Types of Compensation: The Ultimate HR Guide

Feb 21, 2024 | Employee Benefits

Josh Rust

Marketing Manager

Attracting and retaining top talent isn’t a mystery—it starts with exceptional compensation. 

Contrary to popular belief, it’s not just about throwing big numbers around. Top talent wants more than money. 

They want a great lifestyle. They want to be taken care of. And they want to make an impact.

There’s a whole universe of perks and benefits that allow you to give them these things.

According to this study, “reward” is the main element of the employment contract because it is the basic reason why people work. That means that you need to satisfy your employees’ reason for working for them to perform well.

And one of the best ways to do that is to provide them with different types of compensation.

So in this post, we’ll break down the components of HR compensation, offering insights that go beyond the basics. 

Get ready to transform your workplace. Let’s dive into the intricacies of the different types of compensation and pave the way for a team that’s thrilled to be part of your journey. 

What Is Compensation? 

In the world of HR, understanding HR compensation is the key to unlocking a satisfied and motivated workforce. 

Let’s break it down.

Compensation isn’t just a paycheck. It’s the comprehensive package that includes salary, bonuses, benefits, and those extra perks that make your workplace stand out. It’s the total value your employees receive for their hard work.

Why does it matter? For both employers and employees, understanding compensation is about creating a win-win scenario where both sides are happy.

For Employers

  • Strategic Decisions: Understanding compensation types allows employers to make strategic decisions that attract and retain top talent.
  • Employee Motivation: By offering a well-rounded compensation package, employers boost employee motivation and job satisfaction.

For Employees

  • Informed Choices: Employees armed with knowledge can make informed choices about their career paths.
  • Negotiation Power: Understanding distinctions in compensation types gives employees negotiation power when discussing their packages.

Both employers and employees have a say in creating compensation packages.

  • Employee Perspective: Employees should know their worth. They need to assess their skills, experience, and industry benchmarks to understand their market value.
  • Employer Perspective: Employers, on the other hand, need to conduct regular analyses to ensure their compensation packages remain competitive.

Understanding different form of compensation is a two-way street. When both employers and employees grasp its intricacies, it sets the stage for a workplace where everyone feels valued and rewarded. 

Let’s move forward to explore the specific types of compensation that can make a real difference.

Types of Compensation 

Understanding how you get rewarded at work involves two main categories: Direct and Indirect compensation. 

Let’s break down the two main examples of compensation.

Direct Compensation

Direct compensation is the expected compensation for employees. Here are some examples:

  • Base Salary: This is the fixed amount employees receive regularly. It’s the cornerstone of compensation, providing financial stability. Unlike bonuses or incentives, the base salary is predictable and forms the core of an individual’s earnings.
  • Various Bonus Types: Bonuses are additional payments beyond the base salary. They can come in various forms, such as performance-based bonuses tied to individual or team achievements and signing bonuses offered to attract new talent. These bonuses serve as motivators and rewards for exceptional performance.

Indirect Compensation

On the other hand, indirect compensation is not always expected—which is why it can make your company stand out if you do it right.

Here are some examples:

  • Benefits: Benefits constitute non-wage compensations provided to employees. Health insurance, retirement plans, and paid time off fall under this category. These benefits contribute to the overall well-being and work-life balance of employees, making the workplace more attractive.
  • Perks: Perks are additional advantages that go beyond traditional benefits. They include flexible working hours, remote work options, and services provided by the company. At Abenity, as an employee discount program provider, we can give you great deals for employee perks and benefits.

Equity and Stock Options

Equity and stock options are another form of indirect compensation.

However, it’s a topic that deserves a separate section because of its complexity. Here, we’ll dive into equity and stock options.

Equity Compensation

In startups and tech companies, equity compensation becomes prominent. 

ESOPs (Employee Stock Ownership Plans) and RSUs (Restricted Stock Units) are forms of equity given to employees. 

What are ESOPs? ESOPs let employees own shares in the company where they work. It’s like having a slice of the ownership cake. The shares usually take some time to fully belong to the employee, making sure they stick around for a while.

Why in Startups and Tech? Startups like using ESOPs to get talented people and keep them motivated. It’s a way to connect employees’ success with the company’s growth.

RSUs (Restricted Stock Units)

RSUs are another way companies share ownership. Instead of getting actual shares, employees get units that turn into shares after some time. The ‘restricted’ part means there’s a waiting time before employees fully own these units.

RSUs are often used in tech companies. They’re simpler than other stock options, giving employees a sense of ownership without the complicated stuff.

Important Things for Employees to Know

  • Being Part-Owners: For employees, a chance to be part-owners of the company they work for can be extremely alluring. But it’s not just a reward; it means they have responsibilities too.
  • Staying for a While: Equity compensation is like a promise for the long term. As shares become fully theirs over time, employees are encouraged to stay with the company. This helps build loyalty and makes their success tied to the company’s success.

Risks and Rewards

  • Good Things to Expect: Equity compensation can lead to good things, especially if the company does well. Employees might get more money as the company grows or if it becomes public.
  • Risks: But, it’s not all smooth. Changes in the company’s value can affect how much the equity is worth. Employees need to know about these risks and think about them when deciding.

