How to Craft a Standout Compensation Package

There's one surefire way to increase your chances of getting a “yes” from your candidate: offer them a standout compensation package.

With the right planning, your decisions about salary, bonuses, insurance, and time off will work together to win over candidates, boost job offer acceptance rates, and improve employee retention. Without it, your compensation package risks becoming a major hiring hurdle.

Whether you're recruiting for a brand new role or reviewing an existing position, there are three simple steps you can use to determine the right salary for the position.

How to Set Your Salary

The right salary for a given role will balance fair pay with your company budget. It will be tailored to the experience and skill set of your candidates and will reinforce your company culture in the process. Most important of all, it will cement a candidate's interest in your company and make it easy for them to accept your offer.

Thankfully, hitting those goals doesn't need to be complicated. Whether you're recruiting for a brand new role or reviewing an existing position, there are three simple steps you can use to determine the right salary for the position.

1. Find the Market Salary

Every salary should fall within a competitive range—neither too low to appeal to the right candidates nor too high to strain your hiring budget.

Some companies base their compensation decisions on a candidate's current salary, but this is a poor benchmark for determining their future salary: it worsens the gender pay gap, and in some states it's even illegal. Instead, it's better to use the market salary for a given role—the average rate other companies currently pay for similar work—as the starting point for your salary decisions.

Market salaries for common roles are available from a few different sources:

When looking for data, compare job descriptions, not job titles. There's often lots of variation in roles with similar titles (like “Marketing Manager” or “Developer”), and the job description—the role's requisite skills and experience—will provide a more accurate reference point for comparison.

For unusual roles where market data is less readily available, use your own internal salary data. If you already have employees performing a similar role, you can use the median of their current salaries as your starting point.

2. Define Your Compensation Philosophy

Market data will typically span a range of acceptable salaries, and it's up to you to determine how you position your salary versus the market rate. Ultimately, this comes down to your company's compensation philosophy: the values and attitudes you want your compensation package to reflect.

In the simplest approach to compensation, many companies use the 50th percentile of the market range as their starting point. Others use their salary structure to reward different goals, adopting the following:

  • Tenure-based compensation, rewarding employees based on how long they've been in the role

  • Merit-based compensation, rewarding employees according to their performance

  • Responsibility-based compensation, rewarding employees according to the level of responsibility they take on.

Your salary decisions can also be shaped to the strengths and weaknesses of your business. For instance, if you've had problems with “brain drain”—skilled employees leaving for higher paid roles at other companies—it might be worth offering a salary 10% or 20% higher than the current market rate.

3. Set Your Pay Ranges

Once you've settled on the role's base pay, setting pay ranges can provide extra flexibility to cater to individual candidates.

For example, employees in the same role—say, graphic designers—might have different levels of experience and merit slightly different annual salaries. One employee might live in a rural area with a low cost of living, while their colleague lives in a city with a much higher cost of living, requiring a higher salary to achieve the same “real” income.

In this situation, you might create a pay range as follows:

  • Base Salary -10%: $45,000
  • Base Salary: $50,000
  • Base Salary +10%: $55,000

Setting a salary range for a role—like the three tiers above—allows you to adjust individual compensation in a fair and systematic way.

6 Elements of a Complete Compensation Package

As the image below shows, base salary is only a part of a role's total compensation. In some cases, a lower salary can be compensated for with a benefits package, including other forms of remuneration, such as bonuses and equity. Each of these elements contributes to the total value of your compensation package, influencing the desirability of your role and the perception of your company's priorities.

Compete for talent based on total compensation packages, not just salary
Compete for talent based on total compensation packages, not just salary

There's no right or wrong way to structure your compensation package; you simply need to choose a combination of benefits that fit the needs of your employees and your company culture.

1. Bonuses

Bonuses are sometimes offered as additional monetary incentives. These can be discretionary or nondiscretionary—either paid as and when the employer deems it appropriate—or specifically incorporated into a contract and paid out in the event of achieving certain milestones.

Common bonuses include:

  • Performance bonuses for achieving set targets
  • Sign-on bonuses for new hires
  • Sales commissions for employees in sales roles

2. Health and Wellness

Health insurance is a key part of most compensation packages and in some instances is mandated by law. In addition to health insurance plans, some companies also choose to offer extra insurance coverage, including:

  • Dental and vision insurance
  • Life insurance
  • Travel insurance

Other forms of health care benefits are growing more popular, including gym memberships and stipends for exercise classes.

3. Time Off

Time away from work is another key part of your compensation package. How you choose to organize time off will vary according to your needs, industry, and corporate culture, but it's common to include some combination of:

  • Paid vacation days
  • Paid sick days
  • Personal days
  • Paid company holidays
  • Maternity and paternity leave

4. Equity

Some companies make it possible for employees to own stock in the organization, often through the use of employee stock options (ESOs) or stock bonus plans.

Vesting periods are a common part of many ESOs, designed to reward employees for company loyalty: the total number of share options available to an employee increases with their tenure, offering a financial incentive for employees to stay with their employer for the length of the vesting period.

5. Pension Plans

Many employers offer pension plans in the form of a 401(k), designed to allow employees to make tax-free contributions toward their retirement. In some cases, companies will contribute toward the plan or match their employees' contributions.

How your 401(k) plan is presented to employees will affect how they use it. At Google, researchers were able to increase the total savings employees invested in their 401(k) plans by sending a simple email with a carefully chosen reminder: “You could increase your contribution rate by 1% of your income and get more of the match money for which you’re eligible.”

6. Extra Employee Benefits

When competing companies offer similar salaries, nonmonetary benefits can tip the balance in your favor. As a result, many companies are getting creative with the perks on offer, including:

  • Training and education allowance
  • Onsite child care
  • Food stipends or free on-site catering
  • Flexible working hours or remote work
  • Sabbaticals
  • Company cell phone
  • Company car

Often, additional perks—like food stipends or remote work options—boost the total desirability of a compensation package more than a salary increase does. Research from Glassdoor found that “79% of employees would prefer new or additional benefits to a pay increase.”

A standout compensation package won't stay that way forever. Market rates and job descriptions change regularly, and your total compensation package—both the salary and the benefits on offer—will need to keep pace.

Thankfully, that process doesn't need to be complicated. By understanding your compensation philosophy and using the market rate as a guide, you'll be able to create standout compensation packages for every role, attracting job seekers and rewarding employees alike.

About Hire by Google

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