COMPENSATION ADMINISTRATION ● To reward the desired behavior

● To improve company’s goodwill in the eyes of

LECTURE I: UNDERSTANDING THE COMPENSATION the general public and employees
ADMINISTRATION
Compensation is a tool used by management for a
Compensation – refers to all forms of financial return variety of purposes to further the existence of the
and tangible services and benefits employees receive as company.
part of employment relationship.
- Compensation may be adjusted according to the
Employee compensation – is one of the largest costs or business needs, goals, and available resources.
expenses for any organization.

Employee compensation – refers to the benefits (cash, DIFFERENCES BETWEEN WAGES,SALARY, PAYROLL AND
vacation, etc.) that an employee receives in exchange COMPENSATION
for the service they provide to their employer. Wages – refers to all pay or earnings that an employer
Compensation Administration – refers to the tasks of gives a worker in exchange for work performed during
compensation managers in designing and implementing regular working hours and days; lowest wage rate fixed
a pay program with a systematic approach to providing by law that an employer can pay his workers.
monetary value to employees in exchange for work Salary – is a regular payment agreed upon in an
performance. employment contract, and it’s linked to the number of
● Management of employee compensation is hours defined in the contract.
called Compensation Administration. Payroll – is the process of paying a company’s
employees, which includes tracking hours worked,
Compensation Administration – is a strategic calculating employees’ pay, and distributing payments
management tool of compensation management and via direct deposit to employee bank accounts or by
HR management to match productivity with cost of check.
labor and employees to get satisfaction of their worth
and values. Compensation – describes the cash rewards paid to
employees in exchange for the services they provide. It
● The goal of compensation administration is to may include base salary, wages, incentives, or
design a cost-effective pay structure that will commissions.
attract, motivate, and retain competent
employees. Note:
● The structure should also appear fair to
employees. Fairness is a term that frequently ✔ Salaries and wages vary depending on nature
arises in the administration of an organization’s of work, location of work, and time of work.
compensation program.
✔ Salaries for those working in cities are higher
COMPENSATION ADMINISTRATION MEANING AND than those who work in provinces.
CONCEPTS

Objectives: DIFFERENCES BETWEEN COMPENSATION AND

BENEFITS
● To attract and retain competent employees
● To establish fair and equitable compensation Employee compensation – refers to all forms of pay or
● To control costs and improve productivity rewards going to employees and arising from their
● To comply with legal regulations employment. There are direct financial payments in the
form of wages, salaries, incentives, commissions and Job evaluation – is a system for evaluating jobs to
bonuses and there are indirect payments in the form of determine the proper pay scales for specific jobs or job
financial benefits like employee paid insurance and components. Ranking, classification, factor comparison,
vacations. and point method are the four main methods.

Employee benefits – are non-monetary value and are Pay Structures – Useful for standardizing compensation
not based on performance but membership. They are practices. Most pay structures include several grades
indirect forms of compensation and are paid with each grade containing a minimum salary/wage and
regardless of the performance. They can determine either step increments or grade range.
their benefits package to be availed.
Salary surveys – compile market and salary data. It
COMPENSATION INCLUDES: includes salary budget averages, inflation and cost of
living data, and typical salaries.
Base Pay – it is the basic compensation what the
employee gets, usually as a wage or salary. PHASES OF COMPENSATION
Commissions – a sum of money given to a salesperson
for each transaction.

Overtime Pay – The overtime rate is offered to people

who need to work longer than the standard 8-hour shift.

Stock Options – a benefit in the form of an option given

by a company to an employee to buy stock in the
company at a discount or at a stated fixed price.
ROLE OF COMPENSATION MANAGERS
Bonuses – are compensation paid above and beyond
one's base salary. Compensation managers – are responsible for
researching, establishing, and maintaining a company's
Profit Sharing – a system in which the people who work pay system.
for a company receive a direct share of the profits.
- This involves researching and understanding the
Merit Pay – type of compensation a company uses to current and upcoming competitive markets for
reward higher-performing employees with ongoing employee pay and benefits.
additional pay
COMPENSATIONS IN THE PHILIPPINES
Travel/Meal/Housing Allowance

A COMPENSATION SYSTEM IS MADE UP OF THE

FOLLOWING PARTS:

