According to history, the concept of compensation for work predates between 10,000 and 1,000 BC during the Neolithic Revolution (Wikipedia). Back then, salt was used as a means of payment until around 560 BC when coins came into circulation and currency was invented (Wikipeida). Money became widely used to pay for work. To this day, money remains the main means of exchange between employer and employee. In today's highly competitive market, organizations often face increased competition from domestic and foreign markets. To be able to remain competitive and attract and retain quality employees, it is imperative that the organization has a compensation program that is valuable to its employees (Naresh 1998). Although there is an exchange of money for labor between the employer and the employee, there is a driver who enables the employee to perform the required task. The driver is called Motivation. Motivation is defined as the processes that explain the intensity, direction, and persistence of an individual's efforts to achieve a goal (Cummings and Staw, 1997). Linking motivation and compensation packages is Frederick Herzberg's two-factor theory. Motivation has two components: intrinsic motivation and extrinsic motivation (Calder and Staw 1975). Extrinsic motivation is motivation acquired by externally influenced needs and is therefore, for example, stimulated by monetary rewards (Frey 1997). Intrinsic motivation indicates that, under certain conditions, employees are willing to undertake a task to satisfy an immediate need or for its own sake (Calder and Staw, 1975). For the purposes of this report, the author will focus on extrinsic motivation as it relates to compensation programs. Employees...... middle of paper...... they are likely to be more motivated and loyal. The main disadvantage of flexible benefits is that they are generally expensive to maintain and tedious for management to oversee. In conclusion, money is not the only motivator and it is not the main motivator for everyone. However, there is overwhelming evidence that money is an important motivator for most people. Base pay is important, but it is based on time, not performance. Therefore, programs such as variable pay and skill-based pay should be adopted to increase motivation. Also considering the diversity of the workforce, organizations should consider flexible financial and non-financial tools to attract, motivate and retain employees. Motivation will be higher when a compensation system is well designed, but this will vary between organizations, employees and their goals..