Module 6 - EMPLOYEES COMPENSATION AND BENEFITS

Introduction

Most people work to make a living. In other words, our jobs make it possible for us to buy
a home, food, transportation, clothing, and the extras that make life fun. For most of us, the idea
of making more rather than less money is compelling—and may draw us to a job or keep us in a
job.

But for many people, money is just part of the larger picture. Some of us choose a
particular job because we care about the products, services, or goals of the company. Or we need
the generous health and education benefits provided to employees. Some people may choose a
job because of its flexible hours, ample paid vacation, or opportunities to grow.

Employee compensation, incentives, and benefits can be combined in many different

ways to suit the needs, desires, and challenges of each company and employee.

I - Learning Outcomes

In this lesson, the students should be able to:

1. Familiarize the basic principles of Compensation;

2. Enumerate and explain the Theories of Compensation’
3. Define what employees fringe benefits are;
4. Identify the types of benefits given to the employees;
5. Know the reasons why benefits and services are granted to employees in addition to
employee’s salaries;

II - Pre-Assessment

MULTIPLE CHOICE: Choose the letter of the correct answer.

1. These are anything that is not covered by regular salaries and wages. It is anything that
contributes to the improvement of the condition of work, and that motivates the
employees to do good work.

a. Compensation b. Salary c. Wages d. Benefits

2. These are additional compensations that the employees receive regularly at an interval
stipulated in the company policies and guidelines.

a. Compensation b. Salary c. Wages d. Benefits

3. Benefits that are mandated by law such as 13th Month Pay and Philhealth.

a. Company Benefits b. Statutory Benefits c. Fringe Benefits d.

Compensation

4. Any rewards received by an employee in addition to direct monetary remuneration as a

result of being an employee of a company.
 a. Company Benefits c. Fringe Benefits
b. Statutory Benefits d. Employee Benefits

5. Includes monetary payments like bonuses, profit sharing, overtime pay, recognition
rewards and sales commission, etc., as well as nonmonetary perks like a company-paid
car, company-paid housing and stock opportunities and so on.

a. Compensation b. Benefits c. Salary d. Rewards

6. ______________ is the reward that the employees receive in return for the work
performed and services rendered by them to the organization.

a. Remuneration b. Benefits c. Incentives d. Compensation

7. It is an incentive plan under which an employer agrees to share with his personnel a
specified portion of the net profits of his business at the end of each fiscal period or over
a given period. It is not a pension or a bonus.

a. Dividend b. Profit-sharing c. Compensation d. Benefits

8. The company grants bonus equivalent to a half month pay to all probationary and regular
employees.

a. 13th Month Pay b. Mid-year Bonus c. Attendance Bonus d. performance Bonus

9. Assistance provided to regular female employees and legal spouse of male employees.

a. Solo Parent Leave c. Maternity Grant

b. Paternity Leave d. Bereavement

10. All married male employees are eligible for 7 working days up to four (4) child birth
including miscarriage of legitimate spouse to be availed within sixty (60) days from
delivery/miscarriage.

a. Maternity Leave b. Paternity Leave c. Solo Parent Leave d. Sick Leave

11. It is a compensation package for public and private sector employees and their dependents
in the event of work related injury, sickness, disability or death.

a. Life insurance benefit c. Terminal or Separation Pay

b. Disability benefit d. Retirement Pay

12. What benefits are mandated by law?

a. Company Benefits c. Statutory Benefits

b. Transportation Benefits d. Loan Benefits

13. What is the periodic payment of workers who retired from the company because of
advanced age, illness or infirmity?

a. Medicare b. Vacation Leave c. Pension d. Sick Leave

14. What kind of benefits are the Christmas Bonus and 13th Month Pay?

a. Financial Benefits c. Recreational Services

 b. Professional Services d. Medical and Health Services

15. Who needs maternity leave with pay?

a. Male employee c. Married women

b. Single women d. All of these

III - Lesson Map

Employees’ Compensation and Benefits

https://www.mbaskool.com/business-concepts/human-resources-hr-terms/4032-
compensation-a-benefits.html

IV - CORE CONTENT

ENGAGE

What is Compensation & Benefits?

