Career Development

What is a Compensation Package? (With Template and Example)

February 22, 2021

Before you begin a new position, you first need to review the company's compensation plan for your position. Aside from professional opportunities and career growth, compensation is one of the main reasons people enter the workforce. Preparing for a new job by researching possible compensation options is a standard step in vetting job offers and negotiating your pay.

In this article, we explain the elements of a compensation package and provide an example of what a total compensation statement could look like.

What is a compensation package?

A compensation package is a summary of all the ways that a company directly or indirectly pays employees. Also known as a total compensation statement, the compensation plan describes details about how the employer pays employees and what non-financial benefits they offer. There may be a standard compensation plan that applies to all employees, tiered compensation offerings or customized plans based on each position. A well-rounded compensation package can give you an incentive to work for a certain employer and be committed to your job.

Read more: Compensation Packages: Definition and What They Include

What is included in a compensation package?

A compensation package includes multiple elements that reward you for the time and labor you expend at your job:

Pay rate

When people think of compensation, they usually think of the money they earn based on the work they provide for their employer. Companies can offer different kinds of direct compensation for their employees, including an hourly rate, a regular salary or a commission on sales. Depending on their exemption status, employees can also earn overtime and time-and-a-half or double pay when they work more hours than expected. Understanding the impact of different pay structures and hourly expectations can help you understand your own total compensation better.

For example, a company could hire an employee for $50,000 per year on a salary basis, meaning that they are not eligible to earn overtime. They could also hire an employee at a lower hourly rate of about $22 per hour, but offer overtime for additional hours worked. If both employees ended up working 45 hours a week, the hourly employee would make $1,045 per week with 40 hours of regular pay and five hours of time-and-half overtime pay, while the salaried employee would make $961.54 regardless of their overtime. The amount of expected work and hourly rate can both have an impact on your pay rate compensation.

A company's raise structure can also be part of their pay rate compensation. Companies that have clear plans for how employees achieve raises can use this in their compensation plan to help employees with long-term planning.

Related: What Is Salary vs. Total Compensation?

Bonuses

Employers can offer additional financial compensation in the form of bonuses, or extra cash rewards that they distribute for various reasons. Some employers don't offer bonuses at all, while others provide multiple bonuses throughout the year. Commission-based positions often use bonuses as a significant percentage of an employee's overall, while some jobs only use bonuses as a small incentive instead of a core part of the compensation package. Types of bonuses that you might see in a compensation plan include:

  • Holiday bonuses: These bonuses give employees a set amount of extra payment to account for holiday spending and show appreciation. Holiday bonuses are often the same for all employees.

  • Referral bonuses: When employees refer strong applicants to open positions or attract clients, employers may reward them for supporting the company with a referral bonus. These bonuses are usually small amounts but could be in the thousands for hard-to-fill positions.

  • Spot bonuses: Managers give out spot bonuses on a discretionary basis to employees who exhibit exceptional behavior. There is not usually a system or regular schedule for spot bonuses.

  • Annual bonuses: Sometimes given in conjunction with holiday bonuses, annual bonuses are lump sums that employers give out at the end of the year. Their amount often reflects an employee's performance over the entire year.

  • Retention bonuses: The purpose of a retention bonus is to give employees extra motivation to stay with the company during a challenging or important period of time. The employer defines the period of time and provides a lump sum or payment installments to reward employees for overcoming a stressful workload.

  • Signing bonuses: When a new employee agrees to accept a new job, they can get a signing bonus. Signing bonuses encourage employees to make a quick decision and commit to a new employer instead of entertaining other job offers.

  • Performance bonuses: Employees who meet performance metrics or achieve specific objectives at work may get performance bonuses. Some companies only give out performance bonuses to top-achievers, while others give them to anyone who meets a set goal.

  • Longevity bonuses: Employees who have been at a company a long time may get bonuses when they meet certain milestones like 10 or 20 years of service with a company. This can be cash, a raise or a significant gift.

Related: FAQ: What Is a Fair Bonus Percentage?

Savings plans

Employers can offer retirement and long-term financial planning benefits to their employees. Some employers set up an account and have their employees exclusively contribute, while others match employee payments or make contributions on their own. These plans allow employees to save money through retirement account tax exemptions and grow their retirement savings by passively investing them. Businesses can integrate stock options and profit-sharing into their company savings plans if they want to use company equity to compensate employees.

Insurance

Health insurance is one of the top benefits employees expect from their employer. Healthcare can get extremely expensive, so employer-provided health insurance can add up to be a significant financial benefit for employees. While employers must offer insurance to full-time employees, they can choose to extend benefits to part-time employees too. Depending on their resources, employers can completely subsidize employee health insurance or use their size to offer employees a discount on the plan they choose. Health savings accounts, standard insurance, dental and vision are common elements of insurance compensation for employees.

