COMPENSATION PACKAGE: Overview, Examples, and Best 2023 Practice

compensation packages

Did you review the compensation packages or allowance that come with your job offer? Did you even know that such allowance exists with new jobs? Are you thinking of accepting a new job or employment? Or maybe you just got promoted. It’s essential to consider not only the job/position but also the compensation packages that come with your job offer. By assessing the compensation package you can decide if you are going to settle for the job or not. This article gives you full insight on what a compensation package is, its examples, executives’ compensation package, and what an Amazon compensation package looks like. Well since compensation is one of the main reasons why people enter the workplace, understanding this will help you negotiate a better job offer.

What Is a Compensation Package?

Compensation packages refer to the extra benefits (including your salary) an employer offers you in exchange for services. These packages tend to vary by employer but note that these benefits are the attractions of any employment. However, these benefits depend on the specific position and the company. Therefore, a compensation package is an appreciative way for your employers to say thank you for the hard work. It’s that little thing you look forward to, that makes you want to work harder.

Examples of Compensation Package

This is more than just your salary — it’s everything of value, monetary and otherwise, that an employer provides in exchange for the work you do. Those motivations, benefits, and cheer-ups. What can be included in a job offer varies greatly depending on the employer and position. However, the following are some examples of what can be included in a compensation package.

  • Bonuses and commissions (as applicable)
  • Paid time off (holidays and vacation and sick days)
  • Medical, dental, and vision insurance
  • 401(k) or another retirement savings plan

In addition, as employers strive to remain competitive and attract top talent, perks such as these are now common:

  • Telecommuting and flexible work hours, including windowed work
  • Childcare, including off-site and on-site options
  • Subsidized training or education
  • Stipends for remote work setups

How to Evaluate Compensation Package

It isn’t enough to start a get a new job and make do with whatever you get from it. You have to evaluate whatever offers the job comes with. The following are tips on how to evaluate your compensation packages;

#1. Think About What’s Most Important to You

The first thing to do in evaluating your compensation package is to consider the things that matter most to you. This will ensure there is no conflict of interest between your new job and your personality.

To do this more accurately, kindly highlight all the things that matter to you and only look out for jobs that cover these areas.

#2. Keep an Eye on the Specifics

The perfect way to keep an eye on the specific is to request the business policy. That way, you get to read them upfront and know if it covers your interest. However, you may not be able to get an offer that fits perfectly so, be ready to adjust.

#3. Vet the Compensation Package Requirements

Hope you weren’t expecting to get your packages outrightly Oh no, things don’t work that way. Some compensation packages come with conditions and unless these conditions are met, you will likely not get anything from them. So in evaluating your package, take a peep at the conditions too.

#4. Set A Benchmark

Do background research before going in search of jobs. That way, you know exactly what to expect with a job compensation plan.

#5. Just Directly Ask Questions

Do not hesitate to ask questions. It will give you clarity and help you truly understand what you are up against.

What Is a Reasonable Compensation Package?

Reasonable pay is the amount that would typically be paid for comparable services by comparable businesses under comparable conditions. The determination of reasonableness is based on all relevant facts and circumstances.

What Is the Purpose of Compensation Package?

The purpose of a compensation plan is to recruit and retain employees. The only component of a basic pay package is a salary or wage. Additional benefits like as bonuses, perks, commission, health insurance, and retirement investments may be included in a more comprehensive remuneration package.

Compensation Package for Executives

The compensation package for executives is a combination of the financial and other non-financial benefits received by an executive from their employing firm in return for their service (executive pay). It is typically a mixture of fixed salary, variable performance-based bonuses, benefits, and other perks all ideally designed to take into account government regulations, tax law, the desires of the organization, and the executive.

This compensation is also known as executive pay, which is an exclusive earning package specifically designed for MDs, business leaders, senior management, and executive-level employees of a company.

Executive compensation includes benefits such as salaries, perks, incentives, insurance, etc.

Executives Compensation Package

Senior management and executive-level employees are very important roles in the company as they’re the ones making the strategies, taking key decisions, and risking more for the company. So To keep them motivated and satisfied it’s important to set the right benefits package.

This type of compensation can be negotiable between the employer and likely executive which can sometimes go against the organizational norms on compensation to regular employees. Listed below are some of the benefits of this package:

Components of Executives’ Compensation Package

The following are what makes up an executive compensation;

  • Salary
  • Short Term Incentives 
  • Long Term Incentives 
  • Guaranteed Severance Package
  • Guaranteed minimum annual incentive
  • Loan to pay taxes
  • Loan to purchase home
  • Executive medical insurance
  • Supplemental executive life insurance
  • Supplemental executive retirement plan (SERP)

Further, other executive compensation packages may include club memberships, first-class air travel, legal planning services, and a company car. There could be more to this depending on the position and firm’s compensation package.

