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Compensation: The Appreciation of Employee Performance

When entering the workforce, the term “compensation” is familiar to our ears. Compensation or remuneration is a very common thing in the corporate environment. It is because all employees in the company, without exception, will get paid. In this article, we will discuss the meaning, purpose, types, and forms of compensation contained in the company.

Definition of Compensation

Compensation refers to the payment that an employee receives in return for his/her services to the organization. That means the company provides it in many forms, whether money, goods, facilities, or anything else for remuneration. This system provides a sense of transparency and fairness to employees. Employees who have worked hard and served the company will certainly get greater payment when compared to employees who only work roughly.

The Purpose of Compensation 

The purpose of compensation is fairness. The company will give salary to the employees every month according to the agreement and the workload they have done. Employees who have a heavy workload will usually get a higher salary or wages, and vice versa. 

In addition, compensation is also given as a form of appreciation for outstanding employees. This is done to preserve good performance employees. For employees who have worked hard for the company, always doing their best, it is certainly the pride of the company. The company will retain exemplary employees like this because it will greatly help the company to achieve its goals. Not only that but remuneration is also a boost to motivate employees’ performance and quality. Other employees will be provoked and become enthusiastic in their work because they know that their hard work in the company is highly appreciated.

Sometimes the company also gives remuneration to employees who comply with company regulations and do not commit violations. For example, for employees who always come on time to the office, employees who always do their work before the deadline, employees who behave well, and so on. This compensation is also a form of appreciation of the company to its employees.

Related article: 5 Ways to Optimize Your Payroll Management

Types of Compensation 

The following is a classification of the three types of compensation that companies provide to their employees.

Direct financial compensation

This type of compensation is given in the form of money directly. Examples of direct financial compensation include basic payments (such as salaries or wages), incentives or bonuses, and allowances.

Indirect financial compensation 

The Company provides this financial compensation to its employees in the form of social welfare programs, such as employee insurance, pension plans (retirement). Various types of leave, such as annual leave and holidays, are also part of indirect financial compensation. Likewise through office facilities, such as vehicles and office space. 

Non-financial compensation 

Employees receive non-financial compensation in the form of a work atmosphere, corporate culture, training, and challenging job duties and responsibilities assigned to them. This type of payment is the main weapon to encourage an increase in employee productivity.

Forms of Compensation

source: freepik.com

Apart from the type, remuneration can also be divided based on its form into five forms of compensation, including:

Appreciation of outstanding employees 

For employees who have high achievements, the company usually will give various bonuses. To be sure, the company intends to appreciate outstanding employees while at the same time motivating other employees to participate in achievements to increase company productivity.

Wages or Salary

Remuneration that we know best is in the form of salary or wages. Many do not know that the two are different. Salary is a financial compensation with a periodic system, meaning that the company gives the salary in weekly, monthly, and even yearly periods. While wages are remuneration a company gives usually in units of work hours. So, the longer you work, the higher your wages will be. 


The company gives this compensation outside the basic salary or wages. Generally, companies provide incentives when sales targets exceed, or there are extra profits and commissions due to high employee productivity.


Just like incentives, the company gives allowances outside of the basic salary. The company provides benefits in the form of health insurance, employment, or life insurance. There are also benefits in the form of recreation or employee vacations as well as pension funds.


Facilities are also a form of compensation. This remuneration includes all of the facilities the company provides for all employees. For example, company official vehicles, work support facilities (such as computers), a large parking area, and a comfortable office layout and atmosphere.

Related article: 7 Tips to Determine a Proper Salary Range for Employees


Compensation is a reward that a company gives to employees for their time and performance in the company. Remuneration is fluctuate to the level of productivity of the employee’s performance, workload, and company conditions. The company is also happy to provide remuneration to motivate the improvement of the work quality of its employees so that they can work well and even get achievements. 

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Anak Agung Istri Karlita Aprilianti
Junior Creative Content Writer at Hashmicro.


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