What are the components of a compensation program? Identify both direct and indirect compensation.

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pohnpei397 eNotes educator| Certified Educator

The components of a compensation program can be direct or indirect.  To some degree, they can even be non-monetary.  Let us look at typical aspects of a compensation program.

The most obvious and easily understood aspect of a compensation program is wages.  This is the money that employees are paid on an hourly basis or on a salaried basis.  This is a form of direct compensation.  Other forms of direct compensation typically include leave pay of various sorts.  Of these, the most common are annual leave and sick leave.  There might also be such things as compassionate (or funeral) leave and family leave.

There are also various forms of indirect compensation.  These are typically the things that have been called “fringe benefits.”  The most important of these forms of compensation are health insurance and pensions.  Some firms will include indirect compensation such as help in paying for child care or housing.  They might provide company cars for the use of the employee.

There are some forms of non-monetary compensation that can be written into formal compensation packages.  For example, an employee might be guaranteed job security after a certain number of years.  They might be given the right to work flexible hours after they have worked a certain number of years.  These are also important types of compensation, but they cannot be valued in monetary terms.