(BAH224) Pay for Performance & Financial Incentives

Pay for Performance (PFP)

payment structure that adds to an employee's base salary when they meet or exceed measurable performance metrics.

Goals of Pay for Performance (PFP)

• aligns individual goals with company objectives
  

• enhances organizational success by recognizing high levels of productivity.
  

• higher employee motivation

Pay for Performance (PFP)

used in Roles with clear performance indicators (e.g., sales), but can be adapted for less tangible outcomes through specific, measurable objectives.

Components of Pay for Performance (PFP)

• Compensation philosophy and mix.
  

• Base salary increase structure.
  

• Incentive pay.

• Merit–based pay
  

• Performance–based pay
  

• Variable pay
  

• Incentive–based pay
  

• Gainsharing

Types of Pay for Performance

Merit–Based Pay

Base salary adjusted over time, reflecting sustained high performance.

Performance–Based Pay

Bonuses added to base salary for achieving specific, measurable goals.

Variable Pay

Bonuses with base pay; more flexible and less predictable.

Incentive–Based Pay

Rewards for meeting targets, not necessarily monetary.

Gainsharing

Team–based bonuses for improving performance, productivity, or saving costs.

Financial Incentives

Monetary benefits designed to motivate employees and encourage actions such as higher productivity and loyalty.

Types of Financial Incentives

• Bonuses
  

• Referral programs
  

• Extra allowances
  

• Commissions
  

• Employee stock options
  

• Profit–sharing
  

• Co–partnerships
  

• Wage incentives
  

• Salary raises
  

• Retirement & fringe benefits

Bonuses

Lump sum payments given for achieving specific goals or exceptional performance.

Referral Programs

Monetary rewards for employees who refer successful candidates for job openings.

Extra Allowances

Additional financial benefits provided for specific purposes, like travel or housing.

Commissions

Earnings based on sales or performance, often in sales-related roles

Employee Stock Options

Offering employees the right to purchase company stock at a discounted rate.

Profit–sharing

Distribution of a portion of the company's profits to employees.

Co–partnership

Employees are offered a share in the company or a portion of its ownership.

Wage Incentives

Increases in wages to encourage performance or retain talent.

Salary Raises

Permanent increases in base salary.

Retirement & Fringe Benefits

Non–wage compensations such as pension plans, healthcare, and other perks.

Severance Pay

Compensation given upon leaving a company, typically provided in cases such as layoffs, business closures, or mutual agreements

Purpose of Severance Pay

• Helps alleviate the impact of termination
  

• Supports the employee until retirement or new employment.

Types of Severance Pay Under Labor Code

• Installation of labor–saving devices
  

• Redundancy
  

• Retrenchment
  

• Closure of business
  

• Disease

Types of Severance Pay Under Supreme Court

• Impossible reinstatement
  

• Social justice or equitable grounds

Steps to Compute Severance Pay

• One month’s pay.
  

• Half a month’s pay for every year of service.
  

• The higher of the two amounts.

Labor Codes for Termination

• Article 297
  

• Article 298
  

• Article 299

Article 297

Termination by Employer

Causes of Termination Under Art 297

• Serious misconduct
  

• gross neglect
  

• Fraud
  

• commission of a crime
  

• other analogous causes.

Article 298

Closure of Establishment & Reduction of Personnel

Redundancy or Layoffs

when is article 298 applicable?

Computation of Severance Pay Under Art 298

One month’s salary or one month per year worked, whichever is higher.

Article 299

Disease as Ground for Termination

Article 299

Allows termination due to a disease affecting health, with separation pay based on service time.

13th Month Pay

required for Rank and File Employees and Mandated for private sector employers under Presidential Decree.

December 24 Every Year

payment deadline of 13th month pay

Computation of 13th Month Pay

• Monthly salary divided by 12.
  

• Multiply by the number of months served.