Compensation policies are the ways that firms pay employees, and such policies create incentives for employees to behave in certain ways.

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Compensation policies can include salary, bonuses, stock options, and other benefits. The way that these are structured can create incentives for employees to work harder, perform better, or stay with the company. For example, a salesperson who receives a commission on each sale may be motivated to sell more products, while a manager who receives a bonus for meeting certain performance goals may be motivated to improve the performance of their team.

Compensation Policies Are the Ways That Firms Pay Employees, and Such