By: Group 19

Franco, Jahnna Len

Grafil, Stephanie
Hetrosa, Divine Grace
Suansing, Isaiah
Vargas, Yyanna
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Compensation
—a key strategic area for organizations
—impacts an employer’s ability to attract applicants, retain
employees, and ensure optimal levels of performance from
employees in meeting the organization’s strategic objectives.

Compensation, as part of an organization’s total reward system, has

been evolving relative to the changing needs of organizations and
employees in recent years in a number of ways:
▪ First, greater emphasis is being placed on employee
performance and contribution
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▪ Second, employers are taking a more holistic approach
to compensation in offering enhanced and flexible
benefits to meet individual employee needs and
preferences.
▪ Third, greater emphasis is being placed on more
immediate and intermittent rewards
▪ Fourth, organizational rewards are becoming more
directly linked to the organization’s mission, strategy, and
goals.
▪ Fifth, compensation decisions and rewards are becoming
more individualized
Compensation System
Equity
— The Equity Theory of motivation holds that workers assess
their perceived inputs to their work and their outcomes to
those of others.
— When individuals perceive that they are being treated
inequitably relative to their peers, they usually try to establish
equity by increasing their outcomes or decreasing their inputs.
— Employee assessments of equity are, in fact, perceptions.
— Although compensation is not the only work-related
outcome employees receive, it is often the basis by which
employees conclude that they are being treated appropriately
Three types of equity:

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▪ Internal Equity
▪ External Equity
▪ Individual Equity

Internal Equity
— involves the perceived fairness of pay differentials among
different jobs within an organization.
— In attempting to establish internal equity, employers can
evaluate jobs by using four techniques:
1. job ranking 3. point systems
2. job classification 4. factor comparison.
 Job Ranking

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— Senior management makes judgments as to which jobs are
most challenging and ensures that the more challenging jobs
receive higher compensation.
— Concerned with the hierarchical position of jobs.
— Usually only in small, informal organization

Job classification Systems

— group jobs requiring similar effort, ability, training, and
responsibility into predetermined grades or classes and
compensates each job within a grade similarly.
— Widely administered in large organizations
— It has been criticized for lack of flexibility.
Point systems
— Involve making a quantitative assessment of job content
— The organization first creates a list of compensable factors—things that
the organization is willing to pay its employees for, such as education,
experience, specific skills, working conditions, and responsibility

The more a compensable factor relates to goals and objectives, the higher the values that
should be present in the factor scales.
Hay Plan
— A special type of point system is often used for administrative
and managerial positions.
— Utilizes three factors, called “universal factors,” : know-how,
problem solving, and accountability.
▪ Know-how pertains to the technical knowledge required to do the
job.
▪ Problem solving assesses the amount of independent thinking and
decision making required in the job.
▪ Accountability considers the direct responsibility for people,
resources, and results
Factor comparison
— utilizes five standard factors in evaluating all jobs:
1. Responsibility 4. physical effort
2. skills required 5. working conditions.
3. mental effort
— Jobs are evaluated relative to each other on each of these
five dimensions to determine appropriate compensation.
— Factor comparison is best utilized there is limited change
and job responsibilities and content remain somewhat stable

Salary compression
— happens when new hires earn higher salaries than employees
who have more experience within the organization.
External Equity
— Involves employee perception of the fairness of their
compensation relative to those outside the organization.

— Organizations should first collect wage and salary information to

determine market wage rates.
Organization then determines its own pay strategy relative to the
market the three strategies are:
o lead,
o lag,
o market policy.
 A lead policy involves paying higher wages than competitors to ensure that
the organization becomes the employer of choice.

A lag policy, the organization compensates employees below the rates of

competitors. An organization employing this strategy attempts to compensate
employees through some other means.

With a market policy, the organization sets its salary levels equal to those
of competitors

Individual Equity
— Considers employee perceptions of pay differentials among
individuals who hold identical jobs in the same organization.
 Seniority-based systems
determine compensation
according to the length of time
Determining individual salary levels and pay on the job or length of time with
the employer.
differentials among employees in identical
jobs can be done in a number of ways:
Merit pay systems
▪ Seniority-based systems compensate individuals for their
▪ Merit pay systems proven performance on the job
▪ Incentive pay or Incentive pay program
▪ Performance-based pay
▪ Skill-based pay system Incentive plans
▪ Team-based pay the employee to receive a
portion of his or her
compensation in direct relation
to the financial performance of
the individual, unit, or entire
organization.
 Skill-based pay
involves basing the employee’s
compensation on the acquisition and
mastery of skills used on the job.
Performance—based pay
that is variably tied into an employee’s,
work unit’s, or organization’s results
Team-based pay--
work and responsibility being
centered on self-managed teams
and be more flexible in working with
others in achieving group and
organizational objectives
Legal Issues in
Compensation
Under the Title VII of the Civil Right Act of 1964
Any compensation system that discriminates are subjected to legal action.

Equal Pay Act of 1963

Requires equal pay for equal work.