Compensation and benefits refers to the compensation/salary and other monetary and
non-monetary benefits passed on by a firm to its employees. Compensation and benefits is an
important aspect of HRM as it helps to keep the workforce motivated. It helps give benefits to
employees based on their performance and actions and brings the best out the employees at
workplace
Importance of compensation and benefits
Companies hire people individual to achieve their organizational goals and people join
companies to earn money & build their career. One of the biggest factors why people join
companies in the compensation and benefits, salaries, perks, incentives etc which is given to
them. Apart from the company's reputation and job profile, the money offered as a salary is
pivotal in attracting people to work for the organization. The more the compensation and
benefits offered to employees, the more is their loyalty, motivation to work and do well.
However, companies which offer lesser salaries see a high attrition rate and less productivity
from employees. All these factors help in making compensation and benefits an important factor
in managing workforce. Salaries of employees are defined by several parameters like experience,
education background etc. In senior management, skills like team management, communication
management, leadership, time management etc are also considered while finalizing the pay
package.

Compensation and benefits components

There can be several ways where benefits can be given to employees. Mostly it is given in terms
of a CTC or gross salary. Some of the various components of compensation and benefits are
mentioned below:
1. Fixed pay: This is the basic salary paid to the employee irrespective of any other factor. This is
stated clearly in the employment contract. This is the compensation or salary or wage which an
employee or a worker will definitely get as long as he or she is an employee of the company.
2. Variable Pay: This is the additional compensation paid to employee based on employee’s
performance, company performance etc. Since variable pay is based on the performance of an
individual, it motivates the employees to perform even better.
3. Equity Pay: Employees are awarded shares of the company, often at a discounted price.
Employees are expected to make money out of them by the appreciation of the stock price and
the growth of the company. This is mostly given to the senior management who have served the
company for a long time.
4. Other benefits: Benefits such as medical facilities, insurance policies, company owned car of
flat etc. all play an important role in motivating employees. These benefits are given by the
company as a part of recognizing the services of an employee.

Difference between compensation and benefits

Both the factors are important in motivating employees for doing their work and paying
them for the services they are doing for the company. However, there is a slight difference
between compensation and benefits. Compensation is completely related to the money which is
being paid to an employee i.e. salary. bonuses etc. On the other hand, benefits are the non-
monetary incentives given to employees like health benefits for which the employee doesn't have
to pay.

Who is in charge of compensation, benefits and rewards schemes?

Most employees don’t just work for the love of their job. Most people also want a decent
salary and other incentives that will reward them for their hard work.

These remuneration packages need to be created, managed and distributed efficiently.

This is where HR professionals that specialize in compensation and benefits get involved.
 Without these guys, nobody would get that ‘just been paid’ feeling at the end of the
month and Christmas bonuses would certainly be a thing of the past. For many people,
compensation and benefits professionals are the most important guys in the HR department.
Why? Well, because they control the money of course!

What are the responsibilities of someone in compensation, benefits and rewards?

Basically, people who work in compensation and benefits are responsible for devising
policies for an organization’s salary, bonus and incentive schemes. These might include:

• Salaries
• Bonuses
• Commission
• Company cars
• Pensions
• Life assurance
• Profit-sharing
• Dental plans
• Medical insurance
• Vouchers
• Capital bonds reward schemes.
They are then in charge of administering, managing and evaluating the payroll, salary
structures, and incentive schemes. Basically, they make sure that the right people get the right
amount of money, at the right time.

EXPLORE

The Concept of Benefits

Benefits are anything that is not covered by regular salaries and wages. It is anything that
contributes to the improvement of the condition of work, and that motivates the employees to
do good work. Benefits are additional compensations that the employees receive regularly at an
interval stipulated in the company policies and guidelines.

Benefits are granted to employees to assist them and facilities are provided so that they
will enjoy their stay in the company. The main purpose is to develop greater commitment and
loyalty and to keep good employees in the company roster.

The objectives of the company in granting fringe benefits are:

1. To provide additional protection and comfort to their employees and their families as
they consider them as members of the team.
2. To maintain and develop employees as an effective work force duly committed to their
corporate mission and vision.
3. To develop productive and happy employees and develop greater loyalty and
commitment to motivate them to remain in the employment of the company.
4. To develop greater partnership in the development of quality products and services to
their customers and clients.
5. To develop satisfied employees and more concerned workers to avoid activism in the
workplace that will interfere with company production’ and
6. To develop partnership with labor unions and employees’ associations.

