COMPENSATION AND BENEFITS

COMPENSATION AND BENEFITS

● It refers to the rewards an organization provides to its employees in exchange for their labor. An
attractive compensation and benefits plan can help you attract and retain top talent and keep them
happy, motivated, and engaged at work.

Financial Reward
● is the financial value that a team member receives in exchange for their services.

Non Financial Reward

● are nonmonetary, additional perks or rewards that a company provides for a team member.

Performance-Based
● These rewards are tied directly to an employee's performance or achievements. The idea is to
incentivize high levels of productivity and efficiency.
● Rewards exemplified by the use of commissions, piecework pay plans, incentive systems, group
bonuses, or other forms of merit pay. For example, if an employee meets or exceeds their sales targets
or achieves specific goals, they might receive bonuses, raises, or other rewards. Essentially, it’s about
rewarding good performance.

Membership-Based rewards
● Membership-based rewards are not directly tied to individual performance but are instead offered to all
employees based on their status as members of the organization. This approach emphasizes collective
contribution and loyalty. For example, employees might receive annual bonuses, health benefits, or
company discounts just for being members of the organization. It’s more about being part of the team
than how well you perform.

Companies that develop a competitive and well-designed compensation and benefits strategy may enjoy these
benefits:

● Attracting high-performance candidates and improving retention

● Motivated team members
● Increased loyalty and engagement
● Improved productivity
● Enhanced workplace experience

INTRINSIC AND EXTRINSIC REWARD

Job Enrichment
● Enhancing jobs by giving employees more opportunity to plan and control their work.

Intrinsic Reward
● Satisfactions derived from the job itself, such as pride in one’s work, a feeling of accomplishment, or
being part of a team.

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 ● come from within the individual and are related to personal satisfaction and fulfillment. They are tied to
the work itself and can enhance an employee's sense of purpose and engagement.
Extrinsic Reward
● Benefits provided by the employer, usually money, promotion, or benefits.
● are external to the individual and are typically tangible benefits provided by the organization. These
rewards are often used to motivate behavior and performance.

COMPENSATION ADMINISTRATION

Compensation Admiration
● A segment of management that focuses on planning, organizing, and controlling direct and indirect
payments the employees receive.
● The process of managing a company’s compensation program.
● GOAL: To design cost-effective pay structure that will attract, motivate, and retain competent
employees.

Government Influence on Compensation Administration

Labor Code:

Minimum Wage
● 645 Metro Manila
● 608 Other Parts
Overtime Pay
● 125% Normal days
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 ● 130% Holidays
Night Differential
● 110-120%
Holiday Pay
● 200%
13th Month Pay
● 12 Months Pay ÷ 12
Maternity Leave

Mandatory Contributions:

RA 8282 or Social Security Act of 1997 - is a law in the Philippines that aims to provide social security
benefits to workers. In simple terms, it establishes a system that gives financial support to employees and their
families during times of need, such as when they are sick, disabled, retired, or have lost a family member.

RA 9674 or Home Development Mutual Fund Law - is a law in the Philippines that established the Home
Development Mutual Fund (HDMF), commonly referred to as the Pag-IBIG Fund. This fund aims to provide
savings, affordable housing loans, and insurance benefits to Filipino workers, whether they are employed in the
private or public sector, as well as overseas workers.

● Less than 1.5k monthly • 1% + 2% from company

● More than 1.5k monthly • 2% + 2% from company

RA 10606 or National Health Insurance Act of 1995 - is a law in the Philippines that aims to provide all
citizens with access to affordable healthcare services. It establishes the Philippine Health Insurance
Corporation (PhilHealth) as the primary organization responsible for implementing national health insurance
programs.

● Basic contribution of 400 Php monthly

● 10k to 79.9k • 4% of your wage monthly
● 80k+ • 3,200 Php monthly

Mandatory Contributions:
SSS, Pag - IBIG, PhilHealth Contributions

Contribution Type Employee Share Employer Share Total

SSS 4.5% 9.5% 14% of the Monthly

Salary Credit

PhilHealth P200, 2%, or P1600 P200, 2%, or P1600 P400, 4%, or P3200
depending on the salary

Pag - IBIG 1% for Income above 2% 3% or 4%

1,500 and below 2% for
income above P1500

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Tax Laws:

Annual Tax Table

Annual Taxable Income Tax Rate

Up to PHP 250,000 0%

Over PHP 250,000 to PHP 400,000 15% of the excess over PHP 250,000

Over PHP 400,000 to PHP 800,000 PHP 22,500 + 20% of the excess over PHP 400,000

Over PHP 800,000 to PHP 2,000,000 PHP 102,500 + 25% of the excess over PHP
800,000

Over PHP 2,000,000 to PHP 8,000,000 PHP 402,500 + 30% of the excess over PHP
2,000,000

Over PHP 8,000,000 PHP 2,202,500 + 35% of the excess over PHP
8,000,000

JOB EVALUATION AND THE PAY STRUCTURE

Job Evaluation
● Job evaluation is the process of using job analysis data to determine the value of each job in relation to
others within an organization. It ranks jobs, not individuals, based on their duties, authority, skills
required, and working conditions, assuming normal job performance. However, external labor market
conditions, collective bargaining, and individual skill differences may lead to compromises between the
job ranking and the actual pay structure.