Comparable Worth
Doctrine of equal pay for equal value.

Fair Labor Standards Act (FLSA) of 1938

Regulates the federal minimum wage, overtime policies and use of child
labor.
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Executive Compensation
Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010
An executive compensation policies under which employers could
recover any and all incentive-based compensation paid out to
executives during the previous three years.

Sarbanes-Oxley Act of 2002

Allows legal action only against the CEO and chief financial offer
and then only when the subjected individual had consciously engaged
in fraudulent reporting.
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Stock Options
Give employees opportunity to purchase shares in a period
of time and reap benefits from the organization's financial
performance.

Stock Grant
Compensating the employees by giving return on capital or
return on assets, as a condition of their issuance.

Pay for Performance

Compensation that includes cash or stock option if the
origination's growth in earning per share reaches its posted
annual quota
Compensation
• Substitute word for wages and salary
• Salary, other forms of cash payments, vacation leaves with
pay, employer-paid benefits, use of car, car allowances,
housing, tuition waivers, professional fees and any other
benefit received by the employees.
• Can help reinforce the organization’s culture and key values
and to facilitate the achievement of its strategic business
objectives.
4 Basic Objectives of Compensations
• Focus – compensating the behaviors it desires
• Attract – if management does not pay a competitive
wage, it puts the company at a disadvantage to hire on
the open market
• Retain – keep top performance
• Motivate – fair compensation encourages good
performance
Common compensation program objectives:

• Attract and keep desired quality and mixed employees

• Motivate employees
• Reinforce the organization’s key values and desired
organizational culture
• Drive and reinforce
• Ensure compensation is maintained
• Control compensation costs
• Ensure optimum value
• Comply with legal requirements
Compensation programs ensure:

• Equitable treatment
• Accurately measure and appropriately reward
performance and contribution to the achievement
• Provide appropriate compensation changes
• Provide regular compensation and performance
reviews.
Market rates- represents an average of salaries in the labor market
used when comparing benchmark jobs to relevant local, state or
national market data.

Market rate analysis - process of collecting and comparing data on

the rates and benefits provided for similar jobs in other organizations
and the rates at which pay is increasing elsewhere
Job matching – process of using internal job descriptions to
match to established salary survey jobs in order to identify
the external market rate for each position.
- provides the information leaders need to define the
costs associated with salaries and other compensation
components such as profit sharing or bonuses.
How a Job Match survey is carried out

• Set of standard job description is created

• Each participant company matches their jobs to the
standard job descriptions
• Participants send in compensation data for matched
jobs
• Consultants check, analyze, and report data
• Companies use the salary survey report
Limitations to Job match surveys

• The data going out is only as good as the

data going in
• The number of data points can be small
• The companies may not be comparable
• The reported ranges are large
• Most jobs are not covered.
SALARY GRADE (SG)
- a number that defines the amount of monthly payment/income that a
government employee receives.
- SG 1-33(highest pay) in Philippine government.

SALARY STEP
- Each salary grade consists of eight steps that correspond to the basic salary of
an employee based on how long he/she has served in a particular position.
-After every three years of continuous satisfactory service in their current
positions, employees move forward to the next salary step that indicates their
increased salary.
 Salary grades of different government positions
1. Constitutional officials/Executive category.
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2. Professional supervisory (SG 9-33)
- Government employees with a management role in
their respective organizations
ex. Senior Vice President, Director II, Elementary School
Principal I, and Engineer IV.

3. Professional non-supervisory (SG 8-30)

- require the practice of a specific profession or thorough
knowledge in the arts or sciences.
ex. University Professor, Teacher I, Chemist I, Statistician
I, Tourist Receptionist I, and Municipal Treasurer.
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4. Sub-professional supervisory (4-18)
- supervise workers performing manual, clerical,
or technical .
ex. Electrician Foreman, Chief Bookbinder, and
Bookbinder IV.

5. Sub-professional non-supervisory (1-10)

- perform manual, repetitive, or routine work and
are elementary/high school/vocational graduates or
college undergraduates .
ex. Staff Aide, Draftsman I, Administrative Aide III, and
Dental Aide.
Performance Pay
PAY FOR PERFORMANCE
-called as performance-related pay
- refers to company programs that pay employees based on how
they perform their job.
Performance
Strategies
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Pay for Performance Strategies
Is a salary paid based on how well one works.

It aims to:
o Increase commitment of employees
o Enable employees to share in success of the
organization
o Stimulate more interest
o Obtain tax advantages
Pay for Performance schemes

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● Bonus Plans
A single payment made at the end of a performance
period to reward extraordinary effort or achievement

● Commission Plans
Normally associated with sales positions commissions
are payouts that occur frequently to encourage and
reward a small number of highly specific results
● Incentive plans
A tangible or intangible reward that is designed to motivate a person or a
group to behave in a certain way.

