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Compensation in the workplace

Compensation in the workplace

Author: James Howard

Identify different types of compensation and benefits in the workplace.

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Video Transcription

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Hello, and welcome to this tutorial on Compensation in the Workplace.

Now, as always with these tutorials, please feel free to fast forward, pause, or rewind as many times as you need in order to get the most out of the time you're going to spend here.

So let me ask you a question, what are the different ways we're compensated as employees? When I say "compensation," do you think money or do you think something else?

Well, during this lesson, what we're going to be looking at is compensation and benefits. The key terms for this lesson are going to be wages, salary, incentive programs, and benefits. Let's start off by taking a look at compensation.

Now, compensation really does take on a variety of different forms. One of those forms is wages. This is one of our key terms. Wages is defined as compensation paid to an employee by an employer based on hours worked. This is also known as hourly pay.

An employer may use wages as a means of paying someone who is going to work a set number of hours every pay period, or every week. We know exactly how many hours their expected to work, so I can base their compensation or their pay on the number of hours that they work.

Now, salary is a different story. Salary is still money, but it's compensation paid to an employee by an employer based on a pay period. So in salary, I get paid a set amount of money every pay period-- every week, every two weeks, every month, however they decide to break up that pay period.

Now, salary is typically seen with managers and people who work a number of hours in a week that may vary from week to week. Or, I know that there may be times that I'm going to be asking this employee to work a large amount of hours above and beyond what would normally be considered a normal work week. So in order for an employer to budget for compensation for their employees, they may opt to an employee a salary instead of wages so that they're better able to budget for the future on how much they're going to pay out in payroll.

Now, incentive programs, another one of our key terms, is a series of measures designed and used by an organization to encourage specific behaviors and outcomes by employees. Now, incentive programs are really a great tool employers have for motivation of employees.

For instance, if I say I want you to hit a specific target or sell a specific number of items over a pay period, I'll pay you an incentive, a bonus, of say $500 or $1,000. You are more motivated at that point to sell those items and make that target and then qualify for the incentive that the employer is offering you.

Now, different types of incentive programs we can look at are bonuses for one. Now, this is something that I mentioned before. A bonus for a certain performance over a period of time. Selling those thousand extra pieces of equipment that we need to sell in order to make a profit as a business.

Merit salary system is another type of incentive program. Here, I am paid more for particular achievements but not necessarily a sales job.

For instance, I reduced my costs by a certain amount over a pay period. This might be an example of a merit salary system.

Now, pay for performance is something that is a variable pay based on performance on the job. And it's usually tied to a measurable criteria.

Again, it's an incentive. We're paying people to hit a certain target or a certain goal. And this really is, again, a type of motivational incentive for an employee to meet that particular target.

We also have pay for knowledge. In this case, what I'm paying the employee for is their addition of additional knowledge or additional skill sets that they can bring to the job. An example of this may be I pay you a little extra to have a bachelor's degree. Or, I pay you a little extra have a master's degree or a certification in a certain area.

And lastly, there's profit sharing. Now, profit sharing is a different type of motivational tool. Profit sharing is when an employee gets a piece of the profits the business makes.

So if the business does well, or really well, the share of that profit goes up for each employee.

Now, benefits is a different type of compensation. And this is stuff that's not necessarily strictly cash. This is compensation other than money that's paid to an employee by an employer.

Now, with benefits HR is responsible for developing these benefit plans. And they work with different departments throughout the organization in order to assess what the needs are for their employees and other considerations they may need to take into account in order to get the best benefit package for their employees.

Now, some benefits are required by law. For instance, for full-time employees at larger companies, you have to have things like workers' compensation insurance or medical insurance. And you have to pay social security taxes and payroll taxes in order to secure their future later on.

Others are simply there to boost employee morale. And these are things that take form such as on-site daycare, or maybe work for home and telecommuting options. Also, they may pay people for continuing their education.

If you go to class and you do well and you take these particular classes or you get a degree in this particular area, we're going to help pay for those classes so that it makes it easier for the employee to then get that degree and bring those skills back into the organization.

Now, some examples of companies that go really above and beyond for their employees as far as benefits are concerned would be companies like Google, who have bowling alleys and free food in the cafeteria. And you can basically sit wherever you like and they really try to take care of their employees and drive this innovative spirit. But other companies, more traditional companies you may not think of, would be Campbell's Soup, for instance.

Now Campbell's Soup, they provide a full kindergarten program on-site. They also offer after-school programs for their employees with kids. So what is it we looked at today?

Well, we looked at compensation. That money that we give to employees for their work. We also looked at benefits, those things or that compensation that's other than money that we give to employees. Things like medical insurance and workers' comp or on-site daycare and things like that.

Now, as always, I want to thank you for spending some time with me today. You folks have a great day.

Terms to Know

Compenstation other than money that is paid to an employee by an employer.

Incentive program

A series of measures designed and used by an organization to encourage specific behaviors and outcomes by employees.


Compensation paid to an employee by an employer based on a pay period.


Compensation paid to an employee by an employer based on hours worked.