When employees receive their regular compensation plus a share of the profits earned by the company they are said to be?

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• A compensation strategy must be affordable, structured and competitive.
• Employee compensation can be divided into salary, benefits and incentives.
• Startups often cannot compete with large companies on salary, but options such as a flexible environment can attract/retain talent.
• In startups, incentives (bonuses, profit sharing, stock options) are the strongest drivers to attract/retain top employees.

Compensation strategy

Defining a compensation strategy is an important activity for all companies, including startups. The compensation strategy must be affordable, structured and reasonably competitive.

Do not underestimate the value of the advantages or perquisites that your company has to offer that may not be readily available in larger companies—opportunities for interesting work, lack of hierarchy, flexible environment, and so on.

Some people are motivated by the desire to be on the leading edge of scientific or technological advances. They may take less pay to work for a startup if they believe in its future and the work it has to offer.

Salary and wages

A salary (or wage) is a fixed amount paid in exchange for an employee’s services. Ontario Employment Standards legislation entitles most employees to receive a “minimum wage” in exchange for the work they complete for a company.

For full-time employees, salary is generally described in annual, monthly, bi-weekly or weekly amounts. For part-time employees, it is generally described as an hourly amount.

To determine an appropriate salary and/or salary range that your company is willing to pay for a position, you must:

• Establish the value of the position based on your organizational requirements
• Understand what the market is paying for a similar position

Incentives: Drivers in attracting the best employees

Compensation can be divided into salary, benefits and incentives. While salary and benefits must be competitive, incentives are the most likely drivers of attracting and retaining the best employees in startups.

There are three key types of incentives: bonuses, profit sharing and stock options.

1. Bonuses
   • Individuals are rewarded based on attainment of performance-based goals (individual, team and/or company).
   • Goals must be realistic and closely matched to the business and people involved.
   • Payout potential should be large enough to be significant to the individual.
   • Bonuses can be set up to directly drive and support the company’s needs (for example, profitability, annual results, successful completion of projects and/or significant project milestones).
2. Profit sharing
   • Payment is tied to company profits.
   • A pre-determined percentage of profit is shared among all employees.
   • Profit-sharing bonuses are generally paid out once a year in the form of cash or on a deferred basis.
3. Stock options
   • An individual receives the option to buy company shares for a set price during a specified time frame.
   • Option can be exercised by the individual at any time during the agreed-upon term and subject to any vesting schedule.
   • Stock options are often part of management’s executive compensation but may be offered to key employees in lieu of a higher salary—especially where the business is not yet profitable and/or cash flow is constrained.
   • If the business does well and the company’s stock rises, the holders of the options share in the financial benefits.
   • In general, if the company permits a long period from the date of issue to the last date for exercising the option, it will encourage the employee to stay with the company and be fully committed to its success.

Commissions

Commissions are a common way to remunerate employees (salespeople) for securing the sale of a product or service. The intent is to create a strong incentive for the individual to invest the maximum effort into their work. Commissions are usually calculated as a percentage of the sale of the product or service (for example, 5% of a computer component’s retail selling price).

Payment may be either straight commission (no base salary) or a combination of base salary and commission. In general, the commission structure is based on reaching specific targets or quotas that have been previously agreed upon by management and the employee. These targets or quotas are typically tied to sales revenue, unit sales or some other volume-based metric.

Read next: Talent management: Defining your compensation strategy and plan

Summary: A compensation strategy (salary, benefits and incentives) must be affordable and competitive-—in startups, incentives are the strongest drivers to attract/retain top employees.

Remuneration is the total compensation received by an employee. It includes not only base salary but any bonuses, commission payments, overtime pay, or other financial benefits that an employee receives from an employer.

A job perk may or may not be a component of employee remuneration. An on-site gym or a generous vacation plan are perks but they aren't money in an employee's pocket. Remuneration may include direct payment of money or taxable fringe benefits such as personal use of a company car.

• Remuneration is the total amount an employee receives for performing a job.
• Remuneration includes not only base salary but all other forms of financial compensation an employee receives.
• A company contribution to a retirement plan is deferred compensation, and as such is a component of remuneration.
• At the executive level, remuneration may include a combination of salary, stock shares, bonuses, and other financial compensation.
• For employees in service jobs, tips are considered part of remuneration.

