Compensation management involves attracting and retaining employees through competitive pay and benefits. It aims to motivate high performance through salaries, bonuses, incentives, and fringe benefits like health insurance and retirement plans. Effective compensation management integrates reward strategies with organizational goals. Performance-linked incentives directly tie pay to output and can be open-ended or have ceilings. Incentive plans must be simple, promote initiative, cover employees fairly, and have prompt payment and clear communication.