Money is usually attached to direct compensation.

COMPENSATION ADMINISTRATION
REVIEWER • Indirect Compensation
- refers to nonmonetary aspects of compensation,
such as benefits packages that include hospitalization
Human Resource Management
and life insurance plans, sick and vacation leaves, car
- Organizing, coordinating and managing the employee in
plans, and educational grants among others. It is usually
order for them to accomplish the mission and vision of the
referred to as the "add-on" or the extra component of
organization goal.
base pay (Armstrong, 2015).
5 Areas of HRM or Function
Poilicies affecting compensation

• Staffing/recruitment • Internal alignment

• HR Development - aligning pay with the contributions of the employees
• Compensation and Benefits in achieving organizational objectives
• Healths and Safety
• HR Labor and Relations • External alignment
- aligning pay with competitors calculate the risk of
Compensation being competitive
- Giving monetary value equivalent to any work performed
by an employee. It is also reformed to as all financial reward • Employee contribution
and non-financial reward which employee may receive out of - Considers contribution to performance as a factor of
work rendered for the employer. pay; putting a high premium on employee contribution
- MILKOVICH, NEWMAN AND GERHART
• Management of the pay system
Basic type of compensation - putting a system to giving of compensation;
considers timeliness of pay
Base Pay
- It is the basic pay given to the employee for the actual Components of compensation system
work rendered usually in the form of salary or wage. It is the
pay that was negotiated and agreed upon by the employee • Job Analysis
and the employer during the hiring process. - It is defined as the process of determining all the
information specific to a particular job. The different tasks
Variable Pay or activities, such as drafting, drawing, writing, teaching,
- It is the pay linked to actual accomplishments in and encoding, are obtained
performance such as bonuses or incentives based on a
target sales quota or target productivity • Job Description
- It is referred to as the written summary of all the
Benefits duties and responsibilities of a particular job position. It
- These are indirect rewards which may either be also includes the job specification which describes the
government-mandated or voluntarily given by the employer. educational background, experience, skills, and personal
Examples are: health insurance and vacation and sick leaves. traits that are needed to perform a particular job.