Job descriptions – specify in detail the responsibilities,

requirements, functions, duties, location, environment,
conditions, and other elements of occupations.
The Department of Labor and Employment (DOLE)
Job Analysis – is the process by which job descriptions
regulates the benefits and compensation policy in the
and Job Specifications are created. Techniques for job
Philippines.
analysis include observation, questionnaires, and
interviews.
Parts of the labor code are the benefits and Pag-IBIG Fund – provides a national savings and housing
compensation rules that employers ought to follow assistance program for all members. Qualified members
when employing Filipino workers. It includes: can avail of housing loans, multi-purpose loans, and
calamity loans. Besides its regular savings program,
● Working hours in the country must not be over members can also participate in the Modified Pag-IBIG 2
8 hours/day. special savings facility for higher dividends.
● Employees may be required to work a night
shift, for which employees will be receiving BIR refer to national internal revenue – taxes imposed
additional pay. and collected by (BIR) and local taxes refer to those
imposed and collected by the local government.
● Employers must have special pay on holidays
and overtime based on the hours rendered by CHALLENGES IN ADMINISTERING COMPENSATION
the employees.
● Social Security System, Philippines Health Budget constraints: Organizations often need more
Insurance Corporation compensation budgets, making it difficult to offer
competitive pay packages while still controlling costs.
● Home Development Mutual Fund (PAG-IBIG)
Market competitiveness: In a competitive job market,
GOVERNMENT AGENCIES RESPONSIBLE FOR organizations must regularly benchmark their
COMPENSATION AND BENEFITS IN THE PHILIPPINES compensation packages against industry standards and
competitors.
Department of Labor and Employment (DOLE) –
regulates the benefits and compensation policy in the Pay equity: Ensuring pay equity across the organization
Philippines. This government agency follows the rules is an ongoing challenge. Compensation managers must
stated in the Labor Code of the Philippines – an carefully analyze salary structures to identify and
all-encompassing legal code intended to protect the address disparities based on gender, race, or age.
workers in the country.
Regulatory compliance: Compensation management
National Wages Productivity Commission (NWPC) – is must comply with various labor laws and regulations,
an attached agency of the Department of Labor and which may vary by location and industry.
Employment (DOLE). Justly remunerated and productive
Filipino workforce in globally competitive enterprises. Performance measurement: Developing a fair and
Its mission is to set minimum wage that protects objective system for measuring employee performance
vulnerable workers from undue low pay. Promote is crucial for linking compensation to performance.
productivity improvement and incentive schemes Balancing intrinsic and extrinsic rewards: In addition to
among MSMEs. monetary compensation, employees also value
Social Security System (SSS) – administers two non-financial rewards such as recognition, growth
programs: 1) the Social Security Program for death, opportunities, and a positive work environment.
disability, old age, maternity, and sickness; and 2) the Communication and transparency: Communicating
Employees' Compensation (EC) Program for compensation policies and decisions clearly and
work-related injury, sickness, or death. transparently is essential for building trust and fostering
PhilHealth – is mandated to provide universal health employee buy-in.
insurance coverage and healthcare services for all Retention and turnover: High employee turnover can
citizens of the Philippines. PhilHealth members receive be costly and disruptive, so organizations must
financial assistance for medicine, hospital costs, and implement compensation strategies that support
certain inpatient and outpatient procedures. employee retention.
Adapting to change: The business environment goods or services the individual can purchase given the
constantly evolves, and organizations must adjust their current market conditions.
compensation strategies to remain competitive.
WAGE SYSTEM – refers to compensation to an
Implementing technology: Leveraging technology in employees with a fixed sum per piece, hour, day or
compensation management can help streamline another period of time, covering all compensations
processes and improve efficiency. including salary.

● Wage system should be the introduction of a

LECTURE 2: WAGES AND ITS SIGNIFICANCE fair wage.
Wages – wages are the price paid for the services of ● Fair wage is a wage equal to that received by
labor in the process of production and include only the employees performing equal work and having
performance wages or wages proper. equal skills.

The purpose of minimum wages is to protect workers

CHARACTERISTICS OF A GOOD WAGE SYSTEM
against unduly low pay.
● Should be fair and scientific- should ensure
TYPES OF WAGES similar pay for similar types of jobs, skills and
abilities.
Piece-rate wages – these are wages paid according to
● Guaranteed minimum payment
the work done by the worker. (Rate paid per unit of
● Should be accepted by all employees to
production × Number of units completed in the pay
reduce turnover and absenteeism
period)
● Should be flexible to adopt changes-It should
Time wages – If the worker is paid for his services be changed according to the change in
according to the time. It is called as time wage. internal or external environment.

Cash wages – It refers to the wages paid to the labor in ● Should ensure incentive for good
terms of money. The salary paid to a worker is an performance which helps to increase
example of cash wages. efficiency and productivity.
● Should be simple to understand by all workers
Living wage – refers to the least amount of money an
● Should be able to satisfy workers which leads
employer can offer to an employee.
to motivation which helps o improve
Minimum wages – have been defined as “the minimum productivity
amount of remuneration that an employer is required ● Should discourage individualism but rather to
to pay wage earners for the work performed during a promote cooperation among the workers at
given period, which cannot be reduced by collective the workplace.
agreement or an individual contract”. ● Should be guided by government policy

CONCEPT OF WAGES SIGNIFICANCE OF WAGES

Money wages or Nominal wages – refers to the total To the worker: the wages are not only the
amount of amount received by the laborer in the remuneration of the workers for their contribution in
process of production. production but their very means of livelihood.

Real wages – are the type of wages that take inflation Wages as purchasing power: Wage earners and
rates into consideration. These wage determine the their families form a large and important segment
purchasing power of the individual and the amount of of the market for consumer goods and services.
They represent their only source of livelihood. ● Many establishments are willing to increase their
expenditure for machinery inasmuch as it will
LEVELS OF LIVING contribute to a reduction in the total cost per unit
of output.
● Poverty level - this level are those workers
whose incomes are very irregular due to their ● In a nutshell, machine production does not only
lack of any desired skills they can offer lessen the ratio of labor costs to total costs but also
tends to reduce the actual amount paid in wages
● Minimum of subsistence level - this level are per each unit produced.
those workers who provides the basic needs
but do not provide social needs. EFFECTS ON THE NATIONAL ECONOMY

