a) The term ‘Compensation’ refers to all forms of financial and non-financial benefits that an employee receives as part of an employment relationship. (2 Marks)

b) An effective compensation system typically has the following characteristics:

• It enables an organisation to attract and retain qualified, competent workers.
• It motivates employee performance, fosters a feeling of equity, and provides direction to their efforts.
• It supports, communicates, and reinforces an organisation’s culture, values, and competitive strategy.
• Its cost structure reflects the organisation’s ability to pay.
• It complies with government regulations. (8 Marks)

c) i. Direct compensation is used to describe the cash received in the form of basic salary, overtime pay, bonuses, sales commissions, etc. It is divided into two components: – The wage and salary program. – Pay that is contingent on performance (merit increases, bonuses, commissions, etc).

(5 Marks)

ii. Indirect compensation refers to services, incentives, or facilities that accrue to workers in addition to their usual wages and salaries. This includes welfare services such as membership of sports and other clubs, etc. (5 Marks)

Total: 20 Marks