Key Compensation Components

Compensation has become a far more complicated issue than just deciding how much to pay your employees. In addition to salary, employers must consider many other components — 401(k) plans, stock options,

Employees also have greater expectations of what should be included in their compensation packages, and they may demand specific benefits that can be costly for small businesses.

Costly or not, building a fair and attractive compensation package is critical for attracting and retaining employees. When setting up your compensation package, consider the following components:

Salary and wages. This is usually the single largest component of a compensation package, and not surprisingly, the most common point of comparison used by employees and potential employees. Salary should be tied to a person's skills and experience. Subsequent increases need to be based on an employee's performance, value, and contribution to an organization. For salespeople, it might be important to find a balance between salary and commission.