Descriptions of Compensation & Benefits

Compensation can be linked to business structure and employee recruitment, retention, motivation, performance, feedback, and satisfaction and are typically among the first things potential employees consider when looking for employment. For employees, compensation is the equivalent not to how they are paid, but ultimately, to how they are valued.

Compensation packages can be considered total rewards systems, containing non monetary, direct, and indirect elements.
1. Non-Monetary Compensation: any benefit an employee receives from an employer or job that does not involve tangible value.
2. Direct Compensation: an employee’s base wage which can be an annual salary or hourly wage and any performance-based pay that an employee receives.
3. Indirect Compensation: far more varied, including everything from legally required public protection programs such as Social Security to health insurance, retirement programs, paid leave, child care or moving expenses (Schuler).

By combining many of these compensation alternatives, progressive managers can create compensation packages that are as individual as the employees who receive them. Your farm may benefit from: tenure bonuses for long-time employees, equipment repair incentives to encourage good equipment maintenance, or bonuses for arriving at work on time.

Direct compensation alternatives can include:
1. Base Pay: cash wage paid to the employee.
2. Incentive Pay: a bonus paid when specified performance objectives are met.
3. Stock Options: a right to buy a piece of the business which may be given to an employee to reward excellent service.
4. Bonuses: a gift given occasionally to reward exceptional performance or for special occasions.

Certain indirect compensation elements are required by law, such as: Social Security, unemployment and disability payments. Other indirect elements are up to the employer and can offer excellent ways to provide benefits to the employees and the employer as well. For example, a working mother may take a lower paying job with flexible hours that allows her to be home when her children get home from school. Review the indirect compensation alternatives contained on page 2 of the publication

Employees expect wages to 1) cover basic living expenses, 2) keep up with inflation, 3) provide some funds for savings or recreation, and 4) increase over time (Billikopf). Discussing wage expectations with employees can help determine what your compensation package should look like.

Fairness is critical when developing your compensation package. It is absolutely vital that businesses maintain internal and external equity. Internal equity refers to fairness between employees in the same business while external equity refers to relative wage fairness compared to wages with other farms or businesses.

What constitutes a fair wage? An agricultural manager can do informal surveys of other agricultural producers to determine the “going rate” for labor or modify existing studies of non-agricultural businesses to compare employees not by job title but by skill sets. For example, operating a forklift in a factory and driving a tractor may require similar skills and so therefore can be compensated similarly.

Job Evaluation is another technique that can be used to establish an equitable wage rate. This method is a more systematic and rational approach to internal equity where the jobs in an organization are evaluated according to commensurable factors like education, skill, experience, and responsibility (Billikopf).

Skill-based pay is an approach to compensation where the wage rate is based on the qualifications of the individual doing the job, rather than on the job itself. It is typically accomplished through skill classes that determine pay levels for jobs. Grouping employees of similar skills together, regardless of job title, forms these classes, or grades (Schuler).

Broad banding was used in a Cornell University study. Five competency levels were developed to classify employees according to authority to make decisions, skill level, and supervisory capacity. Every employee was classified as one of five competency levels. Review the five levels.

Review the checklist for building and implementing an equitable wage structure.

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