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Total Compensation

4 Questions about Compensation Management, Answered

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4-Questions-about-Compensation-Management-Answered---compressorWhen a job candidate is deciding between your job offer and another, compensation plays a significant role in their choice. If an employee decides to leave your company, compensation may be a factor. 

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Clearly, managing compensation is an important aspect of your HR activities. Effective compensation management can help you attract and retain the best and most talented people in your industry. 

Getting there, however, is sometimes difficult. No one said managing compensation was easy. In fact, it’s an area HR managers have many questions about. Here are a few of the most common, answered for you.

1. What Is “Compensation”?

The first task for anyone managing compensation needs to be clearly defining what exactly “compensation” is. 

Most people hear the word and think of salaries. An employee’s salary is an important and large component of compensation, but it’s not the be-all, end-all. In fact, everyone in your business should be thinking about total compensation

When total compensation is considered, the definition of “compensation” expands to include employee benefits, vacation time, pension plans, life insurance policies, and much more. It could include reimbursements for travel costs or professional training. In short, your compensation package is probably larger than just “salary.” 

Be sure your HR employees are aware of this expanded definition. Also be sure your employees are clear on exactly how they’re being compensated and the total value of that compensation package.

2. How Do You Manage Raises?

This is a question your employees are just as likely to ask as your HR staff. It’s an important aspect of compensation management. Over time, employees expect to see incremental increases in their salaries and potentially in their overall compensation. If your HR employees are going to manage pay increases for your employees, they need to know your policy about calculating and implementing them. 

Some companies will opt for a system that offers employees raises for the length of time they’re with the company or how many hours they work. Another option is to adjust salaries for inflation. You might even opt to adopt a merit-based increase system, where employees who exceed goals are given larger increases. 

Whatever option you’ve chosen, be sure you can readily explain it to your HR staff and your employees. Be prepared to defend your choice. If you can’t justify how you’re adjusting salaries, be sure to revisit your policies and ensure you’re treating all of your employees equitably.

3. What Are the Payroll Implications?

Compensation management is tied to your payroll activities. It’s only natural to ask how your compensation management policies impact payroll.

Salary has obvious implications. You need to withhold part of the employee’s salary for tax purposes. As an employee’s salary increases, so too may their tax rate.

Other benefits may have different implications for payroll. Bonuses, for example, are typically paid out once a year. They’ll likely need to be taxed. Employees will also be paid in accordance with the law and company policies for time off. Some benefits may need to have their premiums deducted from an employee’s paycheque.

The situation for different types of compensation varies, so be sure to make your HR staff and your accounting staff aware of how various forms of compensation need to be handled.

4. Do You Need a Compensation Management System?

The short answer is yes, you need a compensation management system. Nearly every business will have some form of management system, however, so the real question is whether you need specialized software.

Again, the answer is yes! If you want to manage compensation effectively and efficiently, specialized software is your best bet. Keeping track of policies, used and unused benefits, and merit increases has never been easier. 

If you’re struggling with compensation management, think about the system you’re using. Better management could be only a few steps away.


Darwyne Lang

Darwyne Lang

Darwyne is the president and CEO of Apri Insurance Services Inc. Having worked in the industry for over 30 years, he lives the benefits business every day. He is a Chartered Life Underwriter (CLU). He understand the needs, costs, misconceptions, and effects on brand and culture, and the importance of benefits for employees. No matter what he’s doing, whether for work or pleasure, Darwyne competes at a very high level. He loves to lead and innovate in everything he does.

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