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Total Compensation includes:
All three components of total compensation - direct, indirect, and psychic - work in concert with each other. To the extent that an employee is not happy with one piece of compensation, it will have a "spill over" effect on the other two and vice versa. Hence, it is important to menage the total compensation package.
Direct Compensation
Direct Compensation is typically referred to as "cash compensation" and includes:
- Base Salary
- Incentive Pay
- Stock Based Incentives
- Bonuses
- Commissions
These dollars are discretionary income to the comployee/associate. A weel designed compensation plan will have an appropriate "mix" of these components.
Indirect Compensation
Indirect Compensation includes things that have a monetary value but are provided as a benefit. This includes:
- Health Insurance
- Life Insurance
- Retirement Plans: Pension and 401 (k)
- Vacations/Holidays
- Child Care Facility/Subsidy
- Group Legal Plans
- Other Benefits and Perquisites
With a plethora of available benefit programs, it is important to provide those programs which meet the needs of your employees/associates.
Psychic Income
Psychic Income includes the psychological satisfactions that an employee/associate derives from:
- the type of work he/she performs
- their work environment
- constructive feedback they recieve (performance management system)
- recognition
- other factors that may influence an individualīs motivation to perform
While psychic income is the least expensive form of compensation, it is often overlooked or taken for granted. This compensation component is often measured by conducting an employee opinion survey.
In analyzing the total compensation package, CCS creates a value for each component of direct and indirect compensation. That valueis then compared to a competitive market to determine competitiveness and the appropriateness of the current compensation "mix." An organization's business strategy will provide direction to determine the appropriate compensation "mix."
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