ESTABLISHING

PAY
STRUCTURE
MODULE 12
 GENERAL OVERVIEW
Job Structure Pay Level

Pay Structure

Align with

Pay Decisions

Influenced by

Legal Economic Organizational

Requirements Influences Goals
 DECISIONS OF PAY
JOB STRUCTURE PAY LEVEL
This refers to the This refers to the average
relative value of amount the company pays
different jobs within the employees for certain jobs
organization. PAY STRUCTURE —such as the basic wage,
salary, and bonuses.
Legal Requirements
Market Forces
Organizational Goals
WHAT INFLUENCES
DECISIONS OF PAY
LEGAL REQUIREMENTS
FOR PAY
Compliance Guide

Minimum Wage

Holiday Pay

Premium Pay

Overtime Pay

Night Shift Differential

Services Charges

Employees Compensation Program

Reference: Worker’s Statutory Monetary Benefits 2024 Handbook
LEGAL REQUIREMENTS FOR PAY
The Department of Labor and
Employment (DOLE) and other
Pay Policies and practices are also subject to government agencies enforce
government laws and regulations. These laws these laws under the Labor Code
ensure that employees are treated fairly, of the Philippines.

paid properly, and protected from

discrimination or exploitation.
 Main Legal Requirements
for Pay in the Philippines
[Link] Guide
Employers must comply with all government laws related to wages and benefits.

This includes:
Following the Labor Code and wage orders issued by the Regional Tripartite
Wages and Productivity Board (RTWPB)
Keeping accurate payroll records
Ensuring no discrimination in pay based on gender, age, religion, or status

Failure to comply can lead to fines, penalties, or legal complaints.

 Main Legal Requirements
for Pay in the Philippines

3. Holiday Pay 4. Premium Pay

2. Minimum Wage
Employees who work on
This is the extra pay
The minimum wage is the regular holidays are entitled
lowest amount that can
employees receive for
to 200% of their daily
legally be paid to an wage, even if they don’t working on rest days or
employee. work that day (if they’re special (non-regular)
• Set by DOLE and RTWPB entitled to holiday pay). holidays.
for each region.
• Different rates apply for If they work on that day, Usually an additional
agricultural and non- they get an additional 100%
30% of the daily rate.
agricultural sectors. pay, making it double pay.
 Main Legal Requirements
for Pay in the Philippines

6. Night Shift
5. Overtime Pay
Differential
If an employee works more
than 8 hours a day, they Employees who work
must be paid 125% of their between 10:00 p.m.
hourly rate for the extra and 6:00 a.m. are
hours. entitled to a night shift
differential pay of at
If overtime is done on a rest
least 10% of their
day or holiday, higher rates
apply (130%–200%).
hourly rate.
 Main Legal Requirements
for Pay in the Philippines

8. Employees’ Compensation
7. Service Charges
Program (ECP)
In establishments like This is a government
restaurants, hotels, and resorts, a insurance program managed
service charge is usually added to by the Employees’
customer bills (often 10%). Compensation Commission
(ECC) under DOLE.
By law, 100% of the collected
service charge must be It provides benefits to workers
distributed equally among who suffer from work-related
covered employees. illness, injury, or death.
ECONOMIC
INFLUENCES
Product Market

Labor Market

HR Analytics and Decision Making

Gathering Information about Market Pay

ECONOMIC INFLUENCES ON PAY
An organization cannot make spending decisions

independent of the economy.

Organizations must keep costs low enough to sell

their products profitably, yet attract workers in a

competitive labor market.

Decisions about how to respond to the economic

forces of PRODUCT MARKET and LABOR MARKET

limit an organization’s choices about pay structure.

 Product Markets
The organization’s product market includes

organizations that offer competing goods and services.

Organizations compete to serve the same customers

and must sell at a quantity and price that brings

sufficient profit. An important influence on price is the

cost to produce goods and services for sale

Companies are pressured to charge more,

reason to shift to other countries with lower labor cost

Selling Price = M, L, FOH

where labor cost is
significant part of cost
 Product Markets
Under Pressure to
Upper Limit on Pay
Cut Costs!
refers to the maximum amount of money
Solutions to cut costs
an employer is willing or able to spend on
are the following:
labor within a specific period or for a

particular project
Reduce Staff Levels
Product markets place an upper limit on

the pay an organization will offer. This Freezing Pay Levels

limit matters when labor costs are a large Postpone Hiring

part of total costs or when customers
Decisions
value price highly.
 Labor Markets
Organizations compete to obtain human resources

in labor markets.

