Compensation is the total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required.
Compensation is based on:
- market research about the worth of similar jobs in the marketplace,
- employee contributions and accomplishments,
- the availability of employees with like skills in the marketplace,
- the desire of the employer to attract and retain a particular employee for the value they are perceived to add to the employment relationship, and
- the profitability of the company or the funds available in a non-profit or public sector setting, and thus, the ability of an employer to pay market-rate compensation.
Compensation also includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and checks, and sales commission. Compensation can also include non-monetary perks such as a company-paid car, stock options in certain instances, company-paid housing, and other non-monetary, but taxable, income items.