The Governing Philosophy in Granting Fringe Benefits

 Company benefits are additional costs in the company operations. They should be
administered appropriately and be based on a sound company philosophy in granting additional
benefits. Such philosophy must consider the company’s ability to pay and contributions to the
profitability of the organization. It must also be mutual benefit to the giver and the receiver of
benefits. Along these lines, the company benefits should focus along the following principles:

1. Company benefits should be based on the financial conditions and the capability of
management to pay additional cost of operations, as benefits granted cannot withdrawn
when already granted.
2. Benefits granted should not interfere with company operation and management has the
perspective to control the same.
3. Benefits should be fair to all employees of equal rank and position, and should be capable
of uniform implementation.
4. The benefits must have mutual value to both employers and the employees.
5. The employee must understand the costs benefit implementation and they should work
hard so that the company will maintain its ability to pay the added fringes.
6. Benefits must be measured in terms of employees’ services to the company. While
benefits should be uniformly implemented, there must be a measurement in the policy
guidelines on those who should receive the benefits in terms of the following criteria:
length of service, retirement benefits and other benefits programs.
7. Benefit programs should be a cooperative effort of top management and employees.

EXPLAIN: Live Synchronous Session

Use the link below to watch the video about Employees Compensation and Benefits

https://www.youtube.com/watch?v=J4nY6oeH7aI

ELABORATE

Theories of Compensation
In order to understand which components of remuneration are more effective, we need
to understand the conceptual framework or theories or employee remuneration. Three such
theories are reinforcement and expectancy theories, equity theory and agency theory.
1.Reinforcement and Expectancy Theories
The reinforcement theory postulates that a behavior which has a rewarding experience is likely
to be repeated. The implication for remuneration is that high employee performance followed
by a monetary reward will make future employee performance more likely. By the same token,
a high performance not followed by a reward will make its recurrence unlikely in future. The
theory emphasizes the importance of a person actually experiencing the reward.
Like the reinforcement theory, Vroom’s expectancy theory focuses on the link between rewards
and behavior. Motivation, according to the theory, is the product of valence, instrumentality and
expectancy. Remuneration systems differ according to their impact on these motivational
components. Generally speaking, pay systems differ most in their impact on instrumentality the
perceived link between behavior and pay. Valence of pay outcomes remains the same under
different pay systems. Expectancy perceptions often have more to do with job
design and training than pay systems.
2. Equity Theory
Adam’s equity theory says that an employee who perceives inequity in his or her rewards seeks
to restore equity. The theory emphasizes equity in pay structure of employees’ remuneration.
Employee’s perceptions of how they are being treated by their firms are of prime importance to
them. The dictum ‘a fair day work for fair day pay a sense of equity felt by employees. When
employees perceive inequity, in can result in lower productivity, higher absenteeism or increase
in turnover.
3. Agency Theory
The agency theory focuses on the divergent interests and goals of
the organization’s stakeholders and the way that employee remuneration can be used to align
these interests and goals. Employers and employees are the two stakeholders of a business unit,
the former assuming the role of principals and the latter the role of agents. The remuneration
payable to employees is the agency cost. It is natural that the employees expect high agency costs
while the employers seek to minimize it. The agency theory says that the principle must choose
a contracting scheme that helps align the interest of the agents with the principal’s own interests.
These contracts can be classified as either behavior-oriented (e.g. merit pay) or outcome oriented
(e.g. stock option schemes, profit sharing, and commission).

Common Employees Benefits in the Philippines

Holidays: Eleven (11) paid national regular holidays and Nine (9) national special holidays per
year as provided under Proclamation No. 845 (2020 Declared Holidays)

Vacation: Thirteen (13) vacation leave, with additional 1 day every year starting on the 3rd year
of service and convertible to cash at the end of each year. Maximum vacation leave is 18 days.

Retirement: The plan is 100% funded by the company calculated at one month’s base salary per
year of service based on the employee’s latest basic rate upon normal retirement at age 60, death
or total and permanent disability. Early retirement benefit can be available to 10 years of service
equal to 50% of normal retirement benefit.

