Compensation is defined as recompense for employees which are received in two basic forms, ie in the form of tangible and intangible compensations, also their formation is influenced by a number of various factors. Their primary purpose is to attract and retain qualified, promising, reliable and ambitious employees who will contribute to the business. The basic forms of material compensations are wages and benefits, which are increasingly being shaped and offered on the basis of various motivational theories. In order to obtain more relevant and objective data on salary levels and benefits packages that affect employee satisfaction, a key role is played by human resources management, whose main task is to establish successful communication with human resources and properly communicate all ambiguities and concerns of employees about their capabilities and rights. The aim of the paper was to investigate the impact of direct and indirect material compensation on employee retention. The results were based on secondary research and various sources of literature and it was found that human resources perceptions of pay and benefits had changed. The amount of financial compensation and benefits package offered by employers has become one of the most significant factors influencing employees to make their decisions regarding to accepting a particular job and staying in the company for a long time. If organizations want to retain their human resources in the long run, it is imperative that they receive fair compensations and benefits.