Understanding Compensation vs. Rewards: How Do They Impact Employee Motivation?

Understanding Compensation and Rewards

Certainly! Compensation refers to the financial and non-financial benefits that employees receive in exchange for their work. This includes wages, salaries, bonuses, and benefits such as health insurance and retirement plans. On the other hand, rewards are typically performance-based and are given to employees in recognition of their achievements or contributions. Rewards can come in various forms, such as recognition programs, incentives, promotions, or even non-monetary rewards like extra time off or special privileges.

In summary, while compensation is the fixed regular payment employees receive for their work, rewards are additional incentives or recognition given to employees for their exceptional performance or efforts. I hope this helps clarify the distinction between the two concepts!

Hi Samith, compensation means the entire package that is paid to an employee, which includes all monetary and non-monetary emoluments, i.e., salary, PF, and other such benefits. Rewards are one part of compensation; it's a process that helps in reinforcing behavior. In layman's language, a reward is a monetary or non-monetary recognition given to an employee in lieu of better performance.

Hope this answers your queries. Let us know if you have any other doubts.

Regards,
Archna

Compensation includes a monthly salary and all benefits like PF, ESI, medical, gratuity, and rewards. A reward is the amount or benefit that one will receive for their extraordinary performance.

Regards,
Padam

I agree with Archana, HR. Otherwise, compensation is given for the work done for the company under the job profile. Rewards may be given for other supportive social and environmental activities and may not be regular.

Thank you very much for answering my question. I was confused because some people use the term "reward management" for compensation management.

Kind regards,
Samith

Could anybody give me an example of a reward, please? I suppose a reward could be a promotion, an enhanced job profile, a special increment in salary, praise, recognition, etc. Could you tell me, please, if I am right? If yes, then what are other forms of reward? If not, then what actually is the reward? Please satisfy my query.

Yes, Ritu. A reward encompasses all these and more. Even a good working environment can be a reward. A paid vacation can be a reward. A promotion, an increment—these are all rewards. Anything given to an employee for good performance is a reward, apart from the salary and other benefits he/she receives.

Regards,
Archna

As mentioned above by Archana, does compensation also include non-monetary benefits? If so, what kind of benefits could they be? I believe they may include accommodation, healthcare, transportation, etc., but these are not typically part of the CTC. Please help me understand this better.

Hi everyone, just went through the above discussion on Comp Vs Reward. I have a few points to make here:

The Psychological Difference Between Compensation and Rewards

What I feel is there is no such difference between Compensation and Rewards; I believe these words are interchangeably used by organizations. The only difference I feel is more of a "PSYCHOLOGICAL" nature. Now, why I am calling it Psych... is that using the word Reward gives a positive feeling to employees for the skill, time, and knowledge they have contributed to the company; reward gives them a feeling of receiving a return for something that they willingly offered to the company. On the other hand, when I use the word COMPENSATION, it connotes a "negative word" of paying employees for what they provided, which they were not willing to give, but since you pay them, they offered it to you.

This is just my perception of these two words. Please feel free to comment!

Regards,
Shweta

Agree with Shweta, but I have a question: is there any practical difference between compensation and benefits?

As Ms. Swetha said, "reward" is a positive term, and "compensation" is a negative term. When we say "reward," we feel happy as it accompanies a happier event/contribution. In contrast, when we say "compensation," it typically follows a negative scenario such as exhausted labor or a less joyful contribution. Additionally, the term "reward" is commonly used for discretionary or voluntary payments, while "compensation" is typically associated with legal payments. In legal contexts, therefore, the term "compensation" is more appropriate than "reward."