Creating An Effective Compensation Plan

“Creating an effective compensation plan is a staple at any business.”

Know How to Pay Your Employees

Author:  Cassandra Lattin, COO

Small businesses need to know how to pay their employees.  Areas of focus should include:

  1. Developing the compensation plan.
  2. Aligning that plan with performance or step measures.
  3. Picking the right payroll and Human Resources provider, who can help you maintain compliance with city, state, and federal, regulations.
  4. Having the right fit electronic tracking and reporting system.


Develop Your Company’s Position for Compensation

When designing your employee compensation plan think comprehensive:

  • Salary
  • Company sponsored Health, Dental, and, Vision Plans
  • Company contributions to Retirement Plans
  • Company sponsored Life, Accident & Supplemental Benefits
  • Vacation, Sick, and, PTO Plans
  • Severance Packages


All of those components make up a well thought out compensation plan.  Ask these questions when designing your plan:

  • What can you afford?
  • How do other companies or competitors in your industry compensate their employees? Are you competitive?
  • What are some advantages for reduced benefits compared to increased salaries?
  • What are some innovative ways to reward performance?
  • Should you develop a separate compensation plan for Managers and Supervisors?


Develop Comprehensive Job Descriptions

You will want to develop job descriptions for each position within your organization. Your Job descriptions should begin with:

Department: Job Status: Full Time
FLSA Status: Non-Exempt/Exempt Reports To:
Grade/Level: Amount of Travel Required:
Job Type: Regular Positions Supervised: None
Work Schedule: Salary Grade:


Additionally, ensure that the job description includes:

  • Position Summary
  • Essential Job Functions/Typical Tasks
  • Required Characteristics
  • Education/Experience
  • Physical Demands


Comprehensive job descriptions will help you determine the amount of compensation that should be paid for each job.  Do your research on rates being paid in your industry. This will ensure that your compensation plan is in line for your industry and size.

Your job descriptions will also help you to determine whether you pay employees a salary, or an hourly rate.

Incentivize for Performance

When considering job performance, consider incentives that the employees might like.  These could include monetary incentives, such as commissions and bonuses.  Non-monetary incentives could include gift cards and trips.  Consider the tax implications for all incentives, whether monetary or non-monetary.


When considering raises, use your job descriptions and salary ranges for each job.  Check your salary ranges annually against your industry, location, and size.

Create a ranking system, and measure employees within their ranking. Use a performance management system, which can help reduce discriminatory practices.

Know Your Employees

Know what motivates your employees.  If it is teamwork, develop team rewards.

Know Your Products and Services

What are the standards in your industry? How does your pricing compare to your competition?  What can you afford in annual increases?

If you develop a comprehensive plan, taking all of these factors into consideration, you will have a strong and competitive, Compensation Plan.


For more information, please contact us at:

or call us at (562)548-2371.

What People OneSource does for you:

Payroll:  We process your payroll, ensure that your employer taxes are paid timely, and handle year end necessities like W-2’s and 1099 reporting.

Human Resources:  We consult with you to find out what you need from your HR department, and implement it. From On Boarding to Employee Handbooks, we have everything you need to keep in compliant.

Benefits Services:  We administer your benefits. We handle your New Enrollee’s, Open Enrollment, COBRA, 401K, POP, Medicare and more.

Training and Risk Management?  We are the experts! Additionally, be it mandated courses, such as Title VII Sexual Harassment, or classes to help your organization run more smoothly, we have solutions for your needs.

PEOple OneSource

“Taking your Business to the Next Level”

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