This is the total payment received in exchange for a service as well as a reward for outstanding performance. It is usually used in reference to a person’s salary or wages. Compensation includes the following:

  • Basic pay
  • Dearness allowance
  • House rent allowance
  • Leave travel allowance
  • Overtime pay
  • Bonus
  • Perks, incentives, or commission
  • Stock options or profit sharing

Compensation or salary is an important consideration for lenders as it defines a person’s ability to repay debt. For instance, if A gets a fixed income of ₹15,000 and variable pay of ₹10,000 based on job execution in an organisation, then A’s total compensation will be ₹25,000.

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