Executive Compensation – What Are Your Options In Canada?

Businesses are legally responsible for compensating employees for their labour, of course, but they are even accountable for giving details regarding compensation to employees and candidates. Understanding the different kinds of compensation options is necessary if you are a compensation specialist, manager, business owner, payroll specialist, or HR leader. This is especially vital during the hiring process, stay interviews, salary reviews, and performance reviews. However, the terms used in the industry to classify and discuss compensation can sometimes be perplexing.

As compensation can take a lot of different forms, it is necessary that employees understand how they are being compensated, the different options or kinds of compensation that apply to them and the total worth of their compensation package. Even though this might seem like an over-complicated method of explaining wages, it makes sense once you understand that compensation gets nuanced when broken down into base pay, benefits, stock options, bonuses, tips, commission, and other sorts of rewards.

types of Compensation – Non-Financial, Indirect, & Direct

• Non-Financial Compensation – Not all compensation is essentially financial. Non-financial compensation includes training and coaching opportunities, awards and recognition, flexible work hours, and time off, some fringe benefits and additional perks including a company car or catered lunches that may not be calculated in dollar amounts as part of a compensation package but are still important to the staff and have an effect on the workplace culture and overall lure of the job prospect.
• Direct Compensation – It includes money paid to employees as cash, such as commission, bonuses, salaries, and hourly wages. Salary and wages normally fall under the category of base pay whereas commission and bonuses fall under the category of variable pay.
• Indirect Commission – It is still financial in nature – meaning it has a monetary value that can be calculated – but isn’t a direct payment in the form of cash. What is deemed indirect compensation may differ across different businesses or companies but normally includes much of the benefits package that comes with employment, such as employer contribution to an employee’s 401 (k) Retirement Plan and health insurance sponsored by an employer. Stock options and profit-sharing even generally fall under indirect compensation as can some other employee benefits such as tuition assistance or a gym membership paid by the company. What these examples have in common is a distinctive monetary value that is not paid to the employee in actual dollars.

However, different businesses and organizations disagree on which benefits constitute indirect compensation versus non-financial compensation. The line between them is gray, particularly in companies and businesses that do not share the cash equivalents of benefits with workers or have not computed the cash equivalent at the individual employee level.

At the end of the day, what matters when it comes to the different kinds of compensation options is the way you communicate it to employees. In an ideal world, you would like to present every new hire with a summarized report of their compensation along with the compensation philosophy of your company. In progressive organizations, this conversation is led by the direct manager of the employee, who is also the go-to resource for questions regarding compensation and career advancement as the employee matures with the company. this necessitates training managers on compensation, including the ways to talk to the different kinds of compensation, the ways to give details regarding the total compensation statement and the ways to answer questions regarding variable pay and benefits.

Even though a lot of organizations have yet to achieve a truly progressive and transparent approach to compensation management, research on compensation best practices has demonstrated that the reward for doing so is augmented employee engagement, decreased turnover and a more convincing employer brand.

Are you interested in learning more regarding compensation management or employee compensation options available in Canada? Feel free to get in touch with Scher Law at (416) 515-9686!