Healthcare: The plan provides a comprehensive health care coverage for employees and eligible
dependents through Medicard’s accredited hospitals and doctors nationwide. The annual premium
for Principal/Employees is 100% shouldered by the company. For direct dependents, OSPI covers
53% of the cost and the rest of the 47% is on employees account. The company also maintains an
onsite medical clinic manned by a company nurse per shift and a group of company doctors who
reports to the clinic six days a week on specified time schedules providing free medical
consultations, emergency medicines, minor and first-aid treatments and health counseling. As part
of preventive health care, free multivitamins are also provided to employees while on duty and all
employees are required to undergo an annual medical, dental and eye check-up conducted onsite.
• Dental: Free dental benefits are likewise provided with two (2) dentists alternately visiting the
factory rendering unlimited dental consultations, unlimited simple tooth extractions and
permanent/temporary fillings, annual oral prophylaxis, re-cementation of jacket crown inlays and
onlays, simple adjustment of dentures and emergency treatments.

• Outpatient Medicine Reimbursement: The Company reimburses expenses for outpatient

medicines for employees and dependents. Out-patient medicines are 100% reimbursable while Php
2,000 per year is provided for dependents. Approval of reimbursement requires submission of
prescription and official receipts.

• Maternity Grant: Assistance is provided to regular female employees & legal spouse of male
employees: Php 3,000 for miscarriage; Php 1,500 for home delivery; Php 5,000 for normal
delivery; 80% (Employer) - 20% (Employee) for caesarian delivery.
OTHER LEAVES:

• Sick Leave: Twelve (12) days for the first two years of service and additional 1 day every year
starting on the 3rd year. Maximum total sick leave is 15 days. All unused leave are convertible to
cash at the end of the year.

• Paternity Leave: All married male employees are eligible for 7 working days up to four (4) child
birth including miscarriage of legitimate spouse to be availed within sixty (60) days from
delivery/miscarriage.

• Bereavement: Three (3) days applicable to immediate family member which includes the
employee’s children, parents, grandparents, brother, sister, spouse, and parents-in-law.

• Solo Parent Leave: Seven (7) working days

• Calamity Leave: Two (2) days leave for employees who were affected by flood, fire and typhoon
(must be supported by a Government proclamation or may be declared by the Company)

• Magna Carta for Women (Special Leave): Sixty (60) calendar days leave. This is given to all
female employees who underwent surgery caused by gynecological disorders and who have
rendered at least six (6) months continuous aggregate employment service for the last twelve (12)
months prior to surgery.

• Leave for Victims of Violence against Women and Their Children: Ten (10) days leave
benefit shall cover the days that the woman employee has to attend to medical and legal concerns.
The usage of the ten-day leave shall be at the option of the woman employee. In the event that the
leave benefit is not availed of, it shall not be convertible into cash and shall not be cumulative.

DISABILITY/LIFE INSURANCE: Employee life insurance is 100% funded by the Company,

provides insurance benefits to the employee’s designated beneficiaries in the event of disability,
terminal/critical illness and death due to illness or accident. The amount of benefits is specified
below:

Life Insurance Benefit Limit - 26 x monthly base salary base on the employee’s latest basic rate.
Accident, Death and Disability Benefit Limit - 24 x monthly base salary based on the employee’s
latest basic rate.

Total Permanent Disability Benefit Limit - 26 x monthly base salary based on the employee’s
latest basic rate.

Terminal Illness Benefit Limit – 50% of Life, maximum of Php 3.5M

Critical Illness Benefit – 60% of Life, maximum of Php 1M

Burial Benefit - 7.5% of Life (max of 100k)

OTHER BENEFITS:

• 13th month: The Company grants a 13th month pay equivalent to one (1) month’s pay to all
eligible employees provided that they worked for at least one (1) month during a calendar year.

* Mid-year Bonus: The company grants bonus equivalent to a half month pay to all probationary
and regular employees.

• Rice Allowance: The Company provides a tax-free rice subsidy to all regular and probationary
employees and credited to their payroll account every 30th of the month
 • Meal Subsidy: The Company provides its employees with a meal allowance to partially cover
daily meals expenses. An employee must have rendered the minimum number of hours per day to
get a full or half-meal credit.

• Tuition Fee Subsidy: Php 2,500 is given to regular and probationary employees every April.

• Employee’s Educational Assistance Program: Provides reimbursement of duly approved

educational expenses upon satisfactory completion of the course provided that the degree or course
taken is relevant to the employee’s present or prospective job assignment. Maximum
reimbursement per term is P 10,000. All regular employees are eligible to this benefit.