● Minimum health and decency - this level are ● It is frequently said that we live in wage economy.
those workers who provides meager Not only is the standard of living of workers
(insufficient) provisions for education, affected by the wages they receive and the
amusement, and insurance. purchasing power they have at their command but
doubtless so is the national economy.
● Minimum of comfort standard - In this level, the
● Inability to produce more goods and services due
remuneration of an employee is so high that he
to higher wages without corresponding increase in
can provide for all the basic necessities and meet
the level of productivity exerts adverse and
all the requirements of comfort for himself and
profound effects upon the national economy.
his family members.
● In short, the lesser goods and services and
WAGES AS COST PRODUCTION therefore a lower gross national product.
● One frequent raised concern is that cost of the
The Cost of Production – is also called production costs
living wage might be passed onto the
or cost price. It is the total cost sustained by a business
municipality through higher prices for contracts.
to produce a specific quantity of a product. It includes
all direct and indirect costs of manufacturing the
WAGES AS A FACTOR AFFECTING LABOR AND LABOR
product.
RELATIONS
- Cost of production includes: Cost of raw
● Wages are perhaps the most vital single factor
materials, labor (wages), storage, technology
affecting labor and labor relations.
used, maintenance, land.
● It is observed that more often strikes and grievances
RELATION OF LABOR COSTS TO TOTAL COSTS are the result of the inability to agree on what
constitute fair wages.
● The cost of labor relative to total cost of
production is affected not only by the type of ● Low wages place heavy economic, physical, mental
industry and the structural arrangement for and moral burdens on the workers.
processing within it, but also by the methods ● An impairment in management-labor relations
used in production. adversely affect the interests of the general public.
● In general, the ratio of labor costs to total costs
carries inversely with the degree of mechanization. SOCIAL SIGNIFICANCE OF WAGES
Where machines play a major role in the ● Each nation’s system and practices relating to wages
production process, relatively more is expended for represent an outgrowth of its own traditions and
machine replacements, repair, and upkeep, and for mirror its socio-economic structure.
fuel and power.
● People with high income represent a particular
 group in the labor force who possess
TYPES:
extraordinary talent, skills, ability and expertise as
Supplemental wages includes:
to be able to command high wages.
● Ordinary workers who receive nominal wages ● Profit-sharing
form the greater majority of labor force. ● Paid vacations (not rendered work)
● Bonuses
● Thus, while our society was formerly believed ● Commission
classless, the different wage rates in the wage ● Tips
structure, help bring about a system ● Over-time pay
differentiated social status.
PROFIT SHARING ORIGIN
● At this point, it cannot be denied that prestige
goes to successful people and success in our ● The profit sharing was first devised by a Frenchman
society is closely correlated with income. named EDME JEAN LECLAIRE.

● Therefore, the more skilled and efficient the ● One of his employees was reported to have said to
workers are, the higher wages they receive. him that the participation of the workers in the
profits of the employer is the only way to get free of
the hatred between them under the organization
LECTURE 3: WAGES SUPPLEMENTS system of production.
● This scheme attracted considerable attention not
Supplements – refer to extra remuneration or
only in France but also in England so much so that
benefits received by the wage earners from their
about the middle of the 19th century, their
employers. In other words, supplements constitute
principles were advocated principally by the
remuneration or special privileges received by the
Christian Socialists, who influenced co- operative
employees over or above their ordinary earnings.
societies to apply them to their employees.
KINDS OF COMPENSATION
PROFIT SHARING - An agreement (formal or informal)
freely entered into by which employees receive a
share fixed in advance of the profits.

➢ It is a payment in the form of cash, stock options,

or otherwise, given under a predetermined and
continuing policy sought by management of a
company to all or any group of its officers or
employees in addition to their wages.
MEANING: According to Business Dictionary:
➢ Profit sharing excludes gifts, gratuities, or other
Wage Supplements - are compensation received payments made by an employer to his employees
from employment that is in addition to the regular, out of profits at his discretion without being bound
ordinary salary or wages. They include commissions, by a scheme.
overtime earnings, awards, bonuses, retirement
matching programs, or payment for unused vacation ➢ Profit sharing schemes are usually through the
days. initiative of the individual firms, and in
consequence schemes vary widely to suit the
PURPOSE: conditions of each company and the purposes and
● To persuade and motivate employee; attitude of employers who introduce them.
● Not linked with employee performance; ➢ Profit sharing is usually free to terminate at any
● Help increase the wealth and well-being of
time, but until the employer does so they are bound
employees at the cost of an employer
 to observe its provisions. advantage of providing employees with more pay for
exerting greater effort while, at the same time,
OBJECTIVES OF PROFIT-SHARING providing them the security of their regular wages.

