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Compensation and Benefits is rewarding the employee for the services rendered by them for the benefit of the organization. It is a set of programs aimed at achieving the following objectives:

  • Compensation aids in attracting capable employees to the organization.
  • It also helps motivate employees towards superior performance.
  • Compensation also helps in retaining the employees and their services over an extended period of time.

Types of Compensation and Benefits

There are three types of Compensation and Benefits namely;

  • Base Compensation
  • Variable Compensation
  • Supplementary Compensation

Base Compensation and Benefits

Base Compensation is one type of Compensation. It refers to the basic salaries and wages given to he employees. It is normally constant at a given amount irrespective of the difference in work performance.

Factors influencing Base Compensation and Benefits

One factor that influences Base Compensation is demand and supply of labor in the market.

Labor union pressure is also another factor influencing Base Compensation. This is because unions always try their best to fight for their members’ rights.

Nature of job as determined by the job description, each employee deserves a different compensation package.

Size of the organization and its ability to pay its employees.

Product market compensation is yet another factor influencing Base Compensation.

Psychological and social factors like employee satisfaction and security.

Salaries paid by similar firms are also a factor affecting Base Compensation.

Government policies on wage determination

Cost of living of the employees. When the employees’ cost of living is very high then they need a higher compensation benefit.

Increase in productivity of labor

Firms in general; whether competing firms or not.

Variable Compensation and Benefits

This type of compensation as by its name is variable. It means that one gets compensation as per the work done. If one does a remarkable job then he or she deserves a higher compensation package than one whose work is of poor quality.

Supplementary Compensation and Benefits

Supplementary Compensation is compensation given by an employer when he or she wishes to. It is not compulsory or a routine once one is given the compensation that one will be awarded another time. In this type of Compensation the employer has a right to add, deduct or even withdraw the benefits when he or she wishes to.

Conclusion on Compensation and Benefits

As seen above Compensation comes in three different types that are base compensation, variable compensation and supplementary compensation and Benefits.


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