7th lecture

Islamic Compensation Management

In the Islamic law, compensation is defined as follows:

"To give something of the same kind of the thing that is lost or eliminated or to give its
equivalent." (see Majalla, Item, 416). The definition of al-Ghazzali (d. 505/1111) is as follows:
"To return something, or to give something of the same kind of the thing or its equivalent if it has
been destroyed." (al-Ghazzali, al-Wajiz, Egypt, 1317/1899, l, 205) In short, compensation means
to give to the person who is wronged something of the same kind of the thing that needs to be
compensated or its equivalent.

Evidence for Compensation

The harm done against another person is related to a person’s wealth, life or body. The necessity
of compensating the harm inflicted on one of these is based on the evidence of the Quran,
Sunnah, consensus and mind. 

1- The Quran: Returning harm with harm or eliminating (removing) harm is determined as

follows as a general principle in the Quran: "If then anyone transgresses the prohibition
against you, transgress ye likewise against him." (al-Baqara, 2/194) "And if ye do catch them
out, catch them out no worse than they catch you out." (an-Nahl, 16/126) "The recompense
for an injury is an injury equal thereto (in degree)." (ash-Shuara, 42/40). According to what is
understood from those verses, the harm given to others needs to be compensated in the same
way, giving them the same thing or the equivalent, not less or more. 

2- The Sunnah: There are many hadiths in Islamic law showing that it is legitimate to make a
person compensate for the harm/loss. Some of them are as follows: "There should be neither
harming nor reciprocating harm." (Ibn Majah, Ahkam, 17; Ahmad b. Hanbal, V, 327; Malik,
Muwatta, Aqdiya, 31). "The borrowed is to be returned, and the guarantor is
responsible" (Abu Dawud, Buyu', 90; Tirmidhi, Buyu', 39; Ibn Majah, Sadaqat, 5).
Accordingly, a person who keeps something belonging to another person unjustly has to return it

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if it exists or give something of the same kind or its equivalent to its owner if it has been lost or
destroyed.

The compensation for killing or the harm inflicted upon a person is stated as follows in a hadith:
"For killing a person, the diyah is one hundred camels. A full diyah must be paid for the nose if it
is cut off completely, for the tongue, for the lips, for the testicles, for the penis, and for the
backbone; one-third of the diyah must be paid for a blow to the head that reaches the brain, and
for a stab wound that penetrates deeply into the body; fifteen camels must be given for a blow
that breaks the bone; ten camels must be given for every digit of the hands or feet; five camels
must be given for a tooth." (an-Nasai, Qasama, 46; Malik, Muwatta', Aqdiya, 1).

It is stated in a hadith that the harms caused by animals have to be compensated: "People of the
garden are responsible for guarding their garden during the day, and the owner of the
animals is liable for what the animals destroy at night." (Abu Dawud, Buyu', 92; Muwatta,
Aqdiya, 18; Ahmad b. Hanbal, V, 426).

GIVING IMPORTANCE TO ORGANIZATIONAL INTERESTS THAN INDIVIDUAL.

The interest of any employee or group of employees should not take precedence over the
interest of the organization as a whole.
·       Islam means peace. Muslim means a person who submits his will to the god Allah. This
principle can be found in Hadees of Bukhari Shareef where Prophet Mohammad ‫ﷺ‬
said “I swear by the one who owns my life, nobody can be honest, unless and until he like the
things for his brother (other Muslims) that he likes for himself.”
WASE OR REMUNERATION
In an Organization the workers must be paid reasonable and fair wage for their services.
·       Prophet Mohammad ‫ ﷺ‬says that the worker must be paid before drying his sweat,
this helps to keep your workers and employees happy.
OPTIMUM CAPACITY UTILIZATION
The following Ayats from the Holy Quran reveals another golden rule that a Muslim
businessman should learn from and practice in his daily life.
·       [2:233] “ No soul shall have a burden laid on it greater than it can bear…”

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·         [2:286] “On no soul doth Allah place a burden greater than it can bear… (Pray) Our Lord!
Lay not on us a burden greater than we have strength to bear.”
·       These Ayats 2:233, 2:286 are emphasizing on the fact that physical, emotional, and intellectual
capacity of an individual is limited and not exhaustive. Additionally, since every person is
unique in his talents and temperament, and in his skills, it is important not to burden someone
with a task that is beyond his scope to deal with it. This is an important principle of modern
business management.
The principles mentioned in 2:233, 2:286, mean:
1. Do not over-burden any resource, whether it is a machine or an employee;
2. Do not under-load any machine or employee; and
3. Balance out the workload onto different machines or on different employees so that none of
them is over-burdened or under-loaded with regards to their respective capacities.

