Compensation and Strategic Compensation

We want to be compensated fairly for the work we perform. And most companies want to pay a sufficient amount to recruit and retain well-qualified employees. How do we achieve these objectives? We rely on the expertise of compensation and human resource (HR) professionals to build compensation systems. There are many moving parts that go into building compensation systems; we will study those parts and how they work together to make a system that balances the interests of employees and companies.

There is a difference between compensation and strategic compensation that you should understand. We must start by exploring what we mean by compensation, which will give us the foundation for describing strategic compensation.

Compensation

Compensation refers to two elements: intrinsic compensation and extrinsic compensation. Intrinsic compensation describes positive feelings and satisfaction that come from performing work (e.g., intellectual challenge) or the positive impact of performing work in the service of others (e.g., nursing). Extrinsic compensation refers to monetary and nonmonetary rewards associated with performing a job and having employment status in the company. Monetary rewards are the hourly pay, annual salary, or pay increases an employee receives for fulfilling job obligations or learning new knowledge and skill sets (which you will learn about in Lessons 3, 4, and 5). Nonmonetary rewards are employee benefits (which you will learn about in Lessons 10, 11, and 12). For example, health insurance coverage and paid time off are employee benefits. Employees receive benefits for working for the company and benefits determination is not contingent on job performance.

Strategic Compensation

Strategic compensation refers to the design and implementation of compensation systems to reinforce the objectives of both HR strategies and competitive business strategies. Compensation and benefits executives work with the lead HR executive and the company’s chief financial officer to prepare total compensation strategies.