Compensation Systems

HR Articles - What is ?

Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction.

Different types of compensation include:

• Base Pay
• Commissions
• Overtime Pay
• Bonuses, Profit Sharing, Merit Pay
• Stock Options
• Travel/Meal/Housing Allowance
• Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...

Compensation may be used to:

• Recruit and retain qualified employees.
• Increase or maintain morale/satisfaction.
• Reward and encourage peak performance.
• Achieve internal and external equity.
• Reduce turnover and encourage company loyalty.
• Modify (through negotiations) practices of unions.

Compensation may also be used as a reward for exceptional job performance. Examples of such plans include: bonuses, commissions, stock, and profit sharing, gain sharing

Compensation will be perceived by employees as fair if based on systematic components. Various compensation systems have developed to determine the value of positions. These systems utilize many similar components including job descriptions, salary ranges/structures, and written procedures.

Source: HR Concepts

Compiled and Edited by

Mr. S. Murugesan - Lecturer

Dr. P. N. Narayana Raja - Principal

Madurai Institute of Social Sciences

(Run by: DVR Foundation for HRD)

Madurai, Tamil Nadu, India