Compensation can be defined as all of the rewards earned by employee in return for their labour. This includes;
a)        Direct financial compensation consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals.
b)        Indirect financial compensation including all financial rewards that are not included in direct compensation and can be understood to form part of the social contract between employer and employee such as benefits, leave, retirements plan, education and employee services.
c)         Non-financial compensation; referring to as issues such as career development opportunities, opportunities for recognition as well as work environment and conditions in determining effective rewards, however, the uniqueness of each employee must also be considered. People have different needs or reasons for working. The most appropriate compensation will meet these individual needs. To a large degree, adequate or fair compensation is in the mind of the employee.
A good compensation strategy includes a balance between interval equity and external competitiveness. Compensation and benefits affects the productivity and happiness of employees as well as ability of your organization to effectively realize its objectives. It is to your advantage to ensure that your employees are creatively compensated and knowledgeable to their benefits.
EQUITY:        Equity or fairness has been mentioned as a key component in creating a successful compensation policy. It can be defined in the following three ways;
1.        Workplace equity refers to the perception that all employees in an organization are being treated fairly.
2.        External pay equity exists when employees in an organization perceive that they are being rewarded fairly in relation to those who perform similar job in other organization
3.        Internal pay equity exists when employees perceive that they are being rewarded fairly according to the relative value of their jobs within an organization.
Perceived inequity or unfairness either external or internal, can result in low morale and loss of organizational effectiveness. For example, if employees feel they are being compensated unfairly, they may restrict their efforts in leave the organization, damaging the organization overall performance.
The research therefore intends to investigate compensation policy as means of attracting and retaining employees.