Objectives of compensation • Job Evaluation

- job analysis provides all the information for each job,
Organizations provide their employees with a compensation job evaluation is the process of determining the worth of
package to achieve these three-fold objectives: a job (Dessler, 2015). The worth or value of the job in the
organization forms a big part in determining pay rates,
1. To retain high-performance employees and reduce specifically basic pay. It also organizes jobs into a
employee turnover; hierarchy as pay levels are developed.
2. To achieve high productivity and efficiency by providing
fair compensation among employees commensurate to their • Pay Structure
position; and - Many organizations standardize their pay and use
3. To satisfy pay requirements in accordance with the law. grades or levels. Pay structures help in determining entry
pay and incremental increases during performance
Classification of compensation evaluation or promotion. They minimize complaints on
the corresponding amount of increases because they are
• Direct Compensation structured and systematically arranged per grade or level.
- refers to an actual monetary value that entitles an
employee. It can be in the form of a salary or wage. It can • Salary Surveys
also be in the form of variable pay, such as bonuses, - Some organizations participate in salary surveys and
incentives, commissions, and other performance-based pay. purchase market data on prevailing rates for different
positions in the industry where they belong. These help in
determining appropriate rates and at the same time
remaining competitive among competitors • The Bargaining Theory of Wages
- John Davidson developed this theory to highlight the
• Policies and Regulations bargaining power of workers in negotiating their wages.
- Each organization has its policies in administering and This is especially true for labor unions that negotiate their
implementing its payment system. These depend on many wages on the bargaining table. Wages are high if the
factors including the organization's capacity to provide workers are stronger than the employer. If the latter is
compensation and the standards set by law. They also stronger than the workers, the wages tend to be low.
indicate the kind of support that the top management has
given in the implementation of compensation packages. • Behavioral Theories of Wages
- Behavioral Wage Theories: Need-fulfillment theory.
Theory of Wages As noted, compensation and work benefits entail physical
and nonphysical incentives that are reimbursed to
• Wages Fund Theory individuals for services rendered. The reimbursement
-Adam Smith developed this theory to mean that workers procedure or payment system should take into
are paid based on a fund that is already there in the first consideration an individual's duty to ensure fairness.
place. This fund is also called the wage fund. Employees or
workers will be paid equally by dividing the wage fund over • Standard of Living Theory
the number of workers. The lower the number of workers, the - This theory is a better version of subsistence theory
higher the wage. in that, wage is determined by the standard of living of
the workers. A standard of living is defined as the level or
• Subsistence Theory quality of life that a particular worker enjoys in a particular
- This theory is the most popular economic theory on location or area. It includes the basic necessities of life,
wages. For this reason, so many viewpoints and articles education, and recreation which he/she has become
were written on this theory and this became the basis for the accustomed with. If a worker is paid high wages, he/she
minimum wage concept. It is also based on the theory of will become used to it so that he/she will eventually try to
population by Thomas Malthus. According to the subsistence maintain this same standard of living or even surpass it
theory, an increase in wages above the minimum or (Shaile, n.d.).
subsistence level will only lead to an increase in population at
a faster rate. Once the population rises, the labor supply will • Just Price Theory
also increase which will lower wages (Atchison, Belcher, & - This theory upholds the equity theory of J. Stacey
Thomsen, 2013). Adams. This theory emphasizes that employees would
- Iron law of wages like to maintain equity between inputs (their contribution
to the job) and outputs (the outcomes that they receive
• The Surplus Value Theory of Wages out of the perceived efforts they have given to the
- As an economic theory, Surplus Value is used by the organization) (Miner, 2015).
German philosopher and economist Karl Marx to criticize
capitalist-style economic systems. Surplus value is the Difference Between Wage and Salary
difference between a worker's wage and the price of a good
or service produced by that worker. Salary

• Residual Claimant Theory • Paid semi-monthly or on a fixed period such as every

- William Stanley Jevons was the first to state it in 1862, 15th and 30th of the month
but Francis Walker was able to make a more profound • Does not change each month or for a long time
analysis after 20 years. According to this theory, wages are • May change only if there is a directive for a salary
residual claims after rent, interest, and profits are deducted increase or promotion, etc
from the total product. It suggests that residual claims will • May be considered as a total compensation package
only increase if productivity will increase, given that there is which also includes benefits Determined thru market pay
no additional investment or capital infused for workers to get rates, industry average, compensation analysis among
more residuals. Wages are called residuals because the competitors
three other factors of production, such as land, capital, and
entrepreneur, are paid first (Chand, n.d.). Wage

