Compensation and Benefits That Really Matter to Employees

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Attracting and retaining employees relies on excellent compensation management. When you offer the pay and benefits that employees really want, they’re more likely to apply for positions and are bound to feel more satisfied with their jobs. 

Zeroing in on compensation and benefits is a must for improving retention. However, companies might struggle to determine the right compensation and benefits for their employees.

What Are Compensation and Benefits?

Compensation is sometimes referred to as direct pay because it includes money given directly to an employee, like salary, commissions, and tips. Essentially, any monetary pay is considered compensation.

On the other hand, benefits are non monetary compensation, like health insurance, retirement plans, and unlimited paid time off. Because benefits aren’t paid directly to an employee like salary or bonuses are, they’re sometimes called indirect compensation. 

What Compensation and Benefits Matter to Employees?

Numerous compensation and benefits options are available to companies, but only a select few are the ones most employees really care about. 

Competitive Salary

First and foremost is salary. And by salary, I mean competitive pay, not the same pay that an applicant can find at any similar job. 

Salary is the main portion of an employee’s pay. It’s what they can rely on even when bonuses, commissions, and profit-sharing plans fall through. As such, it should be enough to attract a new applicant and retain a current employee.

Today’s employees rightfully want to be paid fairly for their work. They also need a clear reason to choose one company over another. Competitive salaries meet both of those criteria.

However, starting an employee off with a higher-than-average salary can lead to pay compression, or newer employees making the same or close to the same amount as current employees in similar roles. This may benefit the new hire but cause dissatisfaction with other employees. 

As a result, some companies turn to variable pay strategies in addition to salary. Variable pay is a type of cash compensation that isn’t as cut-and-dry as salary; instead, it varies, usually based on performance or sales. These extra pay models add more to an employee’s bank account without risking pay compression.

Examples of variable pay include:

  • Profit-sharing
  • Commissions
  • Tips
  • Performance bonuses
  • Referral bonuses
  • Team bonuses
  • Recognition awards

Companies using variable pay strategies to bump up compensation should have detailed guidelines for variable compensation, including how and how often employees should expect to receive them. 


The skyrocketing costs of healthcare in the United States have made health benefits more important to employees than ever. According to ValuePenguin, the average 40-year-old pays $560 per month for health insurance on a private plan. 

Getting health insurance through an employer can significantly cut down the amount a person pays for healthcare out of pocket. It’s no surprise, then, that employers want to see health benefits listed in their compensation packages.

Companies commonly provide a preferred provider organization (PPO) plan, allowing enrollees to choose the providers they see. For affordability purposes, some employers may offer lower-priced health maintenance organization (HMO) plans, which include a network of providers accepting the company’s insurance plan. 

While dental and vision benefits aren’t automatically included in health insurance, data shows an upward trend in offering these benefits. According to KFF, 34% more large organizations provided access to both dental and vision plans in 2019 than in 2010.

Employer-sponsored healthcare should be both comprehensive and affordable for employees. Workers want decent coverage without spending the majority of their paychecks for it. Look for a plan that covers necessities, like preventative care and prescriptions, while balancing out-of-pocket costs.

Paid Leave

No one wants to feel tied to their jobs, worried about calling off when an emergency arises or requesting a vacation to recharge. When employees have some flexibility to take time off, they can come back to work refreshed and ready to be productive.

However, taking unpaid breaks can put a damper on payday, especially for workers who live paycheck to paycheck.

For these reasons, paid leave is one of the most coveted employee benefits. Paid leave pays employees for time they take off work, although there are several types of paid leave for different purposes:

  • Paid time off: Paid time off, also known as PTO, can refer to different types of time off, like vacation, sick leave, and family leave. A strong PTO policy outlines how much time off workers can take and how they should request it. I recommend providing employees with a PTO allowance, like three or four weeks annually, which gives them opportunities to take time off for planned vacations and unplanned situations.
  • Family leave: The Family and Medical Leave Act (FMLA) mandates unpaid family leave, allowing workers protected time off to care for a newborn or adopted child or a family member with a health condition. Many companies provide additional paid leave for some or all of the 12 weeks FMLA covers and, sometimes, beyond those 12 weeks.
  • Sick leave: Paid sick leave covers an employee when they need to take time off due to an injury or illness or when they need to visit a doctor for a procedure. 
  • Jury duty: Employees don’t get to choose whether to attend jury duty when summoned, and the process usually involves involuntary time off work. Although court systems typically provide some payment for jury duty, it rarely equates to the amount an employee would make on the job. Paid jury duty leave can help fill in this gap.
  • Bereavement leave: Bereavement leave allows employees to take time off after the passing of a family member, friend, or loved one. Some bereavement leave policies also provide paid time off for a worker to make funeral arrangements or to grieve.

401(k) with Employer Match

Many people work for 40 or 50 years before they retire, mostly because they need to continue working to save enough money to retire comfortably. A 401(k) helps that process, especially when employer matching is involved.

A 401(k) is a retirement plan sponsored by an employer. The employer opens it on your behalf, and you can contribute a portion of your paychecks into it. With employer matching, your employer matches some of your contributions, usually around 3% or 4%, but sometimes as much as 10%.

So, if an employee contributed $100 of their paycheck to a 401(k), an employer with a 4% match would also contribute $4, allowing the employee to save money quicker. 

401(k) plans are more common across larger companies, with about 87% of businesses with more than 100 employees offering one. 

Other Perks

There are tons of other perks for employees that I didn’t mention here, like life insurance, tuition reimbursement, and living stipends. While these are all incredible benefits to offer if your company can afford them, I genuinely believe it’s more important to focus on the ones that matter most, which I outlined above.

For the most part, these additional perks make less of an impact when someone decides whether to work for your company. They’re nice-to-haves, but they aren’t must-haves.

Some highly competitive industries, like technology and financial services, provide higher-than-average compensation packages to attract the best candidates. Still, they’re outliers.

If you’re offering a competitive salary and the benefits I outlined here, you’re setting yourself up for compensation success. 

How Do Companies Determine Compensation and Benefits?

Several factors determine the compensation and benefits necessary for a company. At the top of the list are:

  • What competitors give their employees
  • Experience and skill sets of employees
  • Employee demographics
  • The amount of competition in the industry
  • Job and salary analyses and reviews

These factors can differ significantly between companies, which is why there’s no one-size-fits-all solution to compensation and benefits. 

Additionally, even determining a company’s compensation and benefits based on competitors can be tricky. 

First, your company might not know how recently your competitors updated their compensation packages or how close they are to market rates. Second, so many influences that you might not be privy to can affect another company’s compensation, like the location of most of its workers and how much its workers are expected to participate in professional development activities.

So, while using other companies’ compensation and benefits as a guide is a good idea, using them as a strict template for your own may not be. 

To start, stick with a competitive salary, healthcare, paid leave, and 401(k) with employer matching. As you’re able to expand your benefits, do so according to what your specific employees need by asking for feedback and getting them involved in the compensation conversation.

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