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Fundamental Elements of a Total Compensation System

December 1, 1999
Related Topics: Compensation Design and Communication, Featured Article
The fundamental elements of a total compensation system, put together by Strategic Pay Partners of Pasadena, California.


Compensation Philosophy

Identifies target market position for competitive pay levels and articulates the company s commitment to motivating, and rewarding employee contribution and performance through the various elements of the company s total pay system.

Base Pay

Pays for standard job duties, skills and results. Should be designed to reflect competitive rates for comparable jobs within identified marketplace.

Performance Based Variable Pay

Designed to reward achievement of specific company and/or individual performance objectives. Payouts vary based on company and/or individual achievement. Types of variable pay plans include:

  • Skill pay
  • Incentive pay/bonus plans
  • Commission
  • Gain sharing/results sharing

Long Term Incentive Compensation

Designed to reward long term company performance. Individual job level/performance may impact eligibility to participate. Can be an effective retention tool.


Broad range of practices including health insurance, vacation, leave policies, and retirement and savings plans. Designed to address health and welfare needs of employees. Can send strong messages about company culture and values.

Perks & Non-Cash Rewards

Used to recognize exceptional contribution, performance, commitment to culture and values. Variety of methods including additional time off, tickets to events, trips, dinners, public recognition, etc.

Intrinsic Rewards

  • Performance Feedback Management
  • Development Opportunities
  • Work Environment

Processes used to communicate and align employee behaviors with business priorities and company values to achieve desired results. Play a significant role in successfully engaging full scope of skills and abilities within the workforce.

Critical in retaining key talent.

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