One of the most important aspects of hiring and finding a job is compensation. Compensation can influence the chance someone might be interested in the job and is one of the main differentiators that job seekers search for. In this article, we try to focus on some of the new trends in recent years in compensation plans that have emerged. These include alternative compensation, variable pay models, performance-based pay, spot awards, and lifestyle benefits.
Variable compensation
Variable pay is a form of compensation organizations use to reward employees based on their performance and can change based on that performance. Variable pay is typically used in addition to a base salary, and the amount awarded to each employee may vary depending on individual performance or the company’s performance as a whole. Variable pay models provide employees with the potential to earn more money based on the company’s performance or the employee’s individual performance.
Variable pay can help motivate employees to do their best and ensure that the organization’s performance is rewarded. Variable pay also allows organizations to be more creative in their compensation strategies, as well as adapt more quickly to changing market conditions. Variable pay can be in the form of a % of some KPI or a flat bonus based on certain criteria. The type of variable pay can also be in different forms, for example cash but also stocks.
Benefits of variable compensation:
Performance-based pay
Performance-based pay is a system of compensation where employees are rewarded with a bonus or financial incentive based on their individual performance or the performance of their team or organization. Performance-based pay incentivizes employees to meet or exceed goals and rewards them for their contribution.
Performance-based pay can motivate employees to perform at a higher level and is often used in addition to traditional salary and bonus packages. Performance-based pay rewards employees with a bonus based on their individual performance or contribution to the company.
Performance-based pay is a practical, performance-oriented approach to compensation in which employees are rewarded for their performance on an individual or team basis. It can be an effective way to recognize and reward employees for achieving desired targets or goals.
Typical benefits of performance-based pay include:
- Higher employee engagement and motivation
- Increased productivity and efficiency
- Increased focus on organizational goals
- Stronger alignment between rewards and performance
- Improved retention of key personnel
Spot awards
Spot awards are bonus payments given out unexpectedly, typically as a reward for outstanding performance. Spot awards are meant to be non-recurring and are usually small to medium-sized incentives (e.g., gift cards, company swag, extra vacation days, etc.).
This type of incentive is meant to recognize exceptional performance at the moment and can help motivate employees to continue to perform at a high level. Additionally, spot awards can help build morale and improve employee engagement.
Spot awards are rewards or incentives given to one or more employees in recognition of outstanding performance, exemplary service, or a job well done. The most common benefit of spot awards is a boost in employee morale, as employees feel recognized and appreciated for their efforts.
Other benefits include:
- Increased motivation and engagement
- Increased focus on company goals
- Improved job satisfaction
- Improved performance
- Improved productivity
- Increased loyalty to the organization
Lifestyle Benefits
Lifestyle benefits are non-monetary incentives provided to employees as an additional form of compensation. These benefits often supplement traditional salary and bonus packages and can help make a job more attractive to potential candidates.
Examples of lifestyle benefits include flexible work hours, extra vacation days, education allowances, childcare vouchers, and education assistance. These types of benefits can help improve employee motivation and engagement and retain valuable talent for the organization. Lifestyle benefits are provided in addition to traditional salary and bonus packages and can include additional vacation days, education allowances, childcare vouchers, and more.
Lifestyle benefits, also known as non-traditional benefits, are perks and rewards given to your employees beyond salary, vacation, and health insurance. The main benefit of lifestyle benefits is improved employee engagement and retention.
Other benefits include:
- Improves overall employee satisfaction
- Strengthens employer brand and reputation
- Offers benefits that directly influence employee’s quality of life
- Allows employers to attract and retain talent
- Enhances team building and collaboration among employees
Differences & Conclusion
Compensation is changing, its not just base salary anymore, there are many other forms and types of compensation used to try and attract job seekers, motivate employees or just compensate the workforce. The main forms of alternative compensation are variable compensation, performance based compensation, spot awards and lifestyle benefits. Keep in mind that some of these alternative forms of compensation can come in many different forms as well, for example as regular cash but also as crypto or stocks.
The main 3 differences between these types of compensation are:
Reason for compensation: one of the biggest differentiators is why the specific compensation is awarded. In the case of variable pay this is something that is discussed and put into an employment contract as part of the main salary package. The same can be said for performance-based pay although in that case, it is more of a bonus in addition to. Spot awards are awarded as a bonus only and can be random and without prior knowledge of them. Lifestyle rewards is a mix whereby some might be awarded in the employment contract form the start and others can act as a bonus that is awareded later on.
Regularity of compensation: how often the compensation is awarded is also a main difference between them. Variable pay is most likely given at a set interval while the same can be said for performance based compensation, with the difference being that performance based can also be awarded specifically after certain KPIs are met. Spot awards are more random and unexpectedly although if a person knows a company gives out spot awards they could be happening around the time a certain KPI or boost in company performance happens. Lifestyle benefits are something that once you gain them are normally perks you keep as long as the reason you got them is still valid.
Type of compensation: lastly the type of compensation is different between them as well. For variable pay it is likely that a majority of this is in money since it constitutes part of the main salary. Performance based pay however could be a bonus, or percentage commission in money but also for example in stocks. While spot awards can also be stock or money based depending on what type of award it is and the job position. Lifestyle benefits are perks and benefits that can have a positive monetairy impact but arent directly money. For example paid insurance, this removes the need to pay the insurance yourself and thereby reducing your personal cost while not actually gaining any money. Perks can also include non financial perks and benefits.
So, it is clear that there are a lot of different changes happening in compensation structures. Additionally, there are massive differences between these alternative forms of compensation. It is important to keep an eye on how they are transforming and what the implications are of these new forms of compensation, for the employer but also the job seeker.