MGT 2: HUMAN RESOURCE MANAGEMENT

WEEK 10: Compensating Human Resources and Employee Benefits & Services

COMPENSATING HUMAN RESOURCES

COMPENSATION
Set of rewards that organizations provide to individuals in return for their willingness to
perform various jobs and tasks within the organization.
Includes all forms of financial returns and tangible services and benefits the employee
receives as part of an employment relationship.

Effective Compensation
Adequate to meet the needs of the employees and acquire and retain qualified
personnel
Equitable
Balanced
Cost-Effective
Secure
Incentive-providing
Acceptable to the employee
Compliant with legal regulation

Main Components of Compensation

Base Pay the hourly /weekly / monthly salary earned
Premium Pay additional compensation required by law for work performed within
eight hours on non-working days such as rest days and special days
Base Pay Progression movement of base pay overtime from year to year
Variable Pay incentive or bonus pay that does not fall into base pay. Such earnings
may be based on performance against preset goals at the discretion of the company.
May be paid to an individual, team, group, or organizational level.

Wages vs. salaries

Wages
Hourly compensation paid to skilled and unskilled workers or those performing
blue-collar jobs, with time as the basis in computation.
Salaries
Income paid to an individual not on the basis of time but on the basis of
performance.
Given to professional and managerial employees or those performing white-
collar jobs.
Compensates employees not for how much time he spends in the organization
but for the overall contribution to the organizations performance.

Compensation
Base pay, base pay progression, and variable pay ass up to total cash compensation paid
in any given year.

BENEFITS AND PRE-REQUISITE OR PERKS

Paid in form of indirect cash or benefits that have monetary value.
INDIRECT COMPENTSATION
Quality of work-life
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WEEK 10: Compensating Human Resources and Employee Benefits & Services

Include a broad array of nonmonetary, but extremely important,

rewards that we place under general umbrella of quality work life:
Organizational culture
Intrinsic value
Career Opportunities

Determining Pay Rates

Basic Phases
Determining the relative worth of the different jobs to the organization ensuring
internal equity
Pricing the different jobs ensuring external equity
Job evaluation is the primary method used to determine the relative worth of
jobs to the organization.

Determinants of pay
External Factors
Market Factors
Supply and demand for labor
Economic conditions and unemployment
Existing pay level in the community
Government regulations and laws
Organizational Factors
Type of industry
Profitability and companys ability to pay
Unionized or unionized
Size of the company
Capital or labor intensive
Value of the job or its contribution to the company
Job Factors
Skill
Mental requirements
Complexity of duties
Personal qualifications needed
Ability to make decisions or judgments
Preparation for the job such as education, training, and knowledge
Responsibility
Money, commitments
Decision making
Supervision of others
Quality of work
Materials, equipment, property
Confidential information
Effort
Physical and mental effort required
Attention to details
Pressure of work
Working Conditions
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WEEK 10: Compensating Human Resources and Employee Benefits & Services

Job conditions
Physical hazard

Establishing Pay Rates

Conduct the salary survey, aimed at determining prevailing wage rates
Determine the worth of each job through job evaluation.

Job Evaluation Methods

Ranking Method
Simplest and oldest method but least often used
Involves ranking each job relative to all other jobs based on difficulty
Often, the evaluator prepares cards with basic information about the jobs and
then arranges the cards in order of importance of the positions.
Produces only an ordering of jobs and does not indicate the relative degree of
difference among them.
Job Classification or Job Grading Evaluation Method
Simple, widely used method.
Jobs are categorized into groups called classes containing similar jobs.
Sets of jobs are ranked on levels of difficulty or sophistication.
Certain classes or grades of jobs are defined on the basis of differences in
duties, responsibilities, skills, working conditions, and other job-related factors.
Point System
Requires evaluators to quantify the value of the elements of a job.
Points are assigned to the degree of various compensable factors to do the job
on the basis of job description or interview with job occupants.

Steps in Point System

Step 1: Selection of Key Jobs
Goal is to select enough key jobs to represent each major
internal variable in the pay structure for all jobs being
evaluated.
Step 2: Selecting Compensable Factors
Characteristics of the job that are deemed important by the
organization to the extent that it is willing to pay for them.

Assign weights to factors

Assign points to specific jobs

Factor Comparison Method

Similar to the point system but involves monetary scale

Job Evaluation: The Consideration

Consistency
Establish reliability
Achieved when two people evaluating the same jobs provide similar ratings
made by one person on two different occasions.
Freedom from Bias
MGT 2: HUMAN RESOURCE MANAGEMENT
WEEK 10: Compensating Human Resources and Employee Benefits & Services

Those making the evaluations should be objective.