• Marginal Productivity Theory • Based on the number of hours worked multiplied by the
- As applied to wages, the marginal-productivity theory employee's hourly rate
holds that employers will tend to hire workers of a particular • Received either daily, weekly, or earlier than the
type until the contribution that the last (marginal) worker semimonthly payment of salaries
makes to the total value of the product is equal to the extra • Usually follow the no work, no pay rule
cost incurred by the hiring of one more worker. • Usually paid on the basis of work hours rendered; no
paid vacation or sick leaves to be credited (Surbhi, 2015)
Compensation Concepts • Labor Supply
- The Philippine Statistics Authority released its
Compensation administration is borne out of several employment rate of 94.7 together with the Labor Force
disciplines. Because of the issues that need to be addressed, Survey (LFS) for January 2018 (Philippine Statistics
it combines the different concepts to be able to have a Authority (PSA), 2018). The labor force is the quantity of
deeper understanding of compensation as a key function of the labor supply and the labor force participation rate
human resource management. (LFPR) is taken from the population 15 years old and
over. In October 2018, 43.5 million were either employed
The following are the concepts that have provided a broader or unemployed. The LFPR was 60.6% (PSA, 2019).
view of compensation administration: economic concept,
psychological concept, sociological concept, political concept, • The Labor Market Worldwide
equity concept, and communications concept (Atchison et al., - The working age for the global labor market consists
2013). of men and women ages 15 years and above. This
comprises about 5.7 billion with 3.3 billion or 58.4 percent
• Economic Concept are employed and 172 million are unemployed. The 38.6
- Labor services are one of the factors of production. Just percent are currently not in the labor force but are
like raw material resources, labor services may also be currently pursuing further studies, in retirement, or in
scarce, Compensation is the price given for labor services. unpaid care work. Unpaid care work is simply household
Normally, a firm strives to get the most number of laborers at chores done without salary, such as cleaning, cooking,
a reasonable price. On the part of the workers, they also try and the like. From this group, 140 million are either
their best to get paid at the highest price. available to work but are not applying for a job or not
available but are looking for a job (ILO, 2019).
• Psychological Concept
- Compensation is a form of motivation. Employees who • Human Capital Theory
believe that they are well compensated may be highly - This explains the quality of the labor force. Normally,
motivated and, thus, may be highly productive. Although employers seek applicants who are highly skilled and
there are other reasons why employees may be loyal to the well trained. They value extensive job experiences as a
organizations they work for, compensation is one of the key key factor in hiring. This is the reason why compensation
factors why employees will opt to stay. is also based on the qualifications needed on the job.

• Sociological Concept HANDBOOK ON WORKERS’ STATUTORY

- Compensation is a form of status symbol. Positions have MONETARY BENEFITS
a corresponding compensation package depending on the
level in the hierarchy. Top executives like the chief executive VIENVENIDO E. LAGUESMA
officer, chief operating officer, president, and others enjoy Secretary
high compensation packages. Since they occupy key
positions, their compensation packages become a status We also add the updated provisions and amendments of
symbol. the recently published Republic Act No. 11861 or the
Expanded Solo Parents Welfare Act, such as the
Labor Market Theories parental leave benefit and the conditions for
entitlement, categories of solo parents, and the
In recent years, labor economists have developed theories limitiation and termination of the benefit.
that explain the labor market. These theories also explain the
role of compensation as vital in labor services. These Minimun Wage
theories are the following: labor markets, labor supply, the - Republic Act No. 6727 or the “Wage Rationalization
labor market worldwide, human capital theory, and labor Act” mandates the fixing of the minimum wages
demand (Atchison et al., 2013). applicable to different industrial sectors, namely,
nonagriculture, agriculture plantation, and non-plantation,
• Labor Markets cottage/handicraft, and retail/service, depending on the
- The labor market is very dynamic. The market provides number of workers or capitalization or annual gross sales
comprehensive salary rates for the majority of jobs available in some sectors.
in the market. The salary surveys are well researched and
can be accessed by both prospective employees and E. Computation of the Estimated Equivalent Monthly
employers. In this manner, applicants are provided with Rate (EEMR) of Monthly-Paid and Daily-Paid
"average" rates and compare them with what the companies Employees
offer. They also have a way of how they can negotiate with
their prospective employers. Meanwhile, organizations can
also use salary surveys to come up with competitive salaries
for their employees
 PREMIUM PAY (Articles 91-93)
- Premium pay refers to the additional compensation
for work performed within eight (8) hours on rest days
and special days.

Holiday Pay
- Holiday pay refers to the payment of the regular daily
wage for any unworked regular holiday.
OVERTIME PAY (Article 87)
- Overtime pay refers to the additional compensation for
work performed beyond eight (8) hours a day.

SERVICE INCENTIVE LEAVE (Article 95)

- Service incentive leave refers to the paid leave of
five (5) days granted to an employee who has rendered
at least one (1) year of service that may be used for sick,
vacation, and other leave purposes.

