Prepared by: Shiela Catindig

Belen Bacossa

Compensation

It is the remuneration received by an employee in return for his/her contribution to the organization .

It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees Compensation.

Compensation Management-an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.

The Compensation Management component enables you to differentiate between your remuneration strategies and those of your competitors while still allowing flexibility, control and cost effectiveness. It provides a toolset for strategic remuneration planning that reflects your organization culture and pay strategies.

• When managed correctly, it helps the organization achieve its objectives and obtain, maintain, and retain a productive workforce.

• Compensation is a key factor in attracting and keeping the best employees and ensuring that your organization has the competitive edge in an increasingly competitive world.

• Without adequate compensation, current employees are likely to leave and replacements will be difficult to recruit. The outcomes of pay dissatisfaction harm productivity and affect the quality of work life.

Types of compensation

1.Base Pay- typically a flat rate, either hourly wage or salary.

2. Wage and Salary add ons- includes overtime pay, shift differential, premium pay for working weekends and holidays, and other add ons.

3. Incentive pays- also called variable pay. These are for performance and commonly include piecework in production and commision sales. 4.Benefits- indirect compensation that provides comething of value to the employee.

Apply the Concept:

1. I like working nights because it pays more.2. After I graduate with BS Accounting, I’d like to work

for a firm that will help pay for me to get my MBA degree.

3. The company only pays Php 40.31 an hour. I need to find a better job.

4. I like getting paid the same each week. It helps me to budget my expenses.

5. I’m good at sales, so I like being paid for every sale I make.

Motivation and Compensation Planning

• Expectancy Theory

Expectancy theory states that employee’s motivation is an outcome of how much an individual wants a reward (Valence), the assessment that the likelihood that the effort will lead to expected performance (Expectancy) and the belief that the performance will lead to reward (Instrumentality).

Expectancy Theory

RewardSignificance

Effort

Performance

Motivation and Compensation Planning

• Equity TheoryEquity theory is the principle of balance or

equity.

Objectives of Compensation Planning

• Internal Equity• External Equity• Individual Equity• Attract Talent• Retain Talent• Ensure Quality

• New and desired Behaviour• Control Costs

• Ease of Operation

Organizational Philosophy: How are we going to pay?

• Performance or Longevity?

• Skill based or Competency- Based?

• At Above or Below the Market?

• Wage Compression

• Pay Secrecy

11–12

Legal Issues in Compensation

• Fair Labor Standards Act of 1938–Regulates the

minimum wage–Sets overtime policy

(time and one-half after forty hours)–Child Labor

Job Evaluation• The process of determining the worth of each position relative to the

other positions within the organization.

What are Pay Structures

Pay structures, also known as salary structures, set out the different levels of pay for jobs, or groups of jobs, by reference to:

• their relative internal value, as established by job evaluation

• external relativities, via market rate surveys• where appropriate, negotiated rates for the

job

Why do organisations need Pay structure?

• establish a logically-designed framework within which equitable, fair and consistent reward policies can be implemented

• determine levels of pay for jobs and people• basis for the effective management of relativities• help monitor and control the implementation of

pay practices• communicate the pay opportunities available to

employees.

Pay Structures

• Graded structures – a sequence of overlapping job grades into which jobs of broadly equivalent size are allocated. Each grade has a range, the maximum of which is usually 20 to 50% above the minimum.

• Broadband – similar to conventional graded structures, but with far fewer and far wider bands. The maximum of the band can be 100% or more above the minimum.

• Job Family Structures – Each job family has a different graded structure. Jobs are allocated to a job family based on activities carried out; skills and competencies e.g. Information Technology is a perfect example of a job family for which there is usually a separate grade structure.

Indirect Financial Compensation- Benefits

• All employer provided rewards and services( other than wages and salaries) arising from:

-Legally required social insurance payments-private insurance and retirement plan-payment for time not worked-extra cash payments other than bonuses based

on performance- Employee services

Employee Benefits

• Most benefits and services are available to workers as long as they are employed by an organization regardless of seniority or performance.

• Decisions about indirect compensation are more complex than those concerned with wages and salaries

• Employers face rising benefits costs resulting from:

- Increased legislation- Insurer’s insolvency- Cost of advanced medical technologies- Aging workforce- More women in the work force- Global competition

Employee Benefits

Why are Benefits Growing as a Portion of Overall Compensation?

• Tax Advantages

• Statutory Requirements

• Influence or organized labor

• Buying in Bulk

Consideration in Providing Benefits Programs

• Amounts• Mix• Flexibility

Statutory Benefits

• Benefits that are required by the law. Examples are:

• Social Security• Retirement• Disability and Survivor Benefits• Medicare• Worker’s Compensation• Unemployment Insurance

Voluntary Benefits• an employer of choice. It is the balancing act that is critical for employers

to get right – delivering an employee benefits program that works within the organizations operational requirements and delivers real value for current and future employees. Examples are:

• Paid time off• Vacation Leave• Sick Leave• Holiday Pay• Paid personal Leave• Employee Services

Basic Employee Benefits in the Philippines

Under the Philippine Labor Code are six basic employee benefits, for an individual who is legally working in the Philippines. These basic employee benefits cover most occupations, agricultural or non-agricultural, provided that the associated compensation for every salient Daily Minimum Wages still apply.

1. Social Security Systems (SSS) Contributions- (Republic Act No. 8282)2. Contribution to National Health Insurance Program (NHIP)- (

Republic Act 7875)3. Contribution to Home Development and Mutual Fund (HDMF)- (

Republic Act 7835).4. The 13th Month Pay- Based on Presidential Decree No. 8515. Service Incentive Leave- Article 95 of the Labor Code6. Meal and Rest Periods- Article 83 of the Labor Code 7. Overtime Pay and Holiday/Rest Day Pay- Article 878. Night Shift Differential - Article 86

Other Company Benefits in the Philippines

• Holiday/Christmas Bonus• Mid-Year Bonus • Cost of Living Allowances• Paid Holiday and Vacation Leaves