A good thing to do when starting an assignment is to be sure 'your' definition is the same as what is being requested, no matter how trivial it actually may seem at the time. This assignment is a good example of that very statement. According to Answers.com it had several definitions of the word 'compensation'. http://www.answers.com/topic/compensation

I also provided the 2006 Employee Compensation Guide - it might give you some useful tips on how to expand on your own ideas. http://www.mheda.org/files/public/06EmployeeCompArticleInsert.pdf#search='example%20of%20a%20compensation%20package'

This is a small article from Kansas State University on how to design a creative compensation - http://www.cnr.berkeley.edu/ucce50/ag-labor/7article/article33.htm

Incentive Plan

Long term incentive plan - (I assume this would be the obvious choice considering you want to keep this employee around for quite some time) - Any plan that provides compensation intended to serve as an incentive for performance to occur over a period longer than one year (where performance is measured by reference to financial performance of the company, the company's stock price or some other measure), but not including restricted stock, stock option or stock appreciation rights plans. http://www.investordictionary.com/definition/Long-Term+Incentive+Plan.aspx

I really liked how 'HPS - High Performance Solutions' web site went over what an incentive plan is. It gives you the definition, how to develop a ..., strategy, performance, etc. Really covers it all. http://www.highperformancesolutionsinc.com/store/incentiveplanguide.asp

ERI Distance Learning Center web site - if you had any kind of question about incentive plans- I believe this is the site that would answer them all - http://www.eridlc.com/onlinetextbook/index.cfm?fuseaction=textbook.chpt18

Benefits Plan (Retirement Plan)

Retirement benefits are - pre-determined by an arranged formula under this plan. Workers do not necessarily own the proceeds from defined benefits plans, so vesting procedures are required. Today, vesting is determined according to ERISA rules. Defined benefits plans have traditionally been used in larger organizations with more employees. A defined benefits retirement plan is one where the employer contributes a set amount into the account; however, benefits are pre-determined by a plan formula based on years of service and earnings in relevant years. Vesting is 100 % after 5 years with the employer or there is 20% vesting in each year from year 3 to year 7 with the employer. Larger organizations are the common users.

Basic Example of Benefits Plan

Holiday
20 days (for full-time employees) Up to 35 days (i.e. 15 additional days in 1 day increments)

Money Purchase Pension
Under age 25, 6% of pensionable salary; from ages 25 to 29, 8% of pensionable salary; from ages 30 to 34, 10% of pensionable salary; age 35 and over, 12% of pensionable salary; Additional contributions can be paid in increments of 1% up to the limit prescribed in the Flexible Benefits Plan (bearing in mind you can exceed the prescribed limits by a further 40% of your salary)

Life Assurance
2x pensionable salary 3x or 4x pensionable salary

Cover Letter

American Heritage defines it as - A letter sent with other documents to explain more fully or provides more information; also called covering letter.

Example of a Cover Letter

Follow this detailed and step by step process when writing your cover letter. http://owl.english.purdue.edu/handouts/pw/p_basicbusletter.html#formats

Here are a few ideas for you to develop your own paper. However, please be sure not to simply copy and paste without proper citations. If you would like to use any of the examples I have provided please feel free to do so but be sure to use the format below:

[BrainMass Online TA Name], Online TA [OTA ID#], Posting Code [Posting Code], http://BrainMass.com (hyperlinked if submitted electronically), [Month], [Year].

eg. Cherie J. Hetland, M.Ed, Online TA# 105280, Posting Code #####, http://BrainMass.com, October, 2006.

Date
Sender's Address - only the street address, city and zip code

Inside Address - recipient's address

Salutation - Dear Mr. James Richard:

Main Point, Friendly opening, Vague Explanation of Purpose - We are pleased to offer you the position of Electrical Engineer with our firm. The compensation package to you is as follows. You will get a base annual salary of $65,000. (Salary.com for area code 60644 ((Chicago)) says average pay for an electrical engineer should be between $49,976.00 - $68,872.00 http://swz.salary.com/salarywizard/layoutscripts/swzl_localrange.asp?geo=U.S.+National+Averages&jobcode=EN04100006&jobtitle=Electrical+Engineer+I&narrowdesc=Engineering&narrowcode=EN01&yearsofexp=&r=salswz_swznatlnk_psr&p=050205_psr_495&s=salary&zipcode=60644) In addition, you will get a relocation allowance of $15,000. You also qualify for the other benefits that are available to the company's employees. The reason you have been given this base salary is that your salary in Texas is $40,000. We added the mandatory 25% increase in salary and that makes the basic pay $50,000. In addition, we have factored in the fact that the salary level in Illinois is 20% above what electrical engineers get in Texas. Also, we added another $5,000 per year to compensate for the hardship you would undergo in relocating. This is in addition to the upfront payment of $15,000 you will get as relocation allowance. Usually, this amount is sufficient for housing location and payments that you will need to make.