Workers prefer higher-paying jobs and avoid

employers offering less for the same job.

Competition for labor establishes the minimum an

organization must pay to hire an employee for a

particular job.

Companies would like to know what others are paying

Cost of Living
Cost of living influences local pay Minimum Wage Consumer Price Index
levels. Higher costs of living in some Manila = P695 helps employers monitor
vs
areas result in higher local pay. Baguio = P470 changes in the cost of living
 Labor Markets
Some Reason Employees
NEGOTIATE THEIR PAY:
Cost of Living Cost of living increases

Family and personal financial

responsibilities

Debt repayment needs

Desire for fair market compensation

Negotiate their Pay Recognition for performance and

achievements

Promotion or added responsibilities

 Pay Level: Deciding What to Pay
Labor and product markets limit organizations’ pay
Effects of Higher Pay
choices but allow flexibility within a range.

Organizations may choose to pay at, above, or below 1. Attract top talent, leading

market rates depending on their competitive to innovation, higher

quality, and better
environment.
performance.
2. Viewed as an investment in
superior human resources.
3. Motivate to do their Best

VIEW EMPLOYEES AS “RESOURCES”

 HR Analytics & Decision Making Deciding
What to Pay
WALMART VS. COSTCO

Walmart’s Strategy Costco’s Strategy

Focuses on low prices for customers. Delivers excellent customer service,

Entry-level wage: around $11 per hour. resulting in high customer loyalty.
High employee turnover: around 60–70%. Pays higher wages — around $14
Competes mainly through cost efficiency per hour.
Has very low turnover (around
7%) and high employee
satisfaction.

Each Company follows their OWN BUSINESS GOALS

 Gathering Information about Market Pay

Benchmarking
Method comparing pay practices Pay Surveys in th Philippines:

against competitors. The Department of Labor and Employment (DOLE),

Job platforms like JobStreet or Indeed, and

It uses Pay surveys that provide data
Crowdsourced sites like Glassdoor or PayScale.
on current wage rates in product and

labor markets.

Through Crowdsourcing platforms Advantages: Accessible,

(e.g., Glassdoor, PayScale, Indeed) transparent, low-cost.

allow employees to share pay Disadvantages: Accuracy,

information.
Quality and sampling issues.
 EMPLOYEE
JUDGEMENT
Judging Fairness

Communicating Fairness

Job Structure: Relative Value of Jobs

 JUDGING FAIRNESS(Equity)
Employees judge whether their pay is fair through a process called equity theory, which is
based on SOCIAL COMPARISON.
Equity theory explains how employees judge whether their compensation is fair by
comparing what they PUT IN (inputs) versus what they GET OUT (outcomes).

Equity: Pay Seems Fair Inequity: Pay Seems Unfair

 JUDGING FAIRNESS(Equity)
In general, employees compare their pay and contributions against their peers INSIDE
and OUTSIDE the organizations:
INTERNAL EQUITY
Fairness compared
to what co‑workers
in the same
EXTERNAL EQUITY
organization earn,
Fairness compared to what whether at the
people in other same, higher, or
organizations earn for the lower levels.
same job. - Laterally
- Job Title and - Downward
Responsibilities - Upward
- Required skills and
Qualifications
 JUDGING FAIRNESS(Equity)

Equity Theory
If you don’t communicate your fair pay
Equity Theory tells practices, employees will draw their own

organizations that employees conclusions, harming morale, and retention.

Impact:
care about their pay relative to
- poor pay perception damages your
what others are earning and employer brand.
- can influence customer behavior,
that these feelings are based
with some choosing not to support companies
on what the employees
with perceived unfair pay gaps(
perceive. gender, CEO-to-worker).
 COMMUNICATING FAIRNESS
OPEN SALARY

PAY STRATEGY Full disclosure of

the
Explanation of
PAY PLANNING organization’s
how pay
Data about pay pay ranges
MARKET DATA decisions
ranges and and
relate to the
Description of the salaries paid
potential for
PAYCHECK organization’s
data used for future earnings
objectives.
Details about the decision making.
individual employee’s
pay.

TRANSPARENCY LADDER
JOB STRUCTURE: RELATIVE VALUE OF JOBS
The Goal: Internal Equity
Establish a fair, logical pay structure based on each job’s relative contribution to organizational
performance.
High-impact roles such as executives are paid more, and similar-level roles are paid similarly.

