Organizational Wellness

Craft an Effective Employee Compensation and Benefits Strategy

Dec 21, 2022
Last Updated May 9, 2024

Imagine you are a waiter and go above and beyond for your table. You make sure the bread basket is always filled, water glasses are topped off, and are extra friendly. The table ends up leaving without tipping.


You put in your best effort and weren’t recognized for it. That’s a frustrating experience, and it’s one you want to avoid with your employees. 

Your employees’ hard work should be properly rewarded and compensated. Nobody wants to work hard and have nothing to show for it. That’s where employee compensation and benefits comes into play.

Let’s look at what compensation is and what benefits are, why they matter, and key benefits to make sure your employees have access to. 

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What Are Compensation and Benefits in the Workplace?

To start, let’s discuss what compensation is and what benefits are in the workplace. Typically, a human resources department is responsible for compensation and benefits. 


Compensation is payment made to your employees in exchange for their services or labor. It’s the salary, the wages, the paycheck. When you compensate an employee, you pay them. But it’s not as easy as it sounds right off the bat. First, it’s important to note that there’s a correlation between pay and employee engagement—the more fairly employees feel like they are paid, the more engaged they are. 

But more importantly, employees want clarity . Once everyone is clear on your compensation strategy, it really helps with employee engagement. Plus, 72% of employees who don’t get pay clarity will consider seeking other employment within six months. Getting clear on pay helps everyone. 

So you want fair pay, but you also have to balance competitive pay with the rest of your industry. Managers need to keep an eye on changes in the industry and with pay in general, so they can make sure their employees are always getting fair compensation. 


Benefits are any perks a company offers in addition to their compensation. So it’s not a part of the paycheck. That being said, benefits aren’t just a cool break room or a vending machine in the office. Benefits can include insurance contributions, paid time off, retirement plans, family support, and so much more. 

Benefits can also make or break a job for some people. In fact, our State of Work-Life Wellness 2022 Report shows that survey respondents ranked wellbeing benefits as their number two priority when considering a role — right after salary. Don’t forget about benefits when you’re thinking about compensation. 

Why Are Compensation and Benefits Important?

Fair compensation and benefits are strategically important for your company. They matter a lot . Let’s break down what specifically good HR compensation and benefits can give you, your team, and your company key benefits. Here are some:  

  • Attract the best talent in the industry. Good compensation and benefits can be a powerful motivator for candidates to choose your company. So making sure your pay is fair and your benefits are great can help you actually attract the great talent that can boost your company and productivity. 
  • Retain top performing employees. Leadership tips of nearly every company are looking for ways to lower turnover and keep your employees around. Good compensation and benefits boosts loyalty to your company, and that loyalty then boosts retention and lowers turnover. 
  • Boost employee motivation. Great compensation and benefits can show an employee that you care about them. Always a win. That feeling can then boost employee motivation at work because they care about being at your company. Benefits and compensation can help increase motivation. A high level of motivation can then help boost other important aspects of your company, like productivity
  • Increase profitability and productivity. Ultimately, if you’re keeping your employees, boosting their morale and motivation, and showing that you care about them, you can improve productivity and profitability

Key Components of Employee Compensation

So compensation and benefits matter. Let’s now look at the components of compensation, so you can get a good idea of what compensation could look like. 

Fixed Pay

Fixed pay is the amount you pay your employees, excluding all bonuses and overtime. It’s the typical paycheck your team members can expect. It could be a salary or an hourly wage, and you’ll typically set the fixed pay based on legal requirements, the role of the employee, the cost of living where your employees are, and the industry standards. 

Variable Pay

Variable pay is money that you dole out based on performance of an employee or of the company. So if your company has a spectacular quarter and you want to reward everyone with a quick little bonus, that’s variable pay. If an employee is doing really well and going above and beyond, you could reward them with some additional variable pay. 

