What is Compensation Management? - Compensation Management 101

Compensation management refers to the practice of providing employees with compensation in exchange for the work they do for your company. It also includes regularly analyzing and redesigning compensation package offerings to stay current with business trends and competitive with similar businesses. When most people hear the term "compensation", they automatically think of money, which usually makes up the bulk of a compensation package.

Recent cultural shifts, especially throughout the COVID-19 pandemic, have resulted in employees seeking more forms of compensation than just a decent salary. If your company wants to stay ahead of the competition, recruit top talent, and maintain your current employee workforce, it may benefit you to take a look at your current performance and compensation management offerings. Let’s take a look at what makes proactive compensation management  appealing and what to look for in a compensation management solution. 

Elements of a Good Compensation Program

It's easy to think that offering an attractive and comprehensive compensation program only benefits your employees, but these kinds of investments can pay off for the company in the short and long term. Excellent compensation programs can make the recruiting and hiring process far easier, and you are much more likely to have your pick of qualified and talented candidates when your organization has a reputation for taking good care of its employees. It also ensures you'll see far less turnover, which saves on training and onboarding costs. 

It's critical that employees fully understand their total compensation. Welcome’s Total Rewards program has a simple and intuitive interface, making it easy for you to convey this information and help employees visualize compensation, benefits, equity, and your compensation philosophy.

So what makes a compensation program good? The best compensation programs include at least some, or all, of the following elements: 

Time Off

Although private employers in the United States are not required to provide any paid vacation or paid public holidays by law, it is in an employer's best interest to give its employees at least some paid holidays and paid vacation days. Employees now seek a better, more healthy sense of work-life balance, which includes paid time off for them to spend with loved ones, relax, and travel. 

Reducing the risk of burnout is key to staying healthy and productive. Especially after such an unprecedented year, feeling burnout has been a big catalyst behind people resigning. Paying employees to take a break may not seem like a worthwhile investment for your organization, but giving employees a chance to rejuvenate without having to worry about their pay can help them solve problems better, think more creatively, and want to work for your company longer. Plus, a generous vacation and paid holiday compensation package is one of the most appealing things an employer can present to prospective employees.  

Stock Options/Equity

Offering stock options or equity in your company is another way to appeal to prospective employees. By giving your employees equity in the company, you not only make them feel better compensated and more appreciated, but you also motivate them to help the company succeed. After all, when the company performs well, so will their valuation. With strategic vesting, you can also encourage employees to stay with the company for a longer amount of time. 

Offering stock options or equity can complicate the accounting side of things for both employers and employees, and many employees won't understand the value of equity compensation without some clear explanations. At the same time, offering stock options can be a great way for cash-poor startups to find the right talent for their brand, and it can greatly enhance the overall perception prospective employees have of your benefits package offering. 

Health Insurance

Most employees have worked at a company that either didn't have to offer health insurance, or it provided a barebones health insurance policy. Employees are sick of getting health insurance that covers very little or has astronomical premiums and deductibles, which provides an excellent opportunity for your company to stand out from the pack. 

You can appeal to top talent and make employees feel more satisfied to work at your organization by offering excellent health plans. In fact, the Society of Human Resources Management (SHRM) reported in 2018 that employees are more likely to stay working for a company if they like their health plan. Chances are high that even more employees feel this way after the COVID-19 pandemic. The most important factors for employees regarding health insurance are comprehensive coverage, affordability of coverage, and their ability to choose a provider. 

If it's time to rework your current health insurance offerings, you may find it helpful to ask your current employees what they would prioritize if they were looking for health insurance plans. This can give you a better idea of what employees like yours care most about. 


Generous retirement plans are also a major way to attract new employees and keep your current employees happy. By contributing to your employees' retirement funds, you can help your employees stay future-focused and encourage them to stick around to continue receiving those investments. Your company can also receive major tax benefits, in the form of deductions, by contributing to employees' 401K plans. 

Maternity/Paternity Leave

Another important aspect of quality compensation packages is paid maternity and paternity leave. Paid maternity leave can have profound physical and mental health benefits for the mother and the child. It can actually help households stay more financially secure after a new baby is born.

Plus, paid parental leave actually helps employees, especially women, stay in the workforce longer than they would without it. SHRM reports that almost a third of women who don't have access to paid time off leave the workforce within a year after having a baby. Many of them don't return to the workforce for years, if at all. If you have a hard time retaining employees, especially after they have children, it might be worth offering paid parental leave, or enhancing your current policy. 

Child Care

It's no secret that childcare is expensive for families, and the inability to afford childcare forces many parents to leave their jobs to take care of their little ones. If your company offers childcare, either on-site, or reimbursement for other childcare options, it can put your company way ahead of the curve. To drastically improve your recruiting prospects, employee retention, and overall employee satisfaction, paying for at least some child care may be your best bet. 

Profit Sharing

A unique compensation option is to offer employees a profit-sharing plan. This gives employees a share of the profits the company earned, usually per quarter or year, and employers get to choose how much of the profits they want to share. Depending upon your organization's own unique culture, and several other factors, this offering alone could boost motivation by a high margin. If employees know that they could receive additional pay if the company does well, they have a tangible incentive to work hard while on the clock. 


Many employers have come up with truly unique compensation offerings and benefits, such as free snacks, adoption assistance, transportation reimbursement, and many more. Don't be afraid to get creative, and you can always ask your employees what they value most. 

Designing your Compensation Strategy

When designing your compensation strategy, it's important to strike a balance that gives your employees the best benefits while ensuring you aren't spending more than you can afford. That's why it's helpful to use real-time analytics to compare your company's compensation options with your competitors'. Welcome’s compensation data can help you better understand what industry average rates look like at different job levels, and what employees like yours prioritize most. 

It may take a bit of trial and error to ultimately land on a compensation strategy that you and your employees both benefit from, but careful and systematic impact tracking can help you and your HR team see what works and what doesn't. Even after you implement a new compensation plan, you should still collect feedback from employees and higher-ups to see what could be improved in the future. 

Choosing Compensation Management

It can be difficult and overwhelming to try to design an attractive and genuinely beneficial compensation plan, which is why many employers have turned to tools that can help with transparent and equitable compensation structure. The best compensation management tools provide insight into how your employees' compensation compares to competing businesses, and they can help you design attractive and competitive offers. 

Welcome offers an easy-to-use platform that not only helps you design the most ideal compensation packages possible, but it also breaks down what you offer to your employees in an intuitive manner. This helps your current and prospective employees better understand their compensation and financial future. 

Smart and Transparent Compensation Management Helps You Stay Competitive

Giving your employees an excellent compensation package with a transparent compensation philosophy is one of the best ways to enhance your company culture and rev up your organization's recruitment.

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