Main Compensation Components Overview

The compensation policy defines several compensation components, which provide the security for the employees (usually by providing the employees with the base salary) and driving the performance, which is important for the organization (usually by giving employees to improve their personal income by receiving the bonuses and incentives).

The good definition of the compensation components is essential basis for the successful compensation policy and for the motivation and confidence of employees in the organization. The organization without a good definition is driven by the external environment and the employees and managers are dissatisfied as they argue by the external world and they do not focus on the compensation policy inside the organization.

The main compensation components are:

• Base Salaries – usually the payment, which is agreed between the organization and the employee with no attachment to the individual or company performance.
• Bonuses – performance driven variable pay, which depends on the performance of the organization and the individual results of the employee
• Incentives – performance driven variable pay, which depends just on the performance of the individual employee and has no relationship with the results of other employees and the organization
• Benefits – other compensation items provided to employees to keep the retention in the organization, it has no link with the performance, but it can be linked with the seniority of the employee and the length of the employment.

The main compensation components usually define the total cash of the employee. Total cash is the total sum of money received by the employee with the relation with the period, it is usually measured by the calendar year.