Compensation is the benefit or reward given to an employee or worker of a company. It is actually a monetary benefit which is given to the worker in response of his services or labor to the company. This compensation given to the employees is in the form of salary, wages or bonuses. This compensation motivates the employees, build their career, and makes sure that the employees are devoted in achieving the goals of the company or organization.
Compensation holds much importance both for the employer and the employee. It is important for the organization to contemplate its vision, its aims and strategies and then they design the compensation system in a way which links and aligns all these constituents. All this process of compensation is administered by the HR department of the organization. The compensation package designed by the HR should be attractive so that it helps to motivate the employees more and should justify the work taken by them. The compensation system is also designed so that is ensures that the organization’s turnover rate remains low and should inspire the worker to keep on the hard work. The compensation is usually according to the position, responsibility and qualification of the employee. The organization not only offer monetary rewards but sometimes some companies also offer non-monetary incentives to the employees.
A typical compensation system has different components:
Completely fixed, a fixed component along with some variable component and an entirely variable component. The completely fixed is received per month or per year. The fixed along with variable component is decided based on if the employee has met his targets and his rating and the entirely variable is dependent on the rating received at the time of evaluation.