Isolating Job Evaluation Criteria

● The core of job evaluation is determining the criteria used to rank jobs based on their relative worth.
Job categories such as production, clerical, sales, professional, and managerial are often evaluated
separately to ensure valid rankings within groups.

Job Evaluation Methods

● Three basic methods of job evaluation are currently in use: Ordering, Classification, Point methods

Ordering
● Ranking job worth from highest to lowest
● ranks jobs from highest to lowest in importance or difficulty, based on the judgment of a committee,
without using specific criteria. While simple, this method becomes unmanageable with a large number
of jobs and is highly subjective, lacking consistent standards. Additionally, it does not show the degree
of difference between the ranked jobs.

Classification
● Evaluating jobs based on predetermined job grades.

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 ● groups jobs into distinct classes or grades based on common factors like skills, knowledge, and
responsibilities, and then ranks them by importance. Each job is placed in a classification by comparing
its description to benchmarked jobs. While it shares the ordering method's drawbacks—such as
subjectivity and difficulty in categorizing certain jobs—it has proven effective for large-scale civil service
job classifications.

Point Method
● Breaking down jobs based on identifiable criteria and the degree to which these criteria exist on the job.
● evaluates jobs by breaking them down into identifiable criteria, such as skill, effort, and responsibility,
and assigning points to each criterion based on its importance. After summing the points, jobs with
similar totals are grouped into corresponding pay grades. This method provides a structured approach
to establishing a fair pay hierarchy based on job requirements.

Establishing the Pay Structure

● Pay structure are influenced by several factors: Labor laws, Company Policies, Market Standards,
Organizational Hierarchy.
● These structures are designed to maintain fairness, motivation, and efficiency in compensation
management.

Overview of how pay structure work:

Basic pay and Wage System

● Minimum wage
● Basic Salary
Job-Based Pay Structure
● Job evaluation
● Pay Grades

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Skill-Based Pay Structure

Performance-Based Pay
● Performance Bonuses
● Commission Structures

Seniority-Based Pay

Allowance and Benefits

● Non-Cash Benefits
● Goverment-Mandated Benefits

Market-Competitive Pay

Compensation Surveys
● Used to gather factual data on pay practices among firms and companies within specific communities.

Wage Structure
● A pay scale showing ranges of pay within each grade.

External factors
● When determining the wage structure, HR must also consider external factors like geographic
differences in wages and labor supply. Consideration must also be given to how the organization will
react to the wage structures of competing organizations.

Geographic Differences
● Labor costs are influenced by supply and demand, among other factors. When labor supply is low,
wages rise, and when supply exceeds demand, wages fall. Wage variations can occur based on
geographic location, particularly depending on how far workers are willing to travel for jobs. For
example, employers in regions with fewer workers might need to offer higher wages than minimum
wage, even for low-skill jobs like certified nursing assistants, whereas in areas with more competition
for those workers, wages might be lower.

Labor Supply
● Labor supply is influenced by unemployment rates. When unemployment is low, employers must offer
higher wages to attract workers. Conversely, when unemployment is high, wages tend to be lower due
to increased competition among job seekers. The specific skills required can also impact wage levels.
Employers may need to pay more to attract workers with in-demand skills, while those with less
sought-after skills might face lower wages.

Competition
● An employer offering a salary that is equal to or exceeds the industry standard for similar jobs in the
same geographical area. Competitive pay is essential when trying to find the best talent to add to your
team.

HR Response to Competition Wages

● Match the Market

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 ● Lead the Market
● Lag the Market

Cost of Living
● Inflation raises consumer prices and reduces the real buying power of wages, requiring wage increases
to maintain workers' living standards. The Consumer Price Index (CPI) tracks these price changes, and
some cities, like San Francisco, set higher minimum wages to account for local cost of living
differences.

Collective Bargaining
● Unions or collective bargaining units are formed to negotiate wages on behalf of the employees.

Communicating with Employees

● Regardless of how a wage structure is developed, employees must understand how it works. Proper
communication of the pay system is as important as the structure itself, and organizations that clearly
explain the process will be more successful in achieving their compensation goals.

