How to Create a Compensation & Benefits Policy? 5 KPIs to Measure
The employer-employee relationship isn’t just about salaries anymore.
Employees today are interested in what you have to offer them. Sure, their salary is important. But what else?
In HR terms, this ‘what else’ is known as compensation and benefits.
Compensation and benefits are part of your compensation and benefits strategy, which in turn falls under your broader HR strategy and HR budget.
But what are compensation and benefits exactly? And how can you ensure that what you’re offering is ‘good enough’ or meets people’s needs? The answer is by measuring and reviewing KPIs for compensation and benefits.
In this article, we’ll be answering the above questions along with the top compensation and benefits KPIs that you should be measuring.
What does ‘compensation and benefits’ mean?
When employees receive a job offer, the first thing they look at is the offered salary.
There’s no doubt that how much an employee makes is one of the most important elements of a job offer. However, it’s not the only one.
Managers, team leaders, and senior employees are well aware of this. They may get two job offers for the same salary but with vast difference in benefits.
In other words, compensation refers to how much the employee will receive in exchange for working at your company.
Benefits, on the other hand, are like privileges. They are additional elements that in some cases can outweigh their salary.
The Academy to Innovate HR (AIHR) describes benefits as “indirect pay.”
Benefits can include health or medical insurance, annual travel opportunities, paid courses or workshops, gym memberships, among other options.
They may also include pension plans, stock options, or even a personal driver, or a bus that takes you to work. Overtime pay, additional time off, and maternity leaves are also part of your compensation and benefits package.
Some companies offer employees a reimbursement on their education whether it’s higher education or courses for personal and professional development.
In the United States, Amazon’s Career Choice program “funds full college tuition, as well as high school diplomas, GEDs, and English as a Second Language (ESL) proficiency certifications for its front-line employees.”
In Europe, benefits include “parental leave, severance pay, and termination notice. In countries like France and Finland, it is not uncommon for employers to pay for restaurant vouchers that cover part of the employee’s lunch.” (AIHR)
As you can see, there’s a lot more to compensation and benefits than just your salary at the end of the month.
How to determine the value of compensation and benefits
Your local government sets the base pay or minimum wage for a country. Private sector companies need to adhere to the minimum wage but will have a variety of pay grades for the different jobs and types of jobs it offers.
To determine the value of compensation your company provides, you’ll need to review salary surveys for the different jobs in your country.
If your business operates in several countries, you’ll need to look at salary surveys for your roles in each of those countries.
Alternatively, you can work with a recruitment agency like Tawzef and have them hunt for salary surveys and provide you with the data.
Using the data from the salary surveys, you can set a range for how much you can pay for each position.
For example, if you’re hiring a digital marketing team, you’ll need to review the salaries for the different positions within that team. These may include several of the following:
- Digital marketing specialist
- PPC specialist
- Digital marketing manager
- Content manager or content marketing manager
- Social media manager
- Social media moderator
- Community manager
It’s worth noting that while salary surveys provide you with a salary range, your company’s size and industry play a role in the compensation you’ll pay.
5 KPIs for compensation and benefits
We’ve clarified what compensation and benefits are. Now, let’s look at the key performance indicators (KPIs) for this important area of HR.
Measuring these KPIs and ensuring the effectiveness of your compensation and benefits scheme is the role of your HR team or executive.
If you’re working with a recruitment or HR company like Tawzef, this role becomes their responsibility.
General speaking, KPIs for compensation and benefits are the same everywhere. However, it’s the benefits themselves that may differ based on a company’s size, industry, and location.
This difference will impact the third KPI, the benefits expense KPI.
Compensation and benefits KPI may also be referred to as employee compensation metrics.
Let’s look at 5 KPIs for compensation and benefits.
The competitiveness KPI measures how your compensation scheme stands against your competitors.
Are you offering higher salaries than they are? Lower salaries? Similar salary ranges?
If you’re offering lower salaries than the competition, you’ll need to see if you’re offering better benefits.
You’ll also need to look at your employee turnover rate. Are employees leaving your company and going to your competitors because of the lower pay?
2) Workforce expenses
The workforce expense KPI for compensation and benefits refers to the average amount of money (percentage) you invest in your employees compared to your other business expenses.
This metric affects many related HR decisions such as salary increases, promotions, and benefits. It also affects your company’s expansion plans.
3) Benefits expenses
The benefits expense KPI measures the value of benefits your provide your employees with. It measures the cost of medical care, holidays, and other employee benefits compared to local inflation.
HR teams refer to this metric when choosing a healthcare provider, medical plans for employees, among other needs.
The above KPIs and metrics can include sub-metrics. One of those is the Geographical differential.
4) Geographical differential metric
This metric looks at employees’ salary based on where they are located. Every company has a salary structure with salary ranges for each role. However, where the employee is or will be located affects how much they are paid.
Large and capital city employees will often make bigger salaries than those living in rural areas or small non-essential cities.
The cost of living in the capital tends to be higher. However, requiring that an employee move to another city will entail adding the cost of accommodation to their benefits.
5) Compensation revenue metric
The compensation revenue factor looks at the amount of money your company spends compared to its revenue. This compensation metric helps companies see how much of their revenue (percentage) goes to employees.
This metric helps companies understand the value of their overhead expenses. It shows them how much they’re paying employees compared to how much they’re earning in total revenue.
How to design a compensation and benefits package
The following are the essential elements you’ll need to include in every compensation and benefits package you send out.
However, it’s important to remember that while the elements in a compensation and benefits package are the same in each, the ranges for each benefit and item will vary based on
- The role
- The industry
- Size of the company
- Where the employee is or will be located
In other words, a CEO’s compensation and benefits package will differ tremendously from a junior salesperson’s or marketing executive’s package.
Every compensation and benefits package should include:
- Salary: This should include the net salary and gross salary for the employee
- Overtime pay: Some companies don’t offer overtime pay. They need to clarify this.
- Bonuses and commissions: This depends on the position. Commissions are usually associated with sales, partnerships, and some business development roles.
- Retirement scheme (if applicable)
- Social insurance plan
- Medical insurance plan
- Stock options (if applicable)
- Profit sharing (if applicable)
- Relocation expenses
- Education reimbursement (if applicable)
- School, meal, and/or house reimbursements (if applicable)
How much you pay your employees and the benefits you offer them will account for a large chunk of your company’s expenses. However, your compensation and benefits offering not only attracts employees but also helps retain them.
Finding and retaining talents in your company isn’t easy. It involves creating a compensation and benefits strategy.
Make sure your HR team regularly reviews your compensation and benefits policies to ensure they’re up-to-date and effective.
Measure the above KPIs for your compensation and benefits packages and plans. Because, if you want to grow your business, you’ll need to focus on employee retention, which can trim your hiring costs, increase productivity among other benefits.
Need help creating a compensation and benefits scheme and measuring its KPIs? Or do you need help creating a salary structure that ensures fair pay?
Get all your HR and hiring needs at Tawzef.