● To instill a sense of partnership among its - A bonus payment may be used upon the
employees and thus prevent industrial friction or number of units that an individual or a group
unrest. produces.
● To serve as group incentive. Employees COMMISSION – refers to the compensation paid to an
participate in the profits of the company, they employee after completing a task, which is, often,
are motivated to work harder and help selling a certain number of products or services.
contribute to the success of the firm.
● To provide employee security. - Commission vary in the way they set and pay to
their employees, this includes: straight
● To attract desirable employees to join the commission, salary plus commission, and
organization and moreover reduce turnover on graduated commission.
the part of those who are already members.
● To serve as an attractive means of DE MINIMIS BENEFITS – NOT SUBJECT TO
communicating with its employees its WITHHOLDING TAX
philosophy of sharing the wealth with them.
● Monetized unused vacation leave credits to
employees not exceeding ten (10) days during
SPECIAL BONUSES
the year;
Christmas Bonuses – it is usually paid during prosperous ● Monetized value of vacation and sick leave
times, or when excess profits taxes are unusually high, credits paid to government officials and
the payment of Christmas Bonuses is much more employees;
widespread than at other times. ● Medical cash allowance to dependents of
employees, not exceeding ₱ 1,500.00 per
- When their distribution is contingent upon the
company’s current financial situation, these ● employee per semester of ₱ 250.00 per month;
bonuses assume the aspect of profit sharing. ● Rice subsidy of ₱ 2,000.00 or one sack of 50kg rice
per month amounting to not more than ₱
- The eligibility requirements vary from industry,
2,000.00;
frequently payment of bonuses requires one
year of service with the company and ● Uniform and clothing allowance not exceeding
sometimes there are additional attendance and ● ₱ 6,000.00 per annum;
good behavior requirements. ● Actual medical assistance, e.g. medical allowance
to cover medical and healthcare needs, annual
OBJECTIVE OF SPECIAL BONUSES medical/executive check-up, maternity assistance,
and routine consultations, not exceeding ₱
● The practice of paying Christmas bonus is that
10,000.00 per annum;
they promote goodwill, loyalty, and stability
among employees and also provide a means of ● Laundry allowance not exceeding ₱ 300.00 per
sharing some of the company’s income during month;
prosperous times without committing the company ● Employees achievement awards, e.g. for length of
to added costs which would be difficult to reduce service or safety achievement, which in the form of
during periods when profits are not high. a tangible personal property other than cash or gift
certificate, with an annual monetary value not
PRODUCTION BONUS SYSTEM – This system enjoys the exceeding ₱10,000.00 received by the employee.
LECTURE 5: MANAGEMENT INCENTIVES 6. By and large, these professionals are
economically advanced to the point where
Management Incentives - The most important income is valued not only for its purchasing
objectives of a compensation package is to reward power but also for the status it confers and the
efficient performance on the job with commensurate recognition it implies.
pay for efforts and ability and thus help motivate the 7. They are highly mobile.
worker to higher levels of creativity and productivity.
These characteristics help to explain why intrinsic
- Low productivity is one of the most serious rewards are necessary for managerial and professional
problems facing in the country and studies employees and are valuable to them.
showed the frightening fact that this disease is
prevalent in the vital organs of companies- They also emphasize the importance of developing a
management. total compensation package for the individual employee
or for each particular class or group of employees, as for
Managers - Employees tasked with helping your example, accountant, engineers, managers and
company to accomplish its strategic goals and supervisors.
objectives. The incentive plans you use to motivate your
management team will likely play a role in your MANAGEMENT’S LOW PRODUCTIVITY
business's growth and success. A wide variety of
incentive plans exist to help managers stay focused and Management’s low productivity is often caused by the
driven. Consider a combination of incentive plans that lack of understanding of the relationship between
will create a rich compensation package to aid with performance and money. Moreover, managers often fail
retention and achievement. to see that the only way a company can pay more is for
productivity to increase.
CHARACTERISTICS OF PROFESSIONAL AND
MANAGERIAL EMPLOYEES To gain productivity, it is necessary to motivate
managers to pass on the benefits of their ingenuity to
The characteristics of professional and managerial the company.
employees are different from those of factory
employees. Money - Still the primary motivation tool. Regardless of
how the term is used, whether incentive plan or
Lee Danielson found that successful engineers and incentive bonus. It is still basic reward that counts.
scientists have certain distinctive characteristics that
apply to other professionals and managerial employees. - Without rewards (money) or inadequacy of it,
They are: there is laziness and the nasty or hatred desire
to work hard. Unfortunately, however, a
1. They are highly intelligent. considerable number of companies fail to fully
2. They have an analytical frame of mind and a utilize the power of money.
preference for deductive reasoning.
3. As a group, they tend to be more creative and - The concept of MONEY as a motivator is
imaginative than others. anchored on a theoretical base, that is,
4. They are usually both independent and managers who want more pay and who believe
self-conscious. making their departments more productive and
5. As a group, they tend to be idea- and cost-effective will result in more pay, will work
thought-oriented rather than people-oriented. harder and better to get that pay.
 - Compensation experts continue to advise 1. Cost and Benefit Analysis - a company before
companies to structure their compensation venturing into such a plan must direct its attention
plans for managers with an incentive plan as its towards estimating the additional earnings that
basis. Such advise is made in the light of present would be realized which then must subsequently be
conditions today. compared with the costs of rewards, administration
of the plan, etc. Moreover, Intangible rewards that
Since executives and manager’s performance is difficult a company is bound to receive should be ignore.
to measure, most companies have no systematic
program with regard to compensation package for 2. Company Analysis - the company should take into
them. Rather, they make subjective determinations account such as factors as current market share,
influenced by the availability of executive and sales growth, profit improvement. Moreover, a
managerial personnel that possess the desired skills, review of sales for the last past three-five years
bonus, profit-sharing, and stock option plans are now including costs and profits by product line must be
being practice to, along with fringe benefits designed to undertaken analyzing cost/volume/profit
increase the real income while keeping taxable income relationships and determining how they are affected
at a minimum. by sales growth and cost reductions.
- The risk and cost to the company if the program
INFLUENCE OF REWARDS DECISIONS - It has dealt with fails must also be considered.
the subject of the determinants of the distribution of
company’s income. 3. Participation - this plan must be clearly described,
that is, it is limited only to those managers who
DESIGNING MANAGEMENT INCENTIVES - The idea of directly and significantly affect company
that a manager can increase productivity to such an performance.
extent that it warrants being paid twice or even three
times the previous year’s salary often requires a major - In this plan, it is generally important to provide
change in thinking for top management. May companies separate incentive programs for different levels of
overlook is that, in a well designed plan, a substantial management inasmuch as their efforts affect
multiple of the manager’s ends up as a profit. (Small performance of the company in different ways.
Business Report, January 1982).
4. Plan Structure - In this plan, it must be simple, easy
- One of the reason why a number of companies to understand and implement. Any plan that is
do not adopt management incentives plans is a complicated may render the best intentions to
practical one. The productivity of an nothing. Simplicity may be judged on the ease of
organization can’t increase until managers have determining whether managers themselves can
full grasp of the true meaning of what a good easily calculate their rewards on the basis of given
performance actually is. performance levels and bonuses.

MANAGEMENT INCENTIVE PLANS - On the basis of 5. Substantial rewards - The rewards offered under
studies made, there are strong evidences to show that this plan must be fairly substantial. Otherwise.
there are logical connections between managerial pay Managers may not even give it a thought.
and company performance.
6. Sharing Rate - the maximum amount that any one
Any company which seeks to make incentive plans manager can earn should be open-ended, but based
work must take into account the following: upon a percentage of the total profits that will be
paid out. There are those who argue that above a
certain point (never defined) “the man makes the
 job” and his rewards should not be limited by a 6. Managers must perceive that as their efforts
“classified” price tag. increase, performance will increase accordingly.
- Normally the “sharing rate” is approximately 10 7. Managers must perceive a high probability of
percent of the increase in profits generated by the achieving rewards.
incentive plan. Obviously, the higher the sharing
rate percentage, the more profits that will be Management Incentive Plans can greatly improve
consumed by the rewards. company profitability. But they must be expertly drafted
and applied. Rewards must be substantial, performance
7. No-bonus Zone - For purposes of stressing emphasis standards must be measurable and accurately reflect
on superior performance, no reward should be the manager’s who can directly influence company
given for marginal improvement. Thus, for profits. Few companies have the in-house expertise and
performance that does not reach a predetermined professional assistance is a must in most cases.
threshold, no bonus is paid.
❖ Properly designed, an incentive plan could boost
- The relationship between performance levels, productivity. Money is a motivator when managers
no-bonus zones and bonus ceilings must be clearly are fairly and amply rewarded in direct proportion
defined and understood by the manager. to their results.

