Are all employees paid in the same way? There are many ways to pay workers for their time and effort.

Compensation, payment for work performed, is generally offered in the form of fixed salaries (annual pay for a specific job) or wages (payments for hourly work). Usually, on an annual basis, an employee’s compensation level has the potential to increase based on the results of the person’s performance evaluation.

Incentive-based payment structures are better compensation strategies for some positions, such as those in sales. A salesperson typically has a lower base salary, which can be enhanced with commissions based directly on the employee’s sales levels or performance. Incentive-based compensation rewards employees who achieve strong measurable results.

Bonuses, compensation based on total corporate profits, help tie employees’ ­efforts to the company’s bottom line. Higher corporate profits mean higher bonuses.

What types of retirement plans do companies offer employees? The most popular retirement plan offered today is the 401(k) plan. A 401(k) plan is a retirement plan in which an employee invests pretax dollars in a bundle of investments generally managed by an outside investment company, such as the Vanguard Group or Fidelity Investments. The amount of the annual contribution is determined by the employee as a percentage of salary up to a specified legal limit. In some cases, a company will match a portion of the employee’s contribution to the account. A 401(k) is referred to as a defined contribution plan because the amount an employee receives at retirement depends on the amount of the contributions and the fund’s investment earnings. The burden of risk falls on employees because they decide how much to contribute to their plans and how the money will be invested.

An employer that has a pension plan regularly contributes a certain amount of money to a retirement fund for its employees. Employees know ahead of time exactly how much pension money they will receive when they retire based on their years of service to the company. A pension plan is a defined benefit plan. Defined benefit plans are not popular with employers because they entirely fund them and take on financial risks if the fund’s investments do not perform as expected.

A profit-sharing plan is a term used for a range of different types of compensation options. If the company hits certain profit targets, then there is a bonus structure for employees. Sometimes the term profit sharing is used for company contributions to an employee retirement plan. Profit-sharing plans are often offered as a part of executive compensation in larger companies, but in many small companies, they are a way to motivate employees, especially during the start-up phase when cash is tight and salaries may be low.

What other financial incentives do companies offer as compensation? Stock option agreements allow an employee to purchase a specific number of shares of stock at a specific price but only at a specific point in time. If the stock’s value increases beyond that point, the employee can reap a huge financial reward. If not, however, the employee gains little. Facebook used stock options as part of a compensation package designed to lure top engineers. When the company began selling shares to the public, the engineers were able to exercise their stock options, and thousands of employees at Facebook became millionaires as a result.8

Employee stock purchase plans allow employees to buy company stock at a discount (usually at 85 percent of their market value). Companies typically limit the amount of stock an employee can purchase this way to 10 percent of their total salary. Employee stock ownership plans (ESOPs) are plans whereby employees are given stock in a company based on the amount of time they have worked for it. The stock is held in the ESOP’s trust fund until the employees either retire or leave the company. The largest employee-owned company is Publix, a supermarket chain that tops $25 billion in sales each year. Every employee, from managers to checkout clerks, owns a piece of the company. Publix commonly places in the Forbes list of “100 Best Companies to Work For” and almost always relies on internal recruiting to promote employees. In fact, Publix president and CEO Todd Jones started there as a bagger over 30 years ago. An advantage of providing employees with ownership in a company via stock transactions is that employees feel more connected to the business and are motivated to ensure that the business succeeds.

What are noncash forms of compensation? Employee benefits are indirect financial and nonfinancial rewards employers provide their employees to supplement their wages and salaries. Some benefits are mandated by law. For example, the Affordable Care Act, passed in 2010, requires firms with more than 50 full-time employees to provide them with healthcare coverage or else pay a penalty. Other benefits are voluntarily provided by employers. Vacation time, holidays, and pensions are examples.

Some companies offer flexible benefit plans (or cafeteria plans) that allow employees to pick from a menu of several choices of taxable and nontaxable forms of compensation. Flexible benefit plans allow employees to choose the benefits that are most important to them while reducing the cost of offering all benefits to all employees.

What are work/life benefits? Work/life benefits are benefits that help an employee achieve a balance between the demands of life both inside and outside the workplace. Work/life benefits include flexible schedules, relaxed atmospheres, and child care and fitness/gym programs. For example, the SAS Institute, the largest privately held software developer in the United States, offers employees unlimited sick leave, an on-site fitness club with indoor pool, on-site car detailing, massages, and a hair salon. There are four subsidized child care centers on site and pantries stocked with free food. Although seemingly expensive, this strategy of keeping its employees happy saves the company approximately $70 million per year because it experiences low turnover. In fact, compared with an industry average of 20 percent turnover, SAS has kept its turnover rate below 5 percent.9

