Difference Between Compensation and Benefits


Main Difference

The main difference between Compensation and Benefits is that Compensation relates to pay or the exchange in monetary terms of the work done by the employee and is paid by the employer and Benefits do not involve money but presented in the form of value.

Compensation vs. Benefits

Compensation is a monetary value paid to the employee for work done, whereas benefits are non-monetary, and they are an oblique form of compensation offered on top of cash payments. There are different types of compensation include basic compensation offered on weekly, fortnight or monthly base. The other type is commission basis compensation which is fixed by the level of revenue generated from sales of a particular commodity. On the other hand, some forms of benefits required by law like unemployment compensation, sick as well as holiday pay. Employees can also select desired benefit package from health insurance, vacation, subsidized meals as well as company housing among others.


Compensation is performance-based. This based on individual, group or organizational, conversely, benefits not based on performance, but they are membership-based. The employees are allowed to their benefits regardless of performance. In compensation, employees cannot determine their salaries.

In compensation, factors such as the level of qualification and experience are usually taken into account when establishing the level of compensation awarded to a particular individual under the company. On the other side, employees can choose their benefits packages as they see fit since they are the ones who know what they need. Compensation is said to attract as well as to retain employees within the organization. Benefits, on the other hand, are intended to improve employee satisfaction, improving their well-being as well as motivating them so that they can enhance job satisfaction.


Comparison Chart

The compensation denoted to the overall remunerations or incomes available to the employees, both as financial or commercial premiums and remunerations.Benefits denote the non-financial premiums or rewards presented by the head to the employee in place of the service delivered by him/her.
Direct natureIndirect nature
To fascinate and keep competent workers.To encourage workers to enhance their performance.
money or kindIn a kind
wholly-taxpayer or somewhat exempt.Exempted or somewhat exempted.

What is Compensation?

The term compensation relates to all forms of recompense or pays to employees rise from their work, and this offered in monetary value. Various key features differentiate compensation from benefits. Some of these characteristics determine the level of compensation one gets for his services rendered to the organization.

Types of Compensation

  • Basic Compensation: Some companies provide basic salaries as compensation to their employees. People who are a part of the same grade get equal basic pay. However, people who have high qualifications and have advanced skills and experience mostly get higher pay compare to their counterparts with lower levels of education as well as experience and skills.
  • Performance Related compensation: There are different types of compensation plans, and some are performance-based. For example, the pay can be adjusted to reflect some performance measure, and that can be individual productivity, workgroup or departmental productivity. This can also involve unit productivity or total organization’s profit performance.
  • Piece Rate Compensation Plan: This refers to vendors in particular where they get a definite percentage of the total revenue they produce per day. It is like the more revenue you produce, the more money you earn.
  • Compensation Schedule: Some companies preferred to pay their employees every month while others can choose either weekly or fortnight payment days. Some companies figure or compute the pay for their employees on an hourly basis.

What is Benefits?

During the current period, it noted that employees expect to earn additional apart from cash alone. This is called benefits, and some people choose to call them fringe benefits, and they are non-monetary forms of compensation. Benefits provided on top of the cash payment to the employees in an offer to improve the welfare of the employees along with to encourage them. Benefit plans are specifically assigned to fulfill the needs of the employees, and they also oriented towards the total objectives of the organization. Some of the objectives of offering employee benefits include the following: improve employee satisfaction, attract new employees as well as to satisfy the employees already working within the company.

Types of Benefits

There are different types of benefits, and employees have the opportunity to choose benefit packages that suit their needs. Some benefits required by law, and these include sick and holiday pay as well as unemployment compensation. On the other hand, it observed that employees could choose their desired benefit packages from the following: vacation, health insurance, company housing, sponsored meals as well as educational funding for children.

Key Differences

  1. Compensation applied to intend the fiscal and non-fiscal grant-funded to the employees for the provision of services provided by them to the association. On the contrary, benefits comprise the non-fiscal funds made to employees under their salary or earnings package for their contribution to the association.
  2. Compensation is a giving in money or compassionate, and benefits are the concern in compassionate, given for the services presented.
  3. Compensation supports in to fascinate and hold capable and skilled peoples. As against, benefits encourage staffs in enhancing their action standard, to use better bounds.
  4. Compensation fits in straight payment or salary, as it correlated to the act of the underling or employee. Contrariwise, benefits are a sort of secondary payment, that provided as a situation of employment.
  5. The constituents of compensation are whether completely taxed or partly exempt from income tax. Contrasting, benefits offered by the head or employer to the underling are whether without income tax or partly exempt from income tax.


In conclusion, compensation itself is performance-based, and it is designed to fascinate as well as to retain the already existing employees in the organization. In contrast, benefits are membership-based, and employees are authorized to them, and employees can choose their desired benefit package.