There are 7 core compensation concepts that influenced the HR view of the compensation

discipline:
1- Economic Concept: this concept is looking at compensation as a price that an organization pay
for an employee in return of performing a job or work task (service). And this price can get
influenced by economics force, therefore, an economic analysis is a must before establishing a
compensation system to any company.
2- Psychological Concept: this concept looks at the compensation from a Psychological point
view, were a company can use it to motivate employee to raise their performance and reward
desired behavior and attitudes. In other words, compensation is a psychological contract between
the employee and the employer that show how valuable is the employee to the company.
3- Sociological Concept: compensation is influenced by society view were the main focus of this
concept is on the relationship between the individual and the organization. The compensation is
really important to the individual (the employee) to help make him or her adjust to the society
they belong to, and provide a good living status to their families.
4-Political Concept: it is the concept that use power and law to defined the compensation
structure. Therefore, looking into labor laws and legal system in which the organization operate
is very important in resining the compensation system.
5-Equity Concept: the main point of this concept is to seek equity by setting compensation
according to the individual contribution. Because, if the company was paying the less
performance employee as much as the high performance, this will lead to unfair payment among
the employee.
6-Communications Concept: compensation is being affected by the existence of the internet were
employee today can access a lot of information via the internet and compare between different
organization compensation system. This led to put pressure on the organization while creating
the compensation program due to the huge competition that exists in the market today
7- Multidiscipline Concept: it is the concept that mix all of above concepts together. And the
main focus is on the esoteric aspects and few on controlling the cost.

equity can impact employee performance dramatically, as it could influence the employee

productivity, behavior and motivation. Internally: when the employee believe their wages are
similar to all the people that perform the same task as him or her within the organization itself.
Eternally- is when the compare their wages to another organizations that work in the same
industry and require its employee same job task. Equity is the employee measure of their worth
and how valuable is their work to the organization.