What is compensation?
- Compensation is the financial returns, tangible services and benefits employees
receive as part of employment relationship.
- Comprises of both extrinsic and intrinsic rewards.
Anything provided by the organization that satisfies one or more of an employee’s needs
(economic needs, security, social interaction, etc…) can be considered a reward.
Extrinsic rewards (Job Context)
Satisfy basic human needs for survival and security, as well as social needs
and needs for recognition.
Intrinsic rewards (Job Content)
Satisfy higher level needs for self esteem, achievement, growth and
Challenge or interest the job provides
Degree of variety in the job
Extent to which it provides feedback and allows autonomy
Meaning and Significance of work
Purpose of compensation system
- To attract qualified persons to join the organization and to perform the tasks
needed to achieve the organization’s goals and objectives
- To help to create a willingness among qualified persons to join the organization
and to perform the tasks needed by the organization.
Reward vs. compensation system
The reward system is a mix of both extrinsic and intrinsic rewards.
The compensation system only deals with the economic or monetary part of the reward
What is a reward strategy?
- The reward strategy is the plan for the mix of rewards, both extrinsic and intrinsic,
that the organization intends to provide to its members, along with the means
through which they will be provided. What is a compensation strategy?
- The compensation strategy is one part of the reward system. It is the plan for
creating the compensation system.
- The plan for the mix and total amount of base pay, performance