Types of Compensation Beyond Salary: Invest in Your Employees

Different denomination money placed in an envelope and around.

Managers want to hire the most qualified employees. However, attracting and keeping these employees in a highly competitive global economy is difficult. Therefore, companies must focus on compensation to attract and retain talent. Here are different types of compensation you can offer your employees.

What is Compensation?

Compensation refers to the payment given by an employer to an employee during the employment period. The employee provides labor, skills, and time in return for compensation. Organizational culture and compensation go hand in hand as compensation is shaped by the behavior that the company chooses to reward. When culture and compensation are synchronized, culture becomes an asset that generates a competitive advantage.

Compensation, also known as remuneration, can be in other forms apart from salary, including bonuses, wages, paid leave, and pension. Understanding the different compensation packages benefits the management since it helps develop an attractive compensation package for the employees. This will help attract new talent while retaining top talent.

A sound employee compensation package can act as a selling point for the company. This is possible through a compensation analysis that ensures that all the needs of the employees are met. Developing a compensation package is the responsibility of the HR department, but in its absence, it becomes the responsibility of the company’s owner.

Different Types of Employee Compensation Package

Compensation plans vary from company to company, depending on factors like industry and the firm’s size. There are two main types of compensation that an organization can adopt:

  • Direct compensation
  • Indirect compensation

Direct Compensation

Direct compensation involves the wages paid by employers to their employees in exchange for work. This form of compensation is purely financial and can be divided into four types: salary.

Hourly Wages

Hourly wages usually compensate employees for unskilled, semi-skilled temporary, or part-time labor. Examples of jobs where employees receive compensation in the form of hourly wages include the construction, hospitality, and retail industries. You must, however, ensure that your company sets the hourly wages by the minimum wage legislation in your region.

Since this form of compensation is calculated hourly, employees can earn more income by working overtime. This payment form involves compensation for additional hours worked outside the agreed contract.


Most often, the employees who receive compensation in the form of commission are those who work in the sales department. Usually, the commission is based on a target, and employees are paid upon achievement of this target. The higher the target, the higher the commission received by employees. Some organizations may only reward employees with commission alone, while others may choose to reward employees with a salary plus commission.


Bonuses are paid periodically depending on the firm’s overall results or the achievement of the set targets. The company can choose to give bonuses annually, quarterly or even upon the completion of a project. Sometimes, the decision to offer bonuses is the manager’s decision.

Bonuses fall under the category of incentive pay when they are paid upon the achievement of targets. However, bonuses can also be classified as variable pay when they are paid without the employees having to meet targets. For example, the company may have had a good year, and the management decides to reward everyone.

People in the hospitality sector may also enjoy another form of financial payment in the form of tips from the customers.

Indirect Compensation

Indirect compensation still has a financial value, although the employees do not receive it in direct form. Indirect compensation is also referred to as perks or employee benefits and differs between organizations. Take a look at some common forms of indirect compensation.

Stock Options

Stock options enable company employees to purchase a certain number of shares at a fixed price. However, access to stock options requires employees to have worked for at least three years.


Employee benefits vary depending on the company. However, most companies offer benefits in the form of healthcare insurance, life insurance, retirement plans, and disability insurance. Pension plans are also essential factors to consider when looking for a new role in your organization. Although the base pay offered by an organization is good, there is a need to consider an attractive compensation package to attract key talent.

Equity Package

Equity compensation essentially means that the employee is offered the opportunity to own the company partially. Employees can get a share of the company through shares of stock.

Other forms of indirect compensation that are non-monetary include:

  • Parental leave
  • Company cars
  • Paid and unpaid leave
  • Meals
  • Phones and laptops
  • Learning and development opportunities


Although a good salary helps attract employees to an organization, there are other monetary and non-monetary factors to consider. For instance, healthcare is expensive in the US. Therefore, employees are more attracted to a job opportunity that comes with healthcare insurance. You can also differentiate your company by offering benefits such as vacation, free meals, daycare, and tuition reimbursement.

About Carson Derrow

My name is Carson Derrow I'm an entrepreneur, professional blogger, and marketer from Arkansas. I've been writing for startups and small businesses since 2012. I share the latest business news, tools, resources, and marketing tips to help startups and small businesses to grow their business.