Compensation Management - What You Need to Know

Compensation management is essential for all businesses, including Health and Human Services organizations. At first glance, it can seem like a simple and straightforward concept: your employees work, and you pay them for the work they do. But how much do you pay each one? What about overtime? And your applicants are asking about your benefits package. All of these, and many other considerations, are all important components of compensation management.

For the Health and Human Services industry in particular, offering competitive pay and benefits is an area where many organizations struggle. And this can have a lasting, detrimental effect on the organization’s ability to attract and retain top talent and operate in a financially sustainable manner. However, by gaining a firm understanding of compensation management, you can create a strategy that works for your organization’s needs.

What Are the Objectives of Compensation Management?

In addition to being able to attract and recruit top talent to your organization, compensation management also aims to reward existing employees for good performance, provide incentives for employees to put forth their best effort, retain top talent in the long-term, reduce turnover, and improve overall morale throughout your workforce. It’s a big part of what keeps your organization motivated and moving forward.

Importance of Compensation Management

With so many objectives that impact employees at every stage of the life cycle, the importance of compensation is undeniable. And while we’d all love to have unlimited funds available for compensation, the reality is that budgets can be rather restrictive – especially for the Health and Human Services industry. Careful planning and budgeting, as well as some thinking outside of the box, are essential for managing your compensation packages in a way that works for your employees as well as your organization as a whole.

Types of Compensation

When considering compensation management, one of the first things you need to understand is that there are different types of compensation as well as different components to compensation. The types of compensation can be divided into two parts: direct and indirect.

Direct Compensation

Direct compensation is what we think of first when compensation is mentioned. This is the money paid directly to the employee on a regular schedule, typically on a two-week to twice-a-month basis. This also encompasses any bonuses, commissions, or other forms of incentive pay that may be paid out to an employee.

Indirect Compensation

Indirect compensation is another important type of compensation. This includes things that have a calculable monetary value, but are not paid out in cash to the employee. Indirect compensation includes your organization’s benefits package, health insurance, retirement plans, company-issued items like mobile phones or a company car, leave time, and so on. Each of these items have a financial value that can be calculated, but the employee receives the benefit of the item versus a dollar amount.

Components of Direct & Indirect Compensation

Together, all forms of direct and indirect compensation make up the compensation package offered to each employee at your organization. A comprehensive compensation package includes many different types of compensation, ideally creating a unique and attractive offering for candidates and existing employees alike.

Hourly Wages and Salary

Employees can be either salaried or hourly, exempt or non-exempt. These classifications determine how each employee’s pay is calculated. For those on hourly wages, there is a lot more room for variability, as their pay is determined by the number of hours worked, the specific programs their hours are attributed to (if there are shift differentials at play), and overtime rules.

Variable Pay

In nonprofit organizations, commissions, bonuses, and stock options are typically not available. However, there are other forms of variable pay available. You may have bilingual employees who receive a special pay rate for services provided in a second language. Or you may pay a higher rate for overnight shifts versus day shifts. Employees may also be split between different programs or cost centers that require different levels of compensation as well.

Benefits

The benefits offered alongside pay are an important component of the entire compensation package. For Health and Human Services organizations unable to offer competitive pay, a well-thought-out benefits offering can still create an attractive package for potential employees. Benefits span many different areas, including health insurance, vision and dental coverage, retirement plans, life and ADD, short-term and long-term disability, FSAs and HSAs, and transportation. Not all of these offerings may make sense for all of your employees, so finding a balance of options is key to creating an attractive and unique benefits package. If you’re not sure which benefits may be most valuable or most important to employees, it can help to simply ask them directly. This will give you direct feedback to inform your plans and provide your workers with the types of compensation they want.

Non-Monetary Compensation

In addition to monetary compensation, there are also non-monetary forms of compensation. This may include things like offering flexible work hours, providing recognition or awards to employees, and cultural elements of your organization. These can add great value for your employees and can be a differentiating factor that is as important to a candidate as monetary forms of compensation.

While non-monetary forms of compensation are valuable for any organization to offer, they are incredibly important for Health and Human Services organizations in particular. Within this industry, budgets can be extremely limited, making it difficult to offer competitive pay and benefits. Further, many individuals choose careers in this field to find meaningful work that gives back to the community. However, frontline workers are also highly susceptible to compassion fatigue due to the nature of their work. Therefore, recognition becomes increasingly important as it can go a long way in helping employees feel happy and valued at the workplace.

The important thing to note when it comes to non-monetary compensation is that it’s still important to have a structured program in place. It’s all too easy to tell your management team to make sure they recognize their employees and give credit where credit is due. But it’s another thing entirely to have a system in place that enables and encourages this recognition. However, by building that system and including your entire workforce, you can incorporate your non-monetary compensation into the culture and values of your organization as a whole. These types of recognition can be as simple as enabling employees to give each other high fives or shout outs, or more structured like an employee of the month program. No matter how your organization chooses to provide these forms of encouragement, it’s important to have a structured plan in place to make it work.

Compensation Management Software

Compensation management software can greatly reduce the time and stress involved in ensuring everyone’s compensation is accurate. As we saw exploring the different types and components of compensation, it encompasses much more than just a paycheck. Having the right software in place can ensure that employees are compensated appropriately and accurately at all times. Compensation management software can help ensure employees that are eligible for specific benefits have access to enrollment, those that have options are informed about their choices, and anyone with shift differentials, eligible for overtime pay, or otherwise part of a more complex pay structure is compensated appropriately. For Health and Human Services organizations in particular, compensation management can be extremely complex and challenging to try to handle manually.

Compensation management software can also be helpful in communicating to employees. It can be easy for employees to forget about all of the indirect forms of compensation your organization offers and only think about the dollar amount on their paycheck. Communicating effectively about the benefits and other indirect forms of compensation you offer can help remind them about the many other ways your organization compensates its workforce. The right software can make it easier to provide information to the entire workforce about the different benefits and options available to them. Ideally, this is provided in easy-to-understand documents, and employees are empowered to make their selections at the appropriate time each year. This not only gives employees ownership of their compensation package, but it also alleviates the burden of leaning solely on HR to complete these tasks.

The right software can even be used to communicate non-monetary forms of communication. For example, company news stories or virtual shout outs can be incorporated into your software to provide a centralized location that your workforce can turn to for both monetary and non-monetary forms of compensation.

Completely unified HR and Payroll software from DATIS makes it easy to administer a complete compensation package. Our platform includes timekeeping that feeds information directly into payroll processing as well as benefits administration with employee self-service capabilities to learn about different options and make elections. Together, with the other features of our software, including talent management and business intelligence, our platform offers a comprehensive solution for Health and Human Services organizations. Request a demo to see our solution in action.