{"id":19180,"date":"2023-01-11T21:32:00","date_gmt":"2023-01-11T21:32:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=19180"},"modified":"2023-02-08T17:57:29","modified_gmt":"2023-02-08T17:57:29","slug":"compensation-plan","status":"publish","type":"post","link":"https:\/\/businessyield.com\/management\/compensation-plan\/","title":{"rendered":"Compensation Plan: Best United States Practices (Updated)","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"

Are you the manager, CEO, or sole proprietorship of an organization or a company? Are you having difficulties trying to pay your workers their salary or wage? Thinking about the best way to handle your employee’s pay for their work? Here, is a complete article for you to read and understand the necessary steps you need to take. We will be looking at some terms like deferred, 457, Monat, market America, NYC, types, examples, process, and how to calculate compensation plan.<\/p>

Now, we need to fully understand what a compensation plan is all about.<\/p>

What Is Compensation Plan?<\/span><\/h2>

A compensation plan is a complete package that details your employees’ wages, salaries, benefits, and terms of payment. Compensation plans, However, include details about bonuses, incentives, and commissions that will be in an offer to the employees. Thus, a compensation plan is a formal write-up statement that reveals the company’s stance on employee pay and rewards.<\/p>

Compensation is the payment by the employ\u00adees from the organization on account of the products they contribute to the organization. A compensation plan thus includes all the components of your employee compensation packages. Compensation is an integral part of an employee\u2019s sustenance and survival which has a motivational element also.<\/p>

\"Compensation
image source: golaserengraving.com<\/figcaption><\/figure>

What Is A Deferred Compensation Plan?<\/span><\/h2>

A deferred compensation plan withholds a portion of an employee\u2019s pay until a specified date, usually retirement. Most deferred compensation plans do allow pre-retirement distributions for certain life events, such as buying a home. <\/p>

Deferred compensation refers to that part of one’s contribution that is withheld and paid at a future date Deferred compensation is a portion of an employee’s compensation that is set aside to be paid at a later date.<\/p>

Examples of deferred compensation plans include pensions, retirement plans, and also employee stock options. The lump-sum owed to an employee in this type of plan is paid out on that date.<\/p>

457 Deferred Compensation Plan<\/span><\/h2>

 457 deferred compensation plan allows you to save and invest money for retirement with tax benefits. A 457 deferred compensation plan is likewise, created to improve your retirement benefits. Saving to your 457 deferred compensation plan can generally, help you in maintaining your aspired standard of living.<\/p>

Market America Compensation Plan<\/span><\/h2>

The Market America compensation plan is based on a system of points. Your down line and the number of sales you make are converted into points, which are then converted into Market America commission checks. Thus, the market America compensation plan, has what they call a binomial compensation plan.<\/p>

With an UnFranchise business, owners are in control of their very own business through Market America. Market America advances to draw entrepreneurs from around the globe with their system of the UnFranchise business. The market America compensation plan has its system providing training and support so that business owners receive strong mentorship and support throughout their entire journey. Similarly, market America says they have successfully formulated and perfected collective buying power, which allows online retailers to reverse engineer sales.<\/p>

NYC Deferred Compensation Plan<\/span><\/h2>

The New York State Deferred Compensation Plan ( NYC) is a 457 retirement plan created for New York State employees and employees of participating agencies. The New York City Deferred Compensation Plan (NYC) allows their eligible employees a way to save for retirement through convenient payroll deductions. In other words, the plan can help bridge the gap between what you have in your pension and Social Security<\/a>, and how much you will need in retirement.<\/p>

NYC Deferred Compensation Plan (NYC) has comprised of two programs: a 457 Plan and a 401(k) Plan, both of which offer pre-tax and Roth (after-tax) options.<\/p>

Examples Of Compensation Plan<\/span><\/h2>

Considering the examples of the compensation plans, this can include hourly wages, annual salary; which can also come with bonus payments, incentives, and benefits. Let us consider some good examples of compensation plans for a better understanding.<\/p>

#1. Hourly Wage Compensation<\/h3>

This is an example of a compensation plan. Employees under this category have their payments calculated on an hourly basis. It also requires overtime pay, but their work will not pass 40 hours per week. Their overtime is usually one and a half times the hourly rate.<\/p>

For example, a sample job union contract may require employers to paymaster tradesmen, licensed tradesmen, and apprentice tradesmen hourly wages of $19.75, $17.95, and $15.50, respectively terms of a collective bargaining agreement.<\/p>

