Companies must take compensation management seriously or else they are at risk of losing talented human capital.
Compensation can either be the pay that an employee receives for their work that they perform or an extra reward on top of normal compensation. Compensation can also be recognition, extra vacation time, or some other benefit that an employer offers its employees.
Compensation management is a huge expense for companies, and the proper distribution is always a concern; managers want to ensure that high performing employees receive bonuses while under achieving employees receive no reward until they improve.
Compensation is usually codified in a contract that states how much an employee should be paid for the work that they perform¹. For some employees, compensation for the work they perform is the most important motivating factor that they can receive. Other employees see extra vacation time, recognition, and other forms of compensation as highly motivating factors.
1. Compensation Management - Meaning and Important Concepts. Retrieved from http://www.managementstudyguide.com/compensation-management.htm