What is

Compensation Planning


This term refers to the process by which companies plan and prepare their compensation strategies. Read the full glossary term definition with Borderless.

Compensation planning is a critical component of every successful organization. It involves the strategic design and implementation of a structured system to reward employees for their contributions, skills, and dedication. 

An effective employee compensation plan attracts and retains top talent. It also motivates employees to perform at their best, fostering a positive work culture and driving organizational success. 

Defining Compensation Planning

Compensation planning is a process during which a company prepares a robust strategy to fairly compensate employees. A compensation plan includes more than just wages, but also other rewards, such as: 

  • Benefits 
  • Incentives 
  • Perks 
  • Bonuses 
  • Commissions 
  • Equity 
  • And more 

Compensation programs can vary significantly by industry, location, role, and other factors. 

Elements of Compensation Planning

Striking the right balance between the various types of compensation ensures that employees feel valued by their organization. A well-rounded package will include a base salary, benefits, and other recognition programs. 

Remember, investing time and effort into compensation planning is an investment in the success and growth of your organization.

  1. Base salary: The foundation of any compensation package is the base salary, which represents a fixed amount paid regularly to an employee for their work. Factors like job role, experience, education, and market rates typically influence the base salary.
  2. Variable pay: Variable pay or performance-based pay is an additional component of compensation planning. It is usually contingent on achieving certain goals, targets, or key performance indicators (KPIs). This can include bonuses, commissions, profit-sharing, and stock options.
  3. Benefits and perks: Beyond monetary compensation, companies must offer certain benefits to employees. These include paid time off, sick leave, and social security contributions. They may also provide additional voluntary benefits like health and wellness programs, flexible work hours, and professional development opportunities. 
  4. Recognition and rewards: Recognition and rewards play a vital role in compensation planning. A well-designed employee recognition program acknowledges exceptional performance and reinforces positive behavior, boosting morale and engagement.

Importance of Compensation Planning

Compensation planning is crucial for any company’s human resources strategy, offering important benefits to employers. 

Attracting Top Talent
As companies compete for top talent, well-crafted compensation packages can be the game-changer to attract high-skilled professionals. By building a package that talent can’t refuse, you’ll stay ahead of the game. 

Increasing Employee Retention

Retaining experienced and high-performing employees is equally crucial for the long-term success of any organization. An equitable and competitive compensation package helps create a sense of loyalty and commitment among team members, reducing turnover rates.

Motivating Employee Performance

Compensation planning directly impacts employee motivation and productivity. By linking rewards to performance, employees are encouraged to put in their best effort and achieve individual and organizational objectives.

Fostering Positive Work Culture

Employees who feel fairly compensated and appreciated are more likely to have higher job satisfaction and morale. This positive work culture can lead to better collaboration, innovation, and a harmonious work environment.

Build Compliant Compensation Packages with Borderless 

No matter your industry or location, Borderless can help you build compliant compensation packages in 170+ countries around the world. Book a demo today to find out more.