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. Last Updated: 07/27/2016

Effective Compensation Package: Avoiding Mistakes

An effective compensation package is a necessary ingredient to make your business or your company a success. There are many conditions that employers can offer to make the employees satisfied, if not happy. However, employers should be aware of possible common mistakes and should try to avoid them.

As with any other contract terms and conditions, the employment conditions must comply with the legislation requirements. Employers should not violate the effective rules and principles and not reduce the level of rights and guarantees granted to the employee under the labor legislation. Employment contracts must be correctly executed and secured in legal terms.

As known, everything paid by the employer for labor is called "wages." Wages is a generic term and covers a fixed salary as well as bonuses. The amount of the wage should be stipulated in the employment contract. Employees of the same qualification are supposed to be paid equally. Different wages for identical work are inevitably discriminatory.

Unlike many other countries of the world, here in Russia wages are paid in rubles twice a month. First we receive an advance payment, and then the remaining amount of our salary.

In the event of late payment of wages, an employer should pay interest in the amount of 1/300 of the refinancing rate. Should wages be two weeks in arrears, an employee may claim idle time.

A "bonus" is what we usually call an extra payment awarded by the employer for, among other things, successful plan fulfillment (sales or hours worked, for instance), high-quality work, timely arrival at work, performance of additional duties, or the attainment by the company of a certain percentage of profits.

The employer has flexibility in terms of timing: bonuses may be awarded monthly, twice a year, once a year or every two or three years.

The employer also has complete freedom to choose the ways, amounts and conditions for awarding and paying incentives to employees. However, all incentive payments should be connected with work performance and not be discriminatory in nature. The conditions, procedure and size for payment of bonuses should be set in an internal by-law (such as an employee payment regulation) in the collective bargaining agreement or the employment contract. The more clearly and precisely all the conditions for awarding and paying incentives are determined (in the event of forfeit of a bonus), the easier it will be consequently to resolve possible disputes.

The conditions of local regulatory acts may be amended only going forward. Each employee should get acquainted with the normative acts of his employer.

Technically speaking, "compensation" is a little bit different. Compensation covers 100 percent payment for sick notes, as well as additional payments in connection with birth of a child, marriage, serious illness, death of a close relative, and other things.

We should see the difference between those compensations that an employer may pay independently and those that are supposed to be paid according to the Labor Code. The Labor Code stipulates, for instance, that compensation should be paid for overtime work, hardships, or combination of professional responsibilities. Special forms of payments exist for those working in the cold climate of the Russian Far North or similar territories. Respectively, regular wages of such workers get a significant increase thanks to such compensation. The employer cannot overlook or ignore the demands of the Labor Code, and before introducing any individual bonuses in his company, he should be sure that similar compensations are not stipulated by the legislation. Types and amounts of compensations that are introduced by the employer should be reflected in a local legislative act, collective bargaining agreement or labor contract.

A good employer should never forget about "personal development and employee training." Training of an employee at the company's expense may make your staff happy as well as bind the employee to the company both during the training period and for some time afterward.

Do not forget to conclude an agreement on training, if you think you should secure the company's investments. An agreement on training at the company's expense may envisage a mandatory period during which the employee must work in the company after completing his training. It may also contain a provision saying that on termination of labor relations (on the initiative of the employee or in connection with poor performance of duties), the employee pays back the cost of the training (in full or in part).

Other benefits may include targeted loans, free meals at work, voluntary medical insurance, life insurance and corporate pension plans.