RIZAL TECHNOLOGICAL UNIVERSITY

Cities of Mandaluyong and Pasig

College of Business and Entrepreneurial Technology

CHAPTER 5

COMPENSATION, WAGE, SALARY ADMINISTRATION

AND BENEFITS

By:
Group 5 (CBET-22-102A)

Group Members:
Bautista, Sheine
Bayono, Jasmyn Marie
Canilang, Mary Jo
Cañon, Tracy Kaye
Cruzada, Daniel

Mr. John Michael Armisa

Instructor in Human Resource Management

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 TABLE OF CONTENTS

Introduction………………………………………………………………………………3

Basic Components of Compensation Program…………………………………………..4

The Pay Model…………………………………………………………………………...5

Principles of Wage and Salary Administration…………………………………………..5

Essentials of Sound Wage and Salary Administration…………………………………..6

Factors affecting Wage and Salary Administration……………………………………7-8

Methods of Wage Payments…………………………………………………………..9-10

Process of Wage Determination…………………………………………………………10

Compensation Structure in the Philippines………………………………………………11

Total Rewards Strategy…………………………………………………………………..11

Four Phases of Total Rewards Program………………………………………………….12

Advantages of Having a Total Reward in Organization………………………..……12-13

Disadvantage of Total Rewards Program………………………………………………..13

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INTRODUCTION

Compensation administration is a segment of management or human resource

management focusing on planning, organizing, and controlling the direct and indirect
payments employees receive for the work they perform.

The basic concept of compensation administration or the compensation

management: employees perform tasks for employers and so companies pay employees
wages for the jobs they do. Compensation is an exchange or a transaction from which
both parties (employers and employees) benefit, both receive something for giving
something.

Employee’s compensation is one of the major determinants of employees

satisfaction in an organization.

BASIC COMPONENTS OF COMPENSATION PROGRAM

 Base Pay - refers to the cash that an employer pays for the work performed.

 Wage and Salary add-ons - include cost-of-living adjustments (or COLAs),

overtime, holiday, and other premium wages, travel and apparel/clothing, and a
host of related forms of premiums and reimbursement.

 Incentive Payment - refer to funds employees receive for meeting performance

or output goals as well as to seniority and merit pay.

 Benefits and Services - include paid time off, health insurance, deferred income
such as pension and profit sharing programs, company cars, fitness club
memberships, child care services, and tuition reimbursement.

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8 COMPONENTS OF AN EFFECTIVE EMPLOYEE COMPENSATION PLAN

1. Statement of overall objectives - it explain how the rewards program supports

the needs of the business, employees, shareholders, and customers.

2. Relative importance of compensation - it explain how the rewards compare with

other company identifiers.
3. Performance measures - it should identify the performance criteria to be
rewarded and should define the measurement levels.

4. Competitive reference points - it should describe the comparative group for your
rewards package.

5. Competitive positioning - described your position vs. the market described in the
last point.

6. Internal equity and consistency - employees will look for fair and uniform
treatment without favoritism between groups.

7. Communication and involvement of employees - it should be understood who

has responsibility for program design and ongoing administration.

8. Governance - the program should be reviewed and refreshed before proceeding to

the next level.

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THE PAY MODEL

Pay Models are used to device new methods in the payment structure within the
organization.
Reasons to follow this method:
1. The pay structure determines relation among job and skills and competency within
an organization.
2. Pay model is based upon work’s importance in achieving the organization’s
motives.
3. The clarity and equality in the pay model devise the employee attitude towards the
organization and it’s rules and regulations.
4. The pay techniques in the pay model help to define the relevant labor markets in
which the employer competes, and use that information with the organization’s
policy to derive a pay structure.
5. Another importance of the pay model is that it controls the efficiency of
organization and helps to retain and motivate it’s workforce and labor cost.
6. Competition at external level helps in devising a pay level according to the pay
structure paid by by competitors for the same level of job.

PRINCIPLES OF WAGE AND SALARY ADMINISTRATION

1. There should be a definite plan and system.

2. Maintaining competitiveness in the wage market.
3. Matching employee’s expectations and it should avoid unjustified discrimination.
4. Reinforcing positive employee behavior and contribution to the organization.
5. Devising a system that is the most efficient for the organization.
6. The compensation system should formulate and define rules and regulations.
7. The compensation package must ensure fairness.
8. Compensation system.
9. The wage and salary administration.
10. Optimization of management and employee interest.

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ESSENTIALS OF SOUND WAGE AND SALARY ADMINISTRATION

1. Rational Job Analysis - it reveals detailed aspects of the job, like duties,
responsibilities associated performance, performance standards as a fair parameter for
evaluation of the performance.

2. Proper Job Evaluation - it is a systematic process of analyzing and evaluating jobs to

determine the relative worth of job in an organization.

3. In Depth Knowledge About an Organization and Market Factors - it determines

the size and structure of the organization and the industry in which it operates, the
strength of employees union, position of a person and his importance, demand and supply
for particular skill, etc.

4. Clarity of Objectives or Purposes of Wages and Salary Administration - one must

have accurate clarity about the purposes that it may tries to satisfy through policy
decisions in an organization.

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FACTORS AFFECTING WAGE AND SALARY ADMINISTRATION

1. Demand and Supply - if there is a shortage of labor, the wages demanded will be high
and if labor is plentiful, workers will be too willing to work at low rates of wages.

