In today's business landscape, learning more about the main types of compensation has become a priority for increasing employee engagement and motivation. After all, a productive team is key to achieving exceptional results. In this context, compensation strategies play a crucial role by offering various approaches to stimulate and reward employees.
However, it's important to understand that compensation goes beyond just salary. It encompasses a variety of benefits that can significantly influence employee satisfaction. Understanding these different types of compensation is crucial for companies to create personalized benefits that meet employees' needs and expectations.
With that in mind, in this article, we will cover the various types of compensation that exist and how they can be strategically applied to achieve positive and lasting results for your company. Keep reading and understand!
So, what is remuneration?
Remuneration encompasses all amounts received by an employee as a result of their work over a given period. In addition to base salary, it includes additional benefits such as overtime, commissions, night shift differential, and others.
In other words, remuneration is the total amount the employee is entitled to receive for the work they have performed. However, it is crucial to emphasize that all additional payments must be stipulated in the employment contract to be duly granted.
But remember: remuneration is not necessarily limited to monthly payments, and may vary according to the work arrangement agreed upon between employer and employee, such as per task, production, or working hours.
What are the components of compensation types?
Remuneration is composed of a diversity of values and benefits that the employee is entitled to receive, encompassing the totality of their financial compensation. These elements can vary depending on the company and current labor legislation.
Among the main components of remuneration, the following stand out:
1- Base Salary: It is the fixed value agreed upon between the employer and the employee, which corresponds to the basic remuneration for the work performed.
2- Overtime: Additional pay given to an employee when they work beyond their regular established hours, in compliance with labor laws.
3- Thirteenth Salary: Also known as “Christmas bonus,” it corresponds to an extra payment equivalent to a base salary.
4- Vacation: Paid rest period granted to an employee after one year of work, plus one-third of the base salary.
5- Commissions Additional compensation granted to an employee based on their sales or achieved targets, common in roles involving sales and commission.
Profit Sharing: Benefit that allows employees to receive a share of the profits obtained by the company in a given period.
7- Add-ons: These are additional amounts paid to the employee, such as night shift differential (for those who work at night), hazard pay (for risky activities), and unhealthy work pay (for jobs involving exposure to health-harming agents).
8- Paid Weekly Rest It is the value referring to the worker's weekly day off, guaranteed by law, and which must be paid.
These are some of the main components of an employee's compensation, but it's important to note that there may be other benefits, such as meal vouchers, transportation vouchers, health insurance, among others, which can vary from company to company and can also be part of the total compensation offered to the employee.
What is the difference between salary and compensation?
Knowing the difference between salary and remuneration is fundamental in the labor context. Salary represents the fixed and regular portion paid to an employee for work performed, according to the contract established between employee and employer. It is a periodic compensation, generally monthly, for services rendered. Salary is the basis of remuneration, but it does not include other benefits or advantages.
Remuneration encompasses all amounts and benefits granted to an employee in exchange for their work. In addition to salary, remuneration includes various additional components, such as overtime pay, hazard or unhealthy working condition allowances, commissions, bonuses, profit sharing, among others. These elements may vary according to legislation, internal company policies, and individual agreements.
In other words, salary is the fixed and regular part of compensation, while remuneration encompasses salary plus all other additional advantages and benefits that the employee is entitled to receive. It is important to understand this distinction to ensure a proper understanding of labor rights and obligations, for both employees and employers.
Main types of compensation
Within the topic of compensation, it is essential for the company to understand various types of compensation in order to choose the most suitable model for its reality during the hiring process. Check out below the six main types of compensation used in the job market:
Bonus
This type of compensation is widely used in sales teams and acts as an incentive for professionals in this area. It consists of a fixed salary plus commissions or bonuses, depending on the goals achieved and previously agreed upon in the contract.
2- Competency-Based Remuneration
In this type of compensation, the company pays the employee according to their skills and competencies relevant to the role, rather than solely based on the position held.