● Profit sharing plans

A single payment funded by a portion of the company’s annual profit paid
to an individual or group

● Stock option plans

Are employer’s promise that the employee may buy at a future date a set
number of shares at the price today
● Phantom stock plan
A promise to pay a bonus in the form of equivalent of either the value of
the company shares or the increase in the value over a period of time

● Stock appreciation plans

Provides the right to monetary equivalent of the increase in value of a
specified number of shares over a specified period of time

● Gain sharing plans

Pays individual or groups a share of expense savings attributable to the
efforts of that person or group
• Key contributor plans
Are designed to retain and motivate a select group of key individuals who
are critical to the success of the company
• Sniffs
Immediate bonus paid by a manufacturer or employer directly to a
salesperson for selling a specific product
• Multi-year incentive plans
Measures and pays for performance over a timeframe longer than a
single year
• Merit increase plan
Determines the amount of a person’s base salary increase based on other
people’s perception of the individual’s performance
● 360 degree review plans
Determines the amount of a person’s base salary increase based on the
perception of individuals of all levels
● Performance management plans
Determines the amount of a person’s base salary increase based on
specific criteria that are defined in advanced
● Competency based plans
Determines the amount of a person’s base salary increase based on the
acquisition of specific competencies
● Tax deferred plans
Structures payouts in a way that minimize the short term tax obligation
of the recipient.
 Rewards
Management
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Reward
-The achievement and benefit received by employees for their
job performance in an organization

Reward management
- is the implementation of strategies or policies to help reward
everyone in the company
Compensation System
EMPLOYEE BENEFITS
Indirect or non cash compensation paid to an employee

1. Recruit the best applicants

2. Retain top employees
3. Promote loyalty
4. Improve
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Employee benefits in the Philippines
MINIMUM WAGE
The Wage Rationalization Act, Republic Act No. 6727, sets the minimum
wage rates applicable per region, province and industry sector. Minimum
wage may vary depending on the number of employees and gross-sales
of an enterprise and its industry sector.

OVERTIME
Any amount of work performed by an employee that exceeds 40 hours
in one week
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Service Incentives leave
5 days leave after 1 year of service

Maternity Leave
A female employee can avail of maternity leave of not more than
forty five (45) days prior to her delivery date for prenatal care
purposes

Paternity Leave
7 days leave with pay (for married only )

Paternal leave for solo parents

7 days leave with pay
HOLIDAY PAY
- Any form of alternative compensation an employer offers employees
during holiday

NIGHT SHIFT DIFFERENTIAL

-Differential paid for work performed when the majority of a prevailing
rate employee's regularly scheduled non overtime hours fall between 3
p.m. and 8 a.m.

13th MONTH PAY

-Each year, a 13th month pay is given to all rank-and-file employee
SEPARATION PAY
-Following the labor code of the Philippines, articles 283 and 284 state that an
employee can claim separation pay if his contract is ended under authorized
causes.

RETIREMENT PAY
All employees from the private-sector may retire from age 60 up to age 65, at which
retirement becomes compulsory, and must have served the establishment for at
least 5 years.
Social Security Contribution
- Social insurance program that aims to provide protection to its members and
beneficiaries
-SSS members can avail of maternity, sickness, disability, retirement, funeral and death
benefits.

Pag–ibig contribution
-Establish, develop, promote, and integrate a nationwide sound and viable tax-exempt
mutual provident savings system suitable to the needs of the employed and other
earning groups

Phil health contribution

- PhilHealth beneficiaries have access to a comprehensive package of services,
including inpatient care, catastrophic coverage, ambulatory surgeries, deliveries, and
outpatient treatment for malaria and tuberculosis.
 Pension and allowances in the Philippines
Pension
A pension is a retirement fund for an employee paid into by the employer, employee, or
both, with the employer usually covering the largest percentage of contributions

Defined Benefit plan – a fixed sum is regularly paid to a person

Defined Contribution plan- a fixed sum in invested and becomes available
at retirement age

Pension plans are calculated based on three key criteria:

✓The employee's years of service at a specific company or organization.
✓The employee's age.
✓The employee's annual compensation.
Employee Allowances
Sum of money paid regularly person, typically to meet specific needs or expenses.

Several type of allowances:

Fully exempted allowances- allowance are fully exempt to tax
Partly exempted allowance- allowances which are exempt up to certain limit
specific in Income tax rules
Fully taxable allowances- the allowances not specifically covered under fully
exempted and partially exempted allowances are
taxable.
Other allowances are as follows:

Dearness Allowance
This allowance is given to protect real income of an employee against price rise.
Dearness allowance (DA) is paid as a percentage of basic pay.

House Rent Allowance

Companies who do not provide living accommodation to their employees pay
house rent allowance (HRA) to employees. This allowance is calculated as a
percentage of salary.
City Compensatory Allowance
This allowance is paid basically to employees in metros and other big
cities where cost of living is comparatively more. City compensatory
allowance (CCA) is normally a fixed amount per month, like 30 percent of
basic pay in case of government employees.

Transport Allowance/Conveyance Allowance

Some companies pay transport allowance (TA) that accommodates travel
from the employee’s house to the office. A fixed amount is paid every
month to cover a part of traveling expenses.
Thank you