Law Corporate Law

Compensation is the total cash or non-cash payment or fee that is given to the employees in exchange for the services they provide or the business they do.

Compensation is used as an incentive to encourage efficient and hardworking employees. In the case of unfair or wrongful dismissals too, many a time, employers settle the issue by giving compensation to the employees.


There are a number of factors depending on which compensation packages are decided along with which employee should get it.

These factors include:


Research is very important when figuring out compensation packages. Find out the criteria that are used by other businesses while deciding compensations. Also, find out how much compensation is being given and the whole process.

Current financial situation:

The finances of the company should be thoroughly researched to decide the type and amount of compensation to be given. Raise, bonuses and other compensations should be given according to the budget of the company considering all the taxes and other terms.

Achievements of the employees:

When deciding which employees to give compensation to, it is vital to observe the work timeline and achievements of all employees. Employees who have contributed and benefitted the business should ideally be the top choice.

This will also eliminate the issue of favoritism and discrimination which is a major issue in the workplace. A happier, peaceful workplace is an efficient workplace and hence all employers should be just and impartial.


The benefits that are given to the employee can lead to the negotiation of lower base or gross pay. Hence benefits should be chosen carefully observing which benefits would be ideal for the negotiations. The employer should find out about the nearby businesses and then make decisions.


Compensation can be of various types  

Base pay (hourly or salary wages):

Hourly wages are more traditionally assigned to unskilled or semi-skilled labor. They are also used to compensate for temporary, part-time, or contract workers.

Salary employees are usually the more well-educated employees or employees who occupy management positions and are in for the long term.

Sales commission:

Commission-based pay is most common in sales and is given as a percentage of goals met. Usually, the amount of commission paid increases as the goal increases.

Bonus pay:

bonuses are applicable to more than salespeople. Year-end bonuses are common where employees are paid a sum, or a percentage of a sum, based on the performance of the business, the individual’s goals, or at a manager’s discretion. Bonuses can be offered more often, such as quarterly.

The other types of compensations are:

  • Recognition or merit pay
  • Benefits (insurances, standard vacation policy, retirement)
  • Stock options
  • Overtime wages
  • Tip income
  • Other non-cash benefits


Compensations are a great way to promote and encourage the mindset of the employees. It gives them a drive and motive to work harder and should be used wisely. They are incentives that create a hard-working atmosphere and employees feel like they’re being appreciated and rewarded for their work.