Salary Vs Compensation: Rewarding Successful Employees

Understanding the balance of Salary vs Compensation

“Happy New Year! As the years go by, the phrase “happy and healthy” takes on a deeper meaning for me. It’s no longer a simple pleasantry but a genuine wish for those around me. This year started off on a wonderful note, as I was fortunate enough to take a trip to Germany to visit my sister. It was my first time there, and I was struck by how beautifully the Germans embrace the holiday season. The Christmas spirit was everywhere—festive, spiritual, and uplifting all at once.

Coming back to work, I found myself reflecting on a topic that seems to weigh heavily on the minds of many business leaders at the start of a new year: money. It’s no surprise that conversations about salary and compensation often take center stage. These year-end discussions are necessary for every organization but are far from simple. It’s easy to distribute rewards generously when the books are healthy, but it can become a stressful nightmare when businesses must navigate tighter cash flows.

This tension reminds me of a concept from a book by Professor Joel Stern that made a lasting impression on me. He described how, years ago, small business owners measured success in the simplest way possible. If you asked them how their business was doing, they wouldn’t analyze spreadsheets or consult financial statements—they’d just open their cigar box and see how much cash was inside. If it was full, all was well. If it wasn’t, they’d adjust accordingly. This straightforward focus on cash has always resonated with me, especially with my own small-business-oriented perspective.

When considering how to reward employees, I often come back to this principle: If someone helps generate cash, they should share in the rewards. But in today’s complex organizations, it’s rarely that simple. Many roles—such as marketing, operations, or administrative support—are vital to an organization’s success but don’t directly translate to cash flow. Even within teams, disparities can arise. A business development professional might land a major contract and expect a portion of that success to be rewarded to them. But if the delivery team struggles to execute it profitably, the organization’s cash reserves may not be able to reflect that initial success. In these cases, figuring out how to allocate rewards to high achieving employees becomes tricky.

The distinction of salary vs compensation is crucial. A salary reflects the market value of a role—it’s a consistent baseline that provides employees with financial security. Compensation, on the other hand, is where exceptional performance is rewarded.

The approach that I found worked is to offer competitive salaries—ideally slightly higher than the industry average—while using performance-based compensation to reward employees who go above and beyond. This structure ensures fairness while allowing organizations to incentivize excellence.

For me, the key has always been tying compensation, such as bonuses, to measurable outcomes like cash flow. If the organization’s opening and closing cash balances show growth, it becomes easier to reward the team members who helped make that growth possible. At the end of the day, salary and compensation are not just numbers on a ledger—they’re a reflection of how an organization values its people. Striking the right balance isn’t just good for business; it’s essential for building a team that feels appreciated and inspired to succeed.

To summarize, the key takeaway is this: while understanding the nuances of salary versus compensation and how to reward employees is essential, it all hinges on the foundation of strong leadership. If leaders fail to make smart decisions or lack the ability to drive success, there won’t be the resources necessary to reward employees, no matter how well-deserved. Ultimately, a leader’s ability to balance strategy with team recognition is what ensures the organization’s success and keeps employees motivated and engaged, or risks them questioning whether they’re part of the right organization.” -Harry Catrakilis

The above article only intends to provide general information and reflection. It is not designed to provide specific advice or recommendations for any individual. It does not give personalized tax, financial, or other business and professional advice. Before taking any form of action, you should consult a financial professional who understands your particular situation. CKH Group will not be held liable for any harm/errors/claims arising from the blog. Whilst every effort has been taken to ensure the accuracy of the contents, we will not be held accountable for any changes that are beyond our control.