A Compensation Plan is a detailed overview describing how an employee is rewarded through fixed pay, bonus and commission. The plan brings together all elements of remuneration in one document, so that both the company and the employee have a clear picture of what conditions apply and how the earnings are composed.
What does a compensation plan include?
A well-thought-out plan contains several building blocks that together define the employee's pay package:
- Basic salary: the fixed part, which ensures stable earnings independent of performance.
- Bonus schemes: reward for achieving specific goals, such as quarterly sales goals or joint team performance.
- Commission: a variable part of the salary calculated on the basis of a specific commission model, such as a percentage of turnover or a fixed amount per sale.
- Any restrictions: like commission cap or clawback rules that strike a balance between motivation and financial control.
- Time Periods: when the various parts are earned and paid out, typically monthly or quarterly.
So, a Compensation Plan is a unified framework for the entire remuneration, which creates predictability, fairness and motivation.