Compensation is an employee’s regular salary or hourly pay, but also any other types of wages such as overtime wages, bonus pay, retirement benefits, health benefits, stock options, and other non-financial incentives.
What are the types of compensation?
There are two types of employee compensation, direct and indirect.
Direct compensation can include:
  • Hourly: This is a dollar amount per hour paid to both skilled and unskilled employees. There is usually no guarantee of a set amount of hours to work per week.
  • Salary: This is the most common form of compensation for professional employees.
  • Overtime Pay: Based on MOM Singapore, The overtime rate payable for non-workmen is capped at the salary level of SGD 2,600, or an hourly rate of SGD 13.60. For overtime work, employer must pay at least 1.5 times the hourly basic rate of pay. Payment must be made within 14 days after the last day of the salary period.
  • Commission: If compensation is based on the volume of sales or a standard of performance, it takes the form of commission. This may also be called piecework or piecemeal compensation. Some of the industries that may use commission as compensation include factories, auto dealerships, real estate, sales, and investing.
  • Tips: The amount is discretionary according to each customer and shouldn’t be negotiated or dictated by an employer. If tips are given via credit or debit card, the employer must reimburse the employee for them.
  • Bonuses: To incentivize either salaried or hourly workers, financial bonuses may be offered on top of their regular compensation. Other reasons for giving bonuses could be for employee retention or for when a company meets certain goals.
Indirect compensation can include:
  • Insurance Benefits: These can take the form of health, dental, vision, disability, and life insurance. These benefits can be costly so most small businesses don’t offer them until they reach 50 or more employees, at which time offering health insurance is mandated by law.
  • Retirement Benefits: This is a low cost and simple benefit that businesses both large and small often offer their employees.
  • Other Benefits: Paid time off, vacation time, transportation discounts, and other similar benefits are other forms of indirect compensation that can be used to attract and retain valuable employees.
  • Incentives: Indirect incentives can be anything from a company-paid cell phone to the use of a company car.
  • Equity-Based Programs: A sophisticated method of compensation is an equity-based program where an employee is tied to a company via a percentage of ownership.