#2. Annual Salary Compensation<\/h3>

However, the term \u201csalary\u201d generally refers to an annual salary an employee receives or it is a method of employee pay that does not require overtime pay. For example, the relation to a \u201csalaried employee\u201d is generally used to describe a worker who does not receive overtime pay.<\/p>

An example, of an employee compensation plan for salary levels, is one that is on a salary scale, rated in education, years of professional experience, credentials, and qualifications such as job competency and functional expertise. <\/p>

#3. Bonuses, Incentives, And Raises<\/h3>

Employees usually receive their annual raises based on performance ranking and ratings. For example, an outstanding performance assessment could result in a percent salary increase. Meanwhile, sample employee bonus and incentive plans include cash incentives which are based on a percentage of the employee’s gross salary. <\/p>

#4. Retirement Savings Plans<\/h3>

A sample compensation scenario, however, gives employees the opportunity to participate in the employer-sponsored 401k plan. Employees designate pre-tax contributions to be deducted from each paycheck. For employees who contribute 5 percent of their gross salary or wages, the company matches 50 percent of the employee\u2019s contribution. In other words, the employer\u2019s matching contributions equal 2.5 percent of the employee\u2019s gross salary.<\/p>

Types Of Compensation Plan<\/span><\/h2>

Classifying employees isn\u2019t just important on a legal level. Similar to providing good benefits, paying employees the way they want to be paid feeds back into employee happiness and well-being. Generally, when compensation is being negotiated, the employee sees whatever plan the employer has historically applied to that position. <\/p>

But not all positions are so rigid, which means employees may have an opportunity to negotiate and request a compensation plan that better fits their strengths and work style. Here are the most popular types of compensation plan packages and I think it might be most interesting to whoever is attracted to them.<\/p>

#1. Straight Salary Compensation<\/h3>

Under this type of compensation plan structure, workers receive a wage or basic salaries. In many instances, the business sets a range within which the employee\u2019s pay will fall. Salaried employees are paid a set annual amount, and provided that amount is more than a certain amount per year. Also, they do not receive overtime pay. Similarly, salaried workers here, have more flexibility to work outside the office, and since they don\u2019t typically record their hours each day to get paid,<\/p>

Straight salary structures encourage equality among sales reps working in teams. This structure will also attract any sales rep joining a new industry. This is because it gives them something to survive on as they learn the ropes in the new territory. <\/p>

#2. Pure Commission<\/h3>

Businesses that engage independent sales agents tend to pay them commissions only. This plan could be helpful for a startup that wants to break even in a certain territory. To cater for seasons when sales are low, some businesses decide to offer the salesperson an advance pay commonly known as \u201cdraw against commissions.\u201d The company, however, recoups the draw amount from future earnings. Unfortunately, with this model, if the employee doesn\u2019t sell they are not paid at the end of the month.<\/p>

#3. Salary Plus Commission<\/h3>

In this type of compensation plan, this arrangement compensates employees with a base salary and bonuses for performance that meets or exceeds the set goals. Companies tie this bonus to their budget or specified targets<\/a>. In other words, the commission can include a percentage of personal sales, a percentage of team sales, bonuses, or overtime pay. One benefit of this plan is that employees always receive a salary even in seasons when sales aren\u2019t coming by. However, commission plus salary earners battle with higher income tax rates compared to most workers.<\/p>

#4. Territory Volume Compensation Plan<\/h3>

Under this type of compensation plan structure, the business calculates sales turnover and all commissions are distributed evenly among salespeople. This model is highly effective where teamwork is a priority. However, since the structure rewards teamwork, professionals who put extra effort may feel that their exceptional work isn\u2019t well recognized.<\/p>

#5. Straight Hourly Compensation Plan<\/h3>

Hourly compensation is generally nonexempt in considering the type of compensation plan, meaning employees must also receive overtime pay anytime they work more than 40 hours in a week. Some states have additional overtime laws, including ones where employees receive time and a half for any hours worked beyond eight in a day.<\/p>

Typically, hourly employees are associated with entry-level positions or low-paying jobs. This generalization leads managers to sometimes label hourly employees as expendable. But this perception isn\u2019t always correct. In fact, for some employees, hourly compensation is much more desirable than salary compensation, particularly when there\u2019s a chance to earn overtime. <\/p>

Compensation Planning Process<\/span><\/h2>

Compensation is defined as the money received by employees from the organization on account of the performance they render. An effective compensation plan<\/strong> fulfills the expectations of the employees and satisfies them.<\/p>