This study investigated the influence of effective communication and performance appraisals on employees’ compensation practices at Integra software services private limited, Puducherry. Compensation is an important business approach for organizational success because a high level of employee engagement in both the private and public sector improve employees’ performance and organizational productivity. The survey research design method was adopted for the study and a total of 100 respondents were selected using random sampling techniques. Data were collected through the questionnaires to measure compensation management. The data collected were analyzed using statistical packages for social sciences (SPSS) which include a descriptive analysis of demographic information using pie chart and simple percentage, cluster analysis, one-way ANOVA and Pearson correlation were used to test the two hypotheses that were generated for the study at 0.05 alpha levels of significance. The study concluded that effective communication and compensation management has a significant positive effect on employees’ compensation structures. Moreover, the findings also revealed that employees’ compensation is significantly related to organizational performance. Based on the findings of this study, it was recommended that organizations should increase employee compensation.