Compensation and Benefits

Compensation and Benefits

Though paychecks and benefits packages aren’t the only reasons why people work, they do matter. Competitive pay and benefits also help organizations attract and retain qualified employees. Companies that pay their employees more than their competitors generally have lower turnover. Consider, for example, The Container Store, which regularly appears on Fortune magazine’s list of “The 100 Best Companies to Work For.”^[1] The U.S. retail chain staffs its stores with fewer employees than its competitors but pays them more—in some cases, three times the industry average for retail workers. This strategy allows the company to attract extremely talented workers who, moreover, aren’t likely to leave the company. Low turnover is particularly valuable in the retail industry because it depends on service-oriented personnel to generate repeat business. In addition to salary and wages, compensation packages often include other financial incentives, such as bonuses and profit-sharing plans, as well as benefits, such as medical insurance, vacation time, sick leave, and retirement accounts.

Wages and Salaries

The largest, and most important, component of a compensation package is the payment of wages or salary. If you’re paid according to the number of hours you work, you’re earning wages. Counter personnel at McDonald’s, for instance, get wages, which are determined by multiplying an employee’s hourly wage rate by the number of hours worked during the pay period. On the other hand, if you’re paid for fulfilling the responsibilities of a position—regardless of the number of hours required to do it— you’re earning a salary. The McDonald’s manager gets a salary for overseeing the operations of the restaurant. He or she is expected to work as long as it takes to get the job done, without any adjustment in compensation.

Piecework and Commissions

Sometimes it makes more sense to pay workers according to the quantity of product that they produce or sell. North Nova Seafoods Ltd., a seafood processing plant in Pictou, Nova Scotia, pays workers on piecework: workers’ pay is based on the amount of fish they have cut, cleaned and trimmed, or the number of lobsters they have disjointed and picked meat from. If you’re working on commission, you’re probably getting paid a percentage of the total dollar amount you sell. If you were a sales representative for an insurance company, like The Co-operators, you’d get a certain amount of money for each automobile or homeowner policy you sold.

Incentive Programs

In addition to regular paychecks, many people receive financial rewards based on performance, whether their own, their employer’s, or both. Other incentive programs designed to reward employees for good performance include bonus plans and stock options.

Bonus Plans

Cisco Systems Canada’s year-end bonuses—annual income given in addition to salary—are based on individual and company-wide performance. If the company has a profitable year, and if you contributed to that success, you’ll get a bonus. They refer to it as “rewarding people for their performance, not their seniority”.^[2]

Bonus plans have become quite common, and the range of employees eligible for bonuses has widened in recent years. In the past, bonus plans were usually reserved for managers above a certain level. Today, companies have realized the value of extending plans to include employees at virtually every level. The magnitude of bonuses still favours those at the top.

Profit-Sharing Plans

Nature’s Path Foods and Canadian Tire both have profit-sharing arrangements with employees. Today, many Canadian companies offer some type of profit-sharing program.

Canadian Tire’s plan has long been part of its operating principles —having been around since the late 1960’s.  Here’s how it works. An employee’s profit share is paid annually as a percentage of the employee’s earnings and is based on the company’s net profit. Profits in the most recent years have averaged to be about 10%. Interestingly, because this profit share is part of an employee’s retirement savings, it is put into a deferred profit-sharing account.^[3]

Stock-Option Plans

WestJet’s compensation plan also gives employees the right to participate in their Employee Share Purchase Plan. This enables employees to purchase WestJet shares amounting to up to 20 per cent of their gross salary and the company will match their contributions.  This is used as an incentive to attract and retain good people.

U.S.-based Starbucks, by contrast, isn’t nearly as selective in awarding stock options. At Starbucks, all employees can earn “Bean Stock”—the Starbucks employee stock-option plan. Both full- and part-time employees get Starbucks shares based on their earnings and their time with the company. If the company does well and its stock goes up, employees make a profit. CEO Howard Schultz believes that Bean Stock pays off because employees are rewarded when the company does well, they have a stronger incentive to add value to the company (and so drive up its stock price). Starbucks has a video explaining their employee stock option program on this webpage.^[4]

Benefits

Another major component of an employee’s compensation package is benefits— compensation other than salaries, hourly wages, or financial incentives. Types of benefits include the following:

• Legally required benefits (Employment Insurance, Canada Pension Plan, Workplace Safety and Insurance Boards)
• Paid time off (vacations, holidays, sick leave)
• Insurance (health benefits, life insurance, disability insurance)
• Retirement benefits

The cost of providing benefits is staggering. According to a 2015 survey by the Conference Board of Canada, it costs employers an average of $8,330 to provide benefits for each full-time employee. More than half of the employers surveyed indicated a rise in benefit costs, with an average 6.2 percent increase between 2013 and 2014.^[5]

Many workers received benefits in addition to those required by law, including vision care, semi-private hospital stays and out-of-country medical coverage. ^[6]Plus the majority of companies surveyed indicated that they provided benefits to permanent part-time employees who work a minimum number of hours per week. Part-timers often receive no benefits at all.^[7]