4  Types of compensation

Compensation is categorized into different types based on monetary and non-monetary rewards. The two main types are direct compensation and indirect compensation, with an additional category of non-monetary compensation.

4.0.1 1. Direct Compensation (Financial Rewards)

These are monetary payments made directly to employees for their work.

  1. Basic Salary/Wages – Fixed earnings paid regularly (hourly, weekly, or monthly).
  2. Incentives & Bonuses – Extra payments based on performance, such as:
    • Performance Bonuses – Rewarding high productivity.
    • Profit-Sharing – Employees receive a share of company profits.
    • Commission – Sales-based earnings, common in retail and sales jobs.
  3. Overtime Pay – Additional pay for extra hours worked.

4.0.2 2. Indirect Compensation (Employee Benefits)

These are non-cash benefits provided to employees as part of their overall compensation.

  1. Fringe Benefits – Employer-provided benefits like:
    • Health insurance
    • Paid vacation and sick leave
    • Retirement benefits (pension, provident fund)
  2. Perquisites (Perks) – Special benefits for executives or high-level employees, including:
    • Company car
    • Club memberships
    • Housing allowances
  3. Stock-Based Compensation –
    • Stock Options – Employees can buy company shares at a lower price.
    • Employee Stock Ownership Plans (ESOPs) – Employees receive company shares as part of their benefits.

4.0.3 3. Non-Monetary Compensation (Psychological & Career Growth Benefits)

These are rewards that enhance job satisfaction without direct financial incentives.

  1. Career Growth Opportunities –
    • Training and development programs
    • Promotions and skill-building initiatives
  2. Recognition & Work-Life Balance –
    • Flexible work arrangements (remote work, flexible hours)
    • Employee appreciation programs (awards, certificates)
    • Wellness programs (gym memberships, mental health support)