8. Payout Provisions - The matter of payment of ❖ There should be a periodic review of management
rewards should also be clearly spelled out. Receipt incentive plan to see whether it works successfully
of incentive rewards on a deferred basis unless or not. Failure to achieve its goals and objectives, it
requested by managers for tax purposes. Could becomes incumbent on the part of top
defeat the very purpose for which the plan has been management to look into the matter with a view to
instituted. It may make managers lose-enthusiasm instituting needed remedial measures.
on their jobs instead of exerting greater efforts
toward increasing levels of productivity. DEFERRED BENEFIT PAYMENTS

9. Emphasis on Long-term Results - Every incentive Within recent years, large and small businesses alike,
plan must be anchored on long-term company are using deferred benefit payments.
growth and profitability must be its sole basis. Such plans, are used by businesses in the United states
designed:
MONETARY REWARDS AS MOTIVATORS 1. To attract and hold key executives and
For monetary rewards to motivate managers to managers;
greater performance, these conditions must exist: 2. To provide them with sheltered investments;
1. Management incentive plans must generate an and
increase in profits greater than the cost of the 3. To ensure financial security.
rewards.
2. Companies must accept the philosophy that Deferred plans were originally intended as a device for
performance should be rewarded. retirement planning, and this is still the basic purpose of
qualified plans. However, in the case of unqualified
3. Management/shareholders cannot be plans, the primary purpose is one of tax avoidance for
threatened by the possibility that other both current income and estate taxes.
managers will earn more. - Therefore, over the years, the unqualified plan
has become more and more used as a tax
4. Managers must put a high value of money. planning tool for executives and business
5. Money must be tied to performance. managers in that country.
 3. Merit Pay – base-pay increase based on employee
Typically, an executive or business managers enjoying performance
high salaries where possible, would defer as much
current income as necessary to: 4. Incentives – cash bonuses based on employee
performance
1. Lower the present tax bracket to a reasonable
rate, while maintaining his present standard of 5. Promotions – base pay increase based on potential to
living, and perform new job
2. Build a retirement fund by providing (including
6. Pay Increases – base pay increase based on length of
growth) 50 to 90 percent of salary at the time of
service with the organization
retirement.
7. Benefits
To achieve these goals, the deferred compensation plan
may be either qualified or unqualified, and in the case 8. Health and Welfare – payment for injuries and illness
of unqualified plans, funded or unfunded. both on and off the job

9. Paid Time Off – payment for vacation time or excused

days from work
LECTURE 6: TOTAL REWARDS PLAN
10. Retirement – payment for work no longer
Total rewards – Is a system of rewards that goes beyond
performed based on length of employment
compensation and benefits and includes anything and
everything the employee values and the employer is 11. Personal Growth
willing and able to offer employees.
12. Training – skill development through on or off the
Total rewards system – Is comprised of compensation job instruction
and non-compensation elements used to attract and
retain workers and reinforce desired behaviors. 13. Career Development – in-the-job coaching to
develop skills
Total rewards strategy – Is a system implemented by a
business that provides monetary, beneficial, and 14. Performance Management – ongoing goal setting
developmental rewards to employees who achieve and feedback to develop skills
specific business goals.
FOUR (4) PHASES OF TOTAL REWARDS
- The strategy combines compensation and IMPLEMENTATION
benefits with personal growth opportunities
inside a motivated work environment. 1. Assessment – this phase, the HRP evaluates the
company’s total rewards system and generates ideas for
- Total rewards strategy encourages organizations
improving it. To carry-out this phase effectively, HR must
to move toward a pay-for-performance
take responsibility for a lengthy series of tasks.
philosophy providing opportunities for top
performers to earn higher base salaries through 2. Design – during this phase, the HR team identifies
a well-defined performance evaluation program which employee and organizational attributes to reward
embracing a meritocracy culture. and which types of rewards to offer. The HR Team
should consider the full range of rewards strategies,
EXAMPLES OF TOTAL REWARS STRATEGIES including compensation, benefits, personal and
professional development, and work environment.
1. Compensation
3. Execution – once the HR Team has designed a total
2. Base Pay – wages and salary
rewards system, it moves to the execution phase of the
implementation process- putting the new system in PERSONAL AND PROFESSIONAL DEVELOPMENT AS A
place in the organization. During this phase, the HR TOTAL REWARDS
team must consider numerous issues.
● Trainings, career development, and performance
4. Evaluation – in this phase, the project team management can constitute valuable rewards for
compares the actual results of the executed total employees. But the value of these rewards for an
rewards strategies against the desired results. By organization is less clear.
conducting evaluation, you can show top management ● From the employer’s perspective, personal and
that the company’s investment in its total rewards professional development is good only if it enables
system has paid off. workers to acquire special skills that add value to
the enterprise.
BENEFITS OF TOTAL REWARDS
● Valuable skills are those that give an organization
1. A Persuasive Recruitment Tool – the more items or unique capabilities that rivals can’t copy and thus
inducements that you’re able to put on the table, the afford the employers a sharp competitive edge
stronger the case you make for selling your (Barney and Wright, 1998). Clearly, development
organization, this can help you bring high-performing opportunities that give workers general skills that
candidates on board. can be easily transported to other organizations do
not provide strategic value.
2. Signaling that you’re a Progressive Company –
employees like to be associated with well-known, PERSONAL AND PROFESSIONAL DEVELOPMENT AS A
well-considered company. “The brand of the company is TOTAL REWARDS
very important. A positive, well-respected brand makes
it easier to draw in quality candidates.” ● Work environment (safety and comfort)
● Job design
3. Increasing Employee Engagement without Increasing ● Recognition
Costs – Happy, engaged, connected employees will ● Work/life balance
spread the word that they like where they work. ● Autonomy
Overtime, that builds and solidifies the reputation of ● Flexible schedules and work arrangements
the company as a good place to work. ● Relationships with other people
4. Increased Awareness of all the Benefits the ● Quality leadership
Employer Provides – underutilization of employee ADVANTAGES OF TOTAL REWARDS PROGRAM
benefits is a big concern for many companies. The time,
effort and resources that go into putting together an ● Employee Retention
employee benefits packages (particularly to a small ● Employee Performance
business) can be considerable, and when those benefits ● Controllable Expenses
go unused, it can all feel like a waste. ● Program Administration

