Compensation definition

Compensation refers to the remuneration given to an employee in exchange for their services. The level of compensation offered is dependent on a number of factors, including salaries paid by similar companies for similar roles, the employee’s skill set and productivity and the company’s current and projected financial strength.

Executive compensation is a narrower term that refers to financial remuneration paid to senior executives, most commonly the CEO. Compensation at this level often includes a range of options such as company stock and bonuses. Executive pay has risen in the past 10 years relative to that of the average employee’s salary.

Compensation management is a business function that allows businesses to attract and retain key talent, keep current employees happy and enable the business to function profitably.