Compensation refers to all the extrinsic rewards that employees receive in exchange for their work.

Pay refers only to the actual dollars that employees receive in the exchange for their work.

Usually, compensation is composed of the base wage or salary, any incentives or bonuses, and any benefits.

1. Base Wage or Salary is the hourly, weekly, or monthly pay that employees receive for their work.

2. Incentives are rewards offered in addition to the base wage or salary and usually directly related to performance.

Examples of incentives include bonuses, commissions, and profit sharing and piece rate plans.

3. Benefits are rewards that employees receive as a result of their employment and position with an organization such as paid vocation, health insurance, life insurance, retirement pension

Compensation