Here are the pros and cons for the 3 most popular compensation structures:
Pros: It’s very easy to see that the more you work, the more you earn. If you are a hard worker, you have the potential to earn even more money for working overtime, which is often at a rate of 1.5 times the normal rate.
Cons: There is very little stability. Also, if you are sick or need a vacation day, you may feel guilty and go to work when you shouldn’t.
Pros: There is more stability here and it’s easy to know exactly how much you’ll make every pay period. You are likely entitled to benefits, which can help you take off work without having to worry about making less money.
Cons: There is not much ability to increase earnings since performance reviews are often once a year. Also, you may have to work more than 40 hours a week without being compensated for it.
Pros: The better you are at your job, the more you will get paid. There is no limit to how much you can earn.
Cons: You can never be sure how much money you will make in a given month, which makes planning difficult. Sometimes, factors outside of your control will determine if you have a good or bad month.
Throughout high school, I worked summer jobs, all of which paid me hourly. The more I worked, the more I got paid. So when I wanted to leave my job picking fruits and vegetables on a local farm at noon, it meant that I wouldn’t be making money during the afternoon.
After college, my first job was a set salary for the year. There was definitely a sense of security which I appreciated.
Now, my compensation consists of a base salary in addition to commission based on a percentage of sales. There’s no limit to how much I can make, which I like. I am able to motivate myself because I know that the harder I work, the better I will do, and the more I will earn.
What payment structure do you have? Do you like it? Which is your favorite?
Updated August 23, 2015 and originally published March 26, 2012.