This is usually the single largest component of a compensation package. Salary should be tied to a person's skills and experience. Subsequent increases need to be based on an employee's performance, value and contribution to an organization. Typically, companies perform annual performance evaluations. Each position should has its own discrete salary range which follows from the job evaluation. The range has a minimum, which is the lowest rate the company will pay an employee in the position; a job rate, which is the rate paid to an employee who is fully developed and performing at a satisfactory level; and a maximum, which is the highest rate the company will normally pay an employee in the position.

While there is a minimum wage set by federal law for most jobs, the actual wage paid is entirely between you and your prospective employee. Companies update the salary structures depending on market movement. Consult salary surveys and trade association to learn the most current practices, cost ratios and profit margins in your business field and to set them at the right price. Wage levels are calculated using position importance and skill required as criteria. Salary structures and its pay ranges are not static. Another reason why salary structures may change is restructures or downsizing. If the organization changes, the salary structure should reflect those changes.

Understanding your company’s salary structure and your position in it gives you a clearer picture as to where you’re standing and what you can do to move either up the ladder or outside to be paid fairly. Remember that salary structures and pay ranges are only reference points. Your skills and performance can have an impact beyond this reference.

When a person is promoted or a position is reclassified to a higher job rate you should review the individual's salary and make a recommendation to the owner or person in charge. The salary review should include an examination of the individual's qualifications and experience in the context of the new or revised requirements of the position. The salary will not be less than the minimum of the salary range for the position.

Health insurance. Benefits that have great value to employees. Employer-sponsored health insurance that gives them peace of mind in knowing that they won't be denied coverage, even if they have existing health problems.

Life and disability insurance. This is also a benefit that usually costs less when it's purchased by an employer rather than an individual.

Other compensation
Other incentives motivate employees and give your company a competitive advantage such as employee assistance programs, which can provide everything from psychological counseling to legal assistance; discounts on company products; use of a company cars; clothing allowance; tuition reimbursement; weight loss programs; gym subsidies.

There are a number of Web sites that help you supplement your benefits package. Sites like BenefitsLink.com can help employers create compensation programs for their employees.

How to Developing Vacation and Sick Leave Policies
When developing sick leave and vacation policies for your company, there are some things you must do, because you're required to by law, and some things you should do, because they'll help you retain your top people.

First, you have to check the legalities. Beyond your legal duties, you should adopt policies that make sense for your employees and your business. Good benefits are a key component of employee satisfaction and retention. Traditionally, companies have set up programs where employees get a certain number of days for paid sick leave and a certain number of days for paid vacation. This type of plan is easy to institute; you simply decide how many sick days and vacation days to give employees per year, put it in writing in your employee manual and let everyone know.

The amount of paid leave you give your employees is your decision. Professional, long-term employees could accrue more days off a year than new employees.