Direct compensation refers to the compensation that an employee receives directly from his or her place of work. This includes the base salary and any incentive pay.
Direct compensation can be in the form of wages, salaries, commissions and bonuses that an employer provides regularly and consistently. Compensation that isn’t considered direct includes benefits, retirement plans, leaves, employee services and education. It is wise for employers to distinguish between direct and indirect compensation in their benefits packages and to acknowledge the power that indirect compensation can play in getting and retaining employees, especially if the employees are otherwise satisfied with their direct compensation.
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