How to Give Compensation That Drives People’s Performance

How to Give Compensation That Drives People’s Performance

Employee compensation matters as it directly impacts an organization’s ability to attract and retain talent. Yet, when we feel that the compensation and benefits we offer can help retain our best talent, we still find people jumping to other ships of competitors.

Nearly 44% of workers are more likely to consider a similar job in another company with greater benefits. According to some statistics, 66% of workers say that benefits have become more important in how they perceive their total compensation. As well, 75% of people also look at the benefits when they decide to stay or leave a job.

While 80% of employees prefer new or additional benefits over a pay increase, what do compensation and benefits mean from their point of view? Managers, we need to figure out how to fix this.

Understanding the Compensation Meaning

Compensation is a general term for anything an employer gives an employee in exchange for the work they do. Employee compensation combines wages and salaries, benefits, bonuses, and all additional benefits employees receive in performing their duties. 

Yet we also have so-called benefits. Benefits, in addition, make up a subset of compensation. Let’s break down each component separately for a better understanding of all employee compensation rings:

1. Wages & Salaries

This is the amount of money employees get for their work. This can be an hourly salary or monthly employee commissions. Salaries and wages are paid to employees as per regular payment schedules.

2. Benefits

It generally includes insurance benefits (health or life), pension plans, stock options, profit-sharing plans, and paid leave. Such benefits may be mandatory (statutory) or complementary (at the employer’s intention).

3. Bonuses

Bonuses can be paid to employees who have exceeded their targets or if the business has a surplus budget at the end of the year.

4. Additional perks

It covers everything employees receive for their work that does not have a measurable monetary value. It could include company-provided lunches, flexible work hours, professional development, and learning opportunities.

Delivering Meaningful and Targeted Employee Compensation

Compensation can play an essential role in driving employee performance. But it is important to remember that various compensation elements may work differently for each person. It may have to do with their needs and motivations. 

The following are a few employee compensation and benefits strategies that can boost people’s performance:

1. Provide transparency on compensation.

Employees are more motivated when they understand how their pay is determined. Be transparent about the criteria for obtaining bonuses or other performance-based compensation.

2. Set compensation upon performance.

Rather than giving employees a fixed or hourly pay rate, consider linking their pay to performance. It may include bonuses, commissions, or profit-sharing plans that reward employees who meet or exceed specified targets.

3. Use data-driven performance metrics.

Employers should set performance measures for compensation to support a performance-based strategy. Through data-based measures, employers can ensure that employees are rewarded for their contributions to the business.

4. Don’t neglect non-financial awards.

Money is needed, but it is not the only motivating factor for employees. Consider providing non-financial rewards such as extra vacation time, flexible work arrangements, or public recognition of a well-done job.

5. Provide opportunities for career growth.

People are often driven by the opportunity to advance their careers and meet new challenges. To keep them motivated and engaged, consider promoting or providing career development opportunities to high-performing employees.

6. Carry out market studies.

Employers should conduct market research to understand the wages and benefits other competitors pay in their sector and region. This information can create competitive compensation schemes that attract top talent.

7. Review and make regular adjustments to compensation.

Reviewing and adjusting compensation regularly as business needs change and employees grow is critical. It can help ensure that employees are paid fairly for their contributions, and that compensation remains a powerful motivator for performance.


Compensation and benefits vary significantly according to the organization’s size, industry, and business strategy. However, a well-balanced compensation and benefits system that includes the above components can help employers attract and retain the best talent while encouraging employees to do their best.