Compensation refers to the total cash and non-cash payments an employer provides to employees in exchange for their work. It includes regular wages as well as other types of pay and benefits. Compensation management involves designing and maintaining pay systems to improve organizational performance. Types of compensation include direct compensation like pay in the form of base salary and incentive pay, and indirect compensation like benefits such as paid time off, retirement plans, and services like housing and transportation assistance. The goal of compensation is to adequately and equitably reward employee contributions towards organizational objectives.

1. By Mounika Ramachnadruni (16A91E0049)

2. What is compensation ?
 Compensation is the total cash and non-cash
payments that you give to an employee in exchange
for the work they do for your business.
 It is typically one of the biggest expenses for
businesses with employees. Compensation is more
than an employee’s regular paid wages.
 It also includes many other types of wages and
benefits.

3. Definition
 Edwin B Flippo: “The function of compensation is
defined as the adequate and equitable remuneration of
personnel for their contributions to the organizational
objectives.”
 Benham: “Compensation is the value of work of the
employees according to the agreement between
employer and employee.”

4. Types of compensation include

5. Compensation management
 Compensation management refers to all forms of financial
rewards received by employees. Employees of an
organisation use their overall efforts that need to be valued
financially.
 According to Michael Armstrong," Compensation
management is essentially about designing, implementing
and maintaining pay system which helps to improve
organizational performance."

7. Direct compensation:
Pay:
 Pay refers to the wages or salary received by the
employee. It can be base pay or merit pay.
 Base pay is hourly, weekly or monthly pay and merit pay
is performance based pay.
 It is an addition to the base pay.

8. Direct compensation
Incentive pay:
 Higher performance based reward is an incentive
compensation.
 They can give piece wages, commission, bonus, profit
sharing, the stock option.
 This is a variable kind of compensation and is found with
salaried staff to incentivize them for a specific objective
whether time or volume based.

9. Indirect compensation
Benefits:
 Benefits is an addition to pay.
 They are membership base financial rewards.
 They can pay for time not work, retirement benefits and
executive benefits.

10. Benefits:
 Pay for time not work is like paid vacation, holidays,
leaves, lunch breaks, bereavement.
 Retirement benefits are like pension, gratuity, insurance
payments, provident fund, medical care etc. and
executively is like a free newspaper, telephone rental,
rent, vehicle etc.

11. Services:
 Services are not cash payment but considered as
financial reward. It increases employee well-being.
 It comprises reward like housing, fooding, furnishing,
child care and children education expenses, company
car, aeroplane, discount on a purchase, credit card,
loans, free legal advice and counselling for financial
management and stock option scheme.

12. Conclusion
Most organization give compensation as a package. It
consists of pay plus benefits and services. Compensation
management must be flexible enough to get popularity in
this human resource management function area.