What is compensation? 

Compensation is an employee’s regular salary or hourly pay. It also includes types of wages such as overtime, bonus pay, retirement and health benefits, and other financial and non-financial incentives.  

Through compensations, employers can retain and recruit employees and increase the chances of desired behavior in their employees. Different companies provide compensations of varying ranges.  

What are the types of compensation? 

There are two types of employee compensation. They are:  

  • Direct compensation 

This includes hourly pay, salary, overtime pay, commission, tips, bonuses, etc.  

  • Indirect compensation 

This includes insurance benefits, retirement benefits, incentives, paid time off, vacation time, transportation discounts, equity-based programs, etc.  

What are the benefits of using compensation? 

  • Attracts and retains qualified employees.  
  • Rewards and encourages peak performance.  
  • Reinforces company values.  
  • Increases or maintains morale/satisfaction.  
  • Reduces turnover and encourages company loyalty. 
  • Assesses performance, duty, and loyalty.  
  • Promotes career advancement. 
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Hanan Ashraf
A strong believer in the power that words have over people, Hanan works on producing content that is creative but at the same time graspable for readers. A content writer and digital marketing intern, she loves to write about automation, HR, performance management, and employee wellbeing.