Difference Between Compensation and Remuneration

Compensation vs Remuneration

Finding the difference between Compensation and Remuneration is indeed a tough one. The two terms have been used interchangeably or defined the same way countless number of times that it is difficult to draw a distinction. However, a common mistake is to think of Compensation as having the same meaning as Remuneration. The ideal way to distinguish the terms is to think of Compensation as referring to monetary payments while Remuneration refers to both monetary and non-monetary payments. Keep in mind that the terms are defined and understood differently by each person. Thus, there is no settled definition regarding this.

What is Compensation?

The term Compensation is defined as something of value given in exchange for some other thing. Compensation can occur in two instances. The first instance refers to the monetary payment paid to someone for work carried out by that person. The second instance refers to the monetary payment given to a person who has suffered a loss or injury. The first instance represents an ideal employer-employee scenario. Thus, Compensation can refer to the payment given to an employee for his/her services or work performed. This type of Compensation is typically in the form of a salary or wages. The second instance can also be present in an employee setting. If the employee suffers any harm or injury as a result of performing work for the employer, then the employer will pay that employee Compensation.

Compensation can also include other forms of payment such as overtime payment, bonuses, payment to cover medical costs, and other miscellaneous payments. Some sources have defined Compensation to also include non-monetary payments. However, this definition will not really distinguish Compensation from Remuneration as we will see below. In the law too, Compensation refers to a form of monetary payment provided to a person who has suffered damage, harm, or injury. As mentioned before, Compensation is best understood as a monetary payment.

Difference Between Compensation and Remuneration

Salary is a compensation given to an employee

What is Remuneration?

We’ve all come across job vacancy advertisements that feature the following sentence.

‘An attractive remuneration package is on offer for the right candidate.’  

Notice that many of these advertisements use the term Remuneration rather than Compensation. This is because Remuneration is used to connote something broad, like a package, essentially implying that it is not only a salary, but many other benefits that are included in this “package.” In general, Remuneration is referred to as the payment made to an employee for his/her services or work. Typically, this is the payment of a salary or wage. However, Remuneration is much broader and encompasses not only the periodic payment given to an employee but also other payments and non-monetary benefits. It is the whole package offered to an employee during his/her term of employment with the employer. Monetary benefits include salary, overtime pay, vacation pay, bonuses and performance-related payments. Non-monetary payments refer to benefits such as the provision of a company vehicle, medical and/or hospital insurance, food and shelter, pension or retirement schemes, family support schemes, child care, subscriptions and any other benefits.

 Compensation vs Remuneration

The provision of a company vehicle is a remuneration

What is the difference between Compensation and Remuneration?

It is evident then that the terms Compensation and Remuneration are not synonymous. Although common tendency is to equate the two terms, this is not accurate.

• Compensation, ideally, refers to a form of monetary payment for either the performance of some work or service or as a recompense for a damage or injury suffered. It is, therefore, of a financial nature.

• In contrast, Remuneration is a broader term and refers not only to monetary payment for the performance of a work or service, but also includes non-monetary payments such as medical insurance, family support, housing, transport, pension schemes and/or other retirement benefits. Ideally, it is inclusive of Compensation paid to an employee for damage or injury suffered by the employee.


Images Courtesy:

  1. Money via Pixabay (Public Domain)
  2. Mercedes Benz by NRMA Motoring and Services (CC BY 2.0)