Direct compensation is the financial compensation, or cash, given from the employer to the employee for their services.
Base pay
Base pay (also known as basic salary or base salary) refers to the fixed financial amount that an organization pays its employees in exchange for the services they perform. This amount is negotiated during the hiring process and agreed upon before the employment contract begins. It is typically an annual or monthly salary or an hourly rate.
Overtime pay
Overtime pay is the amount of extra pay an employee receives for working extra hours on top of their scheduled contract hours.
Every company should establish a set of normal working hours to clarify overtime. For example, if the normal working week hours are 30, then an employee who works 40 hours is eligible for overtime pay for those additional 10 hours.
All employees covered by The Fair Labor Standards Act (FLSA) – nonexempt employees – who work over 40 hours per week are eligible for overtime pay. The Federal Overtime law states that employers must compensate workers at least time and a half for the overtime worked.
Variable compensation
Variable compensation (also known as variable pay) is compensation given to an employee that is based on performance. The aim of variable compensation is to reward and encourage a specific behavior or result.
These pay programs are typically implemented with sales teams and are often given in the form of bonuses and commissions. For example, if an individual employee achieves a professional milestone, an entire team meets a goal, or the entire company meets a specific target, then those people are rewarded accordingly.
These performance goals will be pre-determined and outlined with a target date. There may also be a range of payouts, which is based on how close the results are to the original target.
Sales compensation
A sales compensation strategy is often used to motivate a sales team to achieve its goals. It will typically comprise a base salary and be topped up with commissions, bonuses, and other performance-based incentives, all of which are tailored to the role and company in question.
In this form of direct compensation, the base salary will often be minimal, while the commissions and bonuses are lucrative. That is to incentivize employees to achieve certain performance goals and contribute to the success of the company.