What is Compensation? | Meaning and Definition

What is Compensation?

Compensation is a term that refers to all of the types of compensation and benefits that an employee receives in return for their work. This can include salary, bonuses, commissions, vacation time, sick leave, health insurance, etc. 

Monetary compensation is just one benefit that employees receive; non-monetary benefits can be just as significant. These can include job satisfaction, a positive work-life balance, opportunities for professional development, and more. 

It is a crucial elements of any employee – employer relationship and play a significant role in attracting and retaining talented employees. When designing a compensation and benefits package, employers need to carefully consider what will best motivate their employees and help them achieve their goals. 

Types of compensation

Four basic categories are :

• Guaranteed pay is your base salary or hourly wage, and it’s usually non-negotiable.
• Variable pay is the money you earn based on your performance, and it can vary significantly from month to month or year to year.
• Benefits- the perks and privileges of your job, such as health insurance, a retirement plan, paid vacation days, etc.
• Equity-based compensation is an ownership stake in the company you work for, which entitles you to a share of the profits (or losses) as they’re generated.

Employees are typically compensated based on their skills, experience, and level of responsibility. Factors like job market supply and demand, company size, industry, and geographic location set salary levels. Employers need to offer competitive compensation packages to attract and retain the best talent. Benefits can be an essential part of the employment equation for attracting and retaining talent.