What is the compensation plan

This is a plan which contains the employee’s salaries, wages, health, and medical benefits and

how the payment will be distributed (Morris, Chen, Heslin, & Krontiras, 2018; Yang, Gou,

Wang, & Zhang, 2022).

• This is a critical strategy for keeping and recruiting employees(Bakken, 2020).

• This varies from one organization to another organization.

• This also depends upon the market conditions of the firms.

• Without a compensation plan, a business has no framework for determining how to pay

personnel (Dennis‐Escoffier, 2018).

What are the types of compensation plans?

According to Buehler (2021) there are main types of compensation plans are following

• Salary paid every thirty days.

• Hourly paying an employee a pre-agreed rate for every hour worked.

• Commission-based salary. Employees get paid on sales-based commission

Steps to develop a compensation plan

 Compensation development philosophy

 Benchmarking internal and external positions.

 Development of job descriptions for each position of the organization (Kadarisman,

2019).

 Pay-Structure development
  Establish the cost of pay structure.

 Documentation of plan

 Implement and evaluate the plan

Example of the compensation plan

Determine Total On-Target Earnings

Decide Base Pay and Sales Commission Structure

Variable Pay -description

Set Targets
Contract drafting of employees
References

Bakken, S. (2020). Informatics is a critical strategy in combating the COVID-19 pandemic. In

(Vol. 27, pp. 843-844): Oxford University Press.

Buehler, J. (2021). The purpose and effectiveness of sales compensation plans.

Dennis‐Escoffier, S. (2018). New Executive Compensation Rules. Journal of Corporate

Accounting & Finance, 29(4), 76-81.

Kadarisman, M. (2019). The influence of compensation, development, and supervision towards

the performance of civil servants in depok city government, Indonesia. Cogent

Psychology, 6(1), 1620402.

Morris, M., Chen, H., Heslin, M. J., & Krontiras, H. (2018). A structured compensation plan

improves but does not erase the sex pay gap in surgery. Annals of Surgery, 268(3), 442-

448.

Yang, X., Gou, Q., Wang, X., & Zhang, J. (2022). Does bonus motivate streamers to perform

better? An analysis of compensation mechanisms for live streaming platforms.

Transportation Research Part E: Logistics and Transportation Review, 164, 102758.