The HR Dictionary


Compensation is a systematic approach to providing monetary or equivalent returns to employees in exchange for work performed. Compensation assists in recruitment, job performance, and job satisfaction. Organizations constantly modify employee pay in accordance with employee performance, corporate objectives, resource constraints, and market conditions. However, rules and regulations also apply to employee compensation.

Types of Compensation

  1. Direct compensation - A monetary form of compensation that can be paid as
    • Hourly salary
    • Annual salary
    • Commission  
    • Bonuses, etc.

  2. Indirect compensation - This is still a means of payment because it has a monetary value. However, it is not given to employees in cash form. Because of this, some forms of indirect remuneration are considered financial while others are not. It can include:

    • Equity packages
    • Stock options
    • Time-off
    • Flexible work times
    • Learning opportunities