Supporting Details for example, Background Information, Statistics or First-Hand Accounts - The other benefits in accordance to the rules of the company include: Annual Leave, Medical Leave, Hospitalization Leave, Maternity Leave, Marriage Leave, Paternity Leave, Child Sick Leave , Compassionate Leave, Time-off to sit for Exam, Maternity Expenses, Marriage Gift ,Newborn Gift , Medical Check-up Subsidy, Health Screening Subsidy , Housing/Renovation/Vehicle Loans, Long Service Gift and Dependant Benefits. You qualify for the benefits that a person of your qualification, experience and position would normally get .The details of the benefits plan are attached in the benefits package with this letter. Please go through these at your earliest convenience. You also qualify for the Incentive plan for the employees that qualify you to participate in the following performance based awards; Individual performance Award, Intellectual Property (IP) Rewards, Group Achievement Reward (GAR), Group Performance Award (GPA) Special Recognition Award (SRA). These have been mentioned because these awards are open to engineers including electrical engineers in our company. These awards are available to executives of your level in our company. You also qualify for our performance based bonus plan where the middle level performance brings in a top bonus equivalent of 20% of the yearly base salary. The details of the performance based incentive scheme are given below. There may be non-monetary benefits that you want to evaluate when making a decision. What type of rewards, besides salary, are you looking for in a job? For example, does the position provide long-term security? Does the work give you the creative outlet you need? Do you see yourself getting promoted within the company? All of these factors should play a role in your decision making process. Good salary package is more than just a paycheck.

Closing Paragraph, Restate Purpose and Contact Information - There are many benefits that our company will offer to expand the size of the total compensation pie. Please go through the packages attached below to determine what benefits and perks you will get. Also, take some time to consider what is most important to you on the job. Our company has the history of providing a long term satisfying career with a bouquet of benefits that go a long way in making your experience at Esgee memorable. Please let us know your interest in the position by 6th, November. If you have any inquiries about our compensation package or incentive schemes please feel free to call me at ###-###-####.

Sincerely,

George Mason,
Head Human Resources.

Compensation Package: -

Basic Salary: - $65,000.
Relocation Allowance: - $15,000 to be paid at the time of joining of the company. This amount is adjustable against security deposit if the employee avails himself of the company accommodation. Company accommodation is not guaranteed and may not be available to a joining employee. Accommodation is offered and accepted the rent of such accommodation will be deducted from the salary of the employee. Esgee's compensation packages are regularly benchmarked against packages offered by other premier companies that do business in the same geography. Esgee consistently ranks in the top range of all employers within the same region. Base pay is the regular pay employees receive as a part of their overall compensation. Our base pay opportunities are highly competitive with what the overall market pays for similar opportunities. We consider many factors in determining base pay; however, our fundamental philosophy is pay for performance. At Esgee, we make sure that an individual's contributions to his or her business and to team success are considered when making adjustments to his or her base pay. Variable pay offers additional opportunities for financial rewards based on Esgee's overall performance. Esgee's Performance Award Program is a performance-based compensation program designed to share v Esgee's financial success with employees. How much of the variable pay is delivered depends on a combination of how well the individual or team, the function or business, and the company have done in meeting or exceeding their established goals.

References:

www.payscale.com/salary-survey/vid-3413/fid-6886

www.infirmation.com/shared/search/ payscale-compare.tcl?city=Chicago

www.infirmation.com/shared/ insider/payscale.tcl?state=IL

chicago.preferredjobs.com/ salarysurveys/detail.asp?cat=134

Benefits Package:.
Annual Leave 21 days
Medical Leave 4 days
Hospitalization Leave 12 days
Maternity Leave 90 days
Marriage Leave 27 days
Paternity Leave 7 days
Child Sick Leave 2 days
Compassionate Leave 4 days
Time-off to sit for Exam 7 days
Maternity Expenses: actual expenses according to the insurance rules.
Marriage Gift $650
Newborn Gift $750
Medical Check-up Subsidy: according to the insurance rules
Health Screening Subsidy: on actual expenses, according to the insurance rules
Housing/Renovation/Vehicle Loans: Up to 3 years salary.
Long Service Gift: $21,000
Dependant Benefits: Medical benefits.

