Satisfaction guaranteed: How to prioritize the financial and non-financial components of your compensation strategy

August 19, 2025

Drew Maginn

When it comes to compensation planning, the default thinking can be that your pay strategy or salary structure are the only components that really matter. But compensation design has evolved and most companies can no longer rely on financial incentives alone. Many are now adopting a total compensation model, or total rewards approach, which recognizes that, while salary and benefits are important, it’s the totality of an employee’s experience that determines whether your workforce remains committed, happy and productive.

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What is a compensation strategy?

A compensation strategy or, better yet, a total compensation strategy, includes everything a company offers an employee as part of their work arrangement. A total compensation strategy has become popular as a more robust system that prioritizes both financial and non-financial components as levers for managing employee satisfaction in their jobs. Multiple studies show that total compensation strategies have proven benefits such as easier recruitment of high-quality employees, lower turnover, improved performance and a better company reputation.

What are the key financial components of a compensation strategy?

The financial components of a compensation strategy include compensation (base pay and variable pay) and benefits. Your compensation strategy starts with determining the base pay across different jobs. Base pay forms the foundation of your strategy, as it directly impacts the standard of living for your workforce. Your base pay should reflect your company’s compensation philosophy and the labour market in your specific industry, as well as buy-in among your senior leadership team. This will determine whether you pay above market (“lead” philosophy), at market (“match” philosophy) or below market (“lag” philosophy).

After base pay is established, companies often use variable pay, including bonuses, commissions and profit-sharing or employee ownership plans, to elevate their pay structure. Variable pay serves many purposes, including:

Improving business performance
Keeping financial compensation competitive
Allowing for greater recruitment, engagement and retention of employees

Lastly, a competitive benefits program rounds out the financial component of your compensation strategy. Beyond the basics, such as health and dental benefits, many companies are expanding their benefits programs to help differentiate them from their competitors, which can include employee assistance programs, employee wellness programs, flexible work arrangements and full or partial coverage of training or professional designation costs.

” Multiple studies show that total compensation strategies have proven benefits such as easier recruitment of high-quality employees, lower turnover, improved performance and a better company reputation. ”

What are the key non-financial components of a compensation strategy?

While the financial side of compensation will always be a driver of employee recruitment, engagement and retention, there are several non-financial components that can help differentiate you from others, especially when your financial components are comparable to other companies in your industry. These include the below.

Feedback, development opportunities and advancement: Employees value regular feedback loops, training to develop new skills and opportunities for career advancement.
Status, recognition and work importance: Employees want to feel respected and valued by their manager and colleagues, as well as feel that their work is making a greater contribution to society.
Control and autonomy: Depending on their level of seniority, employees value the ability to directly influence the work of the company or, for those who just joined, to have control over managing their own workload.
Workload and work variety: Speaking of workload, maintaining the right balance of work – not too little and not too much – can keep employees engaged. Having the opportunity to be exposed to different work experiences, such as temporarily covering for others while they are away, allows employees to gain a better understanding of how the company operates and potential areas of interest for future mobility, too.
Security and work conditions: Employees want to feel safe and secure as it relates to both having a stable job within the company and experiencing physical safety while performing day-to-day tasks.
Social interaction: While sometimes underappreciated, employees who regularly interact with others in a friendly work environment often report higher overall job satisfaction.

Why is compensation benchmarking important?

To remain competitive, all companies should commit to regular compensation benchmarking across both financial and non-financial components of their compensation strategy. All benchmarking should consider internal equity, which ensures your workforce sees that comparable jobs are being compensated fairly within your company, as well as external equity, which ensures your compensation is competitive with other companies in your industry.

Depending on the resources of your company, benchmarking could include a thorough job analysis and job pricing exercise or a more simple comparison using available sources of compensation data like the below.

To stay informed on non-financial components, research compensation trends in your industry and utilize formal and informal employee feedback processes. Once you understand what’s going on within and outside your company, you may consider implementing some strategic changes. This could include improving working conditions for your employees, allowing for more flexible work arrangements or prioritizing career management practices to show employees their path forward within your company.

At one time, compensation was often reduced to the title on your business card and the number on your pay stub. But as we continue to gain a greater understanding of what factors motivate employees to join, perform at and remain with a company, our understanding of what makes a competitive compensation strategy continues to evolve.

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