Power of Compensation and Benefits in HR: A Guide for Modern Businesses

What do employees want? Fair pay and benefits. When do they want it? Now. 

Research from Gallup found that compensation and benefits are the number one reason people leave their jobs — meaning it’s critical to get them right. And when you do, employee engagement and satisfaction usually follow. Close behind comes increased performance, critical for driving overall business success. 

But compensation and benefits don’t just have the power to boost the performance of your existing employees. They also help companies stay competitive in a crowded job market, meaning top talent will be watching for any open roles. Here’s everything you need to know about the power of compensation and benefits — including key components, trends to watch for, and how to build a comp and ben package that fits your organisational needs. 

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What are compensation and benefits?

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Compensation and benefits are two key elements of a company's total rewards programs, which typically include a blend of:

• Fixed salary
• Variable pay
• Benefits
• Equity
• Perks

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As the expectations of the modern workforce evolve, total rewards packages need to adapt as well. While some generations prioritise remote work, others want childcare, retirement contributions, or healthcare.  

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The impact of compensation and benefits on workforce satisfaction and retention 

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Compensation and benefits are one of the most important elements of the employee experience — so it’s no surprise that they also have a significant impact on: 

• Retention and loyalty: Competitive compensation and comprehensive benefits packages that are tailored to your employees’ needs can help boost engagement. When employees feel motivated to do well, they’re more likely to stay in their roles, long-term. 
• Job satisfaction: Competitive, transparent compensation and benefits help employees feel like they’re being fairly compensated for their hard work. This can also lead to them feeling more satisfied at work, which in turn boosts employee engagement and performance. 
• Attracting top talent: Strong compensation and benefits help HR teams attract top talent, which is especially important in competitive industries.

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How compensation and benefits influence company culture and employer brand 

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How you compensate your employees, and the benefits you offer them, show them whether they’re valued. Offer below market rates and the bare minimum benefits? Don’t be surprised if your employees work to rule, or are actively disengaged.

On the other hand, if you offer fair compensation and a broad range of benefits, that’s a signal you truly value your employees. And this scenario brings all kinds of benefits. 

Transparent compensation practices help foster trust, by showing employees how their pay is calculated, and why it’s at that specific level. This helps improve morale and engagement, in addition to strengthening the employer-employee relationship. 

Benefits that reflect your commitment to employee wellbeing also help create a positive workplace culture, by demonstrating you recognise what your people want — and are willing to provide it. Wellness programs, remote work, financial support, and mental health days are all examples of the kinds of benefits that are increasingly valued. 

Another benefit of getting compensation and benefits right is the positive effect this can have on your company’s brand. Offering competitive pay and benefits helps to improve your reputation with job seekers. Over time, this turns your brand into one on everyone’s radar, so when you do start posting job adverts, there’ll be plenty of potential hires keen to apply. 

Ready to get started? Read our step-by-step guide to aligning pay structures with company culture. 

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Key components of an effective compensation and benefits strategy 

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While HR compensation plans should be tailored to the needs of your employees, these are the elements they typically include:

• Base pay and salary structure: Employees are paid this amount each year, regardless of their achievements or performance. It’s important to establish a structured, equitable salary structure that’s consistently applied across all roles and departments.

• Incentive programs and bonuses: Depending on the role, some companies also include variable pay like performance-based bonuses or commissions. These can motivate employees to perform, but don’t suit all roles.  

• Health and wellness benefits: Including things like healthcare, wellness programs, and mental health support, designed to boost employee well-being. 

• Retirement plans and financial support: How these are structured will depend on your company's location, but this may include pension contributions and student loan assistance, designed to help employees work towards long-term financial security.  

• Equity: Sometimes, companies offer employees stocks or stock options. This is a less common benefit since it can be complicated to manage. 

• Additional perks: This may include flexible work arrangements and remote work stipends, in addition to extras like gym memberships, free lunches, and volunteer days. 

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Trends in compensation and benefits for modern businesses 

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The comp and ben landscape has changed considerably over the years, with certain benefits appealing to some generations more than others. To create a package that appeals to all generations of your workforce, balance trends like those we’ve covered below with tried-and-tested benefits like pensions and healthcare.

Here are the trends we’ve noticed over the last few years:

• Flexible and remote work benefits: the world of work moves, fast, with flexible work arrangements and remote work stipends quickly becoming a non-negotiable for modern benefits packages.  

• Financial wellness programs: Inflation and the rising cost of living means many companies now offer a range of financial benefits including student loan repayment programs, emergency savings plans, and financial planning support. 

• Employee well-being and mental health support: Benefits like counselling, stress management courses, and wellness resources are becoming a normal element of many companies’ total rewards packages, driven by employee demand. 

• Personalized benefits: Not every benefit will suit every employee, so there’s also a growing trend for customisable packages that cater to employees’ unique needs and preferences. 

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Building a compensation and benefits program for your organisation 

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We might sound like a broken record—but how you structure compensation and benefits really does have the potential to impact every aspect of your organisation. That’s why it’s worth taking the time to create a program that suits your unique business needs. 

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Here’s your step-by-step guide to getting it right. 

1. Identify your organisational goals and budget 

Before creating a compensation and benefits program, review the company’s mission, budget, and workforce goals. These will help guide the direction of your program, so it’s important to ensure everything is aligned. 

2. Conduct market research and benchmarking 

Knowing what kinds of compensation and benefits are on offer from competitors in the same region or industry will help HR teams create competitive packages in line with industry standards. 

3. Gather employee feedback

Arguably the most important critic of your compensation and benefits packages? The people it’s designed for. Surveying your employees to better understand their needs and expectations is one of the best ways to uncover exactly what they’re looking for… so you can work towards providing it. 

4. Prepare and launch a total rewards program 

A holistic total rewards program is the best way to balance compensation, benefits, recognition, and career growth. Creating a statement for each employee is a great way to outline exactly what’s included within their total rewards package. 

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Measuring the success of your compensation and benefits strategy 

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The only way to know if your employee compensation strategy is working is to measure its success. Here’s what to do:

• Monitor key employee metrics: Compensation and benefits influence every aspect of the employee experience. That's why it’s important to track metrics including retention, engagement, satisfaction, and performance. Ideally, conduct an initial survey before making any changes, so you have a baseline to compare future surveys to. 

• Benchmark compensation against industry standards: By regularly reviewing and benchmarking your salaries against competitors, you can make the adjustments needed to keep up with market trends. 

• Conduct regular surveys: Metrics are important, but so are your employees’ opinions. Regular surveys can help uncover whether employees are satisfied with their current compensation and benefits, plus highlight any changes or improvements to explore. 

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Building an effective HR strategy through compensation and benefits 

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The impact compensation and benefits have on building a productive, loyal, and engaged workforce can’t be understated. As a result, no HR strategy for modern businesses is complete without optimising this critical aspect of the employee experience.

The best way to make sure your comp and ben packages are meeting the needs of a dynamic workforce is to keep reviewing, adjusting, and evolving. And keeping an eye on what other businesses are doing helps you do just that. 

Want to know what other companies are planning for 2025? Download our Salary Increase Budget: the 2025 trends ebook, to discover the breakdown of salary increases by country, company size, and funding stage. 

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