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Total Compensation

Types of Indirect Compensation to Include in Your Compensation Management

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Compensation management is one of the key players when it comes to attracting and retaining talent. Being able to provide a competitive salary along with additional, or “indirect” compensation helps with securing loyalty with high-performing employees.

In order to design a compensation management package that’s competitive and attractive, companies must first begin by determining what kind of benefits they’ll include, including different types of indirect compensation—non-monetary benefits you’ll offer to employees along with their base salary.

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Companies use indirect compensation to build loyalty, attract talent, boost retention and encourage productivity. There are many types of indirect compensation your business should consider when building out your compensation management. Let’s look at a few of your options.

Insurance: Life & Health

Health and life insurance are arguably the two best forms of indirect compensation employers can offer to attract and retain talent.

Supporting the health and well-being of your employees will never go out of fashion, and as millennials—who are known for the emphasis they place on corporate social responsibility, morality and mission—step into more leadership roles within the workforce, these benefits will only continue to offer a powerful incentive for attracting top talent.

Along with health benefits, offering options for life insurance are another form of indirect compensation that can help employers stand out. Life insurance is a security, it provides people with a sense of safety for not only themselves, but their families as well.

Gadgets—big and small: company cars & cell phones

As mentioned above, indirect compensation plays an important role in your compensation management. The types of indirect compensation you offer can have various effects on your employees. One type of indirect compensation many businesses offer are, for lack of a better word, gadgets—cell phones and company cars are the two most common.

These items are often provided to employees who do their jobs remotely, or in the case of a company car, are required to do a lot of city-wide travelling.

While reimbursement is an option (covering cell phone bills and expensing gas usage), providing a cellphone or access to a company car also provides employers with a certain level of control. When it comes to cell phones, they can choose the type of phone, and the carrier and limit an employee’s access to specific company data. It’s a way to maintain a certain level of security.

Regardless of which route your company chooses, providing employees with cell phones or access to a company car—particularly if their work requires travel and telecommuting, can be a huge benefit to employees, making it easier to do their jobs, access the information they need and get where they need to go.


Childcare is expensive. In fact, in many Canadian cities, the costs of daycare is unaffordable, even within two income homes. Even worse, rates are increasing faster than that of inflation.

In Toronto, where the costs for infant daycare are the highest, families end up paying around $20, 000 for the year—that’s the cost of a second mortgage!

Businesses hoping to gain a competitive edge will therefore want to consider childcare options as part of their indirect compensation. Support for childcare can occur in a variety of ways, including:

  • Providing subsidies for working parents to help cover the cost of daycare or;
  • a workplace daycare—an onsite facility that provides childcare for employees' children or;
  • Remote work opportunities and flexible hours that enable employees to limit the cost of daycare (for example paying for half days rather than a full day).

Regardless of how you incorporate this indirect compensation, the benefits to your business and employees is a powerful one, and will undoubtedly lead to higher rates of retention, and make your company attractive to top talent.

Equity Based Programs

Equity-based programs are a complicated but beneficial aspect of indirect compensation. These programs, which can comprise of stock options or performance shares, help businesses align employees’ financial interests with those of the company. Equity-based programs also enable businesses to conserve cash for other expenses.

In many cases, equity-based programs can be a great incentive for employees, particularly those whose skill set has a direct impact on a company’s sales. These types of programs fit perfectly into a total compensation package and are considered a great benefit to many younger employees.


Yes, pensions are still an important aspect of compensation management. And yes, they fall under the purview of indirect compensation.

Workplace pension plans work by receiving and investing contributions from employers and employees, which can then be used as income during retirement.

Pensions encourage employees to save, offer immediate tax savings, and, when they include employer matching, the plan is made that much more profitable for employees, because their funds will grow faster.

Indirect Compensation—a Not so Secret Weapon

When putting together a compensation management strategy, think of indirect compensation as your not-so-secret weapon. There are so many options out there that can help your organization become or remain competitive in today’s workforce. Of course, choosing the perfect array of indirect compensation to provide your employees isn’t always easy. Using HR technology such as an HRIS or HR Hub can help your HR team and business overcome any and all compensation management challenges.


Tanya Dawber

Tanya Dawber

Tanya Dawber has spent the past 25+ years working in HR related roles. Her love of employee benefits led her to switch to insurance, getting her life license and specializing in employee group benefit plans. In her spare time, Tanya enjoys travelling with her husband, playing golf and fishing.

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