HR Glossary  >   Compensation And Benefits

Compensation And Benefits

What is Compensation And Benefits?

Compensation and benefits are the salaries or other monetary and non-monetary benefits offered to the employees by the firm. It is one of the essential aspects of HRM since it contributes to employee motivation and retention. Its policy helps in recognizing and rewarding the workforce appropriately, according to their contribution. It is categorized as follows:

  • Fixed pay
  • Variable Bonus
  • Benefits
  • Equity-based compensation

For example, a multi-national company provides health insurance to all its employees and their family members. This is a type of non-cash benefit.


Trending Terms That People Also Look Up

Frequently Asked Questions about Compensation and Benefits

How many types of compensation are there?

Compensation can be divided into two major types: direct and indirect. These types are further categorized into many types as follows:

Direct compensation can be further subdivided into:


Salary compensation is the most generic one offered to employees annually. The payout is twice a month after dividing on a weekly basis.


Offered to skilled and unskilled workers, this compensation type is paid per hour. But there is no limit on how much to pay.


To retain skilled employees or achievement of significant targets, bonuses are paid in addition to the regular salary.


This is given against the achievement of a certain volume of sales or performance. Commission can normally be found in real estate, dealerships, factories, sales, etc.


Overtime incentive is provided to employees who work hours more than specified to meet project deadlines. It is also made compulsory by the Government of India.

Indirect compensation can be further subdivided into:

Retirement benefits

Employees receive these benefits after resigning or retiring from their job duties.

Equity-based plans

When the employee is given a percentage of company ownership, the benefits are said to be equity-based. This can be most complex for employers.


Many companies provide health insurance to their employees, but it can be pretty costly.

Other benefits

Transportation, time-off, vacation, etc., can be different types of compensation advantages employees may receive.


How do compensation and benefits differ from each other?

Compensation is financial assistance offered to the employees such as salary, overtime, bonus, etc. On the contrary, benefits can be both financial and non-financial, given against the employees' performance and efforts.

Why are compensation and benefits essential for companies?

Employees should be assisted with compensation and benefits as it forms a crucial aspect of the human resource of the organization. It plays a vital role in uplifting employees to perform their best at every stage of work and come up with better ideas. For an organization, it helps retain the best employees for a longer time.

What is compensation and benefits in HR?

Compensation and employee benefits are the remuneration that the organization pays an employee for their hard work. It helps in motivating the employees and even encouraging them.

Modify your HR and payroll tasks with factoHR today

Let your HR and workforce focus on most important business decisions while factoHR can reduce the burden of daily activities of the organization.

Request Free Trial