What Is Compensation?

Compensation

 

There are two types of compensation: intrinsic and extrinsic. Intrinsic compensation reflects a person’s psychological state and includes monetary rewards and nonmonetary benefits. Employees may obtain intrinsic compensation as a result of their work, including the satisfaction of a job well done. While both types of compensation are important, intrinsic compensation represents a distinct element of a job. In addition to pay, workers may also receive a sense of personal fulfillment or accomplishment.

Both the employee and employer must understand what is considered fair and what isn’t. There are many components of compensation. The most important component of the compensation package is the amount that is paid to a worker. It can include a combination of factors. The goal of compensation is to provide the best possible working conditions. Some examples of intrinsic compensation are financial incentives for good performance, opportunities for advancement, and public recognition for service. The key is to understand what constitutes a reasonable amount.

Intrinsic compensation is the sum of the rewards an employee receives based on their work. The types of internal reward that are intrinsic include subsidized daycare and free staff development courses. Similarly, extrinsic compensation focuses on the reward of membership in a company rather than individual satisfaction. Both forms of compensation have their merits and drawbacks. Once you understand them, you can make an informed decision about what is fair.

Among the various types of compensation, the best compensation is the one that supports an employee’s wellbeing. The intrinsic type reflects a person’s psychological mind-set while the extrinsic type is dependent on the job, such as the pay scale, bonuses, and benefits. The extrinsic form of compensation, meanwhile, is the one that is more subjective. It also has an element of morale.

In addition to cash, intrinsic compensation also includes personal encouragement. People are most productive when they share the values of the company with whom they work. In addition to cash, employees can get access to free staff development courses, subsidized daycare, and opportunities for promotion. The purpose of these benefits is to motivate workers to work more productively for the company. These components are not the only components of compensation. The most valuable and effective types are those that promote the wellbeing of the organization.

Besides cash, there are other components of compensation. The core part is the base pay. This consists of hourly and annual salaries. There are also cost-of-living adjustments, merit and incentive payments, and seniority pay. In addition to intrinsic compensation, the other types of compensation include bonus payments, incentives, and service to others. These components are important in a compensation plan. The value of the benefits depends on how the company is able to encourage its employees to work more productively and to achieve its goals.

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