Difference Between Compensation and Restitution

Compensation vs Restitution

Identifying the difference between the terms Compensation and Restitution might seem a little daunting at first. But, when you pay attention to the meanings of each term, you can easily identify the difference. We hear the term Compensation used frequently, such as when a person receives Compensation for their work or service or the payment made to someone for a certain loss or injury suffered. The term Restitution is more ambiguous, and for those of us not in the legal field, we are unfamiliar with its meaning and function. It is important to note that from a business perspective, Restitution bears the same meaning as it does in law. Compensation, on the other hand, is not solely limited to its meaning in law. Let’s take a closer look.

What does Compensation mean?

The very basic definition of Compensation is something of value or importance given in exchange for something else. A popular example of this is the salary paid to an employee for the work done or a monetary sum paid to a person for the service rendered by him/her. Compensation in this sense could be both of a monetary and non-monetary nature. Thus, in the case of an employee, he/she may receive not only remuneration but other benefits such as a yearly bonus, profit sharing, overtime pay, rewards for outstanding achievement/service, a company vehicle, housing and others. This is one aspect of Compensation. Another interpretation for the term Compensation is the act of making good a loss or injury suffered. Therefore, Compensation is an award, typically monetary in nature, given to make amends for a particular loss, damage, injury or the lack of something else. From a business perspective, this may entail the company paying Compensation to employees who suffered a loss as a result of some deprivation such as job loss or any other loss or pain suffered as a result of the company’s actions. The term also refers to a payment made to an aggrieved party in a legal action for a particular injury, loss or pain suffered as a result of a wrongful act. Keep in mind that the objective of Compensation, in this sense, is to compensate a person for the loss suffered.

Difference Between Compensation and Restitution

Salary is an example of compensation

What does Restitution mean?

In general, the term Restitution refers to the act of restoring something to its former or original state and/or returning something to its lawful owner. Thus, Restitution means returning a person to the position they were in before the wrongful act or breach occurred and also, returning something that was lost or stolen, such as a person’s property or rights, to its rightful owner. Restitution also refers to a type of equitable remedy available in law. The remedy of Restitution essentially operates based on the gains or profits obtained by the defendant, unjustly. This unjust gain is typically the result of the defendant committing some wrongful act or a breach of duty or contract. Unlike Compensation, it does not focus on the plaintiff’s losses. Thus, the court will order the defendant to pay the plaintiff an amount equivalent to the gains or profits unlawfully earned by the defendant. The defendant, therefore, has to give up his/ her gains. For example, let’s say X is entrusted to look after Y’s car and X unlawfully sells the car and makes a profit. Y will then sue X, and if Y seeks the remedy of Restitution, the court will order X to give up the profit made by the sale of the car to Y, as it is Y’s right to receive such a profit. The purpose of granting Restitution to a person is to restore the innocent party to their rightful position before the wrong occurred and to prevent the unjust enrichment of the defendant. Restitution is commonly granted in cases involving breach of fiduciary duty, torts, breach of contract, and some criminal offences.

Compensation vs Restitution

Restitution focuses on the amount the defendant gained as a result of the wrongful act

What is the difference between Compensation and Restitution?

• Compensation refers to the act of compensating a person for the work or service performed.

• Restitution refers to the act of restoring a person to his/her former position and/or returning something to its rightful owner.

• Restitution is a remedy in law wherein a court orders a defendant to surrender his/her gains or profits to the plaintiff.

• In contrast, Compensation is given as payment for a loss or injury suffered by the plaintiff as a result of the defendant’s actions. Thus, Compensation focuses on the amount the innocent party lost while Restitution focuses on the amount the defendant gained as a result of the wrongful act.

• In certain cases, the innocent party may opt to seek the remedy of Restitution as opposed to Compensation, if the loss (financial amount) suffered by the victim is less than the amount the defendant gained unjustly.


Images Courtesy:

  1. Cheque via Wikicommons (Public Domain)
  2. Money via Pixabay (Public Domain)