Concept & Meaning of Compensation Management

Compensation means the basic returns that an employee obtains from his/her work. Every organization offers a good compensation to attract and retain the ablest employees in the actual work floor. It is because if the company does not offer an attractive package of compensation,compared to other competitive firms, the efficient employees may leave the firm. Hence, the employees should be compensated adequately. A well-designed job evaluation program helps to determine an appropriate compensation system.

Compensation may be defined as a package of financial and non-financial benefits that the employee receives for his/her contribution rendered to the organization. It consists of all forms of monetary and non-monetary rewards/pays provided by the employer to the employees for services contributed by them towards organizational objectives. It has two main components- direct financial payments and indirect payments. The direct payments consists of salaries, wages, incentives,commissions, bonuses, etc. Whereas, the indirect payments comprise financial benefits like paid leaves, employee aid insurance  etc.

Compensation is a major component of reward which is basically given to the employees in return of their services. It is a package of quantifiable rewards provided to the employees. Hence, the assignment of appropriate/low cost compensation is known as compensation management.It will attract, motivate and retain competent employees at work, and this helps to minimize the turnover ratio.