SPECIAL CASES OF COMPENSATION

Incentive compensation plans

● Organizations focused on performance-based compensation should incorporate incentive pay
alongside the basic wage. These incentives, which reward individual, group, or organizational
performance, enhance the overall wage structure and align with a pay-for-performance philosophy.
● Individual Incentive, Group Incentive, and Organization-Wide Incentive

Individual Incentive
● Motivation systems based on individual work performance

Example:
● Merit Pay - An increase in pay, usually determined annually.
● Piecework
● Time-savings bonuses
● Commissions
● Stock options

Group Incentives
● Motivational plan provided to a group of employees based on their collective work.
● Each individual incentive option we describe also can work for groups. That is, two or more employees
can be paid for their combined performance. Group incentives make the most sense where employees’
tasks are interdependent and thus require cooperation.

Organization-Wide Incentives
● A motivation system that rewards all facility members based on how well the entire group performed.

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 ● Organization-wide incentives are designed to align all employees' efforts toward enhancing overall
effectiveness. These incentives reward employees based on company-wide cost reductions or profit
sharing.

Example:
● Scanlon Plan - An organization-wide incentive program focusing on cooperation between management
and employees through sharing problems, goals, and ideas
● IMPROSHARE - An incentive plan that uses a specific mathematical formula for determining employee
bonuses.

Paying For Performance

● Rewarding employees based on their job performance.
● Pay-for-performance programs reward employees based on their performance rather than hours
worked, using methods like piecework, profit sharing, and bonuses. These programs boost motivation
by linking rewards to productivity, contrasting with traditional pay structures. Their popularity is
increasing, with nearly 80% of companies adopting them.

Competecy-Based Compensation
● Organizational pay system that rewards skills, knowledge, and behaviors.
● Competency-based compensation rewards employees based on their skills, knowledge, and behaviors,
such as leadership and problem-solving. Used in industries like healthcare and energy, this approach
links pay levels to competency, with increases reflecting personal development and contributions to
organizational goals. Ultimately, compensation is tied to an employee's ability to support the
organization's objectives.

Broadbanding
● Paying employees at preset levels based on their level of competency.
● Broadbanding is a compensation strategy that combines multiple salary grades into fewer, broader
categories. This allows for greater flexibility in pay and career progression, rewarding employees based
on skills and performance rather than strict pay structures.

Team-Based Compensation
● Pay based on how well the team performed.
● Team-based compensation is a pay structure that rewards employees collectively based on the
performance of their team rather than on individual achievements. This approach fosters collaboration
by linking financial incentives to the team's ability to meet or exceed shared goals. It encourages team
members to work together effectively, relying on clear objectives, mutual trust, and open
communication. By aligning rewards with group performance, team-based compensation aims to
enhance motivation, strengthen teamwork, and ultimately improve overall organizational outcomes.

EXECUTIVE COMPENSATION

Executive Compensation Programs

● Signing Bonuses, Guaranteed Contracts, Performance Incentive Packages, Interest-Free Loans.

Supplemental Financial Compensation

● Quota-Based, Performance-Based, Contract-Based.

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Supplemental Non-Financial Compensation
● Perquisites (Perks) - Attractive benefits, over and above a regular salary, granted to executives, also
known as “perks.”
● Golden Parachute - A financial protection plan for executives in case they are severed from the
organization.

INTERNATIONAL COMPENSATION

Base pay
● is the initial salary or wage an employee receives in exchange for performing their job duties, before
any bonuses, incentives, or additional compensation. It is the fixed amount of money an employee
earns for the work they perform, typically expressed as an hourly rate, weekly, bi-weekly, monthly, or
annual salary.

Differentials
● refers to additional compensation given to employees for working under certain conditions that are less
desirable or require special skills. These payments are made on top of an employee’s base pay to
compensate for things like working non-standard hours, hazardous environments, or possessing
specific expertise.

Incentives
● Incentives are rewards or compensation offered to employees to motivate and encourage specific
behaviors, improved performance, or the achievement of set goals. These can be monetary or
non-monetary, and they are designed to boost productivity, enhance engagement, and align employee
efforts with the company's objectives.

Assistance Programs
● Assistance programs are support initiatives provided by employers or organizations to help employees
deal with personal or work-related challenges. These programs are designed to promote the well-being
of employees, improve their quality of life, and support them in overcoming difficulties that might affect
their work performance or personal lives.

SUMMARY

PAY
● Compensation
➔ Incentive
➔ Basic Salary
➔ Performance Bonus
➔ Merit Increase
● Benefits (Company)
➔ HMO
➔ Leaves
● VL, SL, BL
➔ Insurance

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➔ Retirement Pay
➔ Government Pay
➔ Allowance
● Rice, Clothing, Medical, Communication

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