This factsheet was last updated in January 2012.
What are reward and pay?
The term ‘reward’ is generally understood to cover all financial provisions made to employees including both cash pay and the wider benefits package (pensions, paid leave and so on). It may also refer to wider provisions for employees, with the term ‘total reward’ encompassing elements such as training opportunities or a congenial working environment in addition to pay and benefits.
Pay may be divided into two categories:
- base or fixed pay – that is, the guaranteed cash wage or salary paid to individual employees for performing their work for a contracted period of time
- total earnings – this includes base pay plus additional variable elements of earnings such as bonus payments, while the term could also be used to include aspects such as overtime earnings.
It is important to note that pay definitions vary, for example, certain location allowances might be regarded as part of permanent basic pay whereas others might be more flexible and hence excluded from definitions of base pay.
Other terminology may also be used, for example ‘compensation’ is usually taken to refer solely to financial rewards (base pay and earnings) while ‘remuneration’ might be used interchangeably with ‘reward’ as it generally encompasses the wider benefits package in addition to pay.