The Tool: Job Evaluation

an administrative procedure for measuring the relative worth of the organization’s jobs.
conducted by a committee( including HR and outside consultants).

The Method: Compensable Factors and Point System

Identify Compensable Factors
Use a point system to rate jobs based on the required level for each factor.
HOW DO WE CREATE
A PAY STRUCTURE
 PAY STRUCTURE
Hourly wage – a rate of pay per hour
How much to pay overall—this is the pay level.
worked.
The relative value of each job—this is the job
structure. Piecework rate – a rate of pay for
each unit produced.

An effective pay structure should reflect: Salary – a fixed rate of pay per
month or per year.
External market forces—what the
organization knows about industry pay Pay rates – the specific amount
practices. assigned to a job.
Internal goals and contributions—the
Pay grades – groups of jobs with
unique objectives of the organization and
similar worth or responsibility.
the relative importance of each job in
achieving those goals. Pay ranges – minimum, midpoint, and
maximum levels within each grade.
 Pay Differentials
Pay Ranges Extra pay
Pay ranges → adjustments for
Pay Grades
minimum, midpoint, certain conditions or
Pay Rate Group jobs of similar and maximum pay for
Organizations set pay rates by markets e.g. night
worth/content under each job or grade.
comparing what competitors pay the same pay range. shift work, high cost
Midpoint → often
for similar jobs. Simplifies pay location
Key jobs → pay set using market
based on market rate
structure in large Treat employees
survey data. organizations with or pay policy line.
equitably regardless
Nonkey jobs → pay estimated many jobs. Overlap → allows
of where or when
using a pay policy line Drawback → pay may transfers without pay
Market mismatches → scarce not align with market changes; less overlap they work.
skills = higher pay; oversupply = rates or job makes promotions
lower pay. evaluations.
more important
Balance needed → internal worth
vs. external market rates.
COMPENSATION PHILOSOPHY
 ALTERNATIVE TO JOB-BASED PAY
Alternative 1: Delayering Alternative 2: Skill‑Based Pay

Reduces number of job Pay tied to employee

levels. skills/knowledge, not job title.

Encourages continuous learning and
Combines assignments
broader organizational understanding.
into fewer bands. Benefits: better quality, lower labor costs
Provides managers Drawbacks:

flexibility in assignments Employees may earn more for unused

skills.
and pay increases.
Rapid learners may hit pay ceilings
Drawback: fewer quickly.
promotion opportunities, Requires detailed records of
skills/training.
requiring new reward
Hard to benchmark externally since
systems.
most surveys are job‑based.

DELEYARING = FLEXIBILITY BUT FEWER PROMOTIONS

SKILL‑BASED PAY = LEARNING AND INNOVATION BUT HARDER TO MANAGE
IS MY PAY ACTUALLY
IN LINE WITH THE
PAY STRUCTURE?
PAY STRUCTURE VS ACTUAL PAY
Pay Structure Actual Pay

The designed framework or

Real amount of money an
system that outlines how
employee actually receives,
pay is determined within an which may vary based on
organization (e.g., salary performance, experience,
grades, pay ranges, and bonuses, and other factors.

levels).

The human resource department should routinely compare actual

pay with the pay structure to see that policies and practices match
Common way to do this is to measure a compa-ratio, the ratio of
average pay to the midpoint of the pay range
 Compa-Ratio = 1.07 → The
organization is paying 7% above the
midpoint for this pay grade.

A compa‑ratio of 1 means average pay equals the midpoint (ideal alignment).

A compa‑ratio above 1 means employees are paid more than the midpoint, which
may raise costs.
A compa‑ratio below 1 means employees are paid less than the midpoint, which
may hurt recruitment and retention.
SUM UP:
Job Structure Pay Level

Pay Rates
Pay Structure Pay Grades
Pay Ranges
Align with
Pay Differentials
Alternatives to Job-Based pay
Pay Decisions
Pay Structure &
Influenced by Actual Pay

Legal Economic Organizational

Requirements Influences Goals

Compliance guide Product Market Employee Judgement about

Minimum Wage Labor Market Pay Fairness
Premium Pay Pay Level
Overtime Pay HR Analytics & Decision
Night Differential Pay Making
Service Charges Gathering Information about
Employees’ Compensation Market Pay
program
THANK YOU!!
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