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To determine reasonable compensation, one must first determine the relevant components of compensation to consider. Evaluations of reason - able compensation should consider all prevalent elements provided to employees in similar positions, regardless of the actual composition of the compensation provided to the employee in question. The purpose of this article is to familiarize the reader with the most common elements of compensation provided to employees in the U.S. Considering all relevant elements is essential when conducting a market assessment as discussed in the next article.
Compensation is frequently characterized in terms of fixed and variable compensation. Fixed compensation refers to guaranteed amounts paid to an employee, while variable compensation is payments that fluctuate based on an employee's performance, a company's financial success, and goods or services sold, among others. Multiple types of compensation compose both fixed and variable pay. The types of pay provided to an employee depend, in large part, on the employee's level within the organization, job roles, and, in some cases, the industry in which the job exists.
Base salary
Base salary is typically the only guaranteed cash compensation provided to employees. Base salary is the compensation an employee receives for simply performing a job, regardless of the success or failure achieved during the employment period. The frequency of base salary payments varies by organization and job; monthly and semimonthly or bi-weekly payments tend to be most prevalent. While this is often the sole form of cash compensation received by nonexempt or hourly employees, executive employees generally receive multiple other forms of pay in addition to salary.
Base salary takes on several different forms depending on employee level. Salary is the term generally reserved for professional or exempt employees. In this case, salary payments occur on pre-established days and do not vary based on the actual time worked by the employee during the pay period. Thus, an employee with an annual salary of $120,000 who is paid monthly will receive $10,000 in salary each month, regardless of hours worked or production during the month. Conversely, hourly employees also receive pay on a regular schedule, but receive payments for only the number of hours worked during the period. Piece rate is similar to the hourly rate, but rather than payment for...