What are some other trends in employee benefits? In the early 1980s, the Village Voice, a free alternative weekly newspaper in New York City, began offering domestic partner benefits. These benefits provide for an employee’s unmarried partner of the same or opposite sex. Since then, domestic partner benefits have become increasingly common components of compensation packages. In fact, almost 62 percent of Fortune 500 companies offer domestic benefits to their employees.10 Benefits such as health care and family leave policies are extended to domestic partners.11

The Family and Medical Leave Act states that companies with more than 50 employees must allow all eligible employees to take up to 12 weeks of unpaid time off to be with family because of medical issues, births, or adoptions. Upon the employee’s return, the act guarantees that the employee can return to his or her job or a comparable job. This benefit compares weakly to those of other countries. At least 178 countries have laws that guarantee paid leave for new mothers; more than 50 countries offer paid leave for new fathers as well.

Rising healthcare costs are impacting businesses and bringing changes to the medical benefits employees can expect. A rising trend is for employers to provide employees with a fixed amount of money to purchase health care on their own in the marketplace instead of providing a choice of specific plans. Some companies are dropping working spouses from eligibility, requiring them to negotiate health care with their own employer.

What work schedules are possible outside of the traditional workday? An increasing number of employees are finding that keeping up with the demands of their work and personal lives has left them doing neither well. The added stress employees today face from child care, elder care, commuting, and other work/life conflicts have led to a decrease in productivity and an increase in employee absenteeism and tardiness.

As a result of these demands, more and more employers are offering alternatives to the traditional 9-to-5, Monday-to-Friday workweek. In addition to benefiting employees, flexible work schedules can also benefit employers. A study conducted by the Gallup research group looked at employees with flexible schedules who were allowed to work from home and found that they actually worked an additional 4 hours per week.12

The most popular flexible work arrangements include the following:

• Telecommuting. Telecommuting allows employees to work in the office part-time and work from home part-time or to work completely from home and make only occasional visits to the office. Cisco employees work remotely an average of two days per week, a practice that the company estimates has saved it $277 million.13 The disadvantages of telecommuting include monitoring employees’ performance at a distance, servicing equipment for off-site employees, and communication issues. Additionally, employees who telecommute can become isolated from other employees. Yahoo! used to allow telecommuting but ended the practice because its CEO believed it was leading to less collaboration and idea generation among employees.

• Alternative scheduling plans (flextime). When a company implements flextime, it specifies a core set of hours that define the workday and is flexible with the starting and ending times employees can work.

• Compressed workweek. A compressed workweek allows employees to work four 10-hour days instead of five eight-hour days each week or nine days instead of 10 in a two-week schedule for a total 80 hours. However, firms need to check their state labor laws. Many states, for example, prohibit minors from working in excess of eight hours per day.

• Job sharing. Job sharing is an arrangement in which two employees work part-time to share one full-time job. Those who share a job are often motivated to make the arrangement work, and productivity and employee satisfaction can increase. However, job sharers must carefully coordinate and communicate with one another and their employers to ensure that all of the responsibilities of the job are met.

• Permanent part-time. Permanent part-time employees are hired on a permanent basis to work a part-time week. Unlike temporary part-time workers who are employed to meet a firm’s short-term needs, permanent part-time employees in some firms enjoy the same benefits full-time employees do.

What benefits do employers see from supporting alternative work schedules? Despite the costs associated with designing and implementing flexible working arrangements, employers can expect positive bottom-line results as a result of increases in employee satisfaction, decreases in absenteeism, and increases in worker productivity. Similarly, reductions in employee turnover lead to a decrease in time and costs associated with employee recruiting and replacement training.

Why does a company hire contingent workers? Contingent workers are people who are hired on an as-needed basis and lack status as regular, full-time employees. These workers often fulfill important and specific functions. Contingent workers are most likely hired by companies in business and professional services, education and healthcare services, and construction industries. Companies hire such temporary workers to fill in for absent employees or augment the staff during busy periods. Long-term temporary employees are often hired for indefinite periods of time to work on specific projects. In many cases, temporary staffing is part of a company’s HR “temp to perm” strategy in which temporary employees are evaluated and then moved to permanent positions if they are found to be reliable and skilled.

Independent contractors and consultants are examples of contingent workers who are generally self-employed. Companies hire them on a temporary basis to perform specific tasks. Often, contractors are hired for jobs that involve state-of-the-art skills in construction, financial activities, and professional and business services. For example, it might be most cost efficient to hire a web page developer as an independent contractor rather than keeping one on staff permanently. Consultants are hired to assist with long-term projects, often at a strategic level, but also with a specific end in sight. For example, a company that is reviewing its executive management compensation arrangements might hire a compensation consultant.

