HR Toolkit

Compensation & Benefits

Defining Compensation

Compensation (also known as Total Rewards) can be defined as all of the rewards earned by employees in return for their labour. This includes:

  • Direct financial compensation consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals
  • Indirect financial compensation including all financial rewards that are not included in direct compensation and understood to form part of the social contract between the employer and employee such as benefits, leaves, retirement plans, education, and employee services
  • Non-financial compensation referring to topics such as career development and advancement opportunities, opportunities for recognition, as well as work environment and conditions

While employees tend to focus on direct financial compensation when contemplating their rewards, according to the McKinsey Journal, for individuals who are relatively satisfied with their salary, it is the non-financial rewards that tend to be more effective in contributing to long-term employee engagement.

Examples of Financial vs Non-Financial Compensation

Examples of Financial vs Non-Financial Compensation

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