Why is Indirect Compensation Important to Recruiting and Retaining Employees?

In today’s job market, over 40% of workers said they could be convinced to leave their current position for a pay raise of just 5%.¹ Thus, providing competitive pay and compensation is necessary for companies that want to strengthen their employee recruitment and retention.

While base salary is a crucial consideration, it’s not the only form of employee compensation. Indirect compensation, such as employee benefits and other non-monetary perks, can also attract qualified applicants and entice them to stay at your company for the foreseeable future.

So, why is indirect compensation important to recruiting and retaining employees? Below, we’ll explore this question and suggest ways to take a more strategic approach to your company’s employee benefits package.

What is Indirect Compensation?

To start, let’s define the differences between a direct vs. indirect compensation strategy:

• Direct compensation is monetary payment for an employee’s work contributions. It can take the form of hourly wages, salaries, commissions, bonuses, and overtime pay.
  
• Indirect compensation doesn’t involve any exchange of money. Instead, it provides employees with worthwhile benefits and other non-monetary perks.

Some types of indirect compensation, such as pension plans or workers’ compensation insurance, may be legally required in certain countries. Many others are optional for employers.

By providing a generous indirect compensation package, you can distinguish your job offerings from other employers.

Types of Indirect Compensation

Companies can provide many types of indirect compensation to help their job listings stand out. Some compelling examples include:

• Hybrid and remote work
• Benefits packages
• Flexible working hours
• Professional development opportunities
• Wellness and hygiene programs
• Paid time off

Hybrid and Remote Work

In recent years, hybrid work has become many employees’ most preferred form of indirect compensation.² Nearly all employees enjoy being able to work from home on occasion, whether that’s a few days a week or all the time.

In some reports, this perk outperforms pay raises—22% of employees said they would be willing to take a pay cut to switch to a fully remote schedule.³

Meanwhile, in-office workers with remote-capable jobs have displayed the lowest engagement levels of any group since 2020, showcasing the negative consequences of denying workers the option to work hybrid or remote schedules.⁴

By offering hybrid or remote work in your indirect compensation plan, you can satisfy job seekers’ preferences and simultaneously boost employee engagement and retention. Make sure you also develop the correct remote work compensation strategy for these employees.

Benefits Packages

Employees are also looking for competitive benefits packages as they consider taking on a role at any company. In fact, nearly 60% of employees stated that the benefits offered are their first consideration when examining a job.⁵ Most competitive benefits packages offer things like:

• Health insurance
• Pension contributions
• Accident insurance
• Illness insurance
• Disability insurance
• Insurance that pays out to family in the event of death

If offered benefits such as these, many employees may even accept a lower base salary.

Flexible Working Hours

While employees like to work where they want, they also appreciate the flexibility to work when they want—nearly 60% of surveyed employees value flexible work schedules.⁶ Here’s why:

• 56% say it makes it easier to integrate their personal and professional priorities.
• 44% say it reduces stress.
• 40% claim to be more productive at specific times.

Thus, giving workers the freedom to personalize their work hours can do wonders for employee satisfaction and productivity, reducing employee turnover.

Professional Development Opportunities

If an employee can’t envision a fulfilling future at your company, they may start looking for job opportunities elsewhere. You can provide your employees with a clear career path at your company by offering professional development opportunities, such as mentorship programs and upskilling workshops.
Over 90% of surveyed workers said that well-planned training and development programs improved their engagement.⁷ What’s more, 45% said they would stay at an organization longer if it had professional development programs.⁷

Establishing these types of programs is a win-win for your employee engagement and retention.

Wellness and Hygiene Programs

From gym memberships and meal vouchers, to counseling services, it pays off to invest in your employees’ physical and psychological well-being. In addition to providing practical support, these programs show your employees that you value them, increasing the chances that they’ll stay loyal to your company. Thanks to these benefits, nearly 90% of employees with wellness programs feel more engaged and happy at work.⁸

Paid Time Off (PTO)

PTO allows employees to enjoy some free time from work while still receiving their scheduled compensation. Employees can use PTO for a variety of reasons, from going on vacation to attending family obligations. Some companies allow employees to accrue more PTO throughout the duration of their employment. In contrast, others provide their employees with unlimited PTO from the start to set their job listings apart.
While these types of compensation won’t be reflected in employees’ paychecks, they’re still coveted forms of compensation. Offering the right combination can help you curate a more positive work environment and a winning company culture. Better yet, you can increase your workers’ productivity and long-term commitment to your company.