes are often made when determining compensation and benefits. A compensation and benefits package must reflect the needs of the employee. Not everyone is going to want a wellness program, a dog-friendly office, or team retreats.

Instead, businesses need to learn more about what each candidate for a vacant position will value. They can then start to plan the employee benefits program that will resonate with candidates. 

Planning an employee benefits program

When designing a compensation package, the benefits can account for as much as 40% of the costs. Employers need to carefully consider investment costs while understanding the need for ample employee benefits and how they may attract or dissuade potential applicants they wish to invite into the company. 

The key is to design a benefits plan that meets the needs of employees while also being aligned with the objectives of the business. Consider the following in your plan:

Identifying business objectives

Planning benefits for employees should not be an exercise in listing specific benefits and then choosing them at random and hoping for the best. Alignment with the organization’s goals is key. Benefits packages should be tailored to the company itself, as much as to the applicants.

For example, a key part of a compensation package could include scheduled training and development time. For businesses with ambitious growth plans, training existing staff is invaluable. As those employees learn more skills, they bring those skills into the workplace.

Businesses vary in size and scope, and the compensation and benefits package they offer often reflects where they stand. From different market rates according to the industry or the location, to unionized collective bargaining agreements, all factors are considered by the company as they formulate their salary policies.

Needs assessment

Research is the next step for companies in planning for benefits. This will be focused on working out the needs and demands of the target employees. There are lots of avenues to explore when it comes to a needs assessment. It can include researching the practices of competitors and the benefits they offer or conducting market research in one’s industry to find out the standard rates of compensation and benefits.

Employee feedback can be a beneficial method for assessing current benefits packages, given that the information companies learn is actionable. Don’t forget that different demographics prioritize different benefits. Millennials may prefer a better work-life balance, while Gen X employees are likely to be more interested in healthcare or company tech.

Design the benefits package

Once a company has a list of the most popular and necessary benefits that a potential employee will be looking for, they then need to list them in order of importance. This will mean using the data collected during the needs assessment and managing the costs of those benefits they ultimately decide to offer.

Questions companies ask themselves at this stage include:

  • Are there offered benefits that existing employees are not using?
  • Are there any admin costs related to the benefit?
  • What contributions are expected by the employer?

The factors companies bring into consideration when designing compensations and benefits packages are numerous and in accordance with their individual state of affairs.

Inform employees

Communicating on the subject is extremely important. Employees need to understand the benefits that they are going to get. The clearer they are on what they will get, the more likely they will accept the offer or ‘buy-in.’ When they don’t understand what they’re getting, companies lose out on the advantages they can reap with employees who are well-informed about their benefits package.


The final stage of designing a benefits package involves conducting periodic reviews. Companies need to make sure that the benefits they offer meet the business’s objectives and the needs of employees. 

What works as a benefit today may not work tomorrow. Evaluation needs to be ongoing. As workforce demographics shift and industry trends cause disruptions, workplace dynamics and employee needs change. Benefits programs need to adapt and evolve accordingly. 

Low-cost benefits for employees

Some benefits are more expensive than others to implement. We’ve already mentioned health benefits, but there are also 401K payments, paid time off, and a range of other costly benefits. But, even some low-cost benefits can give companies the edge they need when hiring for certain positions. Some of them could include:

Company phone and laptop

Not every employee needs a company phone and a laptop. However, for some team members, it will be critical. Consider mobile employees who spend more time on the road to meet clients and suppliers. Buying new devices can be costly, but it is usually only done once every few years, and there are lots of benefits of a tech team that is accessible wherever they are. 

From tech support to those remote workers who are on call after business hours, a company phone and laptop can be must-haves.

Employee development

This is a benefit that is increasingly becoming common. When employees benefit from job-related training, both professionally and personally, organizations that encourage learning find their workforce’s skills at par with evolving industry needs.

Allowing employees to take time off for training and courses or even conducting regular education sessions with industry leaders can not only make employees feel more valued. It can also lead to increased innovation and better problem-solving in the workplace. If companies include performance-based bonuses, they can dramatically improve engagement too.

Meal reimbursement or free meals

Another benefit that is becoming more common as workers are being enticed back into the workplace is free healthy meals and snacks. This helps employees save money and improve their health. Having a vendor come into the workplace every day with healthy foods and snacks is a great way to implement this.

There are risks involved when it comes to offering food and snacks to employees. The kinds of foods you offer can affect productivity, so it’s vital that research is done before offering meal reimbursement benefits.

Why do you need to implement these immediately?

Is it that important to have an excellent compensation and benefits package? Surely it’s possible to run a business well without giving out all of the freebies. Why isn’t a healthy salary package enough?

By providing needs-based benefits to their team, companies show employees that they aren’t just invested in what they can do. The company is showing that they are thinking about the present and the future of the workforce. A good benefits package also means that employers organically earn the following:

Increased productivity

Studies have been carried out that confirm happy employees are much more productive. Results vary, but with a potential 20% increase in workplace productivity, it simply makes too much sense to offer benefits that will encourage not just hard work but a team that takes ownership of their tasks.

Some studies show that the right benefits can improve work performance by as much as 44%, especially when hard work is recognized and rewarded. Reward programs, in particular, can have a lot of value for some roles. More motivated employees won’t just mean more productivity: it leads to better overall quality of work.

Increased loyalty

When an employee receives benefits that improve their quality of life and are tailored to their needs, they’re going to know that you value them. This leads to brand loyalty, which can have a dramatic effect on retention rates. Businesses rely on staff loyalty, and it’s a key element of brand success. Without loyalty, employees are more likely to quit, and high turnover rates are the result.

Excessive staff turnover leads to excessive costs. The right benefits and incentives are one of the top ways to reduce turnover rates and ensure that companies get the bang for the buck.

Benefits of implementing a great compensation and benefits plan

Lower absenteeism

In the US, absenteeism cost businesses an estimated $225.8 billion. That works out at around $1,685 per employee. For a smaller company, that can be a simply unaffordable cost. It’s one of the reasons why the focus on wellness benefits has increased in recent years. 

When employees are healthy and are encouraged to be so, they will miss fewer workdays. The workplace benefits, as does the business’ wage bill.

Improved recruiting

The job market is more cutthroat than ever, with new competition every day. With so many ways of working and so many companies to choose from, those looking for work have many options.

In such a competitive job market, the right benefits can be the deciding factor for a potential employee. From wellness initiatives to tuition reimbursement, company cars to free healthcare, tailored benefits and compensation packages could turn a business’ hiring process from a struggle into a pleasure.


It is no longer enough for a business to establish a generic list of benefits and then set a baseline salary that they could offer to every applicant. In such a competitive business climate, the right incentives are crucial. However, they need to be tailored to the applicant, the employee, and reflect the business culture.

Constant reviews and revisions of compensation packages are vital. The goal is to ensure that benefits provide value and that the value extends to your own brand perception. As employees and job seekers become ever more empowered, it’s up to employers to stand out. Potential team members now have more access to reviews and company information than they ever did before.

The right salary and benefits package options can have an extremely positive effect on recruitment and an organization’s future. Get your compensation and benefits right, and you make it significantly easier to build a dream team that will help the business grow.

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