Compensation

​Compensation is the sum total of all rewards received in return for work. While it may seem straightforward at first glance, there is more to the compensation function than simply determining how much money each employee should receive.

While money may be the driving force for why many people work, it is not always the most significant reason, as nonfinancial rewards are also highly important. It is important for HR professionals to understand what people value with regard to compensation so that the employee’s needs are satisfied.

 

Direct and Indirect Financial Compensation

Employees can easily see how much they are being directly compensated, but often do not understand how significant their indirect compensation is. Many people would be surprised to learn how much they receive in indirect financial compensation through sick days, vacation days, different types of insurance and other benefits.  

Nonfinancial Compensation

Employees work for a variety of reasons and motivation can come in different forms, from the need for something to do, to a desire to fulfill a sense of purpose or even because a person enjoys being busy.  These rewards have no clear monetary value but they reflect how satisfied or dissatisfied the employee may be from the work, supervisor, physical environment, or the organization itself.