MATERNITY LEAVE (RA 8282, as amended by RA

11210u )
- Maternity leave refers to the paid leave granted to a
female employee for every instance of pregnancy,
miscarriage, and emergency termination of pregnancy,
regardless of frequency, providing her an ample
transition time to regain health and overall wellness and
to assume maternal roles.
NIGHT SHIFT DIFFERENTIAL (Article 86)
- Night Shift Differential (NSD) refers to the additional
B. Coverage
compensation of ten percent (10%) of an employee’s regular
- This benefit applies to female employees, regardless
wage for each hour of work performed between 10 p.m. and
of civil status, employment status, and the legitimacy of
6 a.m.
her child.

C. Duration
- The maternity leave shall be for one hundred five
(105) days with full pay, and additional fifteen (15) days
with full pay in case the female employee qualifies as a
solo parent under RA 8972, as amended by RA 11861. In
cases of live childbirth, an additional maternity leave of
thirty (30) days without pay, can be availed of, at the
option of the female employee, provided that the
employer shall be given due notice. Further, this leave
benefit may also be credited as combinations of prenatal
and postnatal leave as long as it does not exceed one
hundred five (105) days and provided that compulsory
postnatal leave shall not be less than sixty (60) days.

In case of miscarriage or emergency termination of

pregnancy, the maternity leave shall be for sixty (60)
days with full pay.
In both cases, employers from the private sector shall pay for B. Coverage
the difference between the full salary and the actual cash -This benefit applies to all female employees who are
benefits received from the SSS. victims of VAWC.

PATERNITY LEAVE (RA 8187) VAWC, as used in RA9262, “refers to any act or a series
- Paternity leave refers to the paid leave granted to a of acts committed by any person against a woman who is
married male employee allowing him to lend support to his his wife, former wife, or against a woman with whom the
lawful wife during her period of recovery and/or in nursing of person has or had a sexual or dating relationship, or with
their newborn child, including miscarriage. whom he has a common child, or against her child
whether legitimate or illegitimate, within or without the
B. Coverage family abode, which result in or is likely to result in
- This benefit applies to all married male employees, physical, sexual, psychological harm or suffering, or
regardless of their employment status (e.g., probationary, economic abuse including threats of such acts, battery,
regular, contractual, project basis). assault, coercion, harassment or arbitrary deprivation of
C. Duration liberty.”
- The paternity leave grants male employees his full pay
for the seven (7) days during which he is allowed not to C. Duration
report for work. This is granted to an employee after the - In addition to other paid leaves under existing labor
delivery by his wife, without prejudice to an employer laws, company policies, and/or collective bargaining
allowing an employee to avail of the benefit before or during agreements, the qualified victimemployee shall be
the delivery; Provided, that the total number of days shall not entitled to a leave of up to ten (10) days with full pay,
exceed seven (7) days for each delivery. consisting of basic salary and mandatory allowances
fixed by the Regional Wage Board, if any. The said leave
PARENTAL LEAVE FOR SOLO PARENTS shall be extended when the need arises, as specified in
(RA 8972, as amended by RA 11861x ) the protection order issued by the barangay or the court.
- Parental leave refers to the paid leave granted to a
qualified solo parent to enable the performance of parental SPECIAL LEAVE FOR WOMEN (RA 9710)
duties and responsibilities where physical presence is - Special leave for women refers to the paid leave
required or beneficial to the child. granted to a female employee allowing her to recuperate
following surgery caused by gynecological disorders for a
period of up to two (2) months.

B. Coverage
- This benefit applies to all qualified female employees,
regardless of age and civil status, who have undergone
surgery due to gynecological disorders.

C. Duration
- Under the Magna Carta of Women, a female
employee having rendered continuous aggregate
employment service of at least six (6) months for the last
twelve (12) months shall be entitled to a special leave
benefit of two (2) monthsz with full pay based on her
gross monthly compensationaa following surgery caused
by gynecological disorders.

