Compensation and benefits

Compensation and benefits refer to remuneration provided by employers to employees for work performed. In the United States, it is commonplace for a significant amount of a worker's earnings to manifest as benefits; in 2012, among those working in wholesale trade, approximately one third of remuneration was through benefits.

Compensation is the direct monetary payment received for work, commonly referred to as wages. It includes various financial forms such as salary, hourly wages, overtime pay, sign-on bonuses, merit and retention bonuses, commissions, incentive or performance-based pay, and restricted stock units (RSUs). Benefits refer to non-monetary rewards offered by employers, which supplement base pay and contribute to employee well-being and satisfaction. These benefits may include health insurance, retirement savings plans, paid time off (PTO), and childcare support.

In the United States, workers often seek employers with desirable benefits, especially healthcare, which is one of the most sought-after benefits.

Employee compensation and benefits are divided into four basic categories: guaranteed pay, variable pay, benefits, and equity-based compensation. There are also other ways workers may be compensated, such as intangible benefits.

Guaranteed pay is a fixed monetary reward to be given to the worker, to be consistently paid even when there is no work to be done. The most common form of guaranteed pay is base salary.

With a base salary, the worker is paid on an hourly, daily, weekly, bi-weekly, semi-monthly or monthly rate. Base salary is provided for doing the job the employee is hired to do, unconditional on performance or circumstance. Many countries, provinces, states or cities dictate a minimum wage.

In addition to base salary, allowances may be paid to an employee for specific purposes other than performing the job. These can include allowances for transportation, housing, meals, cost of living, seniority, or as payments in lieu of medical or pension benefits. The use of allowances varies widely by country, as well as job level and the nature of job duties.

Variable pay is a non-fixed monetary (cash) reward that is contingent on discretion, performance, or results achieved. There are different types of variable pay plans, such as bonus schemes, sales incentives (commission), overtime pay, and more.