Compensation in Islam: Compensation is defined as the benefit (money, material or kind)

received for the performance of work. Money is regarded as the direct compensation while other
benefits come under indirect compensation. Another word which is interchangeably used with
‘compensation’ is ‘wages. In economic terms wages means the compensation, which a person
receives, for his mental or physical work. Prophet Mohammed ‫ ﷺ‬has always
preached and practiced the act of doing justice to everyone in all affairs of life including the
business and employment. He ‫ ﷺ‬has emphasized to be just and kind with the
employees and labors. Prophet Mohammed ‫ ﷺ‬cursed the one who employs a
laborer and gets the full work done by him but does not pay him his wages (Bukhari). This
hadith clearly indicates the care and concern He ‫ ﷺ‬had regarding the rights of the
labors and employees, especially in relation to compensation. Allah (S.W.T) says in the Quran,
“…Then every soul will be compensated for what it earned, and they will not b wronged (i.e.,
treated unjustly)” (Quran 2:281). Allah (S.W.T) also says in the Quran, “…They will every soul
be (fully) compensated for what it earned, and they will not be wronged” (Quran 3:161). These
verses make it explicit that on the Day of Judgment man shall be fully recompensed for his
deeds, the deeds being good or bad, small or big, and none shall be treated unjustly. The other
aspect of the Quranic verse referred deeds and none shall be treated unjustly. The same principle
should be followed in worldly dealings. The workers should receive their wages and the

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employers their profit in accordance with this Quranic rule. Prophet Mohammed ‫ﷺ‬
said, “Allah said, ‘I will be an opponent to three types of people on the Day of Resurrection, the
one who makes a covenant in My Name, but proves treacherous, the one who sells a free person
and eats his price and the one who employs a laborer and takes full work from him but does not
pay him for his labor” (Bukhari). The hadith states that on the Day of Resurrection, Prophet
Mohammed ‫ ﷺ‬is going to stand against three category of people and third category
of people are those who take full work from the employees and do not pay him for the work
done. This is a very firm warning to the people to give fair compensation to its employees.
Wages are a form of compensation. Islam offers a very reasonable solution of wage problem
which is based on justice and fairness and protects the interests of both the employer and the
employee. Wages, according to Islam, are to be determined in equitable manner, without
harming the interests of any party, keeping in view the teachings of Islam. Allah says in the
Quran, “… you do not wrong, nor are you wronged” (Quran 2:279). Allah also says in the
Quran, “Indeed, Allah ordered justice and good conduct…” (Quran 16:90). Prophet Muhammed
‫ ﷺ‬has also said, “They (your slaves or servants) are your brethren, Allah has placed
them under your control; so whoever has his brother under his control should feed him from
what he (himself) eats and give him clothes the like of which he (himself) wears; and do not
impose on them task which should be too hard for them, and if you impose on them such a task,
then help them (in doing it)” (Bukhari and Muslim). The problem of wages is very important as
it affects the whole society. If the workers do not get fair and reasonable wages, it will not only
affect their subsistence but also their purchasing power. And if a large portion of the population
has no purchasing power, it would adversely affect all those industries which are supplying
consumer goods to the working class. Moreover, injustice to working class would lead to
discontentment, frustration, agitation and strikes. Thus if the laborers are deprived of their just
share from the national income, it would be in the long run an economic suicide for a country.
Thus, Islam highly emphasis on giving fair wages to the laborers. Thus, the employer and the
employee should treat one another as brothers and not as master and servant. They should not
wrong each other and show justice and kindness in their relationship. The employer should not
forget that contribution of the labor in his produce is considerable. He should, therefore, pay
reasonable wages to an employee to enable him to enjoy a reasonably decent living. The
minimum wage rate in an Islamic society will be determined keeping in view the basic human

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needs which include food, shelter and clothing. A worker shall be paid adequate wages so that he
can meet expenses on his and his family’s food, shelter and clothing. He should also be provided
for his children’s education and medical treatment of his own self and his family. It is reported
that Prophet Muhammad ‫ ﷺ‬used to prescribe minimum wages for a person engaged
in some government job with a view to provide him decent living. He used to say, “For a
Government servant, if he is not married, he should get married; if he has no servant, he may
have one; if he has no house to live, he may build one and anyone who exceeds this limit is
either a usurper or a thief”. This yardstick fixed by Prophet Mohammed ‫ ﷺ‬should
be kept in view while fixing minimum wages. Prophet Mohammed ‫ ﷺ‬said, “Pay the
laborer his wages even before his sweat dries” (Ibn Majah). This hadith mainly speaks about the
promptness to be adopted in order to make the payment to the labourer. The hadith also
discourage to withhold the wages of any labourer. It is narrated by Ibn 'Abbas that, “When the
Prophet was cupped, he paid the man who cupped him his wages” (Bukhari). In another
narration by Anas (ra), he said, “The Prophet used to get cupped and would never withhold the
wages of any person” (Bukhari). These two hadiths also emphases on the aspect of paying the
wages soon after the work are done and avoid withholding it. Paying the remuneration on time
has a lot of benefits to offer. It ensures desired behavior, it motivates a person, it helps in
retaining the employee and ultimately leads to job satisfaction. Islam gives two important
principles with respect to compensation. Firstly, not to exploit the laborers and to pay the
compensation based on justice and fairness and protects the interests of both the employer and
the employee. Secondly, to pay the laborers on time and avoid withholding of any sort. The
Muslim faith teaches that work is sacred and a form of worship and that fair employee
compensation is paramount. Workers and employers should have a relationship of brotherly love
and not patron to subordinate. The employers should think of employees as members of their
families. This type of relationship will help the organization to grow and improve in leaps and
bounds.
The Prophet ‫ ﷺ‬taught that your employees are your brothers upon whom God has
given you authority. So if a Muslim has another person under his control, he or she should feed
them with the like of what one eats and clothe them with the like of what one wears. And you
should not overburden with that which they cannot bear, and if there is excessive work, you must
help them with their jobs. This is understood to be a very clear signal those employers and

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employees are not on two different levels where one has the open invitation to exploit each other.
They are equals. Employers should think of employees as members of their families."