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Ineffective compensation strategies lead to poor retention. Are your compensation packages satisfying employees? Keep reading to better understand the relationship between employee retention and compensation and techniques that improve both.

Types of Compensation Strategies That Improve Employee Retention

There are several ways to enhance employee retention with compensation strategies

Competitive Salaries

Paying your employees a competitive salary based on their skills and experience is one of the best ways to increase retention. A Harvard study found when people are paid more than they initially expected, they put in more effort, are more productive, and are more likely to stay long-term.

Competitive pay not only increases retention but also productivity. One Paychex study found 70% of employees named low salary as their top reason for leaving a job or why they would leave a job.


Rewarding top performers with incentives not only motivates employees, but it also increases retention. Incentives include:

  • Monetary regular bonuses
  • Long-term incentives (performance shares, profit shares)
  • Cash spot rewards

Incentives are an effective employee retention/compensation strategy. Over 77% of employees say they would work harder if their employer offered more incentives, and the presence of incentive programs motivates 66% of workers to stay at their current job.

Modify Salary Based on Geographic Location

If your business operates on a hybrid or remote model, it’s important to modify salaries based on your employees’ geographic location. The cost of living differs in almost every city in the United States, so if you’re hiring remote positions, consider those cost differences. The current best practice is to pay employees based on the office they are assigned to rather than where the employee may live.

Merit Increases/Pay for Performance

Merit increases are a type of incentive where employees are rewarded with bonuses or raises for their performance. Employees are not promoted with a merit increase; they’re just given a pay increase while remaining in the same position.

Merit increases aren’t the same as general pay adjustments. Pay adjustments are regular increases based on how long someone has been with the company or changes in the cost of living. Merit increases strictly focus on rewarding employees for good performance. 

This incentive improves motivation, encourages employees to continue working hard, and increases employee retention. To succeed, your organization should have an objective performance assessment system.

Robust Benefit Packages

Employees want to work for people who care about them. Show your team members you value them by providing robust, customizable employee benefits packages.

Benefits include:

  • Health, dental, and vision insurance
  • Paid time off
  • Sick days
  • Retirement/401k
  • Paid medical or maternity leave
  • Profit sharing

Every employee has different needs, so allow them to pick which benefits apply to them instead of having a “one-size fits all” approach. Offering competitive benefits packages effectively increases employee retention, as employees won’t be searching for better benefits elsewhere.

Using Compensation Surveys

Compensation surveys are an excellent tool for improving the overall relationship between employee retention and compensation. These surveys offer insight into similar businesses and their compensation rates and strategies so you can stay competitive. Take time to thoroughly review the survey participant list and how long ago the data was collected.

Compensation surveys gather data regarding:

  • Benefits
  • Insurance
  • Base salaries
  • Merit increases

If you need help improving your employee retention with compensation, these surveys are a helpful tool. Many outsourced HR providers develop surveys based on your industry and company size to help you improve internal compensation processes.

Overtime Pay

Offering overtime pay gives employees a chance to work more hours and make more money, which benefits them and the company. It’s a win-win situation that improves retention. All pay provided (salary or bonus) to a non-exempt employee must be included when calculating the regular rate of overtime pay.

What’s the Best Compensation Plan For My Business?

Your compensation plan depends on your business’s structure and size. There are three compensation plans that suit different industries and positions:

Straight Salary Compensation for Exempt Employees

Straight salary compensation gives exempt employees a set annual amount of money. Exempt workers have the flexibility to work outside of the office since they don’t have to record hours. 

This compensation plan suits:

  • Positions that require 40 hours or less of work per week
  • The annual salary is more than an employee would make in a year if they made an hourly wage
  • Employees who want stable, non-fluctuating income

Straight salaries for exempt employees are excellent for businesses that offer regular raises, as they simplify the process of raises.

Salary Plus Commission Compensation

Salary plus commission compensation offers employees a secure wage while reflecting their individual contributions to the company. Team members make a set salary while bringing home extra money for any commission they’ve made.

This compensation plan suits:

  • People in sales or leadership positions
  • Employees who must hit monthly metrics/goals

Commission motivates employees to reach company goals and stay with the organization.

Straight Hourly Compensation

Straight hourly compensation pays non-exempt employees based on the number of hours they work. If an employee works over 40 hours with this compensation plan, they receive overtime pay, at a required time and a half wage.

Straight hourly compensation suits:

  • Low-paying jobs or entry level positions
  • Food and beverage industries
  • Businesses with non-consistent employee schedules
  • Employees with flexible schedules (students who work part-time or people who only work weekends)

Hourly compensation can be a competitive advantage depending on the starting wage. Non-exempt employees are eligible for raises and overtime pay, making it a great compensation plan for people looking for extra cash.

Want Help Creating a Compensation Plan That Suits Your Organization’s Needs?

