What is Compensation?

Whether you're a beginner or an expert, you will find this Glossary useful.

Compensation is what companies give to employees or workers for their services towards the company, most often money. 

Compensation definition

Compensation is what companies give to employees or workers for their services towards the company, most often money. Compensation is effectively managed if performance is measured adequately.

Compensation components can be:

1. Completely fixed (per month or year) like salaries

2. With a half fixed component, like bonuses

3. Total variable component

Sometimes instead of giving money, companies do payments on behalf of employees, which is also referred as indirect compensation.

Importance of compensation

1. Compensation is important for an organization to consider its mission and vision and its strategies and then devise the compensation system such that all these components are inter-linked and aligned with each other.

2. It is the tool that organizations use to manage and reward their employees, so that they perform efficiently.

3. It motivates employees to do their jobs succesfully.



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