14 Types of Compensation to Create Fair Pay Structures

What Is Compensation?

Compensation refers to everything an employee gets in exchange for their work. There are two main types; direct compensation (like salary, wages, bonuses) and indirect compensation (like health insurance, retirement plans, and vacation days). Both are essential for creating a pay structure that works for everyone.

Why Is Compensation Important?

Compensation is a key driver of both employee satisfaction and business success. When done right, it can become a major competitive edge for your organization, particularly when it comes to attracting and retaining the best talent in the market.

Here’s why:

• ​​Attracts and Retains Top Talent: Paying well and offering solid benefits is the best way to bring in the right people and keep them around for the long haul. That means less time and money spent on recruiting.
• Boosts Employee Engagement: When employees know they’re being fairly compensated, they’re more motivated to give their best.
• Keeps You on the Right Side of the Law: By staying compliant with local labor laws, you can avoid costly fines and keep your business running smoothly.
• Increases Productivity: People who feel valued and well-compensated are motivated to do their best work.
• Builds a Positive Company Culture: A fair and transparent pay system helps build a culture of trust and respect. This fosters a more collaborative and positive environment, which boosts overall morale.
• Drives Long-Term Success: By retaining talent, reducing turnover, and attracting experienced professionals, you’re setting your business up for sustainable growth.

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What Types of Compensation Can You Offer Globally?

When it comes to compensation, there’s no one-size-fits-all approach, especially when your team spans across different countries and cultures. Add in the variety of personal needs based on factors like age, gender, or career stage, and designing a global compensation package can get complicated fast. This is where understanding regional preferences and cultural nuances becomes essential.

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You can break compensation into two main categories: direct compensation, which refers to the money you pay employees, such as their base salary or bonuses, and indirect compensation, which includes everything from healthcare benefits to perks like remote work flexibility or paid time off. The latter are things that might not show up on a paycheck but are just as important to your team’s happiness and well-being.

Direct Compensation

Direct compensation is the money employees take home for the work they do. This includes salaries, wages, and anything that adds money directly to their bank accounts.

Salary

A base salary is the fixed amount an employee receives regularly. They’re usually paid on a monthly or annual basis. This is a cornerstone of any compensation package and provides employees with a steady income.

When it Works Best: Salary is great for full-time employees who have a stable role with a set job description. It works well for professionals, managers, and anyone who is doing consistent work for longer periods of time.

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Wages

Wages are paid based on the hours worked, rather than a fixed salary. This is common for hourly positions or jobs where the work hours can fluctuate.

When it Works Best: Wages are perfect for jobs in retail, hospitality, and any role where hours may vary based on demand.

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Get our in-depth guide to minimum wage around the world

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Bonuses

Bonuses are extra payments that reward employees for achieving specific targets or helping the company reach certain goals. They can be tied to both individual and company-wide performance.

When it Works Best: Bonuses are great for people whose work directly impacts company performance, such as sales reps, account managers, or anyone working on projects with set milestones or KPIs. Bonuses, like commission, are a type of incentive-based compensation and are also known as variable pay.

Commissions

Commissions are a form of pay that rewards employees based on their sales or the deals they close. This can be a big motivator for employees who thrive on performance-based rewards.

When it Works Best: Commission-based pay works well for sales teams, business development, or any role where employees can directly influence the company’s bottom line.

Stock Options

Stock options give employees the chance to buy company stock at a discounted price, often lower than market value. This aligns employees’ interests with the company’s long-term success.

When it Works Best: Stock options are ideal for startups or companies looking to build long-term loyalty and encourage employees to feel invested in the company’s future. For startups, it’s a good benefit option to offer based on the future growth of the company and an easy one if you can’t offer immediate monetary benefits.

Overtime Pay

Overtime pay kicks in when employees work past their normal hour, often at a higher pay rate. This is required by law in many countries.

When it Works Best: Overtime pay is important in industries like healthcare, manufacturing, and other sectors where employees often work irregular or longer hours.

Indirect Compensation

Indirect compensation is all the non-cash perks and benefits that employees receive. These benefits play a major role in employee retention strategies, with over 90% of employees linking job satisfaction to benefits.

Health Insurance

Health insurance or a health insurance contribution is one of the most common benefits companies offer. It helps cover medical costs and often includes dental, vision, and mental health coverage as well.

