Job satisfaction includes challenging work, interesting work assignments, fair rewards, competent supervision, and rewarding careers. The quality of work life and the psychological rewards of employment are very important. It is not certain, however, that many of us would continue to work if it were not for the money we earn. This document establishes the definition of compensation, an overview of the compensation philosophy, the critical components of a compensation strategy, and an example of an effective compensation practice. (www.indiana.edu/~busx420/Book.../chap09.doc) Compensation is the compensation an employee receives in exchange for his or her contributions to the organization. This is an organized practice that involves the provision of monetary and non-monetary benefits to employees (citehr.com). Employee compensation includes all forms of compensation and rewards received by employees for performing their jobs. Direct compensation includes employee wages and salaries, incentives, bonuses and commissions. Indirect compensation includes the many benefits provided by employers, while nonfinancial compensation includes employee recognition programs, rewarding jobs, and flexible work schedules to accommodate personal needs (www.indiana.edu/~busx420/Book.. ./chap09.doc) Formalized compensation objectives serve as guidelines for managers to ensure that salary and benefit policies achieve their intended purpose. The most common objectives of compensation policy include rewarding employees' past performance, remaining competitive in the job market, maintaining pay equity among employees, motivating employees' future performance, maintaining the budget, attracting new employees, and reducing unnecessary turnover. It is important to the body… half of the document… and conducted annually, often in conjunction with performance reviews. Bonuses and incentives are used by many for-profit companies and are not typical components of nonprofit organizations. remuneration policies. As with base salary and salary increases, decision criteria should be established and communicated for awarding bonuses and incentives. Typically this type of compensation is linked to specific performance results with respect to goals and objectives set at an individual and organizational level. http://hrcouncil.ca/hr-toolkit/compensation.cfm Establishing compensation practices requires consideration of specific objectives such as employee retention, compensation distribution and budget analysis. Organizations must balance each of these objectives and remain competitive in order to motivate employees and maintain fairness in the compensation program.