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Steven L. Thomas


Compensation is the total package of tangible returns (financial rewards, services, and benefits ) provided by the organization to employees in return for their labor. The compensation package includes two basic components: (1) direct pay, and (2) indirect pay or benefits ( Milkovich and Newman, 1993 ). The compensation system includes the process by which the total compensation package is designed and administered. Direct pay includes (1) base pay (the fixed portion of pay that includes wages or salary), (2) base pay add‐ons (such as overtime pay, cost‐of‐living adjustments, and shift premiums), and (3) pay for performance ( bonuses , merit pay , and incentive pay ). Indirect pay consists of services or benefits provided to employees. Some benefits, such as social security benefits , are mandatory benefits and are legally required of all employers. Other benefits are offered at the discretion of employers and may include paid time off (vacations), health insurance plans, deferred income and income continuation plans ( pension plans ), and income equivalents such as childcare benefits ( see childcare benefit ) and employee discounts ( Henderson, 1994 ). Contemporary compensation administration frequently embraces a strategic approach where the mix and level of direct pay and benefits are chosen to reinforce the organization's overall strategic objectives ( Gomez‐Mejia and ... log in or subscribe to read full text

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