So, understanding ESOPs and RSUs is a big step for employees thinking about equity compensation. It’s not just about getting something extra; it’s about becoming a part-owner of their workplace.

Non-Monetary Benefits

Non-monetary benefits encompass professional development opportunities, workplace amenities, and aspects of company culture. 

According to Lorman, 87% of millennials believe learning and development in the workplace is important.

These intangible benefits contribute to job satisfaction and the overall employee experience.

You can also explore new and innovative forms of compensation, such as profit sharing, peer recognition programs, and even cryptocurrency payments. These modern approaches aim to create a more dynamic and engaged workforce by aligning compensation with contemporary preferences.

However, both employers and employees may face hurdles, such as adapting to unconventional payment methods or addressing equity compensation risks. Acknowledging these challenges ensures a balanced understanding.

By delving into examples of compensation, you can understand the concepts of different types of compensation. Whether you’re an employer or an employee, it can help you make informed decisions.

How to Use Different Compensation Methods to Create a Winning Compensation Package 

Creating a compensation package that truly stands out can be difficult, but it’s simple when you know what top talent wants. 

So let’s explore practical strategies for blending different compensation methods to ensure your package is a winner.

Finding the right balance in compensation involves combining elements effectively:

  • Balance Matters: Strive for a mix of salary, bonuses, benefits, and perks that creates equilibrium.
  • Flexibility is Key: Adjust your combinations to match the changing landscape, considering what works best for your team and staying in tune with industry trends.
  • Understand Employee Needs: Keep your finger on the pulse of your workforce, tailoring combinations to meet their diverse needs and expectations.

Understanding the priorities of top talent is also essential. Here’s straightforward advice:

  • Competitive Financial Rewards: Top talent seeks competitive salaries and bonuses. Ensure your financial offerings stand out in the market.
  • Work-Life Harmony: Support a healthy work-life balance with flexible arrangements, paid time off, and other measures contributing to a better quality of life.
  • Appealing Perks: Unique perks make a difference. Offer benefits beyond the ordinary to showcase your commitment to employee growth and well-being.

Real Examples That Inspire

Let’s draw inspiration from the success stories of six real companies that have mastered the art of crafting exceptional compensation packages:


Look at Google, which adopted inventive strategies, setting them apart in the competitive market. Google is renowned for its creative approach to compensation, offering unique perks and benefits that go beyond traditional norms.

  • Google provides on-site services like laundry facilities, fitness centers, and gourmet meals, enhancing the employee experience.
  • With a focus on work-life balance, Google offers flexible work hours and remote work options, setting them apart in the competitive market.


Take Salesforce as an example, where a well-crafted compensation package contributed significantly to employee success and satisfaction. Salesforce is known for its commitment to employee well-being and success, reflected in its comprehensive compensation packages.

Their commitment to employee success is evident in personalized development plans, ensuring each employee has the tools to thrive.


Netflix stands out by tailoring their compensation to individual employee needs, showcasing flexibility in their approach. Netflix is known for its personalized approach to compensation, recognizing that one size doesn’t fit all.


Amazon adeptly navigates current trends, creating a compensation package that resonates with the desires of modern talent. Amazon is known for being at the forefront of industry trends, and their compensation strategies reflect a keen understanding of evolving workforce preferences.

  • Amazon offers competitive salaries and performance-based bonuses to attract and retain top talent.
  • The company fosters innovation through initiatives like the Amazon Future Engineer program, aligning with evolving workforce preferences.


Discover how Microsoft perfectly balances traditional benefits and innovative perks, fostering a dynamic work environment. Microsoft is recognized for offering a mix of traditional benefits and innovative perks, creating a workplace that caters to diverse employee needs.

  • Microsoft provides traditional benefits like health insurance and retirement plans for stability.
  • The company offers innovative perks such as on-site fitness centers, flexible work arrangements, and opportunities for professional development, catering to diverse employee needs.


Facebook (Meta) focuses on professional development opportunities within their compensation package, aligning with the aspirations of their workforce. 

Facebook emphasizes personal and professional growth, offering unique opportunities for career development within their compensation structure.

By exploring these examples, you gain insights into practical strategies for creating a winning compensation package that attracts top talent and fosters a positive and motivated workplace. 

Crafting an appealing compensation package doesn’t have to be a mystery; it’s about understanding your team, staying current, and learning from the success stories of others.

Get This Right, and You’ll Attract and Retain Top Talent 

In a nutshell, getting your compensation strategy spot on is the key to bringing in and keeping the best talent. 

It’s not just about understanding different compensating methods; it’s crucial for both your career growth and ensuring your organization thrives. 

Perks, often underestimated, play a vital role in a well-rounded compensation package, adding to employee satisfaction and loyalty. 

So if you want to go above and beyond to attract and retain employees, take the next step by exploring our exclusive perks report

This report provides a simple, side-by-side comparison of savings offered by the top discount providers in our industry. 

It’s a valuable resource to fine-tune your compensation approach, creating a workplace that top talent will find hard to resist.

Get The Best Employee Perks and Discounts

Abenity offers real savings for the people counting on you. Click below to see how you can supercharge your employee benefits package.

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