5. Higher Employee Retention Rates – engaged DISADVANTAGES OF TOTAL REWARDS PROGRAM

employees are more loyal, which means that it’s going
to take more than a small salary increase to lure the ● Lag the Market
them away. ● Appropriate Mixture
● Self-focus and Competition
6. Improved Performance and Productivity – a more
engaged workforce isn’t just a loyal workforce; it’s also a
more productive one. Total rewards program have been
linked to increases in overall employee performance
and satisfaction.
LECTURE 7: SIGNIFICANT FACTORS AFFECTING economic relationships, the labor union attempts to
COMPENSATION work primarily on the supply side.

FACTORS AFFECTING COMPENSATION Union leaders are often very competent in selecting the
appropriate time to strike as judged by the markets for
External Factors: the employer’s products.
● Supply and demand for employee skills; To strengthen their control over the supply of labor,
● Labor organization; unions seek such goals as union or closed shops,
● Competitors regulation or restricted substitution of capital for labor
● The Economy; through technology, and controlled entry into
● Cost of living; and apprenticeship programs.
● Government Legislation
Collective bargaining agreement – the process by which
Internal Factors: unions and employers arrive and enforce their
● The firm’s financial condition; agreements
● Productivity of the firm - In order to realize the ambition of creating
● Employee some effective power over a labor market, a
● Job Description union had to gain control of the supply of labor
and have the financial resources necessary to
SUPPLY AND DEMAND outlast the employer strength. The union has to
The commodity approach to labor tend to show that a force the employer to negotiate.
wage is a price for the services of a worker or employee.
As such, if a firm desires his services, it must pay a price THE FIRM’S FINANCIAL CONDITION
for such services which are subject to control by the It should be recognized that not a few employers share
worker or group of workers acting in concert with one their bonanza in the form of bonuses with their
another. employees.
As the law of supply and demand indicates the greater If the firm is highly successful, it is good public relations
supply of any commodity and the lesser the demand for to pay their workers and employees above the
it, the price is low. Conversely, if the demand is greater prevailing wage rate. Contented and happy workers
than the supply, the price is high. become sufficiently motivated to work harder resulting
In general, anything works to decrease the supply of in increased productivity.
labor, such as restriction by a particular labor union, All said, ability to pay is an important factor affecting
there will be a tendency to increase the compensation. compensation, not for the individual firm for the entire
If anything works to increase the employers demand for economy or industry.
labor, such as wartime prosperity, there will be a
tendency to increase the compensation. The reverse of PRODUCTIVITY
each situation is likely to result in a decrease in
employee compensation. Productivity goes hand in hand with morale, i.e., if
morale is high, the worker exerts greater efforts
LABOR ORGANIZATION resulting in increased productivity.

Labor unions – represent the vital arm and thus the Productivity is a measure of performance.
strong force of labor organizations. In the structure of
Productivity is the ability of the worker to produce distressed enterprises are granted full or partial
more is circumscribed by the path he has chosen, the exemptions or deferment of compliance for a period to
path that lead to the accomplishment of desired goals. be determined by the National Wage Council.

