Compensation is the return of a pending debt with a person or company. It can be through a monetary payment or the delivery of an object or financial title that has the same credit value .
If we refer to two subjects that have financed each other, compensation is a way to extinguish these commitments. Suppose, for example, that A has a debt of US $ 1,500. If your creditor asks you for a loan of US $ 1,000, the unpaid balance of A will only be US $ 500.
We are then faced with a way to simplify the financial obligations between two parties that are reciprocally debtors and creditors . Thus, the person or entity that owes more to its counterpart will be the only one that will have a payment to settle.
In that sense, the word compensation is also used to refer to the periodic exchange of creditdocuments between financial institutions. This, in order to settle loans that have been granted to each other.
Other compensation meaning
Another meaning of compensation is compensation. That is, it refers to the act of making a payment in order to repair a damage or loss.
Likewise, in a more abstract sense, compensating can mean equating. For example, if one company has recorded losses in one month, but the next has reported profits.
In the workplace, compensation is what an employee receives in exchange for their work. An important part of that compensation corresponds to the salary . However, other rewards such as personal satisfaction are also key.
An adequate compensation policy should not be discretionary, but based on performance. That is, it is necessary that remuneration reflects productivity . Otherwise, employees will not be encouraged. In addition, the organizational culture and objectives of the company must be taken into account.