HRM L8: managing compensation

pay

• statement of an employee’s worth by an employer

• reflects how valuable an employee is to the company and how valued the employee feels

total compensation

• complete package of direct and indirect rewards employees receive

• 3 kinds of compensation:

  • direct

  • indirect

  • nonfinancial

direct compensation

• given directly as money

  • wages / salaries

  • commissions

  • bonuses

  • gainsharing

indirect compensation

• benefits employees receive aside direct pay

  • time not worked (vacations, breaks, holidays)

  • insurance plans (medical, dental, life)

  • security plans (pensions)

  • employee services (educational assistance, recreational programs)

non financial compensation

• rewards / benefits offered to employees

  • recognition programs

  • rewarding work

  • organizational support

  • work environment

  • flexibility

compensation alignment

compensation strategy

ensure the company’s compensation system supports business goals and employee performance

compensation design

• company designs the type of compensation employees will receive (paymix)

• considers: internal / external factors and job evaluation systems

compensation implementation

• compensation plan is actually applied using pay tools. basically creates the actual salary structure / payment system

  • salary surveys

  • wage curves

  • pay grades

  • rate ranges

  • competence-based pay

compensation assessment

• company evaluates whether the compensation system is effective (is it fair, motivating, aligned with company goals?)

• uses a compensation scorecard.

government regulation factors

• laws and labor regulations affect all parts of the compensation system

• companies must follow legal requirements when designing and implementing compensation

pay mix

combination of salary and additional compensation employees receive

factors affecting pay mix

• internal factors

• external factors

internal factors

• factors within the organization that influence compensation

  • compensation strategy

  • worth of job

  • employee’s relative worth

  • employer’s ability to pay

external factors

• outside factors that influence compensation

  • labor market conditions

  • area pay rates

  • cost of living

  • legal requirements

  • collective bargaining

pay for performance standard

• managers tie compensation to employee effort and performance

• employees who perform better may receive higher pay, bonuses, or incentives.

basis for compensation

1. hourly work

2. piecework

3. salary workers

4. managerial employees

5. managerial staff

6. field personnel

7. other exemptions (government employees, domestic helpers, employees of small retail establishment)

hourly work

• work paid on an hourly basis

• example: cashier paid ₱80 per hour worked

piecework

• work paid based on the number of units produced

• example: actory worker paid for every item produced.

salary workers

• employees paid weekly, biweekly, or monthly

• example: office employee receiving a fixed monthly salary

nonexempt employees

• employees entitled to benefits required by law including:

  • overtime pay

  • night differential

  • service incentive leave

overtime pay

work exceeding 8 hour

night differential

additional pay for work between 10 PM to 6 AM

service incentive leave

5 days paid leave for employees who served at least a year

exempt employees

• not covered / required to work a set number of hours

• employees generally not entitled to overtime pay, premium pay, or SIL

managerial employees

• employees who create policies & manage departments

• have authority to hire or fire

managerial staff (officers)

employees who perform work related to management policies and exercise discretion

field personnel

employees who work outside the office and whose working hours cannot be determined exactly

other exemptions

• other workers exempted from certain compensation rules

• usually happens because the nature of their work is different, their hours are hard to monitor, or special laws apply to them

• example:

  • government employees

  • domestic helpers

  • employees small retail establishments