Salary and Wage Compensation: The Key to Employee Performance

In the working world, compensation is one of the most scrutinised aspects by employees. After dedicating their time, energy, thoughts, and skills to a company, every employee naturally expects a suitable reward for their contributions. This reward is known as compensation, which encompasses all forms of remuneration provided by the company to employees, whether financial or non-financial. Compensation is not limited to the salary or wages received each month. Companies may also provide allowances, bonuses, incentives, work facilities, and opportunities for training or career development. Therefore, the compensation system is a critical aspect of human resource management as it can influence employee welfare, motivation, and performance (Adiyanti & Nugraha, 2023). Providing adequate compensation enables employees to channel their abilities to increase work productivity because they feel motivated in carrying out their duties. For company operations to run smoothly, firms need to boost employee morale to achieve maximum results. Companies will reap many benefits if they consistently improve their employees’ work spirit. These benefits include faster completion of tasks, reduced employee absenteeism, and minimised staff turnover (Ratnasari et al., 2023). Besides serving as a form of appreciation for employee contributions, providing compensation is also a worker’s right guaranteed by Indonesian laws and regulations. The government regulates wage policies, wage structures and scales, wage protection, and workers’ rights to create a fair and balanced working relationship between workers and employers, with the implementing provisions set out in Government Regulation Number 36 of 2021 on Wages. Many people still consider salary and wages to be the same thing, though they differ. A salary is generally a fixed amount given over a specific period, usually monthly, to permanent employees based on their position and responsibilities. Meanwhile, wages are paid based on working time or the results of completed work. In the wage system, companies can use several methods, such as a time-based system calculated on hours or working days, a results-based system based on production volume, a piece-rate system based on the completion of specific tasks, and an incentive system awarded when workers achieve set targets. The choice of system must be tailored to the type of work and the company’s objectives to deliver optimal results. Compensation is often perceived as solely concerning money, but its impact is far broader than just the income an employee receives. Employees who receive appropriate compensation tend to have higher work motivation because they feel their contributions are valued by the company. Conversely, when compensation is deemed unfair or disproportionate to the workload, morale can decline and affect productivity. Research discussed in the paper indicates that both financial and non-financial compensation influence employee performance. The better the compensation system implemented, the greater the company’s chance to enhance its workforce’s loyalty and productivity. Not all employees receive the same amount of compensation. Various factors influence the level of compensation a company provides, including education level and skills, work experience, job responsibilities, the company’s financial condition, government policies on minimum wages, employee performance, and labour market conditions. Therefore, companies must consider these factors to ensure the compensation system remains fair and competitive. Despite its important role, the implementation of a compensation system in a company does not always run smoothly. Various problems are still frequently encountered, such as a mismatch between salary and workload, a lack of transparency in the payroll system, compensation disparities perceived as unfair, and delays in salary or wage payments. These conditions can lead to negative impacts for the company, ranging from decreased work motivation to increased internal conflict, ultimately affecting overall organisational productivity. A concrete example of the importance of a compensation system can be seen at PT Perta Multi Energi Satu Daan Mogot. Based on research by Indah Palupi and Nopi Oktavianti (2025), several compensation-related issues were found to impact employee satisfaction and loyalty. The problems identified included salaries still below the City Minimum Wage (UMK), the provision of Religious Holiday Allowance (THR) that did not fully consider employees’ length of service, and the unavailability of BPJS Kesehatan and BPJS Ketenagakerjaan for all workers. As a result, approximately 85% of employees expressed dissatisfaction with the company’s compensation system. They felt that the compensation received was not commensurate with their daily workload and responsibilities. This case demonstrates that compensation is not merely about the amount of salary an employee receives, but also relates to a sense of fairness and regulatory compliance.