If you need help creating a compensation plan that improves the relationship between employee retention and compensation, AAIM is the place for you.

Not only do we develop customized compensation surveys, but we also:

  • Help your company improve existing compensation plans
  • Offer market data relevant to your industry
  • Implement compensation strategies that increase competitive advantages
  • Ensure employees are paid fairly
  • Employee retention techniques

Contact us today to improve your employee retention and compensation plan.

Understanding common compensation and benefits issues is the first step in overcoming them. Keep reading to learn more about compensation problems and the importance of proper benefits.

Top 5 Compensation and Benefits Issues To Consider

Managing compensation and benefits in a competitive, ever-changing industry can feel overwhelming. HR professionals must determine the proper pay and benefits to recognize employees’ talent and hard work.

If you want to stand out from the crowd and impress potential employees, you need to tackle the following compensation policy issues within your business:

Competition From Similar Companies

Similar companies target the same potential new hires. Smaller businesses struggle with offering the same benefits and compensation as larger businesses since they have smaller budgets.

If you’re running a new business, you may face similar challenges that SMBs do. Luckily, there are other ways to leverage your company’s competitive advantage, but we’ll touch on that later.

Smaller Budgets

You could face budget issues even if you run a large corporation. You pay your existing employees and rent for your office space while investing in company culture and benefits. It can be challenging to find the budget to compete with other businesses in your industry, especially with labor shortages.

Many businesses are fighting for new hires in the post-pandemic world. Employees want good pay, paid time off, and benefits. With a smaller budget, you may struggle to attract the same type of talent that other businesses do.

Employee Expectations

There’s typically a gap between what employees expect to be paid and what employers want to pay them. Most employees don’t consider benefits as part of their compensation; they’re looking at the net pay they’re taking home. 

Consider providing a total compensation statement to your employees that includes a breakdown of all of their compensation methods. This statement provides transparency and a thorough explanation of how you’re compensating employees. 

Meeting employee expectations can sometimes be out of your budget, or maybe what they’re expecting isn’t something you’ve previously considered. Luckily, there are ways to bridge the gap between your and the employees’ expectations. We’ll dive deeper into this soon!

Internal Inequity

Pay reviews and compensation surveys often highlight inequities within your organization’s compensation rates. Your company might have an unnoticed wage gap, especially if you’ve been in business for a while. Over time, starting pays change, and existing employees aren’t always included in those changes.

Ensure your employees in similar positions make a comparable salary and get the same benefits. Otherwise, you could upset your workforce if they discover wage gaps. Keep in mind that pay equity discrepancies, especially between males and females, may create morale and legal issues that you want to avoid.

Executive Salaries

Another common compensation and benefits issue is managing executive salaries. This compensation problem mainly affects large public corporations required to reveal executive salaries.

If executive salaries take up too much of your budget or job candidates disapprove of their salaries, you may have trouble attracting employees. Consider limiting executive base salaries, and offer bonuses/incentives tied to your executive performance.

How To Solve Common Compensation and Benefits Issues

Compensation administration in HRM (human resource management) is complicated and ever-changing. The following solutions can help you solve any compensation problems you may come across:

Compensation Survey

Use compensation surveys to compare your current business practices and policies to the best industry practices of similar companies.

These surveys help you gather data on:

  • Compensation
  • Benefits
  • Policies
  • HR practices

Compensation surveys are an excellent strategy if you want to know what competitors are paying their employees. After gathering your data, adjust your compensation and benefit plans as necessary. 

Compensation surveys are an efficient tool for small businesses that want to see how they compare to similar organizations. They also help you see where other businesses are lacking and what you can do to increase your competitive advantage. Select survey reports that reflect your company’s industry, size, and jobs.

Compensation Planning

Create a robust compensation plan to combat common compensation problems. A plan prepares you for future compensation and benefits issues and creates a consistent and fair compensation strategy. Your compensation plan should support:

  • Your company’s business techniques and brand
  • Operating objectives
  • Employee needs/standards

There are three types of compensation plans:

  1. Straight salary
  2. Salary plus commission/incentive
  3. Straight hourly

Choose a plan that suits the size of your business and the industry it’s in. If most competitors offer a straight salary, it might be good to follow suit to keep up with industry trends and employee needs

Competitive Wages

Competitive pay is an effective differentiation strategy that helps meet employee expectations. This type of pay is comparable to competitors in the same market and is equal to or above standard industry salary.

Outsourcing An HR Team

No one understands compensation and benefits issues like HR professionals. Your compensation strategies stay organized and on top of trends with an outsourced HR team.

HR experts can increase competitive advantages for small and large businesses. Even if you run an SMB with a smaller budget, HR professionals can find solutions that fit your needs and budget. Outsourced teams also develop effective compensation strategies, plans, and surveys, so you can stand out in the job market.