When it works best: Health insurance is crucial for full-time employees, especially in places like the U.S., where healthcare can be incredibly expensive without it.

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Check out our guide on benefits to offer U.S. employees

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Retirement Plans

Retirement plans, like 401(k)s or pensions, help employees save for their future. Many employers offer matching contributions, which makes the plan even more appealing.

When it Works Best: Retirement benefits are great for employees looking to plan for the long term. This is especially important for people in full-time roles who are thinking ahead about their financial future.

Paid Time Off (PTO)

Paid time off includes vacation days, sick leave, and personal days. It’s important for maintaining a healthy work-life balance and preventing burnout.

When it Works Best: PTO is a statutory requirement in most countries, but offering extra time off as a benefit can signal that your company is committed to supporting the wellbeing of your employees. This is especially valuable in countries, like the U.S., that don’t offer a lot of PTO from the get go.

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Read more about employee burnout and how to prevent it.

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Life Insurance

Life insurance offers financial protection for employees’ families if something happens to them. It’s often included as part of a broader benefits package.

When it Works Best: Life insurance is useful for employees with families or those in higher-risk roles, where the need for financial protection is more immediate.

Disability Insurance

Disability insurance provides employees with income if they are unable to work due to illness or injury. It’s a good way to protect employees who don’t have a safety net of savings or family that can support them.

When it Works Best: Disability benefits are great for employees in high-risk jobs or anyone who needs financial security in case of a serious health issue.

Tuition Reimbursement

Tuition reimbursement helps employees pay for continuing education, whether it’s for a degree or a professional development course.

When it Works Best: This benefit is perfect for employees who are looking to grow their skills or take on more responsibility in their role.

Gym Memberships

A gym membership or wellness stipend helps employees stay physically and mentally healthy. Offering access to fitness programs or wellness resources shows you care about employees’ overall well-being.

When it Works Best: This perk is ideal for employees who prioritize health or work in stressful environments where mental clarity is important.

Flexible Working Hours

Flexible working hours allow employees to adjust their schedules as needed. This is particularly valuable for employees with families or those who work remotely.

When it Works Best: Flexibility is key for remote teams, employees with family responsibilities, or anyone who needs autonomy in their work schedule.

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Is Remote Working a Pandemic-Era Perk?

Global sentiment says not. Although some employers are pushing for a return to office, remote or flexible working conditions have become a core expectation for employees globally.

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Developing Compliant Compensation Strategies for Global Teams

​​A fair pay structure is all about making sure employees are paid fairly based on their role, skills, experience, and market rates, while also being transparent and eliminating any biases. You should aim to create a system that values both equality and fairness in how everyone is compensated.

When it comes to managing compensation globally, things can get complex. Different countries have unique regulations, exchange rate fluctuations, and varied compensation expectations.

Here are some common challenges you may face:

• Exchange rate fluctuations can change the real value of pay.
• Country-specific regulations might require things like mandatory 13th-month bonuses or additional paid holidays.
• Cultural differences can affect compensation preferences – some countries prioritize job security, while others may focus more on performance-based rewards.

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Want to Build a Compensation Package That Sings?

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Now let’s talk about how you can not just avoid these common challenges, but build a compensation strategy that knocks your competitors’ out of the water.

Offer Market-Based Pay Structures

To keep your compensation competitive, align your pay with local market rates. Use a reliable salary benchmarking tool or salary surveys like Mercer or Willis Towers Watson to gather data on typical salaries for roles in each region. And don’t forget to adjust for cost of living differences using resources like Numbeo or EIU’s Worldwide Cost of Living.

Standardize Global Framework with Local Flexibility

It’s important to set a consistent framework for job levels and pay bands across the company, but leave room for local adjustments. For example, base salaries could be set at the 50th percentile of local markets, with room for higher pay in expensive cities like San Francisco or Tokyo.

Tailor Benefits to Local Expectations

Benefits like healthcare, pension contributions, or paid holidays will vary by country. Make sure your benefits package meets local needs while offering something globally appealing, like remote work stipends or development allowances.

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Offer Fair and Compliant Compensation with Playroll

At Playroll, we help you manage global payroll and benefits packages like nobody’s business. With tools to handle compensation across 150+ countries, you can design fair pay structures, ensure compliance, and keep your employees happy all in one place.

Want to get your global compensation right? Book a demo with one of our experts today.