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Read the highlightsCompensation describes the cash rewards paid to employees in exchange for the services they provide. It may include base salary, wages, incentives and/or commission. Total compensation includes cash rewards as well as any other company benefits. Compensation strategyDefining a compensation strategy is an important activity for all companies, including startups. The compensation strategy must be affordable, structured and reasonably competitive. Your compensation strategy must be structured to best meet your unique business circumstances. As a startup, you may not be able to compete with large companies on salary. Therefore, you should consider a combination of options to attract and retain key employees. Do not underestimate the value of the advantages or perquisites that your company has to offer that may not be readily available in larger companies—opportunities for interesting work, lack of hierarchy, flexible environment, and so on. Some people are motivated by the desire to be on the leading edge of scientific or technological advances. They may take less pay to work for a startup if they believe in its future and the work it has to offer. Salary and wagesA salary (or wage) is a fixed amount paid in exchange for an employee’s services. Ontario Employment Standards legislation entitles most employees to receive a “minimum wage” in exchange for the work they complete for a company. For full-time employees, salary is generally described in annual, monthly, bi-weekly or weekly amounts. For part-time employees, it is generally described as an hourly amount. To determine an appropriate salary and/or salary range that your company is willing to pay for a position, you must:
Incentives: Drivers in attracting the best employeesCompensation can be divided into salary, benefits and incentives. While salary and benefits must be competitive, incentives are the most likely drivers of attracting and retaining the best employees in startups. There are three key types of incentives: bonuses, profit sharing and stock options.
CommissionsCommissions are a common way to remunerate employees (salespeople) for securing the sale of a product or service. The intent is to create a strong incentive for the individual to invest the maximum effort into their work. Commissions are usually calculated as a percentage of the sale of the product or service (for example, 5% of a computer component’s retail selling price). Payment may be either straight commission (no base salary) or a combination of base salary and commission. In general, the commission structure is based on reaching specific targets or quotas that have been previously agreed upon by management and the employee. These targets or quotas are typically tied to sales revenue, unit sales or some other volume-based metric. Read next: Talent management: Defining your compensation strategy and planSummary: A compensation strategy (salary, benefits and incentives) must be affordable and competitive-—in startups, incentives are the strongest drivers to attract/retain top employees.What is a gainsharing plan?Gainsharing (sometimes referred to as Gain sharing, Gainshare, and Gain share): Gainsharing is best described as a system of management in which an organization seeks higher levels of performance through the involvement and participation of its people. As performance improves, employees share financially in the gain.
What is a main difference between gainsharing and profitOne significant difference between gainsharing and profit-sharing plans is that gainsharing-plan payouts are generally distributed more frequently. Group incentive pay plans tend to use a broader range of performance measures than do individual-oriented plans.
What is base incentive pay?Incentive pay is merit-based compensation. It's generally tied to performance or meeting established objectives, and it can come in the form of monetary and non-monetary rewards. Common incentive pay programs include: Employee rewards and recognition programs.
Which pay system compensate based on performance quizlet?The individual employee's performance is the basis for the amount and timing of pay increases. A performance-based pay system is commonly called merit pay or pay-for-performance.
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