3- Functional Compensation
This is one of the most common models for compensating employees in companies. In this type of compensation, professionals are paid according to their positions. Additionally, it is possible to create a job and salary plan to incentivize employees, showing them the possibility of growth within the company.
4- Skills-Based Pay
Compensation for skills takes into account the proven competencies and training of an employee in a specific subject. This extra qualification can result in a higher salary, even if the employee holds the same position as others in the company. Skills can come from courses, specializations, MBAs, postgraduate studies, among others.
5- Indirect Salary
Indirect salary includes benefits that a company can offer to supplement an employee's fixed salary. Examples of these benefits include health insurance, transportation vouchers, meal vouchers, and others.
6 - Commissions and Bonuses
It is important to differentiate commissions from bonuses. Commissions are planned and constitute remuneration, while bonuses can be granted in material goods or, when in cash, must be clearly indicated on the employee's payslip.
In addition to these types of compensation, companies can also adopt other forms of remuneration as a way to recognize employee work. These remunerations can include “simple awards,” such as tickets to concerts, movies, or dinners, and strategies like the “employee of the month” title.
How to choose the right type of compensation for your company?
Each type of remuneration has distinct objectives, and it's important to carefully evaluate which one best fits the company's purposes. In some cases, this choice may be obvious. For example, variable remuneration may not be appropriate for companies that cannot adequately account for individual employee performance, as in the case of the tapestry mentioned previously.
On the other hand, in more complex situations, it is necessary to carry out a detailed study of the available alternatives to understand which one best meets the company's actual objectives.
Furthermore, it is crucial to analyze the existing job and salary plan before making a decision. Some forms of compensation may allow employees in the same position to have different earnings, which can lead to imbalances and dissatisfaction. It is essential to ensure that any changes align properly with the job and salary plan.
Another important factor to consider is the company's image, also known as employer branding. The way employees perceive the company can impact its reputation in the market. For example, when choosing a compensation system, it is essential to consider how it will be perceived by employees and how this will affect the organizational culture.
The search for a mutually beneficial system is also fundamental. The chosen compensation should take into account the balance between the interests of the company and its employees. A system that promotes a “win-win” environment, where employees are rewarded for their results, can be beneficial for motivation and productivity.
Finally, it is essential to perform calculations and assess expenses before implementing any changes to compensation. Some systems may have higher costs than others, and it is crucial to have a clear estimate of the expenses involved to ensure the financial viability of the chosen option.
What is the importance of offering benefits to employees?
Based on a recent survey conducted by human resources consulting firm TalentCorp, 85% of employees state that a competitive compensation package and a comprehensive benefits set are deciding factors when accepting a job offer.
This research further highlights the importance of offering attractive compensation and benefits to attract and retain qualified talent in the job market. Therefore, considering a benefits plan that meets employees' needs can be a significant competitive advantage for the company. Offering flexible benefits, such as remote work options, flexible hours, comprehensive health insurance, childcare assistance, professional development programs, among others, can be crucial for increasing employee satisfaction and engagement.
By aligning compensation and benefits with the company's job and salary structure, the organization demonstrates its commitment to the growth and development of its employees, encouraging them to advance their careers internally. This not only helps retain valuable talent but also attracts new professionals who see opportunities for growth within the company.
Why invest in compensation with the help of software?
Technology can be an ally in choosing the remuneration that best suits your company. Therefore, Actio developed the software Actio Bonus Management, the only compensation software approved by Falconi, the largest consultancy in Brazil, and which, furthermore, seeks to bring transparency to the disclosure of achieved goals and employee bonuses.
With Actio Bonus Management, you will have real-time access to individual results, allowing clear visibility in the variable remuneration process. The software also calculates commissions, ICP, PLR, bonuses, ILP, and much more, adapting to your organization’s specific needs. If facing challenges in this area, consider Actio’s software to simplify the process.
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