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What are the Different Types of Compensation Management?

Effective compensation management helps a company maintain happy, productive employees.
Indirect compensation includes publicly recognizing an employee's good work.
Health benefits are a type of direct compensation provided to employees.
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  • Written By: Carol Francois
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 September 2014
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There are two different types of compensation: direct and indirect. Compensation is the combination of monetary and other benefits provided to an employee in return for his or her time and skill. The compensation management field provides management with the ideal combination of the different remuneration types, with the goal of retaining and motivating good employees.

Direct compensation is typically made up of salary payments and health benefits. The creation of salary ranges and pay scales for different positions within the company are the central responsibility of compensation management staff. The evaluation of the employee and employer portions of benefit costs is an important part of a payment package.

Effective compensation plans are routinely compared with other firms in the same industry or against published benchmarks. Although some jobs are unique within a specific firm, the vast majority of positions can be compared to similar jobs in other firms or industries. Direct compensation that is in line with industry standards provides employees with the assurance that they are getting paid fairly. This process helps the employer avoid the costly loss of trained staff to a competitor.

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Indirect compensation focuses on the personal motivations of each person to work. Although salary is important, people are most productive in jobs where they share the company’s values and priorities. These benefits can include things like free staff development courses, subsidized day care, the opportunity for promotion or transfer within the company, public recognition, the ability to effect change in the workplace, and service to others.

An effective package has a combination of direct and indirect compensation. Compensation management programs often include a salary range for each position, with incremental increases and annual reviews. During these review sessions, both types of compensation are addressed and presented to the employee as part of the total package.

Regular evaluation of the total compensation program and continual modifications is necessary to meet the changing needs of employees. Many firms invest time and resources to ensure that all employees are aware of all of the types of benefits that are available. This encourages employees to provide valuable feedback on the types of programs that are most important to them.

Human resources departments are responsible for the creation and management of the compensation program. A compensation management professional usually has a degree in human resources and skills with data management, statistics, and report creation. Creative benefits packages must be in keeping with the company’s vision and identify to be effective.

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Discuss this Article

anon328499
Post 7

Why is there a need for compensation?

anon287150
Post 6

What are pay secrecy and pay openness?

anon165977
Post 5

I have always been a fan of involving commissions in a compensation plan. Being in sales, it is mostly standard. One thing I can't stand is when the commission reports are not delivered on an individual level.

Recently, I have found free tools online which creates and delivers sales commission statements. The most reasonably priced tool I have found was created by oneclick commissions. Thanks again for the article, hope this helps! --Michael

anon148340
Post 3

This article does a good job of presenting the overall concept and strategies behind effective compensation management. The problem is figuring out how to implement a good solution for this process. I have a colleague whose company is deciding between two vendors, Xactly and Callidus. I took a look at both websites, and Xactly seems to do a much better job of presenting their offerings (they even post their pricing). does anyone have input on a good sales comp solution?

Kalley
Post 2

@sandy12 -- At my workplace, we're paid a certain amount for each insurance interview we complete. In addition, we're given the chance to take more work if we want it, and if we have time in our schedule, by signing up for a program that will send a text message to our cell phone when call volume is high. Then we can sign in and work as long as we're needed, when call volume isn't as high. In addition, we're encouraged to participate in a free wellness program that's being created. We also receive extra pay for company meetings that we attend outside our scheduled shifts.

Sandy12
Post 1

So what kind of compensation plans are available at different work places? I'm just starting out in the job market and am still trying to wrap my head around all this new information! Could anybody tell me what kinds of compensation plans I'd be looking at in entry-level jobs with a BA, or just what kinds of compensation plans your company has in general?

Thanks!

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