The basic components of employee compensation and benefits

1. The basic components of employee compensation and
benefits[edit]
Employee compensation and benefits are divided into four basic categories:
1. Guaranteed pay – a fixed monetary (cash) reward paid by an employer to an employee. The
most common form of guaranteed pay is base salary.
2. Variable pay – a non-fixed monetary (cash) reward paid by an employer to an employee that
is contingent on discretion, performance, or results achieved. The most common forms of
variable pay are bonuses and incentives.
3. Benefits – programs an employer uses to supplement employees’ compensation, such
as paid time off, medical insurance, company car, and more.
4. Equity-based compensation – stock or pseudo stock programs an employer uses to provide
actual or perceived ownership in the company which ties an employee's compensation to the
long-term success of the company. The most common examples are stock options.
Guaranteed pay[edit]
Guaranteed pay is a fixed monetary (cash) reward.
The basic element of guaranteed pay is base salary which is paid on an hourly, daily, weekly, bi-
weekly or monthly rate. Base salary is typically used by employees for ongoing consumption.
Many countries dictate the minimum base salary defining a minimum wage. Employees'
individual skills and level of experience leave room for differentiating income levels within a job-
based pay structure.
In addition to base salary, there are other pay elements which are paid based solely on
employee/employer relations, such as salary and seniority allowance.
Variable pay[edit]
Variable pay is a non-fixed monetary (cash) reward that is contingent on discretion, performance,
or results achieved. There are different types of variable pay plans, such as bonus schemes,
sales incentives (commission), overtime pay, and more.
An example where this type of plan is prevalent is how the real estate industry compensates real
estate agents. A common variable pay plan might be the sales person receives 50% of every
dollar they bring in up to a level of revenue at which they then bump up to 85% for every dollar
they bring in going forward. 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 the sales person never resets or falls down to a lower level. It also includes
Performance Linked Incentive which is variable and may range from 130% to 0% as per
performance of the individual as per his KRA.
Benefits[edit]
There is a wide variety of benefits offered to employees such as Paid Time-Off (PTO), various
types of insurance (such as life, medical, dental, and disability), participation in a retirement plan
(such as pension or 401(k)), or access to a company car, among others. Some benefits are
mandatory which are regulated by the government while others are voluntarily offered to fulfill the
need of a specific employee population. Benefit plans are typically not provided in cash but for m
the basis of an employees' pay package along with base salary and bonus.
In the United States, "qualified" employee benefit plans must be offered to all employees, while
"non-qualified" benefit plans may be offered to a select group such as executives or other highly-
paid employees. When implementing a benefit plan, HR Departments must ensure compliance

2. with federal and state regulations. Many states and countries dictate different minimum benefits
such as minimum paid time-off, employer’s pension contribution, sick pay, among others.
Equity-based compensation[edit]
Equity based compensation is an employer compensation plan using the employer’s shares as
employee compensation. The most common form is stock options, yet employers use additional
vehicles such as restricted stock, restricted stock units (RSU), employee stock purchase
plan (ESPP), and stock appreciation rights (SAR).