QS Study

Employee benefits are optional, non-wage compensation provided to employees in addition to their normal wages or salaries. Wage refers to at an hourly rate of pay and is the pay basis used most frequently for production and maintenance employees. Salary refers to a weekly, monthly, or yearly rate of pay.

Benefit structure for workforce can be designed in the following way:

Guaranteed Pay: The basic element of guaranteed pay is the base salary, paid based on an hourly, daily, weekly, biweekly, or monthly rate. The base salary is typically used by employees for ongoing consumption. Many countries dictate the minimum base salary by stipulating a minimum wage. Individual skills and the level of experience of employees give rise to differentiation in income levels within the job-based pay structure. In addition to base salary, there are other pay elements that are paid based solely on employee and employer relations.

Variable Pay: Variable pay is contingent on discretion, employee performance, or results achieved. There are different types of variable-pay plans, such as bonus schemes, sales incentives (commission), and overtime pay. For example, a variable-pay plan might be that a salesperson receives 50% of every dollar they bring in up to a certain amount of revenue. Beyond this amount, they then bump up to 3 higher percentages for every dollar they bring. Typically; this type of plan is based on an annual period of time requiring a “resetting” each year back to the starting point of 50%. Sometimes this type of plan is administered so that the salesperson never resets and never falls down to a lower level.

Benefits: There is a wide variety of employee benefits, such as paid time off, different types of insurance (life insurance, medical/dental insurance, and work disability insurance), pension plans, and a company car. A benefit plan is designed to address a specific need and is often not offered in the form of cash. Many countries dictate different minimum benefits, such as minimum paid time off, employer’s pension contribution, and sick pay.

Equity-Based Compensation: Equity-based compensation is a compensation plan that uses the employer’s shares as employee compensation. The most common form is stock options. Employers use additional vehicles such as restricted stock, restricted stock units, employee stock-purchase plan, and stock appreciation rights. The classic objectives of equity-based compensation plans are retention, an attraction of new hires; and aligning employees’ and shareholders’ interests. Simply put, ownership of the company drives better performance through personal value creation.