What are the different types of compensation systems?

Some workers receive an annual bonus for holidays or simply to celebrate a year of good service.

The main focus in understanding the different types of compensation systems is the fact that the basic principle underlying all forms of compensation for work performed involves some form of economic compensation in exchange for services rendered. Compensation is the key word for understanding compensation systems and can come in a variety of formats. It can be in the form of base salary, deferred pay, benefits, commission or incentives.

A sales team can receive a base salary and commission.

The base pay or salary is the most common type of remuneration system, as it is the most immediate payment for services rendered. This type of compensation system is classified as a base rate scheme, as the exact amount of compensation in this compensation system is based on the exact terms of the contract between the employer and the employee. That way, the employee knows exactly how much to expect and what time to expect pay. For example, if the contract states that the employee will be paid on the first day of each month, the employee may have the right to complain when the first day of the month passes and he or she has not received the expected payment.

The base pay, or salary, is the most common type of pay system.

Another aspect of pay systems that is less immediate than salary or wages is the deferred pay system which is cumulative in nature. This is still linked to the salary, as it is still part of the remuneration earned by the employee in the course of work. Deferred compensation may include pensions and other types of retirement packages that employees may receive if they meet certain terms or conditions of their employment contract. In this sense, this type of remuneration system can be classified as an employment incentive or benefit.

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Insurance is another type of compensation system that can be classified as a benefit. To a large extent, benefits do not have to be monetary, as they can come in many other beneficial and compensatory forms that do not necessarily involve money but still benefit employees economically. An example of such a benefit is the provision of housing for an employee as part of the employment package. This type of employment benefit generally does not involve the remittance of cash to the employee, as the employer is usually responsible for any payment related to accommodation. Still, the agreement offers the employee an economic benefit by relieving him of the burden related to housing expenses.

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