There are two different types of compensation management: direct and indirect. Compensation is the combination of monetary and other benefits provided to an employee in return for their time and skill. The field of compensation management provides management with the ideal combination of the different remuneration types. The purpose of this type of program is to retain and motivate good employees.

Direct compensation is typically comprised of salary payments and health benefits. The creation of salary ranges and pay scales for different positions within the company are the central responsibility of compensation management staff. The evaluation of the employee and employer portions of benefit costs is an important part of a compensation package.

Effective compensation plans are routinely compared with other firms in the same industry or against published benchmarks. Although some jobs are unique within a specific firm, the vast majority of positions can be compared to similar jobs in other firms or industries. Direct compensation that is in line with industry standards provides employees with the assurance of fair compensation. This process helps the employer avoid the costly loss of trained staff to a competitor.

Indirect compensation focuses on the personal motivations of each person to work. Although salary is important, people are most productive in jobs where they share the company’s values and priorities. Common types of indirect compensation include free staff development courses, subsidized day care, opportunity for promotion or transfer within the company, public recognition, ability to effect change in the workplace and service to others.

An effective compensation package has a combination of direct and indirect compensation. Compensation management programs often include a salary range for each position, with incremental increases and annual reviews. During these review sessions both type of compensation management are addressed and presented to the employee as part of the total package.

Regular evaluation of the total compensation program and continual modifications is necessary to meet the changing needs of employees. Many firms invest time and resources to ensure that all employees are aware of the total compensation package that is available. This encourages employees to provide valuable feedback on the types of compensation programs that are most important to them.

Human resources departments are responsible for the creation and management of the compensation program. A compensation management professional usually has a degree in human resources and skills with data management, statistics, and report creation. Creative compensation packages must be in keeping with the company’s vision and identify to be effective.