Compensation can include monetary and non-monetary components. Compensation often includes an employee’s base salary and additional benefits, such as health insurance, retirement plans and performance bonuses. The compensation packages a business offers to employees affects the company’s recruitment rate, retention rate and employee satisfaction. Several federal laws affect the compensation that businesses offer. A business owner should understand the importance of compensation and the prevailing laws to remain competitive in the market.
The compensation packages that businesses offer to employees play an important role in the company’s ability to attract top talent as job candidates. Top-performing employees greatly impact the competitiveness and productivity of a small business. The specific components of an attractive compensation package vary per employee. A high base salary may attract a top job candidate that is 20-something and single, while a job candidate with a family may consider a flexible work schedule extremely important. Recruiters should research a job candidate's current or prior salary and benefits to get an idea of what is important to the candidate.
Compensation often impacts an employee’s motivation and job satisfaction, although it is not the only factor. Many employees feel motivated to help their companies succeed if the employer shares its profits with employees, such as with bonuses or profit-sharing plans. The greatest impact of money on productivity and performance is in jobs where performance is directly related to compensation. For example, the knowledge of receiving a bonus after achieving a certain sales quota will likely motivate a salesperson to increase productivity.
Retaining productive employees is critical to running a successful business. Retaining employees saves companies money in training costs and helps maintain an efficient and knowledgeable workforce. Health insurance and retirement packages are benefits that many employees desire from their employers. Companies that offer these benefits have a much better chance of retaining workers than businesses that fail to offer benefit packages. Other ways to retain employees is through regular promotions, which not only provide an employee with a higher base salary, but also the ability to take on more responsibility in the workplace.
Certain laws regulate the compensation and wages small businesses must offer employees. The Fair Labor Standards Act regulates the federal minimum wage, child labor, overtime wages and equal pay. The Equal Pay Act prohibits employers from basing compensation on an employee’s gender. Under the Equal Pay Act, a company may still base compensation on seniority or merit. Managers of small businesses must keep their companies in compliance with all laws. Failing to comply with compensation laws can result in a company facing penalties.