5 of the Best Compensation Options for Your Team

In 2025, benefits accounted for 31.4% of company compensation costs per civilian employee in the US, and salary for the remaining salary 68.6%. Coupled with the fact that, according to a recent BambooHR survey, 83% of employees wish their company offered more benefits, it’s clear there’s more to a healthy compensation strategy than just base and variable pay.

Your compensation strategy is vital to improving retention, attracting talent, and aligning company culture. And with 50% of employees struggling to make ends meet, it’s down to HR professionals and business leaders to make the right choices to protect and support their workforce.

In this guide, we’ll explore five key compensation options and how best to balance base pay with variable pay, equity, benefits, and non-monetary compensation.

Why you should look at your compensation strategy

Compensation strategies have evolved alongside changing employee needs and employment laws and regulations. For example, state-imposed minimum wages and insurance benefits often fluctuate, alongside a general improvement and increased awareness of employee welfare. All businesses need to progress and remain flexible in the face of these social and legislative shifts.

For nearly all employees today, basic base pay, benefits, and often bonuses are expected. However, there’s now a shift towards businesses needing to provide more flexible and extensive benefits, non-monetary comp perks and incentive structures to retain and engage employees.

This isn’t just to meet employee expectations—or solely for your employees’ benefit—but so your business can stand out to top talent. It’s best to offer perks that everyone can benefit from, rather than approaching with a one-sided strategy.

For example, you may want to offer complimentary office snacks, breakfast, or lunch, but you also need to be mindful of your remote employees. They can’t benefit from this perk, so you’ll need to find another way to balance out their compensation. Vouchers for their favorite coffee chain, maybe, and an online hang-out?

What compensation options should I include in my strategy?

Generally, there are five different compensation types to include in your overall strategy. Finding the right balance between these is crucial and should depend on your business processes and independent workforce.

These include:

• Base pay: Also called a base salary, this is the “basic,” fixed amount of money an employee earns for their work. This doesn’t include benefits, bonuses, commission, or overtime.
• Variable pay: Paid in addition to a base salary, performance-based compensation fluctuates based on individual, team, or business performance—for example, bonuses and commissions.
• Equity: A form of investment that represents part-ownership in a company, like stocks, shares, and bonds, equity is also increasing in popularity.
• Benefits: Also known as fringe benefits, this includes non-salary pay such as health insurance, pensions, and paid leave.
• Non-monetary compensation. Perks and rewards that provide value to employees without direct cash value, like flexible or remote work can be considered a type of benefit, but non-monetary comp focuses more on improving employee wellbeing.

Base pay: The foundation of your compensation strategy

Base pay is the salary or hourly wage you pay your employees before any taxes, deductions, or extras like commissions and bonuses. It's the basic salary your employees earn, and probably what will initially attract them to a job at your company—and keep them there.

Because you compete for top talent,, it’s important to benchmark the base pay you offer for each role against your competitors to ensure your salaries are attractive. However, you also need to consider any additional benefits you provide and your business's financial ability.

Everything is built on this initial base pay strategy. You’ll need to decide what type of salary structure works best for your business, the roles on offer, and the employees you want to attract.

What affects base pay?

The base pay you offer will depend on several factors related to both your business and your employees. For example, the following factors usually impact base salary in specific ways:

• Location: Positions in major cities or metropolitan areas often pay more to cover higher living expenses.
• Experience: An individual’s professional experience, qualifications, and performance record should directly reflect their salary.
• Role and responsibilities: The more senior the role—and, usually, the more specialized skills required—and the greater the responsibility, the higher the salary.
• Company size and net profit: The bigger and more profitable the business, the higher the base pay.
• Performance: Strong, consistent performance is usually rewarded by promotions or merit increases and higher salaries.

Variable pay: Motivational compensation

Also called performance-based pay or a pay-for-performance model, variable pay is linked to and influenced by employee performance, goals and targets met, and business results. It often includes bonuses, commissions, and incentive plans, meaning employees earn more based on whether they hit specific targets or the business exceeds certain goals.

Variable pay is considered good for sales-based businesses that depend on employee performance and individual customer conversions to make a profit. It can also work well for independent or small businesses that may only be able to offer incentives in times of high performance.