Scheduling

Paid time off, telecommuting options and flexible scheduling options are a significant part of an employee's benefits. Employers pay employees to take time off as a way to support their work-life balance and productivity when they are at work. Some employers offer a bulk amount of paid time off that employees can use for anything, while others split the workload into vacation, personal and sick time. Additional time off for jury duty, bereavement and life events, whether paid or unpaid, can also be considered part of the compensation package.

Giving employees the additional flexibility to work from home or travel while working can provide social and emotional benefits. While these are not direct compensation, they are regularly included as a part of a compensation package to demonstrate the value these benefits offer to employees.

Employee support services

Employers can compensate employees by providing free or discounted access to various services. These can include anything from on-site game rooms and snacks to childcare during work hours and free counseling. Some companies partner with other local businesses to provide discounts on their products and services. Employee support services compensate employees by providing an affordable way to maintain their lifestyle.

Compensation package plan template

Whether you want to keep track of your own compensation package, compare job offers or prepare a compensation package as part of your job, a template can help you summarize all of the comprehensive parts of a compensation package. Here is an example of a template you can use to review compensation plan information:

Contact information

  • Name:
  • Position:

Financial compensation

  • Hourly rate or salary:
  • Hours:
  • Overtime:
  • Commission:
  • Signing bonus:
  • Performance bonus:
  • Other bonuses:
  • Relocation compensation:
  • Raises:

Retirement planning:

  • 401(k):
  • Pension:
  • Stock options:
  • Profit-sharing:

Benefits:

  • Health insurance type:
  • Health insurance cost to employee:
  • Dental care:
  • Life insurance:
  • Hazard pay:
  • Workers' compensation:
  • Disability:
  • Medical leave:
  • Parental leave:

Time off:

  • Vacation:
  • Sick time:
  • Holidays:
  • Bereavement:
  • Personal time off:

Other:

  • Professional development stipend:
  • Tuition reimbursement:
  • Memberships:
  • Transportation vouchers:
  • Employee assistance programs:
  • Flexible scheduling:
  • Childcare:
  • Meal plans:
  • Telecommuting options:

Compensation package example

Here is one example of a compensation package that uses the above template:

Contact information

  • *Name: Nichole Thet*
  • *Position: Sales Associate*

Financial compensation

  • *Hourly rate: $15/hour*
  • *Hours: 40 hours per week*
  • *Overtime: $22.5/hour (hourly non-exempt)*
  • *Commission: 10%*
  • *Signing bonus: $2,000*
  • *Performance bonus: Up to 10% at end of fiscal year.*
  • *Other bonuses: Monthly $500 bonus for top salesperson.*
  • *Relocation compensation: Will cover 100% of relocation fees including travel, packing services and home sale assistance.*
  • *Raises: Yearly cost-of-living raise of 1.3% plus up to 5% pay increase based on performance reviews*

Retirement planning:

  • *401(k): Traditional 401(k) with employer matching 100% of contributions up to 3% of employee salary after 3 years of employment.*
  • *Pension: No*
  • *Stock options: 500 shares at $6 per share within ten years of hiring date.*
  • *Profit-sharing: No*

Benefits:

  • *Health insurance type: United Silver Plan*
  • *Health insurance cost to employee: Employer covers entire health insurance cost.*
  • *Dental care: No*
  • *Life insurance: Employer covers life insurance up to $30,000 with additional coverage for a fee.*
  • *Hazard pay: No*
  • *Workers' compensation: 2/3 of wages during recovery plus medical treatment.*
  • *Disability: Short-term and long-term disability coverage provided.*
  • *Medical leave: Paid medical leave on a case-by-case basis, unpaid medical leave up to 12 weeks.*
  • *Parental leave: 12 weeks of paid leave for new parents, additional 8 weeks at half wages. Unpaid time off on as-needed basis.*

Time off:

  • *Vacation: 10 paid vacation days after first year of employment, 15 vacation days each following year and 20 vacation days after five years of employment.*
  • *Sick time: 12 sick days per year, no rollover.*
  • *Holidays: All federal holidays are paid time off.*
  • *Personal time off: Flexible unpaid time off for personal days.*

Other:

  • *Professional development stipend: $500 yearly for professional development materials (with department approval).*
  • *Tuition reimbursement: $1,500 per year for courses or degree programs related to business and marketing.*
  • *Memberships: Free standard gym membership, discounted special classes*
  • *Transportation vouchers: 50% off monthly train ticket or gas reimbursement based on commute.*
  • *Employee assistance programs: Access to 24/7 EAP with financial planning, counseling and addiction support services.*
  • *Flexible scheduling: Option of working 8-4, 9-5 or 10-6 with flexible lunch and break times.*
  • *Childcare: No*
  • *Meal plans: One free lunch per day from company cafeteria.*
  • *Telecommuting options: No*

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