Definition of Compensation

timer Asked: Mar 3rd, 2019
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Question Description

Week 8 Final Paper

Your assignment is to write a short paper 2-3 page defining compensation, compensation philosophy, and critical components of a compensation strategy. Provide one solid example of an effective compensation practice/policy. Your paper will be graded on the following:

  • Definition of compensation
  • Overview of compensation philosophy
  • Critical components of a compensation strategy
  • Example of an effective compensation practice/policy

It is necessary to use a professional style/format with headings and sub-headings. Use literature to support your discussion. Use APA style (6th edition) to cite any references and include a References page.

The ultimate goal for this paper is to demonstrate the ability to research and respond professionally to an assignment. Keep in mind that this may be similar to an assignment your employer may give you, so make sure your paper reflects thorough responses to each one of the questions that applies the material we have covered in class!

Please see the attached as well. Thank you.

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 It is paramount and evident that for Companies to maintain a competitive advantage, they have to take care of the interest of the employees. This can only be achieved through rewards such as the compensation of the employees. To this extent, therefore, this paper seeks to explore the meaning of compensation, give an overview of compensation philosophy, outline the critical components of a compensation strategy and give an example of effective compensation practice and policy.

Compensation can simply be defined as the cash and non-cash payments that an employer give to any employee for the good work he or she has done for the business. It can also be termed as any form of monetary benefit that employees receive from the employer for the services they render to the Company. They may include overtime wages, tip income, bonus pay and sales commission among others (Gregory, Long, Kloppel, Razi, Scheller, Minkova, & Mills, 2018).

This can simply be defined as the formal statement that employers have that stipulates the Company's position concerning employee compensation. Normally, compensation philosophies are drafted and developed by the human resource officers and the managerial team. The main goal of the compensation philosophy is to create an atmosphere where the Company attracts, retain and motivate the employees (Miller, 2015). For a Company to remain competitive, the compensation philosophy should be reviewed and updated sporadically based on factors that may affect the business. It is good to note that a good compensation philosophy should avoid any form of discrimination based on color, race, age, sex or place of origin. For instance, a good compensation philosophy should ensure equal pay for equal work for both men and women working under similar conditions (Miller, 2015).

 Compensation needs to be handled strategically and attentively to stimulate success of any Organization. To ensure that this is achieved, there are various components of compensation that an employer must consider while developing the compensation philosophy. They include:

 Salary ranges: For the Company to maintain a competitive edge, it is always to benchmark with other Companies within the same industry and later determines the salary ranges of the employees. 

 Salary audits: It is always advisable to perform predictable salary audits to ensure that the salary ranges are in accordance to the required rules and laws and also to ensure that they reflect current compensation trends in the market.

 Legal compliance: A good compensation strategy should make sure that the Organization complies with all laws and regulations of the federal states.

 Budget allocation: A good compensation strategy should consider setting aside the cash that will be used specifically for compensation and other benefits.

 Job description: A good compensation strategy should ensure that job description is well written down Omran, Mohd, Almelian, Dawood & Al-Izzi, 2018).

A good example of an effective compensation policy is a strong incentive plan for employees’. It is paramount that employers motivate their employees through various incentives. Consequently, these employers incorporate these incentives in their policies. For instance, a Company may decide to reward the best performing employees in the Organization. Incentives are normally based on factors such as performance, sales, and efforts (Omran, Mohd, Almelian, Dawood & Al-izzi, 2018).


 In conclusion, for every Company to survive, they must adopt a compensation policy that will enhance the performance of the employees. Motivating the employees through benefits and rewards trigger them to offer their best in terms of service and delivery consequently benefiting the Organization at large. To this end, therefore, the Organization must learn how to compensate their employees and how to adopt viable compensation policies and strategies that will favor the growth of the Company.



Gregory, S., Long, J. D., Kloppel, S., Razi, A., Scheller, E., Minkova, L., ... & Mills, J. A. 

 (2018). E11 Compensation in Huntington's disease. 

Miller, J. E. (2015). The Importance of a Compensation Philosophy: Redux. Benefits 

 Quarterly, 31(2), 61.

Omran, M. A., Mohd, I. I., Almelian, M. M., Dawood, M. A., & Al-izzi, M. Y. (2018). Shunt 

 Hybrid Active Power Filter Based on Two Compensation Strategies with PI and Fuzzy 

 Logic Controllers. Journal of Telecommunication, Electronic and Computer Engineering 

, 10(1-3), 75-79.

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