Reward and recognition it is the human resources function that designs and manages everything an employee receives in return for their work: base salary, variable pay, benefits in kind and non-monetary benefits.
Their objective is not just to pay, but to do so in a way competitive in the market and equitable within the company, at a sustainable cost.
In this guide we look at what the concept includes, what types of compensation exist, how to design a plan step by step and how to measure if it works.
It is the HR area responsible for defining how much, how and in what way a company remunerates its workforce. It covers the salary structure, performance-related incentives, benefits in kind and working conditions that add value without being monetary. Its function is to align personnel costs with the ability to attract and retain talent.
It works along two axes that often come into tension:
A well-structured plan addresses both at the same time. One built up through a series of ad hoc decisions tends to fail in the second respect without anyone realising it until a conflict arises.
Total compensation is the total remuneration received by an employee for their work, not just their gross salary. Add together monetary remuneration, benefits in kind, perks and intangible elements such as flexibility, professional development or recognition.
It is the usual frame of reference in compensation management because the gross salary alone rarely explains why someone accepts or rejects an offer. Two offers with the same gross salary can have a notable difference in disposable income and quality of life depending on what surrounds them.
Working on a full-pay basis has one practical consequence: it requires non-salary benefits to be expressed in euros. If the company does not disclose the value of what it provides in addition to the salary, the employee perceives it as zero.
They are grouped into four categories, which are distinguished by how they are paid and how they are taxed:
Here is the most common classification error, and it is worth pointing this out as it has tax implications: the meal voucher, childcare or health insurance they are not financial remuneration, they are benefits in kind. The difference is not terminological. Benefit in kind has its own tax treatment under Article 42 of Personal Income Tax Law 35/2006, with exemptions and limits that monetary remuneration does not have.
What specific products fall into that category, along with their exemption limits, in social benefits for employees. And which part contributes to National Insurance and which part does not, in benefits and National Insurance contributionsl.
Five steps: define the remuneration philosophy, analyse the current structure, decide the mix, select the benefits and establish the review cycle. The compensation plan is the complete framework; the benefits catalogue is just one of its components.
1. Define the retributive philosophy
Before any figure, you have to answer where the company wants to position itself in relation to the market: in the middle, above it, or compensating for a lower salary with other elements. That decision conditions everything else and it is best that it is written down and approved by management.
2. Analyse the current structure
Review salary bands by level and function, detect overlaps and out-of-band positions, and measure internal dispersion. It is the step that is skipped the most and the one that prevents the most problems: it is difficult to design a new plan without knowing what imbalances the current one carries.
3. Decide the mix
What proportion of the package goes to fixed remuneration, how much to variable, and how much to benefits. The balance depends on the sector and the type of role: a sales profile can support a high variable component which, in a support role, would create insecurity without improving performance.
4. Select the benefits
This is where the benefit-in-kind is specified. The rule of thumb is to prioritise frequently used benefits over sporadic ones, and to cross-check this choice with the actual preferences of the workforce rather than assuming them: which benefits are valued the most.
The detailed design of the catalogue – which products, with what limits, and how to implement them – is developed in the employee benefits guide.
5. Establish the review cycle
A compensation plan is not a document, it is an annual process: who reviews, with what data, at what time of year and with what budgetary margin. Without a defined cycle, the plan erodes within two financial years.
Benefit-in-kind remuneration allows increase the employee's disposable income without raising the gross salary, because certain products are totally or partially exempt from personal income tax under Article 42 of Law 35/2006. For the company, they are deductible in Corporate Income Tax as a staff expense.
There are two ways to include them, and the choice affects the cost of the plan:
The two can be combined into a mixed model. The full comparison between the two, including their limits and disadvantages, is in difference between employee benefits and flexible remuneration.
With four indicators: market competitiveness, internal equity, benefit adoption and its effect on turnover.
Adoption is measured from the first month. The other three require at least one full annual cycle to provide a reliable reading.
Reward and benefits works when it is designed as a system – philosophy, structure, mix, catalogue and review – and not as a collection of random decisions. Benefits in kind are the lever that allows you to improve what the employee receives without increasing salary costs, but they only deliver results if they fit within a defined framework.
If you want to incorporate benefits into your compensation plan, you can check out our employee benefits solution for businesses or Contact us.
Human Resources professional with a solid track record in talent management and a strong commitment to optimising the employee value proposition. Throughout my career, I have had the opportunity to develop my expertise in international environments and consulting firms, specialising in talent attraction and retention through advanced strategies such as flexible remuneration. Currently, as Key Account Manager (KAM) at Edenred, I collaborate closely with major clients to design and implement strategic compensation and benefits solutions that enhance corporate well-being and organisational engagement.
