Employee reward

Compensation and benefits (abbreviated “C&B”) is a sub-discipline of human resources, focused on employee compensation and benefits policy-making. It is known in the United Kingdom as “total reward” and as “remuneration” in Australia and New Zealand.

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 .

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 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 key result areas (KRA).

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Wikipedia