The term remuneration implies total compensation.

At the executive level, remuneration can include options, bonuses, expense accounts, and other forms of compensation. These are generally detailed in an employment contract.

The amount of remuneration and its components depend on many factors, including:

• The employee's value to the company. Employees with in-demand skills are likely to get more perks.
• The job type. Some are straight hourly or salaried positions while others offer base pay plus commissions, bonuses, or tips.
• The company's business model. Some companies pride themselves on their generous employee remuneration and may offer bonuses, employee stock options, and 401(k) plan matching contributions. Others find such perks to be an unsupportable drag on the finances of the business.
• The general state of the economy. When jobs are plentiful and talent is scarce, companies pull out all the stops to attract the best candidates. That means better remuneration.

The most common type of remuneration is in the form of wages or salary. These may be supplemented with bonuses given for performance, holidays, or some other reason. Many sales positions offer a commission on the sales made by an employee or a percentage of the amount sold. Some of these commissioned positions offer a base salary, while others are solely dependent on commissions.

Positions in the food service and hospitality industries often rely on tips, as their base pay does not meet the minimum wage.

In addition, there are commissions, overtime payments, retirement benefits, and other benefits. These other benefits can include health insurance, retirement plan matching, sick pay, personal days, and reimbursement for work-related travel or other expenses.

A company that is anxious to attract a person with a unique skillset or an outstanding reputation may offer yet another type of remuneration: the golden hello. This is a signing bonus, due when the employee starts the job (and, sometimes, forfeited if the employee leaves within a short period of time).

The better-known golden parachute, which guarantees an executive a generous payout in case of termination, is another form of remuneration that is written into a contract before the job even begins.

Direct remuneration refers to the monetary rewards that an employee receives, but these rewards can also take different forms.

Another type of remuneration is deferred compensation, which sets aside an employee's earnings to be redeemed at a later date. One common example of this is a retirement plan that includes an employer matching a certain amount contributed by an employee.

Remuneration may also refer to the benefits an employee receives from their company. These can come in the form of health insurance coverage, gym memberships, the use of a company mobile device or car, depending on the job and the company.

Most forms of remuneration, direct and indirect, are taxable as part of an employee's gross income. It gets complicated, of course, and the Internal Revenue Service (IRS) publishes a complete guide to what it calls fringe benefits.

The minimum wage is the lowest remuneration an employer can legally pay most employees, assuming there are no other benefits of the job.

The minimum wage varies by state, although the state minimum must be at least equal to the federal minimum wage. The federal minimum wage has been $7.25 since 2009.

Many workers are exempt from the federal minimum wage. These include not only restaurant wait staff but independent contractors, laborers on small farms, seasonal workers, apprentices, and students.

For many workers, salary and remuneration are the same. For others, salary is only one part of remuneration and it may be a minor part.

Remuneration is the total amount paid to an employee. It may include a salary or hourly rate, bonuses, commissions, or any other payment.

In the view of the IRS, remuneration is the sum total of earnings and other taxable benefits and allowances. Remuneration, to the IRS, is synonymous with wages, whether it is labeled a salary, a bonus, or a commission.

Salary is a form of remuneration. For many people, salary and remuneration are the same. They are paid a flat salary or hourly rate for their work.

For others, salary is only one part of remuneration, and may even be a minor part.

Salespeople, for example, may receive a small salary and get their income largely from commissions based on their sales.

Wall Street professionals are paid a token salary and get the bulk of their income in a single bonus payment that is determined at the end of the year based on their performance and that of the company.

Restaurant wait staff can be paid as little as $2.13 an hour under federal law. The law assumes that this hourly rate plus tips will add up to at least $5.15 an hour in remuneration.

Remuneration generally includes a salary or hourly wage or (in the case of a contractor) a job rate.

Some workers also receive a bonus, commission payments, a retirement savings contribution, or other fringe benefits of financial value.

At the executive level, those fringe benefits can get crazy. CEO perks may include personal use of a company jet, plus a "tax gross-up," meaning a company reimbursement of the amount they had to pay in income taxes for their personal use of the company jet.

Compensation is a fair synonym for remuneration. It implies total payments.

Salary or wages may be only one part of remuneration.