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Compensation

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Definition:

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.

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Also Known As: pay, salary, comp
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