2. Organization’s Ability to Pay - financial position and soundness of an organization

can put it in a position to offer attractive compensation package.

3. Prevailing Market Rate or “Going Wage Rate” - it is also known as “most

comparable rate of wage” and most popular method for wage rate determination,
especially for lower cadre positions.

4. Productivity - it measured in terms of output per man hour.

5. Cost of Living - it is always expected that there has to be adjustment in pay rates in
accordance with prevailing cost of living.

6. Trade Union’s Bargaining Power - if there is a strong union operates in the

organization, it may dictate its terms on wage fixation and revision over a period of time.

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7. Job Requirements - wages to be paid to the workers should be in accordance with the
duties, responsibilities, and the efforts likely to be put for job performance.

8. Management Attitude - attitude of employer towers the working community of the

organization does influence in wage determination and revision at an appropriate time.

9. Psychological and Social Factors - compensation package plays significant role in the
employees pride, moral, motivation, and psychological engagement and involvement in
the work.

10. Legislative Considerations - it provide protection to the working community by

fixing bottom line for wage payments.

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METHODS OF WAGE PAYMENTS

Two methods for wage payments:

1. Time Rate Wage System - oldest and the simplest form of wage fixing.
 Merits: it is simple and understandable and easy for calculation of wages, since
wages under this system is equal to wage per hour (number of hours worked by
an employee).
 Demerits: it does not take in to account the ability and capacity of the workers so,
the skillful and more capable workers who have higher production efficiency
will demoralize.
 Suitability: time rate system is suitable when the output contributed by the
worker is difficult to measure and cannot be recorded in an individual basis.

2. Price Rate Wage System - workers are paid according to the amount of work done or
numbers of units produced or completed.
 Merits: the main advantage of this system is recognition of merit, as efficient is
rewarded; it is therefore more equitable than time rate system.
 Demerits: if rates of wages are not scientifically fixed and acceptable to the
workers it would results into workers exploitation and may prove
counterproductive.
 Suitability: it is suitable for standardized processes and it appeals to skill's and
efficient workers who can increase their earnings by working to their best
capacity.

3. Balance and Debt System - it combines time rate and piece rate system.

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Whatever may be the method of wage payment, the wage plan should contain the ff:
a) It should be simple and understandable.
b) It should be capable of easy computation,
c) It should be capable of motivating the employees.
d) It should be attractive enough for new talent in the organization.
e) It should be fair, just and stable to all employees.

PROCESS OF WAGE DETERMINATION

1. Job Analysis and Job Evaluation - Job Analysis reveals information about tasks,
duties, responsibilities, and standards with proposed job is to be performed by the
employees. Job Evaluation finding out relative worth of a job in terms its contribution
and significance to the overall organizational objectives.

2. Determining Performance Standard and Wage Surveys - having understood the job
in considerable detail an attempt is made to determine expected performance standard to
be carried out by performance.

3. Deciding Wage Structure and Rules for its Administration - based on collection of
relevant information, an organization should design wage structure which includes
minimum wages, incentives, or increment over a period of time to gather with other
financial and non-financial perquisites.

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COMPENSATION STRUCTURE IN THE PHILIPPINES

Labor and Social Legislation

Labor Code of the Philippines known as Presidential Decree No. 442 - governs all
employee-employer relations, their rights and obligations and also the payroll salary
compensation and benefits in the Philippines.

Payroll Salary Compensation, Benefits, Wage and Wage-Related Benefits Overview

- At least the minimum wage per region or sector
- Holiday wage and overtime pay for work during holidays or rest days
- Overtime pay when working in excess of 8 hours
- Service Incentive Leave: 5 days of vacation per year of service
- Parental leaves (Maternity, Paternity and Solo parent leaves)
- Other leaves
- 13th month
- Separation Pay

TOTAL REWARD STRATEGY

Total rewards strategy encourages organizations to move toward a pay-for-

performance philosophy providing opportunities for top performers to earn higher base
salaries through a well defines performance evaluation program embracing a meritocracy
culture. In order for continuous improvement to occur, supervisors must provide ongoing
coaching and feedback as part of the performance evaluation.

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FOUR PHASES OF TOTAL REWARDS PROGRAM

The most successful total rewards initiatives are guided by a project team from
start to finish. By assembling the right team, we greatly boost our chances of success.

THE ADVANTAGES OF HAVING A TOTAL REWARD IN ORGANIZATIONS

 Employee Retention - total rewards systems map out ostensible paths for the entire
career of an employee based on a basic template created by a business for its specific
program.

 Employee Performance - total rewards programs provide direct incentive for

employee performance.

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 Controllable Expenses - the long term and complete scope of total rewards
programs allows a small business to create relatively accurate estimates of how much
money it spends on each employee over the course of a number of years.

 Program Administration - total rewards programs provide the advantage pf

centralized administration in all employee-related concerns, including benefits, pay,
and training.

THE DISADVANTAGES OF TOTAL REWARDS PROGRAM

 Lag the Market - a company’s total rewards program may lag the market due to
budgetary constraints.

 Appropriate Mixture - companies need to properly blend competitive salaries with

benefits and intrinsic value.

 Self-Focus and Competition - many companies stress the importance of the team in
achieving company goals.

 Conclusion - successfully implementing a revised or entirely new total rewards

program will always be challenging.

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