As variable pay is, well, variable, it’s not something you can guarantee or put a specific number on when hiring.

Equity: The compensation strategy for encouraging long-term retention

This compensation type typically involves employees having a stake in the company. Equity itself can take the form of stocks, shares and bonds, meaning employees have technical part-ownership of your business, even if only a tiny percentage.

The idea is that, as the business grows, employees benefit from equity returns. Essentially, they can buy business stocks and shares directly, be given them as a bonus (or type of compensation), or be placed on a profit-sharing plan.

Equity is a great way of aligning employee interests with company success, acting as a retention and productivity incentive.

How do stock options work as compensation?

• Grant: A business rewards a specific amount of equity (often in the form of stocks and shares) to employees.
• Vesting: These shares are “earned” over time. This means that employees gradually earn the right to the equity after a certain period, beginning after one year (the “cliff”).
• Exercise: Employees then have the option to “exercise,” or purchase, their vested options to convert them into actual shares.
• Sale: They can then hold onto or sell their shares as they wish.

Benefits: An essential part of any compensation strategy

Benefits are often expected compensation options that employees look for on top of a good base salary. What you want to—or must—offer will differ depending on state regulations (for example, regarding paid sick leave), your business processes, and profit.

Bear in mind that not every employee wants or requires the same benefits. You’ll also need to regularly review and update your benefits plans and offerings to ensure everything is up to date and competitive.

Examples of popular benefits employers can provide include:

• Health insurance
• Retirement plans like (401ks)
• Paid vacation days
• Paid sick leave

Non-monetary compensation

Non-monetary compensation may be considered a benefit, but this focuses more on improving quality of life, wellbeing, and employee satisfaction. As the name suggests, this type of compensation doesn’t usually have a direct cash value.

Some ideas for non-monetary comp benefits include:

• Flexible working arrangements: Allowing your employees to work remotely or in a hybrid arrangement is another way to help them build a work-life balance.
• Learning and development opportunities: Options like professional training, tuition reimbursement, or paying or to complete a qualification can be attractive benefits.
• Free breakfasts and lunches: Providing free food for your employees shows you care, while taking some financial pressure off their day-to-day.
• Recognition and rewards: Meaningful recognition often doesn’t cost a thing—but it can go a long way in fostering company culture, employee engagement, and retention.

When to offer non-monetary compensation

When you choose to provide non-monetary comp benefits is up to you. However, you want to find a good balance between regularly rewarding and compensating employees and ensuring recognition remains meaningful, rather than an afterthought.

It’ll also depend on whether you:

• Have enough budget
• Want to ensure high performers stay in the business
• Are struggling with employee retention
• Notice periods of employee burnout
• See employees are performing particularly well

The rise of flexible and non-cash compensation

Employee sentiment and expectations continue to change. With wellbeing and work-life balance now major priorities alongside monetary compensation, businesses need to adapt to this shift to ensure satisfaction and retention. In fact, 24% of individual contributors (ICs) say they would even take a pay cut for benefits like staying remote.

Employees are looking for balance—they want workplace flexibility as well as a strong wage and benefits. And, while every worker is unique, everyone wants and needs to prioritize their own wellbeing and non-professional life to truly be satisfied and productive at work.

Providing non-monetary perks helps build this balance and foster a sense of belonging. Your employees need to know you see them as people, not just worker bees.

Evaluate your compensation options

A good compensation strategy combines all of the above options: base pay, variable pay, equity, benefits and non-monetary perks. But how you build that balance depends on both your business and your employees. For example, if you’re a smaller business with a lower budget, you might lean on non-monetary comp options rather than offering equity or large bonuses.

With this in mind, try to:

• Choose your mix based on business stage, budget, and goals
• Layer different compensation types to align incentives and attract target talent
• Track and communicate how employees feel about your current strategy
• Use compensation as a retention lever, not just an expense.

Whatever the size of your business, building the right compensation strategy is essential. The right compensation software allows you to manage all your processes in one, all-inclusive platform. From employee benefits, time off tracking and payroll, find everything you need, all in one place.