Employment is typically characterised as an exchange relationship. Employees provide organisations with something of value (their labour) and in return receive something of value, Sarah Rynes et al. (2000). Work can offer many valuable outcomes to employees, including the opportunity to use their abilities, to make a contribution, are compensated and rewarded through this exchange process. Compensation refers to all forms, returns and tangible services and benefits employees receive as part of an employee relationship as discussed above. On the other hand reward management system according to Armstrong (2006), is concerned with the formulation and implementation of strategies and policies, the purpose of which are to reward people fairly, equitably and consistently in accordance with their value to the organisation and thus help the organisation to achieve its strategic goals. Thomason (1988), classified reward package in three categories.

a) Direct Financial Benefit. It focuses on two elements of remuneration which are directly related to performance. These are the basic pay rate and any additional bonus which is paid for individual or group performance above this standard. b) Indirect Financial Benefit: Consists of those regular or intermittent payments (not related directly to performance made for a variety of contributions such as suggestion for improvement of production or employee loyalty or commitment such as high base rates, pension schemes etc. c) Non – Financial benefit schemes which will increase the morale of employees, such as job enlargements, job enrichment. It is however, worthy to note that there are often a variety of payment systems within one employing organisation, each system being appropriate to a particular group of employees which have come into being as part of a conscious management strategy. In doing so, an employing organization has to be aware of its objectives in relation to the use of pay as a control mechanism, the constraints which apply to its choices, the financial objectives of its employees and their representatives and the relationship of the payment system or systems to the total personnel policy of the organisation, Torrington (1992).

{{objectives|Athe end of the topic learners should be able to;

● Define Compensation and Reward System and related terms

● Describe Fair and Non-discriminatory Compensation

● Discuss Unfair Compensation

● Explain the relationship between income, remuneration and pay

● Discuss financial and no-financial returns as forms of pay]]