You are also eligible for the following benefits:
Dental Insurance - Employee Paid or Voluntary Payroll
Section 125 Plans - Premium Conversion, Dependent Care and Medical Spending Accounts
Retirement Plans - 401k, TSAs, 403B, SEP IRA, Roth IRA, Defined Benefits and Defined Contribution Plans
Life Insurance - Group Term Life and AD & D, Payroll Deduct Life, Individual Term, Universal, Whole Life, Variable Life, Estate and Survivorship policies
Disability Income - Individual and Group Short Term and Long Term, according to the rules of the company.

As you know your needs best, you can choose your benefits coverage annually. Our Flex Plan caters to your different needs as you progress through the different stages in life - from single hood to parenthood to retirement. Benefits are provided for all our staff in the areas of life insurance, hospitalization/surgical and medical consultation. In addition, you can use your "Flex Points" to look after your childcare expenses, fitness club subscriptions, holiday expenses, personal development programs, children's speech and drama lessons, piano lessons, parent's medical expenses and others.

References:

www.crossagency.com/benefits.html
www.lakeworthtx.org/employeebenifits.htm
www.steeler.com/beni.html

Incentive plan for the employee is that he qualifies to participate in the following performance based awards;

Individual Performance Award - celebrates achievement par excellence by a DSO team.

Intellectual Property (IP) Rewards - rewards intellectual property creators for the potentially significant IP created.

Group Achievement Reward (GAR) - rewards groups for actively embracing and delivering, stretched targets.

Group Performance Award (GPA) - recognizes group's excellence in
accomplished milestones.

Special Recognition Award (SRA) - recognizes staff with exemplary personal quality/KINETIC values.

Each of the awards has predetermined criteria that are decided in consultation with the employee and each criterion has an assigned weight and every criterion is evaluated on a scale of 1 to 5. This a priori evaluation helps make fair and equitable evaluations.

We also offer financial rewards through an Employee Stock Purchase Program and long-term equity (stock) based incentives. (Available only where allowed by law.) Don't you want to be part of a company where you're considered one of its owners and investors?

You get an option from time to time.

1. An option is created that specifies that the owner of the option may 'exercise' the 'right' to purchase Esgee's stock at a certain price (the 'grant' price) by a certain (expiration) date in the future. Usually the price of the option (the 'grant' price) is set to the market price of the stock at the time the option was sold. If the underlying stock increases in value, the option becomes more valuable. If the underlying stock decreases below the 'grant' price or stays the same in value as the 'grant' price, then the option becomes worthless.

They provide you the right, but not the obligation, to purchase shares of Esgee's stock at a certain price for a certain period of time. Options are usually granted at the current market price of the stock and last for up to 10 years. To encourage employees to stick around and help the company grow, options typically carry a four to five year vesting period; this scheme allows the company to:

To share ownership with the employees

Used to align the interests of the employees with those of the company

In addition, outright grant of shares to executives with restrictions to sale, transfer, or pledging; shares forfeited if executive terminates employment; value of shares as restrictions lapse taxed as ordinary income.

Performance based bonus incentive plan

Last year we switched to an individual bonus incentive program, where the annual payout is determined by a subjective evaluation of each person's performance. In, general a middle level performance brings about a bonus of 20% of the yearly base salary and an excellent performance brings in a top bonus equivalent to 30% of the yearly base salary.
The advantages are: Unlike a profit-sharing plan, we can dramatically differentiate the payout given to a star performer versus a weaker one; we can differentiate between an individual's performance and the company's performance; and there is complete flexibility for a significant one-time payout if an employee has an extraordinary accomplishment that may not be repeated in future years.

References:

www.mercerhr.com/knowledgecenter/ reportsummary.jhtml/dynamic/idContent/1011820
www.tms.org/pubs/journals/JOM/matters/matters-9811.html
www.businesstown.com/people/compensation-plans.asp
contracts.corporate.findlaw.com/ type/compensation/incentive.html
www.web-ministry.com/linearpost.php?postID=465

Further References:
www.ling.ed.ac.uk/linguist/issues/9/9-573.html
www.histosearch.com/histonet/Mar02A/ AttentionChicagoareahelpn.html
www.incomesdata.co.uk/studies/sharescheme.htm

Note the lacunae in the question:

First, the question does not mention the salary the engineer received in Texas.

Second, the question does not give comparative standard of living indices of Texas and Chicago.

Third the question does not give your designation.

Fourth, the question does not give the current salary structure in your company. This is important because salary structures are different in different companies.

Fifth, the question does not mention who will report to him and who will be his superior.

Good luck with your assignment! Wish you all the best!