Compensation Package: Definition and Guide

In recent years, the labor pool has tightened, causing employers of all sizes to ramp up their efforts to attract and retain the right talent. According to the Bureau of Labor Statistics, there were 11.4 million job openings as of April 2022 , which is good news for job seekers, but compounds the hiring challenges for organizations nationwide.

As a result, many organizations are re-examining their existing compensation packages with a fresh set of eyes, refining these to become greater assets in their recruiting and retention efforts.

What is a compensation package?

A compensation package is a comprehensive summary of the direct (financial) and indirect (non-financial) ways an employer pays an employee for his or her work.

What does a compensation package include?

Compensation packages vary by employer and position, but typically, include the following:

  • Base salary or hourly wage, salary and bonuses
  • Retirement savings plan, such as 401(k)s and/or profit-sharing
  • Medical, dental, vision, life, and disability insurance
  • Paid time off (may include vacation, sick days, personal days, company holidays)

To increase retention and better attract new talent, many organizations have added more benefits to make their offers more appealing to top candidates. These can include:

  • Tuition reimbursement programs
  • Signing bonuses
  • Unlimited vacation
  • Catered lunch
  • Gym membership reimbursement or a health stipend
  • Flexible hours/remote work options
  • On-site childcare

Many companies are also adding performance-based compensation programs, where individuals and teams receive compensation based on hitting specific goals. These additional benefits can range from bonuses, stock options and profit-sharing to additional time off to trips or tickets to events.

The important thing is developing a program that is competitive , fits your company culture, and most importantly, resonates with your current and target employee group.

Talk to your employees to see what incentives motivate them. Look at what your competition is offering.

Although no company has an unlimited budget for compensation, make sure you use it in a way where it will make the greatest positive impact. While you can’t perpetually escalate the salaries and benefits you offer, employees will often stay with companies for the intangibles—an environment where they feel appreciated, heard, and have a sense of belonging.

Providing that atmosphere, along with the best compensation package budget and boundaries will allow, gives your workforce good reasons to stay with your company.

What’s the best way to communicate your compensation package?

A solid compensation package could be a great asset to any company—if employees know about it. Promote it, discuss its value, and keep it top of mind with your employees. Truly understanding what they have and what it’s worth will make them less likely to start looking for something better elsewhere.

At the same time, make sure employees understand how their compensation plan was created, why it is structured as it is, and how their role and performance impact that compensation.

Giving employees clarity into how salary decisions are made and what they need to do to increase their earnings will help them stay focused on doing great work. Here are some tips to guide these compensation conversations

  • Talk early and often. When you sit down with an employee to talk about salary, there shouldn’t be any surprises. Talk about compensation with new employees during the onboarding period. Explain why their pay is set at the current level, and what kind of bonus or raise the employee might receive if he or she meets her goals — or doesn’t. Then, have regular check-ins throughout the year to talk about performance, celebrate the wins, and discuss areas for improvement.
  • Prepare your managers for pay conversations as they are your conduit for employee communication. Train them on the rationale that went into their employees’ compensation plans, the total value of those plans, how to listen and respond to employee concerns on compensation.
  • Any time you add a benefit, whether that’s allowing employees to work remotely or the addition of a new employee wellness program, let your employees know about it. Why was the benefit added? Was it a result of an employee survey or some other source? How does it help employees? How does it fit with your persona as a company?

How to evaluate a compensation package

As you come up with your compensation package or as you re-evaluate your current package, it’s important ensure what you offer aligns with employee preferences, your corporate culture and your company values.

Experts recommend keeping these questions top-of-mind as you build out your total compensation package.

  • What is your organization’s mission, vision and values?
  • What makes you unique as an employer?
  • Which job types are the most critical hires right now?
  • What do your employees value most about working at your organization?
  • What is your compensation philosophy and strategy?
  • What is your stance on pay for performance ? What types of behaviors or results do you want to reward ?
  • Are the benefits you provide aligned with your core values as an organization? For example, if you say your organization values healthy employees or work-life balance, can you provide something to incentivize your employees to actually unplug and relax?
  • How can you ensure your new benefits are equally meaningful to a wide range of employees?

The importance of supplemental benefits

It’s also important to get creative and look outside the basics to make your supplemental benefits truly your own.
To attract and retain employees, companies are adding even more supplemental benefits to their compensation packages, beyond catered lunches and tuition reimbursement. These include:

  • Identity theft protection
  • Counseling (personal, marital, family)
  • Discounts and reimbursements for auto insurance, homeowners’ insurance, travel insurance, and even pet health coverage
  • Discounts for certain services, places or products
  • Financial planning consultations
  • Student loan assistance programs

By aligning your compensation plan with the needs of your employees, the wants of your top candidates and the values of your company, you can create a unique offering that improves recruiting, retention and employee satisfaction.


Manage compensation easier with Payfactors

Get faster access to market data with tools to improve fair pay practices.

Learn More