“Gynecological disorders” refers to disorders that would

require surgical procedures such as, but not limited to
dilatation and curettage and those involving female
reproductive organs such as the vagina, cervix, uterus,
fallopian tubes, ovaries, breast, adnexa and pelvic floor, as
certified by a competent physician. It shall also include
hysterectomy, ovariectomy and mastectomy.
LEAVE FOR VICTIMS OF VIOLENCE AGAINST WOMEN The special leave shall be non-cumulative and non-convertible
AND THEIR CHILDREN (VAWC) (RA 9262) to cash unless otherwise provided by a collective bargaining
- Leave for victims of violence against women and their agreement (CBA).
children refers to the paid leave granted to a female
employee who is a victim of violence against women and THIRTEENTH-MONTH PAY (PD 851)
their children allowing her to attend to medical and legal - Thirteenth-month pay refers to one-twelfth of the
concerns at any time during the application of any protection total basic salary earned by an employee within a
order, investigation, prosecution and/or trial of the criminal calendar year. (1 month above)
case.
SEPARATION PAY (Articles 298-299) political, economic, social, cultural, civil or any
- Separation pay is a compensation given to an employee other field;
who is terminated from employment due to authorized  any act or omission, including by law, policy,
causes provided in Articles 298 and 299 of the Labor Code of administrative measure, or practice, that directly
the Philippines, as renumbered. or indirectly excludes or restricts women in the
recognition and promotion of their rights and their
B. Coverage access to and enjoyment of opportunities,
- This benefit applies to an employee in instances of benefits, or privileges;
authorized termination of employment covered by Articles  a measure or practice of general application that
298 and 299 of the Labor Code of the Philippines. An fails to provide for mechanisms to offset or
employee’s entitlement to separation pay depends on the address sex or gender-based disadvantages or
reason or ground for the termination of his or her services. limitations of women, as a result of which women
Where the termination is for authorized causes, separation are denied or restricted in the recognition and
pay is due. protection of their rights and in their access to
and enjoyment of opportunities, benefits, or
RETIREMENT PAY (Article 302) privileges; or women, more than men are shown
- Retirement pay refers to the compensation given to a to have suffered the greater adverse effects of
retiring employee pursuant to Article 302 of the Labor Code those measures or practices; and
of the Philippines, as renumbered.  discrimination compounded by or intersecting
with other grounds, status, or condition, such as
B. Coverage ethnicity, age, poverty, or religion.
- Employees shall be retired upon reaching the age of
sixty (60) years or more but not beyond sixty-five (65) years
old [and have served the establishment for at least five (5)
years].

This benefit applies to all employees except:

1. Government employees; and
2. Employees of retail, service and agricultural
establishments/ operations regularly employing not more
than ten (10) employees.

C. Amount
- The minimum retirement pay shall be equivalent to one-
half (1/2) month salary for every year of service, a fraction of
at least six (6) months being considered as one (1) whole
year.

MAGNA CARTA OF WOMEN Republic Act 9710

- The Magna Carta of Women (MCW) is a comprehensive
women’s human rights law that seeks to eliminate
discrimination through the recognition, protection, fulfillment,
and promotion of the rights of Filipino women, especially
those belonging to the marginalized sectors of society.

It is the local translation of the provisions of the Convention

on the Elimination of All Forms of Discrimination against
Women’s (CEDAW), particularly in defining gender
discrimination, state obligations, substantive equality, and
temporary special measures. It also recognizes human rights
guaranteed by the International Covenant on Economic,
Social, and Cultural Rights (ICESCR).

The Magna Carta of Women defines discrimination against

women as:

 any gender-based distinction, exclusion, or

restriction which has the effect or purpose of
impairing or nullifying the recognition, enjoyment, or
exercise by women, irrespective of their marital
status, on a basis of equality of men and women, of
human rights and fundamental freedoms in the