• Kapwa Tulong Club: Cash assistance provided to an employee (KTC members only) for death
of immediate dependents and during calamity. The company matches the contribution of
employees thru the Kapwa Tulong Program which is administered through salary deduction. •
Attendance Bonus: A bonus equivalent to one day pay given to all Regular and Probationary
Employees who are Job Grade 8 & below, and all Technicians. Associates must have perfect
attendance in one (1) month with no tardiness, undertime or unexcused absence.

• Prolong Sickness (PSL) Benefits: Benefit afforded to employees who are suffering from certain
medical or surgical conditions warranting a recuperation period of additional 60 days maximum
after the 120 SSS Sickness Benefit. The condition may include but not limited to; o Chronic
ailments requiring at least one month of treatment whether through hospitalization or outpatient
basis. o Major Operative procedures such as, but not limited to, general and specialized surgeries,
and major gynecological operation. Obstetrical surgical procedures such as caesarian section are
not included under this benefit. o Post-injury conditions which warrant long recuperation period.
• Loyalty Token – Employees are recognized for their loyal and dedicated service to the company
for every five years of continuous service by the way of gift check or token, plus plaque of
appreciation during the service award ceremony.

Profit Sharing Plans

Profit-sharing is an incentive plan under which an employer agrees to share with his
personnel a specified portion of the net profits of his business at the end of each fiscal period or
over a given period. It is not a pension or a bonus. It provides payment of current or deferred
sums on the profitability of the enterprise as a whole.

Compensation is the reward that the employees receive in return for the work performed
and services rendered by them to the organization.
Compensation includes monetary payments like bonuses, profit sharing, overtime pay,
recognition rewards and sales commission, etc., as well as nonmonetary perks like a company-
paid car, company-paid housing and stock opportunities and so on.
Compensation is a systematic approach to providing monetary value to employees in exchange
for work performed. It is a tool used by management for a variety of purposes to further the
existence of the company. It may be adjusted according to the business needs, goals and available
resources.

SUMMARY

Compensation is a systematic approach to providing monetary value to employees in

exchange for work performed. Compensation may achieve several purposes assisting in
recruitment, job performance, and job satisfaction. This module examines reward systems as an
important part of the organizational context for organizational behavior for most organizations;
pay dominates the organizational reward system. There is considerable evidence that pay is vital
not only for hiring and retaining talented employees. Another important but often overlooked
component of organizational reward systems is recognition. In contrast to money. Recognition
is easier to control for an individual supervisor or manager and can be easily altered to meet the
individual employee needs. Benefits are the third and major component of organizational reward
system. Some of these benefits are mandated by the government (Social Security and
Compensation). In recent years the value of benefits as a part of the reward systems increased,
but so has the cost. The challenge for today’s management is to make sure there is favorable
cost-benefit ratio and gap beyond what is required by law to contribute to desired outcomes
such as retention and performance.

References

Textbooks

Arroyo, Clara A., et al. Introduction to Human Resource Management. , Unlimited Books Library
Services & Publishing Inc. Copyright 2018
Byars, Lloyd. And Leslie W. Rue, Ph.D. Human Resource Management. 7th Ed. (New York:
McGraw-ill Irwin, 2004) 2018
Corpuz, Crispina R. Human Resource Management, Third Edition. Rex Book Store. Copyright 2013
De Jesus, Evangeline M and Maria Vida G. Caparas. Human Resource Management. First
Edition., Educational Publishing House, 2010. 658.
Ferrer, Marissa B. et. al. Human Resource Management., Revised Edition, Unlimited Books Library
Services & Publishing Inc. Copyright 2015

Websites

https://www.mbaskool.com/business-concepts/human-resources-hr-terms/4032-
compensation-a-benefits.html

https://www.google.com/search?q=heories+of+compensation&oq=&aqs=chrome.0.69i59i45
0l8.1158003128j0j15&sourceid=chrome&ie=UTF-8

https://www.onsemi.com/site/pdf/Benefits-Summary-Philippines.pdf

https://www.sss.gov.ph/sss/appmanager/pages.jsp?page=ecprogram02

https://www.gsis.gov.ph/active-members/benefits/

https://www.philhealth.gov.ph/benefits/#gsc.tab=0