Compensation – What’s It All About?

Compensation is the other side of wages or salary. Simply put, wages or salary is due to an employee and the compensation is offered by the employer. When we talk of wages, many factors come into play. These include their performance, skills, years of experience, etc. Their pay is usually decided keeping in mind factors such as market value, unions, or the social norm that is prevalent at a given period.

Compensation is also known as cost to company. This perhaps defines the basic tenet in running a company. There can be no company without its work force and the work force in turn cannot exist without compensation from the company.

The employer determines the pay for the employee. For an employer, this consists of more than the money. It includes benefits, tangible and intangible rewards, etc. The employee may be receiving more than just a certain sum of money in his pay check. The extras are covered by the employer. Compensating employees usually is the major portion of a company’s expenditure. Considering the fact that they spend a large sum of money towards their employees, the employer also considers it an approach to hiring and retaining their employees as well as generating good will and receiving loyalty in return.

To sum it up, compensation is related to the contract between an employee and his or her employer. This compensation is critical to the employees as well as the Company and extends to the general economy. Thus, it becomes more than just a basic reason for working. No one wishes to expend energy for no return. Similarly, a worker is not likely to offer his services for nothing. After all, we work in order to provide for our needs and this includes our family’s needs. For that little bit more than the money, we also seek recognition and status because it gives us a greater sense of accomplishment.

There is a variety of concepts that can be used to understand compensation towards a work force. These are economic, psychological, sociological, political, equity based and communications. Each of these concepts is brought into play while setting basic standards of compensation and as such, also defines the relationship between an employer and employee holistically. One cannot establish wage parameters without understanding the above mentioned concepts as the human workforce does not work in isolation. After all, labor or the human resources that a company depends on works in conjunction with the others in order to help the company grow.