Compensation & Benefits

Prelims

Compensation and benefits

The total rewards employees receive for their work, including direct pay (wages/salary) and indirect rewards (benefits, incentives, perks).

Compensation administration

The process of designing, implementing, and managing pay structures and benefit programs to ensure fairness, competitiveness, and compliance.

Payroll

The system of calculating and distributing employee wages, salaries, deductions, and taxes.

Compensation package

The key components of this package are base salary, variable pay (bonuses, incentives), benefits (healthcare, retirement), and non-monetary perks.

Salary increase

These are the factors that influence this: performance, seniority, skills, market rates, company profitability, and inflation.

Compensation package

The common benefits of this package includes: health insurance, retirement plans, paid leave, allowances, bonuses, training, and employee assistance programs.

Compensation

Monetary payment given to employees in exchange for their work, typically in the form of wages or salaries.

Benefits

Non-monetary rewards or provisions offered to employees in addition to their compensation, such as health insurance, retirement plans, and paid time off.

Compensation and benefits

These two refer to the monetary and non-monetary rewards an employee receives from their employer in exchange for their work. Together, they make up a total compensation package, which may include salary, bonuses, insurance, retirement contributions, and various other perks aimed at attracting, motivating, and retaining employees.

Compensation

This refers to the payment employees receive in exchange for their labor, including wages, salaries, and bonuses. This monetary compensation is straightforward and is usually determined by the role, experience level, and market standards.

Employee benefits

These are non-wage compensations that supplement the salary package. These can include health insurance, retirement plans, paid time off, and other perks, such as gym memberships.

Payroll

This is the process of providing compensation to employees for their efforts on behalf of a business. It is typically handled by either the accounting department or the human resources department.

Payroll accounting

This is the recording of all payroll transactions in your books of account.

Base pay

Fixed salary or hourly wage paid regularly for doing the job.

Commissions

Variable pay earned based on sales or performance targets.

Bonus pay

Additional cash reward tied to performance, company profits, or milestones.

Equity package

A form of compensation where a company grants an employee part ownership in the business, usually through shares. Instead of only receiving salary or bonuses, the employee also becomes a partial owner, which means their financial gain is tied to the company’s success.

Stock options

A type of compensation that gives employees the right (but not the obligation) to buy company stock at a fixed price in the future. They’re valuable if the stock price goes up, since employees can buy shares cheaper and benefit from the increase.

Benefits

Non-cash rewards such as health insurance, retirement contributions, paid leave, and allowances.

Direct compensation

This type of compensation include:

• Salary

• Honorarium

• Commission

• Bonuses

  • Signing Bonus

  • Retention Bonus

Indirect compensation

This type of compensation include:

• Equity Package

• Stock Options

• Stock Appreciation Rights

• Benefits e.g. health insurance, life insurance, retirement plans, disability insurance, and legal insurance

Direct compensation

The actual monetary pay employees receive for their work. It includes salary, wages, bonuses, incentives, commissions, and equity/stock options. (Always measurable in money and paid directly to the employee.)

Indirect compensation

Non-cash rewards or benefits that support employees’ well-being and job satisfaction.

Examples: health insurance, retirement plans, paid leave, government-mandated benefits, training, flexible schedules, and perks. (Not handed as cash but has financial or personal value.)

Compensation administration

This a systematic process of managing employee compensation and benefits. It is a segment of management or human resource management that focuses on planning, organizing, and controlling the direct and indirect payments employees receive for the work they perform.

BIR Form 2316

It also known as the Certificate of Compensation Payment or Income Tax Withheld, is an annual return form in the Philippines. It consolidates an employee's gross income along with the corresponding taxes and government deductions withheld throughout the calendar year or relevant taxing period.

Department of Labor and Employment

This is one of the executive departments of the Philippine government mandated to formulate policies, implement programs and services, and serve as the executive branch's policy-coordinating arm in labor and employment.

National Wages and Productivity Commission

They develop policies and guidelines on wages, incomes, and productivity. They exercise technical and administrative supervision over the RTWPBS which implement the wages, incomes, and productivity policies and programs in their regions.

Regional Tripartite Wages and Productivity Board

This is mandated under Republic Act No. 6727, otherwise known as The Wage Rationalization Act, to periodically assess wage rates and conduct continuing studies in the determination of the minimum wage applicable in the region or industry.

Hourly wages

These are often provided to unskilled, semi-skilled, temporary, part-time, or contract workers in exchange for their time and labor. Jobs where some employees receive hourly wages include the retail, hospitality, and construction industries, etc.

Overtime pay

Employees who receive hourly wages are usually able to earn this.

Annual salaries

These are typically provided to most full-time or skilled employees and those who fill management positions. A salary often indicates that the organization has invested in this employee for the long term.

Base pay

Both hourly wages and salary make up an employee's … or base salary

Honorarium

This is a payment made to someone for their services or expertise, typically in a professional or academic setting. It is a token of appreciation or recognition for the work that has been done, rather than a fee or salary for services rendered. These are often given to guest speakers, consultants, or experts who contribute their time and knowledge to an event or project.

Commission

This is a common form of compensation provided to employees in sales roles. It will usually be based on a predetermined quota or target. The higher the quota reached, the higher the commission pay will be. Commission rates are often based on various specified factors, including revenue and profit margins. Some employees will work on commission only or obtain a base salary with commission.

Bonuses

These are often offered based on year-end business results or the individual meeting their set goals. These are a type of compensation paid to an eligible employee in addition to a previously set hourly wage, contract amount or annual salary. While many companies provide bonuses in the form of cash, a bonus can take any form as long as it provides value to employees as well as the organization.

Discretionary bonus

These bonuses are awarded at the discretion of the employer, meaning they are not stipulated in your employment contract and are not guaranteed. For example, milestone bonuses are awarded at the discretion of your employer.

Non-discretionary bonus

These incentive-based bonuses are outlined in your employment contract and vary by employer. As long as you meet the requirements detailed in your contract, the bonus is required as part of your compensation package. Signing bonuses and retention bonuses are examples of nondiscretionary bonuses.

Equity

As part of a compensation package essentially means the employee is offered equity (ownership) in the company, either through shares of stock. Employees receive a portion of the company's equity outright or through a vesting schedule.

Stock options

These do not provide immediate ownership. Instead, they give employees the right to buy shares at a fixed price (strike price) in the future. In other words, they offer the right to purchase ownership. If the company's stock value rises above the strike price, employees can buy the shares at a discount and profit from the difference.

Monthly-paid employees

These are those who are paid every day of the month, including unworked rest days, special days, and regular holidays. Factor 365 days in a year is used in determining the equivalent monthly salary of monthly-paid employees.

Daily-paid employees

These are those who are paid on the days they actually worked and on unworked regular holidays.

No work, no pay

This general rule applies to both daily-paid and monthly paid employees. Meaning, if an employee is absent and is not covered by any leave, no wage/salary is due for that workday.

Wage distortion

This happens when the pay gap between different groups of employees (for example, new hires vs. senior staff, or lower vs. higher job levels) gets narrowed or erased because of a government-mandated wage increase.