This makes the worker highly productive provided there GOVERNMENT

are no restraining forces, that is, if no barriers blocked
the desired path. The recognition of the importance of labor to the
nation’s economy explains the government’s continued
Higher productivity, it should be noted, is an index of attention and concern to the plight of the workingman.
high or good performance and suggest promotion at a
certain time in the future; promotion in rank and in pay. Such area of concern includes LAW to evolve fair and
equitable payment of wages due the workingman. To
DRAWBACKS IN PRODUCTIVITY COMPENSATION this end, a number of social and labor legislations have
been enacted, particularly relating to wages. One of
● There is no precise and accurate measure of these is the Minimum Wage Law.
productivity acceptable to all;
● The reported percent increase are generally of Government intervention took the form of the
long-term average and are not achieved each year; establishment of a wage board or council for each
industry, or a central wages commission covering a
● Not all industries participate equally in productivity group of companies.
gains; and
● Use of any index does not materially reduce COMPENSATION PRINCIPLES
controversy in bargaining since the index is used as
the base from which to bargain. Principle of Economics – pay must bear a reasonable
relationship to the overall financial structure of the
The proper role of a productivity index in compensation company.
is not one of a rigid formula; rather, it provides helpful
information for both parties in the bargaining process. Principle of Living Wage – pay should be substantial
enough to obtain a reasonable standard of living.
COST-OF-LIVING ALLOWANCE Principle of Competition – pay must be competitive
In recent years apart from the base pay members of the enough. It must compare favorably with pay for similar
labor force receive from their employers as work in both the area and the industry.
compensation for their services, in addition thereto, Principle of Significant Differences – compensation
there is added what has come to be known as cost of should recognize significant differences in responsibility,
living allowance termed as COLA for short. authority, accountability, and level of employment
The basic intent behind such increment is to help them within the organization.
in their dilemma brought by the higher of inflation. Principle of Contribution – should be based upon the
Briefly, COLA adjustment of compensation constitutes individual’s contribution to the objectives of the
no fundamental solution to equitable compensation of company.
employees. Rather, as indicated above, it is useful as a Principle of Change – should be capable of revision to
top gap device in times of inflation when labor is meet changing conditions.
pressed to keep with the rise in prices.
Principle of Status Symbolism – compensation believes
In the Philippines, the mandatory cost of living that individual earnings mark his progress in life
allowance is contained in WAGE ORDERS issued by the accordingly.
government from one time to another. However,
STEPS IN COMPENSATION ADMINISTRATION 5. How much direction and supervision is given to the
job.
1. Determining the relative value of positions; 6. Specific duties performed
2. Grouping positions into classes or grades; 7. Regular as in the case of PAYROLL ASSISTANT who
3. Deciding upon general compensation levels; is assigned to that job for as long as he holds that
4. The company’s relative ability to pay; position in the company;
5. Devising the range of compensation for the class; 8. Less frequently, but regularly as, once a week or
6. Establishing criteria for advancement through the every fifteen days. (Example: computing
range; and attendance worked by employees.)
7. Evaluating the individual 9. Occasionally. When the PAYROLL MASTER is absent
due to illness or vacation leave of absence, the
PAYROLL ASSISTANT takes over his position and
LECTURE 8: JOB DESCRIPTION AND JOB ANALYSIS does the former’s job at least temporarily.
Job Description – a group of duties, responsibilities and 10. Unrelated tasks that could be assigned, as for
activities assigned to an individual. It is a summary of instance, during an emergency, vacancies,
the most important features of the job in terms of its resignations, absence, etc.
general nature and of the type of operation required to 11. Extent of job authority, if any. Statements of
perform it in an efficient manner. authority relationships include:
12. From whom authority is received for this position;
- It summarizes duties and responsibilities, skill or 13. To whom orders and instructions are given;
training requirements; and organizational 14. Working conditions, that is, whether safe, pleasant
demands for this type of employees required. and conducive to higher productivity. If the reverse
- The job description is normally formulated by obtains, there should be a clear statement to that
the HR DEPARTMENT. effect.
15. Machinery and equipment required for the job.
Essential features each position as: 16. Others that have a bearing on the job. For instance:
AN ADMIN ASSISTANT responsibility is to maintain
1. The nature of the work involved, and
adequate supply of materials, proper utilization of
2. The type of worker that appears best fitted for the
resources, and etc.
position (JS).
GUIDELINES FOR WRITING A JOB DESCRIPTION
CONTENTS OF JOB DESCRIPTION
1. It should be borne in mind that job descriptions are
1. A summary of statement/ job
nothing more than job summary statements of duties
2. Relationships
and responsibilities called in the job and never intended
3. Specific duties and responsibilities
to serve as a measure of employee performance.
4. Authority
5. Qualifications 2. Attention should be focused and directed to two
basic elements:
DETAILED JOB DESCRIPTION CONTENTS
1. principal duties
1. Job Summary
2. accountability for performance of the job.
2. Job Title
3. Location of the Job in the organization 3. Job identification data – this relates to identifying
(Department or Unit) information about the job such as job title, (if
4. Authority to report – to what higher position the alternative titles exist); code name, if such is used;
job is tied to. organizational unit and level of job; and, perhaps,
current holder of the job.
4. Minimal qualifications necessary for the job must be FACTORS IN A JOB ANALYSIS PROGRAM
clearly indicated. This will help in the recruitment
process. Without gainsaying considering those without The decision to go on board on a job analysis program,
the desired qualifications for the performance of the job either for the purpose of reviewing the accuracy of
is a sheer waste of time, effort and money. present and possibly obsolete job descriptions, or for
the sole purpose of installing a new plan, doubtless
5. The chain of command must be clearly spelled out; requires a careful consideration of the following factors:
and so with delegation of authority.
1. What are the clear reasons which justify job
6. There should be a periodic review of job descriptions analyses?
since jobs change. The descriptions should always 2. What reliable information, if any, exists? Is such
reflect the nature and contents of the jobs in question. information complete and reliable for the present
use it is intended?
JOB SPECIFICATION 3. What jobs or groups of jobs are the subject of
study and analysis? In what order will the study of
Job specification – is at times termed as “job spec” for other jobs follow?
short, it usually indicates the skill, education, and 4. How should the information from the job analysis
experience required to perform the job. be collected and recorded?
- It also includes a statement of the job 5. When should the job analysis be undertaken?
conditions relating to the health, safety, and When should it be completed?
comfort of the employee. Perhaps, a more
nearly accurate name would be to call this job PROCEDURES INVOLVED IN JOB ANALYSIS
specification an “person specification”. 1. Gathering of factual material
2. Accuracy of data
JOB ANALYSIS 3. Putting the information in draft form.
● Job evaluation begins with job descriptions. 4. The draft is now made subject to review
● A job description begins with a job analysis. 5. Revision of the first draft
6. Final approval
Job analysis – is the study of work done and the
conditions under which it is done in order to determine
what the job actually is. LECTURE 9: JOB EVALUATION

Job Analysis – is the methodical compilation of study of Job Evaluation - Is a systematic procedure for measuring
work data in order to define and characterize each the relative value and importance of occupations on the
occupation in such a way as to distinguish it from all basis of their common factors (skill, training, effort) for
others. the purpose of determining wage and salary
differentials.
JOB ANALYSIS OBJECTIVES:
- Job evaluation deals with jobs, not with people
1. To determine and establish job specifications; doing those jobs.
2. To develop training programs;
3. To evaluate positions in the company; BENEFITS OF A JOB EVALUATION
4. To study work flow and work process for 1. It provides a company with a more systematic
improvement in operations; procedure for determining the relative worth of
5. To determine safety standards each job within the company based upon the
6. To aid in determining cost and value benefits of information contained in the job description and
employee benefits. specifications.
2. It enjoys the advantage of permitting such ● It clarifies the organizational lines of authority and
judgments to be made with the objectivity owing to responsibility; provides a basis of hiring,
the fact that they can be based upon the factual transferring, and establishing lines of job
data instead of relying merely upon personal progression and channels of promotion; and serves
opinions. as a basis for developing a training program.
3. It may permit the improvement of the personnel
program in a number of ways. Job Design - It is concerned with the study of work.

