Question

Define compensation management and explain the concepts and issues

Answer 1

Disadvantage to commerce through use of a barter system, the "double coincidence of wants" (which means if someone wants something from a person, that person should also be in need of a thing or a service which they can provide), necessary for barter trades to occur. For example, if a person who makes pots for a living needs a new house, he/she may wish to hire someone to build it for him/her. But he/she cannot make an equivalent number of pots to equal this service done for him/her, because even if the builder could build the house, the builder might not want many or any pots. Also, the barter system had a major drawback in that whatever goods a person get as payment may not necessarily store for long amounts of time. For example: if a person has got dozens of fruits as his payment, he/she can't store fruit for long or they may rot - which means a person will have to bear a huge loss. Currency solved this problem by allowing a society as a whole to assign values and thus to collect goods and services effectively and to store them for later use, or to split them among minions.