Is temporary work a common situation for people? The U.S. Bureau of Labor Statistics estimates that the temporary workforce accounts for more than 2 percent of the U.S. workforce.14 Temporary staffing is a $70 billion industry. Kelly Services and Manpower are two prominent temporary agencies. Temporary workers often get the opportunity to work in many different companies, do different jobs, and meet numerous people. Recent college graduates and college students may find that temporary work is a good way gain real-world experience in an industry they are interested in pursuing on a full-time basis and see if the companies they are temping at are employers for whom they would like to work full-time. But temporary workers are often paid less than full-time workers and are less likely to receive benefits. The temporary agencies they work for may provide them with some benefits, however.

How can employees increase their levels of responsibility in a company? After performing successfully in a position, many employees look to increase their responsibility levels and pay in a company or a department by seeking a promotion. Employers like to promote from within because it allows them to reward exceptional behavior and fill positions with tested employees. However, a promotion may not always result in a positive situation if it was made in secrecy or arbitrarily. Sometimes employees are promoted to new positions without other employees being given a chance to apply for them, which can lead to hard feelings. Therefore, management must ensure that promotions are based on a distinct set of criteria, such as seniority or competency, and that HR protocols are followed.

Do promotions always move you into management positions? Consider an engineer who succeeds on the job but has no desire to manage. Some companies provide two career paths: one toward management and the other for “individual contributors” with no management aspirations. Engineers with a desire to manage can pursue one track, and other engineers without managerial aspirations or capabilities can be promoted to “senior engineer” positions. Alternatively, it’s always possible to keep employees in their same job but give them more responsibility, thus enriching their experience while continuing to prepare them for further advancement.

Why do companies lay off workers? At times, it becomes necessary to reevaluate an employee’s contribution or tenure at a company or the composition and size of the workforce altogether. Downsizing and restructuring, the availability of outsourcing and offshoring, the pressures of global competition, and the increased uses of technology are also reasons companies look to reduce the number of employees. Termination refers to the act of permanently laying off workers resulting from poor performance or a discontinued need for their services. Companies often offer a set of benefits for terminated employees, including the continuation of healthcare coverage for a period of time, severance pay, and outplacement services, such as résumé writing and career counseling.

Terminating employees as a result of poor performance or illegal activities is a complex process. Most states support employment at will, a legal doctrine that states that an employer can fire an employee for any reason at any time. Likewise, an employee is equally free to resign at any time for any reason. Regardless of the employment-at-will doctrine, employers cannot discriminate or fire someone because of the person’s race, religion, age, gender, national origin, disability, or childbearing plans. In addition, companies cannot terminate employees for whistle-blowing (revealing company wrongdoing to authorities), engaging in legal union activities, filing a worker’s compensation claim, performing jury duty, or testifying against a company in a legal proceeding.

How does a manager prepare to terminate an employee? Before firing an employee for wrongful acts or incompetence, managers must take steps to avoid a wrongful discharge lawsuit. These steps include maintaining solid records so that they can build a documented case for dismissal that’s legally defendable. Courts have sided with the terminated employee, especially when not enough evidence of poor behavior is brought forth. Hearsay and rumors of wrongdoing often do not stand up in legal proceedings. Consider Monique Drake, a medical secretary in the same physician’s practice for 12 years. The doctor married, and his new wife began running the office. This new office manager told Drake that because of poor performance, her salary was being cut from $54,000 to $40,000, her sick days would be eliminated, and her vacation time would be cut. A month later Drake was terminated. She sued and won her case for wrongful dismissal. Part of the reason why she won was because there was a lack of documentation showing that her performance was weak and because her employers clearly had no ongoing discussion with her about improving her performance.15

Is there a set age when employees retire? It Retirement is the point in one’s life where one stops participating full-time in a career. It used to be that employees retired when they were 65 years old. However, the legal age at which workers can collect Social Security is gradually rising. Workers born after 1959 must now work until age 67 before then collect it.

Many older employees are continuing to work to stay active and engaged and remain on their firm’s healthcare insurance plans. Other employees are remaining on the job because they haven’t saved enough money to retire or their savings haven’t grown as much as they hoped for as a result of the last recession. One impact of this shift in workforce demographics is that younger employees are experiencing greater competition for jobs and promotions than they have in the past.

For employers, an aging workforce may present other challenges, such as age-discrimination lawsuits if they aggressively lay off older workers. To encourage older workers to retire, some companies offer them worker buyouts (or golden parachutes), which are one-time payments to leave a company. For example, in recent years, the U.S. Postal Service has offered its employees several buyouts to reduce its operations and costs. Phased employment is another option. Longtime employees are moved to part-time basis for a period of time and then shifted into retirement. That practice offers the company the chance to avoid a sudden draining of experience from the company.