Equity Pay

Equity pay isn’t quick cash or a check. Instead, it’s giving employees stocks in your company, so they can share in the overall success of your company. You’re giving them a bit of ownership after they’ve been with you for a certain amount of time. These shares can make a big difference if your company is performing well. So don’t forget about equity pay as an appealing compensation option.  

The Most Important Benefits to Offer Your Employees

So those are the basics of compensation. But what are the benefits you should be offering your employees? Here are the most important benefits to consider as part of your benefits package. 

Health Insurance

Employer support for health benefits can be beneficial for your employees. After all, employee health is important to keep the beating heart of your company happy and healthy. Health insurance could include employer contributions to insurance premiums, a health reimbursement account (HRA), a health savings account (HSA), or a flexible spending account (FSA). 

Disability Insurance

Disability insurance provides you pay if you’re unable to work at some point. It’s not coverage that’s required by law, but actually most large to mid-size employers do offer this type of coverage because it helps them stay competitive. In general, disability insurance would cover about 60% of a paycheck for an employee who can’t work. There’s short-term disability insurance that’s typically a type of sick leave and covers employees for a few days to weeks. Long-term insurance is needed past that point, and some employers do provide that. 

Life Insurance

Life insurance provides a payout (or death benefit) to the family if someone dies. Providing this type of insurance for your employees in some capacity can be valuable because many people want life insurance. There are two typical types of life insurance: term or whole life. Term covers someone for an allotted time while whole life covers, well, their whole life. 

Retirement Benefits

Half of Americans don’t have enough retirement savings. You can help your employees stay in the other 50% by providing them with retirement plans. These often look like pension plans or 401k contributions. 

Time Off

Everybody needs a break from work now and again. That’s why time off is a great benefit to offer. Time off can include sick days, bereavement, personal days, holidays and vacation days. Paid time off (getting to keep your same fixed pay even when you’re out of the office for a few days) is actually the number one benefit employees look for when looking for a job. 

Family and Medical Leave

Medical leave can be a kind of disability insurance, or you could offer it separately. It allows your employees to receive pay and keep their jobs if something medical arises. Family leave is often parental leave where new parents are able to take some time off work to spend time with their new baby. Among 41 countries, the US ranks last for parental leave options, so it’s a great benefit to help you stand out and be competitive when it comes to attracting talent. 

Professional Development

Employees who don’t have opportunities for professional development might actually pack up and leave. According to SHRM, 29% of employees say a lack of growth opportunities is why they quit, and 49% of employees expect their employer to help them develop. So professional development is a great benefit for you to offer! You might pay for courses for employees to gain more skills, or you might send team members to conferences. However it looks, help employees keep growing and developing with this benefit. 

Dental and Vision Insurance

Dental and vision insurance aren’t included in health insurance, making it a great opportunity to provide a benefit people want and can’t find everywhere else. Dental insurance covers teeth fillings, cleanings, and sometimes surgeries while vision insurance covers corrective lenses and eye examinations. 

Fringe Benefits 

Fringe benefits is a big umbrella term that covers any non-cash payments used to retain or attract talented employees. Fringe benefits can include anything like wellness programs, student loan repayment and tuition reimbursement, housing and relocation options, telecommuting or work-from-home options, commuter benefits. 

The Bottom Line

The way you compensate your employees for their work is important. It helps everyone: your employees get great benefits, you get great employees, and your company has the team it needs to thrive. But knowing where to start with compensation and benefits packages can be overwhelming. Don’t go at it alone! Talk to a Wellbeing Specialist today to get started improving your employee benefits.

Company healthcare costs drop by up to 35% with Wellhub! (* Based on proprietary research comparing healthcare costs of active Wellhub users to non-users.) Talk to a Wellbeing Specialist to see how we can help reduce your healthcare spending!



Wellhub Editorial Team

The Wellhub Editorial Team empowers HR leaders to support worker wellbeing. Our original research, trend analyses, and helpful how-tos provide the tools they need to improve workforce wellness in today's fast-shifting professional landscape.


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