4. It can help to improve employee understanding of - It is performed by individuals in all types of

company remuneration policies and practices. organizations and at all levels within the
organization.
5. It can contribute to the development of better
information concerning the relationship of the - It is relatively a new concept to management,
various jobs within the organizational hierarchy, as the roots of which are embedded in scientific
well as the development of lines of authority and management where efficiency and
promotion for the personnel within these jobs. specialization were the vogue terms and
over-riding objectives.
IMPORTANCE OF JOB EVALUATION - The concept of job design is also deeply
● To determine what the rate of pay for one job involved in the process of job enlargement, and
should be in relation to the rates of pay for other closely related to the concepts and practices of
jobs in the same plant. work simplification.

● It provides a useful basis for establishing money Job Enlargement - Simply defined as a horizontal
rates for each job in the organization. expansion of duties and tasks across the same
● It is focused on different wage rates for different organizational level.
jobs and help align them in a desired relationship - Job enlargement is a technique used for
with each other. motivating the semi-skilled or unskilled workers
● It provides a means by which differences of opinions and may be misinterpreted as work overload
regarding wage rates and values of jobs be without a good hike in salary.
discussed openly by the job analyst, the employee - Job enlargement refers to increasing the
concerned and his supervisor. number of tasks to be performed by an
● It provides a systematic process through which new employee to reduce work related boredom.
jobs can be introduces into the job structure
without in any way creating any disturbance or Job Enrichment - The vertical expansion of the roles,
imbalance. responsibilities, authority and activities along with
● It provides meaningful data for other functions such different hierarchal levels.
as company training program, employee placement, - Job enrichment is used for development and
recruitment and selection, and long-range satisfaction of the skilled employees which is
manpower planning. usually taken as a reward of good work.
- Likewise, it provides data for incorporation in - Job enrichment is that motivational tool which
local area of wage surveys to establish value allows more decision making power and work
data regarding job classifications. Responsible related authority to the employees.
firms contribute to the wealth of industry data
by participating in wage surveys and research
studies.
 METHODS OF JOB EVALUATION 2. Ranking Method - This method involves simply the
listing of the jobs into a rank order from high to low.
1. Point Rating - Under this system it breaks each - It is usually suited for small firms- for the firms
position down by understandable factors that are where the jobs are easily separated into
common to all jobs. This factors is rated fall into four (4) categories such as “office”, “factory”, and
categories. “professional” and when the number of jobs to
be evaluated is not too large.
● Skill: job knowledge, experience, training
education on the job holder. - This method may be by department or the
● Degree of effort: that is, mental or physical. whole firm itself. It involves checklists, paired
● Responsibility for materials, money, safety and comparison, and scientific management.
others. - Whatever method used, it should be a
● Job conditions like working conditions, presence convenient one for the firm and one which the
of hazards, noise, improper lighting, etc. employees fully understand.
- Lastly, this method involves comparing the
Advantages of Point Rating: rankings throughout the firm and resolving
❖ Since it is widely used throughout industry, it inequities.
permits comparisons on a similar basis with
other firms. RANKING METHOD PROCEDURE:
❖ It is relatively simple to understand and to 1. Assures that all jobs have been currently analyzed.
explain to employees. 2. Collect job descriptions for all jobs to be evaluated.
❖ It is the simplest of the quantitative methods of 3. Select and form a ranking committee.
job evaluation. (in a quantitative method, the
4. Select and rank key jobs to serve as benchmarks in
parts of a job are considered and points
evaluating all other jobs.
assigned according to their relative worth).
5. Develop a rank list of all jobs by comparing the
❖ The point values for each job are easily
ranking of each job with that of the key jobs. In
converted into job and wage classes with a
order to measure one job in terms of, or with
minimum of confusion and distortion.
reference to, other jobs, it is necessary to select
❖ A well-conceived point rating plan has factors or features fundamentally prevalent in all
considerable stability- it is applicable to a wide occupations. Even though occupations vary in
range of jobs over an extended period of time. duties, operation routine, equipment and material,
❖ It permits a more objective and definitive the basic nature of all wage can be expressed and
approach requiring several separate and distinct compared by such attributes as “skill”, “effort”,
judgment decisions. Thus errors tend to cancel “responsibility”, and “working conditions”.
one another. 6. Review completed ranking and resolve any
discrepancies or differences between judgments.
Disadvantages of Point Rating:
❖ It assumes that all jobs are equally involved in Advantages of Ranking Method:
the same relationship which is not actually
❖ Simple, less time and paper work.
correct.
❖ Can eliminate personalities and is thus superior
❖ It can never be accomplished with complete
to old fashioned rate setting.
accuracy
❖ It can give practical but rough job classification.
Disadvantages of Ranking Method:
❖ No committee is likely to be familiar with all the
jobs.
❖ It does not facilitate analysis and can be
inaccurate
❖ Halo effects

3. Factor Comparison - It was introduced by Eugene

Bongo in 1926. It combines the job ranking and point
rating methods.
- Under this methods, it evaluates the
specifications against specifications for a
selected group of key jobs within the company,
which serve as the job evaluation scale.