MODULE 6 also referred to as all financial rewards and

non-financial rewards which an employee

COMPENSATION AND BENEFITS
may receive out of a work rendered for the
ADMINISTRATION
employer.
Compensation administration
Compensation is the equivalent in
involves designing, implementing, and
any form that is given to the individual for
managing an organization’s pay structure to
his work. It could be monetary and non-
attract, motivate, and retain employees while
monetary rewards given to the employees in
ensuring internal equity and external
return for their work done for the
competitiveness. It includes direct pay
organization.
(salary, incentives) and indirect pay
(benefits), driven by job evaluation, market
surveys, and legal compliance
BASIC TYPES OF COMPENSATION
Compensation administration is the
1. BASE PAY
segment of human resource management
focused on planning and controlling the The basic compensation that an
direct and indirect payments employees employee receives, usually as a wage or
receive for their work. Often considered the salary, is base pay. Many organizations use
"heart" of HR, it balances the organization's two base pay categories, hourly and
budget with the need to attract and retain salaried, which are identified according to
talent through a fair exchange of value. the way pay is distributed and the nature of
the jobs. Hourly pay is the most common
The word compensation has various
means of payment based on time; employees
connotations for different types of
who are paid hourly are said to receive
employees. For some, compensation means
wages, which are payments directly
the whole package of basic salary and
calculated on the amount of time worked. In
benefits that the company provides. The
contrast, people who are paid salaries
majority, however, equates compensation
receive payments that are consistent from
with their contribution to the organization.
period to period despite the number of hours
When we say “contribution to the
worked. Being salaried typically has carried
organization,” there are many considerations
higher status for employees than being paid
on how to monetize contribution to the
wages.
organization in the form of actual salary.
Whatever tools are used by organizations to 2. VARIABLE PAY
pay employees based on their contributions,
Another type of direct pay is variable
issues and controversies arise in relation to
pay, which is compensation linked directly
the payment of salaries.
to performance accomplishments.
Compensation is defined as the
3. BENEFITS
means of giving a monetary value equivalent
to any work performed by an employee. It is
 Many organizations provide 1. Direct financial compensation- the pay
numerous extrinsic rewards in an indirect that a worker receives as wages, salaries,
manner. With indirect compensation, commissions and bonuses.
employees receive the tangible value of the
Monetary payments such as base pay
rewards without receiving the actual cash.
(salary), merit pay, and variable pay
OBJECTIVES OF COMPENSATION (bonuses, commissions).
The primary goal is to design a cost- 2. Indirect financial compensation- all
effective pay structure that motivates high financial rewards that are not included in
performance while remaining legally direct compensation (i.e. benefits).
compliant. Key objectives include:
Non-monetary rewards such as health
Recruitment and Retention: Offering insurance, retirement plans, paid leaves, and
competitive pay to attract qualified perks.
personnel and reduce turnover.
1. To retain high performance
The Compensation Process
employees and reduce employee
turnover. 1. Job Analysis & Description:
2. To achieve high productivity and Understanding duties and
efficiency by providing fair requirements.
compensation among employees Define responsibilities
commensurate to their position. 2. Job Evaluation: Determining the
relative worth of jobs within the
Internal and External Equity: Ensuring
company.
similar pay for similar work within the
Establish internal value.
company (internal) and matching market
3. Salary Surveys: Comparing pay
rates for comparable roles (external).
rates with industry standards to
Morale and Motivation: Using financial ensure market competitiveness.
and non-financial rewards to increase Review external competitiveness.
employee satisfaction and encourage peak 4. Pay Structures: Creating pay grades
performance. and ranges.
Implement and Review - review
3. To satisfy pay requirements in
external competitiveness.
accordance with the law.

