According to history, the notion of compensation for work dates back to a period between 10,000 BC and 1,000 BC during the Neolithic Revolution ( Wikipedia). Then salt was used as a means of payment until around 560 BC, when coins came into circulation and money was invented (Wikipeida). Money became widely used as payment for work. To this day, money is still the main medium of exchange between employer and employee. In today's highly competitive marketplace, organizations often face increasing competition from both domestic and foreign markets. To be able to remain competitive, attract and retain quality employees, it is imperative that the organization has a valuable compensation package for its employees (Naresh 1998). Although there is an exchange of money for work between employer and employee, there is a driver who allows the employee to carry out the required task. The driver is called Motivation. Motivation is defined as the set of processes that determine the intensity, direction and persistence of an individual's effort towards achieving a goal (Cummings and Staw 1997). Relating motivation and compensation packages is Frederick Herzberg's two-factor theory. There are two components of motivation and they are intrinsic motivation and extrinsic motivation (Calder and Staw 1975). Extrinsic motivation is motivation acquired from 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 for the satisfaction of an immediate need or for its own good (Calder and Staw 1975). For the purposes of this report, the author will focus on extrinsic motivation as it relates to compensation packages. Employees... middle of the paper... are likely to be more motivated and loyal." The main disadvantage of flexible benefits is that they are usually expensive to maintain and tedious for management to oversee. Bottom line, money it 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, but it is based on time and not on performance. therefore programs such as variable pay and skill-based pay should be adopted to increase motivation. Also taking into account the diversity of the workforce, organizations should consider both financial and non-financial tools that are flexible to attract, motivate and. retain employees. Motivation will be greater when a compensation system is well designed, however this will vary depending on organisations, employees and their objectives.