Compensation: The Basics of HR Compensation

January 23, 2023
Daily digest

Compensation is a term used in both human resource and financial management. HR refers to a system that can provide employees of any level with rewards and remuneration for the value they have brought over time.

It helps companies retain good employees by offering incentives, awards, and other benefits. Financial management refers to a direct payment made to someone who has delivered goods or services in exchange for money.

Role Of Compensation In An Organization

Compensation is one of the most important HR activities; it is the primary way employee rewards are delivered.

Thus, compensation planning is an integral component of HRM. The role of compensation in any organization, especially in an HRM department, cannot be viewed in isolation or as separate from other related programs, such as performance management or rewards. 

Compensation forms the basis for defining work expectations and, in conjunction with other reward programs such as incentives and benefits, provides employees with appropriate rewards to help them perform their jobs more effectively.

Types Of Compensation

Compensation is the amount of money a company pays its employees. It is generally divided into base salary, bonus pay, and benefits. The purpose of compensation is to provide employees with a fair wage and benefits they can use while they work for the company.


There are several types of compensation that organizations may offer to their employees, including:

Hourly Wage - This compensation includes pay for an employee's work hours. It can be calculated as an hourly or piece rate, depending on the work the employee performs.

Salary - This compensation includes regular paychecks paid at set intervals throughout the year. Large companies with high turnover rates and low-profit margins typically use this type of compensation because it helps keep employees from leaving before their contracts are up for renewal.

Benefits - Benefits are extra perks like health insurance and retirement plans that employees receive as part-time workers or full-time employees who have worked for two years or longer with the same company without quitting or being fired from their position within those two years.

Monetary compensation: This includes wages, salaries, bonuses, and commissions.

Stock options: Some organizations offer stock options as a form of compensation, allowing employees to purchase company stock at a discounted price.

Perks: This can include things like a flexible work schedule, work-from-home options, and employee discounts.

Recognition and Rewards: This includes incentives, an employee of the month, best performance awards, etc.

Non-monetary compensation: This includes things like training and development opportunities, career growth, and a positive work-life balance.


Paying employees compensation is critical to the success of any business. Having a strong compensation package in place helps to retain talent and ultimately boost the bottom line of any business.

Compensation is not just about money; it's about recognizing, rewarding, and recognizing for hard work, commitment, and exceptional performance.


Find out how Compport can help you manage all your HR Compensation process, book a demo today!

Recommended articles

Let your pay practices shine with Compport

Line footer