Factors Affecting Compensation

CLASSIFICATION OF
COMPENSATION 1. Internal Alignment: Ensuring pay
fairness within the organization.
 2. External Competitiveness: Decision about Compensation Level and
Matching market rates to attract Compensation Strategies
talent.
Above Market
3. Employee Contribution:
Recognizing performance and Paying for higher qualified, more productive
seniority. workers.
4. Management Policies: Adhering to
Middle Market
organizational, legal, and economic
conditions. Attempting to balance of employer costs and
need to attract and retain employees.
Below Market
Legal and Strategic Context
Paying all that then firm can afford.
Compensation must comply with laws
regarding minimum wage, overtime, and Taking the advantage of the abundant of
benefits (e.g., in the Philippines, document supply of potential employees in a loose
notes the role of Regional Tripartite Wages labor market.
and Productivity Boards). It is a strategic
tool, to align individual employee goals with
overall business objectives.

ENLITLEMENT PERFORMANCE
THINGS TO REMEMBER
● Seniority- ● No raises for
Base pay – the basic monetary base pay length of
compensation that an employee receives, service
usually as wage or salary. ● Across-the- ● No raises for
board raises long-service
Wage – payment calculated on the amount ● Pay scale poor
of time worked. rais annually performer
● Industry ● Market
Salary – consistent payments made each comparisons adjusted pay
period regardless of the number of hours of structure
worked in the period. compensatio ● Broader
n only industry
Variable pay – compensation linked to an ● Santa comparison
individual, team or organizational Clause ● Bonuses tied
performance. bonuses to
performance
Benefits – an indirect rewards given to an results
employee or group of employees as apart of
organizational membership.
Piece wages – based on level of output ● Managers can decide to offer
achieved. Motivates employees to increase low, average or high relative
output. wages.
● High wages attracts and high
Commission – incentive systems that pay a
performers, but raise cost; low
fixed rate, amount or percentage of the
wages can cause turnover and
employees sales. Motivates employees to
lack of motivation but provide
sell as much as possible.
lower costs.
Salary – financial reward calculated on
weekly, monthly or annual basis. As in
White collar, employees, executives, Factors influencing compensation level
professionals.
● Job needs
Bonuses – monetary reward provided by o Ability to pay
firm for excellent performance or incentive ● Cost of living
to increase productivity. o Prevailing wage rates
Profit-sharing – a percentage of company’s ● Union
profit distributed to employees, sometimes o Productivity
in the form of stocks. ● Country regulations

ESOP (Employee Stock Ownership Plan ) o Demand and Supply of Labor

company distribute shares to employees as
a form of compensation.
Institution Involved in Wage
PAY and BENEFITS
Determination
Pay
● Wage Legislation – cover organized
● Includes employee’s base salaries, or unorganized
pay raises and bonuses. ● Wage Board - covering select
private and public sectors
● Determined by characteristics of the
○ Pay Commission – for
organization and the job level s of government and public
performance. sectors
● Benefits are based on the ○ Collective Bargaining – for
membership in the organization. covered workers
○ Government Directive or
Special commissions
● Salary Survey / Compensation
Pay Level
Consultants – for private sectors
The relative position of an organization’s non-officer cadre (corps, team or
incentive in comparison with those of the units)
other firms in the same industry employing
INCENTIVES
similar kinds of workers.
 ● Individual incentives ● Credit Society
● Group / team incentives ● Parties & Picnic
● Organizational incentives ( profit- ● Housing
sharing or Employee Stock Option) ● Educational
FRINGE BENEFITS Old Age and Retirement Benefits
● Traditional Fringe Benefits ● Provident Fund
● Pension Plan ● Deposit linked Insurance
● Health Plan ● Gratuity
● Extra compensation (bonuse) ● Medical benefits
● Pension

SOFT PERKS
● On-site child care
● Spas
● Food service
● Hair salon

TYPES of FRINGE BENEFITS

Pay for time Not worked
● Hours of work
● Paid holidays
● Shift Premium
● Holiday pay
● Paid vacation

Employee Security
● Retrenchment
● Lay-off compensation

Safety and Health

● Safety Measures
● Workmen Compensation
● Health benefits

Welfare Recreational Facilities

● Canteen
● Transportation