Essay About Basic Types Of Compensation And Contractual Pay

Compensation
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Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction (HR, 2007). Compensation is the total reward received by an employee in exchange for services performed for an organization. Wages for employees is one of the largest costs for any employer. There are two basic types of compensation within an organization: direct and indirect. Direct compensation includes salary and wages paid. This includes contractual pay, overtime, payment for unscheduled time, workers compensation payments and any retroactive pay. Holidays and leave Payment for holidays and leave is also included in direct compensation. Leave includes sick time, funeral leave, maternity leave, military duty or other paid time away from work. Bonuses all forms of bonuses are included in direct compensation. These include bonuses for performance, longevity, signing and others. Indirect compensation of which the employee is the beneficiary, but does not receive directly. Such compensation includes contributions to retirement, tax contributions, and medical and other forms of insurance. Overall of Compensation is an plan used to show and answer the many concerns by employees, such as, how the workforce are to be paid, when will compensation increase, and at what period of the working year are bonuses most appropriate. This plan is available to employees so that they can have a clear idea of the organizations philosophy and can determine their treatment by the organization, as it relates to compensation, not just at present but also in the future (Erisa, Ojimba 2004). The goal of a pay philosophy is to attract, retain, and motivate employees. For companies in the private sector, this usually requires a competitive pay philosophy. For companies in the public sector, this means a well-rounded philosophy, with a focus on benefits and work life. Employees are needed to be paid fairly and wages offered must be based on the value of amount of work completed. There are three compensation strategies companies use a mixture of the three main components of compensation are Base pay, also called salary;