What is the definition of employee compensation?

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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When most people hear the term "employee compensation," they think about wages.  Wages are a major part of compensation, but compensation goes beyond wages.  Compensation consists of all of the tangible things that employees get in return for working.

The important words here are "all" and "tangible."  Compensation does not include intangible things like job satisfaction and pride.  However, it does include all of the various tangible things that employees get for working.  This would include such things as health insurance, life insurance, paid vacations and paid sick days.  It would even include things like the value of any employee discounts that the employee receives.

Employee compensation, then, consists of all of the tangible benefits received by the employee in exchange for his or her work.

sohailqaisar's profile pic

sohailqaisar | Student, Undergraduate | (Level 1) eNoter

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Employee compensation is a big term which not only includes the wages but also other things like salary, benefits, rewards, allowances and other schemes.Wages are only a sub part of compensation.

kernel's profile pic

kernel | Student, Undergraduate | eNotes Newbie

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EMPLOYEE COMPENSATION is wage and salary payments as well as benefits including health and life insurance, retirement payments, and any other non-cash compensation.

sasikumarupadhaya's profile pic

sasikumarupadhaya | College Teacher | (Level 1) Salutatorian

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Employee compensation is the essence of human resource management. Different organizations establish different types of payment schemes to satisfy their workers. some rely to introduce monetary benefits along with other types of fringe benefits. however compensation can be defined to any form of extrinsic benefits, monetary or non- monetary, provided to employees in exchange of their contribution and service to the organization. but compensation does not refer to intrinsic reward. it comprises only the extrinsic rewards. some of the types of employees compensation are;

- salary, wages, bonus

- insurance facility, health allowance, daily allowance

- housing facilities, travel allowance

- canteen subsidy etc.

lmuchangi's profile pic

lmuchangi | (Level 1) eNoter

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Employee compensation is a broad term that defines payments and rewards given to workers in order to persuade them to keep working for a company. Compensation is not just about regular rewards for work done but also attempts made by employers to retain employees. It goes beyond salary and transcends this boundary to include benefits and other incentives. Examples of such are salaries, wages and bonus payments.


Organizations put in place schemes that ensure their employees are not lured by the competition. These schemes include insurance schemes, retirement benefits and ownership of company stocks. Employees do not come cheap and employers must be prepared to dig deeper into their pockets to finance their work force. Managers are tasked with determining the value of each employee against the price tag placed by the company.


Employee benefits transform to value assigned and need not necessarily be in cash. Some forms of compensation are actually rights and not benefits. Take for instance workman’s compensation. This is a federal requirement for every employer to uphold. It is assumed that every employee has to be compensated for the work they do or services provided to an organization. In the same breath, loss of income should be compensated.


Employee compensation can also be looked at as either a tangible benefit or intangible. Good examples of tangible benefits include insurance, holiday packages, maternity leaves, pension, bonuses and share of profits. Intangible compensation is in form of promotions, letters of appreciation and being provided with nice looking offices.


Compensation may also be from the employee. In most cases, benefits flow from the employer to employee. However, in some form of departure from the norm, employees may be compelled to part pay for their benefits. Prominent examples are medical covers for instance. Here the employee may be asked to part pay for things like consultation fees or other costs of treatment.

Firms are supposed to determine what salary scales to pay for their respective positions. This will be dependent on qualifications, nature of work involved and years of experience a particular employee has. These will then be adjusted periodically based on factors such as inflation and economic changes that push up costs of living. Another factor that influences salary scales is the pressure from other players in the same sector.


Employee compensation is also pegged against regulations imposed by the government. Contractual obligations in this respect must be honored lest the organization finds itself facing costly legal suits. Industrial pressure from trade unions needs to be paid attention to. These unions represent huge masses and their voice cannot be ignored.


Organizations employ professionals to assist with compensation matters. Human resource managers or consultants form part of the management and they are charged with drafting and implementing compensation plans by determining salaries and other employee benefits. It is important that employees are kept motivated during their working life in a company as this ensures they perform well to match the compensation they receive from the organization.

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