What Are The Components Of Compensation?

What is compensation and its types?

Direct compensation involves monetary payments to employees for time worked or results obtained.

Indirect compensation involves expenditures made by an employer on behalf of all employees and is typically referred to as “fringe benefits.” Intangible compensation involves non-monetary rewards such as…..

What are the three parts of compensation?

The Three Parts of Workers CompensationPart One: Workers’ Compensation Insurance.Part Two: Employers Liability Insurance.Part Three: Other-States Insurance.

What are the objectives of compensation?

There are four basic objectives of compensation: focusing your employees efforts, attracting quality employees, retaining top performers, and motivating your employees. These objectives can be referred to with the acronym FARM: focus, attract, retain, motivate.

What is a compensation strategy?

A compensation strategy lays out your organization’s point of view on how you will determine pay and benefits for employees. It aligns all of your compensation resources to your business goals, helps you decide where you want to compete, how competitive you need to be and what you choose to reward.

What is a compensation system?

Compensation System Defined A compensation system is the sum total of all monetary and non-monetary benefits provided to employees in exchange for their willingness to work. … Indirect financial compensation includes compensation that has financial value but does not consist of a direct monetary payment to an employee.

What is compensation mix?

Defining Pay Mix Pay mix is the ratio of base salary to target incentives that make up On-Target Earnings (OTE). For example, a 60/40 pay mix means that 60% of OTE is fixed base salary, and 40% of OTE is Target Incentive (TI), or variable pay.

What are the components of a compensation system?

Components of employee compensationSalary and wages. In a compensation package, these typically make up the single largest component. … Bonuses. … Federal/state pay requirements. … Long-term incentives. … Health insurance. … Life and/or disability insurance. … Retirement plan. … Time off.More items…•

What are the 4 components of compensation?

Total compensation would include all four categories: guaranteed pay (salary and allowances), variable pay, benefits and equity compensation.

What makes up a compensation package?

It varies greatly depending on the employer and position, but here are the most common components of compensation: Salary, plus any bonuses or commissions. Paid holiday, vacation and sick days. Medical, dental and vision insurance.

What are examples of compensation?

What is compensation?Base pay (hourly or salary wages)Sales commission.Overtime wages.Tip income.Bonus pay.Recognition or merit pay.Benefits (insurances, standard vacation policy, retirement)Stock options.More items…•

What is effective compensation?

An effective compensation strategy motivates current employees and is used as a tool to attract new ones. … This includes the cost of health benefits, retirement benefits, tuition reimbursement, bonuses, or any other non-salary benefit that is considered part of a total compensation package.