What are the different employee remunerations?
Employees are paid for the value they create for a company. They are one of the major pillars of any business. At any stage of the business, attracting, motivating and retaining talent is one of the keys to success.
There are four main levers to recruit and retain employees:
- Strategic vision
- Salary (with commissions and benefits)
- Company culture
- Financial instruments such as employee stock-options
Salary, benefits, commissions and employee stock-options are all part of employee remuneration.
In more detail, the different components of an employee compensation system are as follows:
- Base salary:
The base salary is the gross salary, before deduction of any income tax. It does not include bonuses or benefits. It is usually the amount on the first line of an employee’s pay slip. It is the minimum wage an employee will receive and can be set hourly, weekly, monthly or annually.
Benefits are cash or other allowances paid to an employee in addition to their basic salary. This can include any insurance (medical, dental, life insurance, etc.), holidays and leave. But also flexible working hours, remote working or meals.
A bonus is a remuneration that is added to the basic salary. It is a variable part based on the employee’s results. Most of the time, salespeople are paid this type of remuneration. They can be paid as a percentage of a lump sum.
- Employee stock-options:
Employee stock-options are a financial instrument that gives the beneficiary the possibility to buy a certain number of shares in a company at a fixed price.
Employee remuneration schemes are a combination of the above types.
The most frequent remuneration schemes
- Salary. It gives an employee a basic salary for the tasks he or she performs for a company for a certain number of hours.
- Salary and commission. This formula includes both a basic salary and commissions. Often people who have an influence on the company’s turnover benefit from this type of remuneration.
- Salary and stock options. With this remuneration package, an employee receives a basic salary and a future remuneration if the company’s valuation increases over time. In startups, these are mainly employee stock-options.
At any stage of the business, attracting and retaining the best talent is crucial. To do this, the financial aspect is essential.
An employee working on a project or with well-defined tasks will usually prefer a fixed salary. This will also give him/her the opportunity to take up other jobs. This package can be divided into two parts: the weekly/monthly/yearly package and the hourly package.
Hourly packages are often intended for entry-level positions or for employees whose permanent employment is not required.
Commission packages consist of a low base salary and high commissions. This allows employees to have a high remuneration based on their performance.
These remunerations are often given to people working in sales. They receive a percentage of the turnover they generate or a lump sum if they reach a sales target. It is also common to have team bonuses. This means that depending on the performance of a team, all team members will be rewarded.
Stock-based compensation schemes are usually offered to employees in management positions or to hard-to-recruit profiles (such as developers). However, giving stock options to all employees allows the company to create a culture of sharing and inclusion. It also aligns the interests of investors, founders and employees.
For further information:
Why is a new approach to employee stock options needed in Australia?
4 steps to define the best employee remuneration structure