Compensation Strategy: The Way It Works in Indonesia

Compensation Strategy: The Way It Works in Indonesia

The compensation strategy is an important aspect of human resources management and can have a major impact on the success of a business.

But in Indonesia, it can be different because of a variety of factors such as cultural, economic, and legal differences. A major factor influencing Indonesia’s pay strategy is the country’s labor laws and regulations. So, how do we do this right, especially in this country?

What Is the Compensation Strategy, and Why Should We Care?

Let’s begin with understanding what a compensation strategy is and why it’s important. The compensation strategy refers to the company’s plans and approaches to deciding how to compensate people.

It involves determining the type and level of pay (wages, bonuses, benefits) people will receive in return for their work. In addition, a compensation strategy matters for several reasons:

1. Attracting Talent

A well-designed compensation strategy can help attract and retain the best talent in a competitive workplace. Organizations can increase their chances of hiring the best candidates and keeping the best by providing competitive wages and benefits.

2. Inspiring People

A compensation strategy can also motivate employees to go the extra mile. When employees believe they are being paid fairly for their work, they are more likely to be engaged and engaged in their work.

3. Assuring Fairness

A compensation strategy can ensure that employees receive fair pay. By setting clear compensation structures and guidelines, organizations can minimize the risk of wage discrimination and ensure that all employees are treated equitably.

4. Support Corporate Goals

A compensation strategy for the team may also support corporate objectives by aligning employee incentives with operational objectives.

For example, if an organization wants to increase sales, it can offer bonuses or commissions to sales personnel to encourage them to reach their sales goals.

Commonly Used Types of Compensation Strategies

Cultural differences may also play an important role in Indonesia’s compensation strategy.

For example, there may be different expectations regarding the daily commute or cultural and religious festivals, which may impact the benefits and incentives available to people.

Understanding certain strategies can help companies harmonize compensation with unique domestic factors influencing business operations. In Indonesia, the most common compensation strategy examples are:

1. Base Salary

Like other countries, the base salary in Indonesia is the fixed salary that an employee receives for their work responsibilities. It is usually determined by the level of work, experience, and skills.

2. Allowances

Allowances are additional employee payments for specified expenses such as transportation, accommodation, and meals. In Indonesia, common benefits include transportation, meals, and accommodation.

3. Bonuses

Bonuses are additional employee payments based on performance or achievement of specific operational goals. In Indonesia, bonuses are usually paid twice a year, during the Islamic feast of Eid al-Fitr and at the end of the year.

4. Healthcare and Insurance Benefits

Employers provide health and insurance benefits to cover the costs of healthcare and hospitalization for employees. Legally, common benefits in Indonesia include health, life, and accident insurance.

5. Retirement Benefits

Retirement benefits include pensions and retirement savings plans designed to support employees in retirement savings. In Indonesia, employers must provide employees with pension benefits through the National Social Security System (SJSN) or other private pension schemes.

6. Performance-based Incentives

Performance-based incentives are extra payments or benefits employees receive based on individual or team performance. In Indonesia, common performance-based incentives include sales fees and benefit sharing.

What to Consider When Setting up the Compensation in Indonesia

When setting compensation for employees in Indonesia, employers must consider several factors:

1. Minimum Wage Requirements

Indonesian legislation imposes a minimum wage that varies from province to province and is updated yearly. Employers should ensure their employees are paid at least the minimum wage and adjust salaries accordingly.

2. Industry Standards

Employers should research industry standards to ensure competitive pay rates. Wage surveys and benchmarking can be useful tools to identify competitive pay rates.

3. Cost of Living

Employers should consider the cost of living in the region where their employees are employed. If the cost of living is higher, higher compensation may be required to attract and maintain talent.

4. Cultural Factors

Employers should be aware of cultural factors that may affect earnings, such as the importance of balancing family and professional life. People may appreciate flexibility in working conditions or family-friendly policies.


Although there may be some similarities between a compensation strategy in Indonesia and other countries, Unique factors can impact the approach of how we run our business in Indonesia.