Solve Your Compensation Policy Issues With AAIM’s Help

AAIM is an industry-leading HR provider that offers innovative compensation solutions to attract and retain employees.

Since 1898, we’ve helped businesses of all sizes reorganize their HR department and improve efficiency. Leave your compensation and benefits issues in the past when you partner with us. We create customized plans that suit your business’s unique needs and help attract talent.

Let us manage your:

While you focus on daily operations and the success of your business. Contact us today to learn more about our compensation solutions.

Consider sending out internal company surveys to give your employees an effective tool to speak their minds.

What Is an Internal Company Survey?

Be honest—do you know what your employees are thinking? Many employees are uncomfortable or scared to share their honest opinions. According to a Quantum Workplace study, about 50% of employees don’t speak their minds to their managers. But why?

Because they aren’t given the opportunity to do so. Most employees won’t march up to their managers and give them unprovoked feedback. Give them a space to provide feedback safely and professionally by using internal company surveys.

Internal company surveys, also called company climate surveys, are questionnaires given to employees to get genuine feedback. These surveys are often anonymous to protect the identity of your employees, so they feel more comfortable being honest. 

Benefits of implementing internal company surveys include:

  • Improved communication between employees and managers
  • Healthier work environment
  • Improved employee satisfaction
  • Positive work culture

Employee Surveys Best Practices

Develop effective employee surveys with the following best practices:

Keep Questions and Surveys Short

Keep your questions and surveys shorter in length. Employees have a lot on their plate, and if you send them an hour-long survey every quarter, they most likely won’t complete it. Plus, most people spend less than 1/4th the time per question on long surveys since they have more questions to answer, so their responses might not represent what they truly feel.

Keep your questions short to keep your employees engaged. Studies show that when internal company surveys take 20 minutes or less to complete, the results are more substantial and accurate.

Ensure Anonymity and Confidentiality

Remind your employees that work environment surveys are anonymous and confidential. Employees may not share their opinions if they think multiple departments or employees will be looking at their responses.

Anonymous surveys have traditionally given more accurate results than identifiable surveys. If you want honest employee opinions, allow them to complete the survey without identifying themselves. Then, make sure everything stays confidential by not sharing the answers with anyone outside HR or other relevant departments.

Establish Clear Objectives and Appreciation

Say what the purpose of the company climate survey is at the beginning of it. No one wants to complete a survey without knowing why they need to.

Explain that you’ll use the survey results to improve the company culture and employee experience. Reiterate that you value their responses, and thank them in advance for completing the survey.

Establishing the purpose of the internal company survey motivates employees to take it. One study showed that only 36% of employees are engaged, so if you’re not giving them a reason to take part in your survey, they likely won’t do so. If you explain that the survey results will help the company improve, they’ll feel better about taking it.

Review and Audit Your Survey Measures

After employees complete the survey, review and audit the results for accuracy and completion. Take note of the percentage of employees that completed the survey, and make sure no questions were missed.

Implement Changes Relevant to Surveys

After reviewing the internal company survey results, start implementing the changes employees want. Employees won’t continue completing the surveys if no action is taken.

If 60% of employees answered “Unsatisfied” on a question regarding the amount of PTO they have, talk with your team about increasing PTO. Act on the answers of your employees to keep them satisfied.

Partner With an Outsourced HR Provider

Some HR providers develop internal company surveys for you. They have experience working with different businesses and know what questions to ask to get the answers you need.

You might not know which employee survey questions to include or how to format them, but an HR professional can create questions that target specific aspects of your business you’re curious about. Your HR partner can develop:

What Are the Different Types of Internal Company Surveys?

There are two main types of internal company surveys that focus on different parts of your company:

Opinion and Engagement Surveys

Opinion and engagement are satisfaction surveys that allow your employees to shape the future and success of your business. These surveys include questions regarding:

  • Career growth and professional development
  • Individual needs
  • Benefits (PTO, sick days, insurance)
  • Trust in leadership
  • Team efficiency
  • Manager effectiveness

After asking about these topics, add a section where employees can leave additional comments about aspects not covered in the survey. This is the space for employees to give personal feedback or constructive criticism of your business.

Compensation Surveys

Use compensation surveys to understand the current salaries of all employees and if they’re satisfied with that pay. Use the results to compare your business’s compensation to companies similar in size and industry.

These surveys guide your future compensation efforts and allow you to pay your employees a fair wage or salary.

How Can I Create Effective Internal Company Surveys?

Partner with AAIM for all of your internal company survey needs. We have over 120 years of experience developing company climate surveys and implementing employee survey best practices.

Our team creates customized, confidential surveys for our members that help you understand the effectiveness of your:

As a third-party HR company, we provide unbiased and accurate survey results. We’ve got you covered whether you need compensation surveys or a comprehensive survey with closed-ended questions. Contact us today to learn more about the benefits of an AAIM membership and our survey services.