Is Compensation the Same as Salary?

In the simplest words, your annual pay is the sum of your base income and the value of any monetary perks provided by your company over the year. The term “annual salary” refers to the sum of money your company pays you for a year’s worth of labor.

Amazon Compensation Package

Amazon offers a variety of fantastic perks to employees and qualifying family members, including domestic partners and their children, in addition to an average beginning compensation of $18 per hour, which is more than double the federal minimum wage. These comprehensive benefits begin on the first day of employment and include health insurance, parental leave, ways to invest for the future, and other services to support health and well-being.

Amazon has a salary structure that is based on a four-year model. This model has remained pretty consistent over the years and includes a mix of guaranteed cash and stock to inspire employees. There are three main Amazon compensation packages;

  1. Base Salary
  2. Annual Payout
  3. Restricted Stock Units (“RSUs”) that vest over four years

Amazon Compensation Package Simplified

The first two years you work at Amazon, you’ll receive payouts (formerly known as “bonuses”) and then after year two, you’ll stop receiving payouts and instead receive an increase in RSUs. 

An RSU is a compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock immediately, but instead at the end of a vesting period over a length of time.

The Model at Amazon: 

Every role at Amazon is categorized into compensation levels, and these levels have a salary package or range. Full-time workers who are entering the workforce start at Level 4 with a salary range of $50,000-$70,000 per year, and the highest level (other than Jeff Bezos) is Level 11 for senior VPs with compensation above $1 million. 

Even though different levels indicate differences in total compensation, Amazon has a base salary ceiling of $160,000 no matter what level an employee is at. 

What that means is that Amazon prioritizes granting RSUs to employees which has been a positive incentive given that Amazon stocks have never gone down. 

What that also means is that a candidate who is currently making $220,000 as a base salary will likely require a mindset shift to consider the $160,000 base salary ceiling. Even though a candidate might feel they are getting a salary cut, the total compensation will be fairly reflective of the role. And, candidates who are making less than $160,000 should be careful about attempting to push beyond this point. 

The Key Elements of the Amazon Compensation Package

They always give employees fair compensation according to their role, level, and situation. 

  • Amazon will always pay you fairly for the job you’re going to do. They don’t have a philosophy to get someone as cheap as they can. Nor is it to overpay, either.
  • Amazon likes to think “big picture”. Employees are considered part-owners of the company and they want you to think about what your total compensation is projected to be at the end of 4 years. 
  • During the first 2 years, you are learning how to do your job so the sign-on payments help keep your salary whole. Part of the philosophy is that people are part-owners of the company. They give you a picture of where you can be in 4 years and they incentivize you. 
  • They don’t want to lose out on hiring a great talent because of money.
  • Most hiring managers or recruiters are trained to start base salaries at the middle of the range for a candidate’s role and level. While the base salary can be negotiated up or down, the total compensation must remain the same. So keep in mind that if you aim to increase your base, something else will have to come down. 

Why Are Compensation Packages Important?

For starters, they can assist defray the expenses of essential services such as medical insurance, which you might otherwise have to pay for in full or possibly be unable to afford. Employees will mostly get a better cost by joining a company’s health insurance plan rather than purchasing plans on their own.

Secondly, they can assist you in striking a healthy work-life balance. Companies are worried that employees are frequently stressed as a result of combining their professions and personal lives. Therefore many give incentives and perks to compensate for rigorous work duties. Telecommuting, for example, allows employees to avoid a stressful, long commute to work and results show that it is an effective and efficient arrangement. Paid time off for voluntary work is another example. These and other perks assist boost employee morale and mental wellness.

Third, they can assist you in planning for the future. Whether it’s subsidized training that could lead to a promotion and higher pay, or a 401(k) plan that can help you save for retirement, they’re designed to thank you for your time with the firm by making your future better and more secure.

FAQs On Compensation Package

What makes a good compensation package?

Offering adequate and competitive remuneration based solely on salary or commission is unlikely to attract or retain talent, motivate your sales team, or allow your company to reach its full profitability potential. So the key to putting up a successful compensation package is to strike a balance and also make your employees happy and comfortable doing their job.

How do you make a compensation package?

  • For each role, write a job description.
  • Calculate the right amount of compensation.
  • Don’t forget to account for overtime.
  • Determine the rewards and incentives you’ll offer.
  • Make a written document of your decisions.

What is in a total compensation package?

This includes the employee’s base wage (how much you pay the employee per hour or per year), the total cash amount of the perks and benefits you provide (health insurance, paid time off, retirement plan, profit sharing, gym membership, and so on).

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