Correctability
Provide mechanisms to modify inaccurate or out-of-date evaluations.
Employees are allowed to review the evaluation and appeal the ratings if
dissatisfied.
Representativeness
All employees affected by the process should have their concerns represented.
Accuracy of Information
Those making the evaluations should be quite knowledgeable of the jobs being
rated

Forms of Compensation
Payment for Time Worked
Pay surveys are used to establish competitive pay for the industry and job
evaluation is the principal method for setting time-pay schedules.
No direct relation to the workers output.
Pay is usually adjusted upward through Six Types of Increases:
General across-the-board increase
Merit increases
Cost of living adjustments
Reclassification increase
Level of adjustment
Promotional increase

Incentive Forms of Compensation

On the basis of output such that more production, more earnings
The organization first establishes performance standards to determine the quantity
a person can be expected to produce in a given period of time and sets the wage
based on how well the workers perform
Pay equals the market rate for the job.

Classifications of Incentive Forms of Compensation

Piecework or Payment by Results
Based on the number of items produced or processed by each individual
worker in a unit of time such as items per hour or items per day.
Peso value for each unit produced is given a fixed rate
Provides a strong incentive to the worker to produce more.
Individual Incentive Plans
Rewards individual performance on a real-time basis for meeting a goal or
hitting a target rather than increasing a persons base salary at the end of
the year.
Group Incentives
Used when it is difficult to measure individual output or when cooperation
is needed to complete the task or project.
Used to reduce jealousy
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WEEK 10: Compensating Human Resources and Employee Benefits & Services

Classifications of Incentive Forms of Compensation

Performance-based Rewards
Motivates employees to work harder to achieve rewards.
Spot Bonuses
Spontaneous incentives awarded to individuals for accomplishments not
readily measured by a standard.
Skill and Knowledge-based Pay / Competency-based Pay
Sets pay level on the basis of how many skills an employee has or how many
jobs can he do.
Merit Pay Plans
Awarded to employees on the basis of the relative value of their
contributions to the organizations.
Profit Sharing
At the end of the year, a portion of the companys income is distributed to
the employees.
Stock Ownership Plans
Employees are given minor stake in ownership of a corporation based on
seniority or performance.
Executive Compensation
Base Pay guaranteed amount of money that the executive will get from
the company
Incentive Pay / Executive Prerequisites or Perks established to give
company executives the option to buy company stocks in the future at a
predetermined fixed price.

EMPLOYEE BENEFITS AND SERVICES

Benefits
Indirect financial compensation
Represents an important part of just about every employees pay
Include time off with pay, health and life insurance, and retirement funds.
Indirect form of compensation given to help improve the quality of work and personal
lives of employees.

Categories of Employee Benefits

Voluntarily given by the company depending on management generosity
Required by government legislation

Tax advantage and benefits

BIR ruled that employers could deduct the cost of benefits as a business expense and
the employees do not need to include the value of health benefits in their taxable
income.
Nontaxable benefits under the code
Compensation for sickness or injury
13th month pay and other bonuses not to exceed Php 82,000.00 per year.
Allowances and benefits given for the convenience of the employer
Allowances and benefits given which are in the nature necessary to the taxpayers
business, trade, or profession.
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WEEK 10: Compensating Human Resources and Employee Benefits & Services

SSS, PhilHealth, and Pag-IBIG contribution and union dues

Contributions of the employer for the benefit of the employee including retirement,
hospitalization, and health insurance.
De Minimis Benefits: benefits which are in the nature of facilities or privileges furnished
or offered by an employer to his employees that are relatively small value, and are
offered or furnished by the employer merely as a means of promoting health, goodwill,
contentment, or efficiency of its employees.
Excluded from the computation of Php 82,000.00 ceiling of other benefits.

De Minimis Benefits:
Monetized unused vacation leave credits of employees not exceeding 10 days during
the year and the monetized value of leave credits paid to government officials and
employees.
Medical cash allowance to dependents of employees not exceeding to Php 750.oo per
employee per semester of Php 125.00 per month.
Rice subsidy of Php 1,500.00 or one sack of 50 kg rice per month amounting to not more
than Php 1,500.00
Uniform or clothing allowance not exceeding Php 5,000.00 per annum.
Actual yearly medical benefits not exceeding Php 300.00 per month.
Laundry allowance not exceeding Php 300.00 per month.
Employee achievement awards with annual monetary value not exceeding Php
10,000.00 received by the employee under an established written plan which does not
discriminate in favor of highly paid employees.
Gifts during Christmas and major anniversary celebrations not exceeding Php 5,000.00
per employee per annum.
Flowers, fruits, books, or similar items given to employee under special circumstances.
Daily meal allowance for overtime work not exceeding 25% of the basic minimum wage.
Benefits received by an employee by virtue of a Collective Bargaining Agreement (CBA)
and productivity incentive schemes provided that the total monetary value of CBA and
productivity incentive schemes combined does not exceed Php 10,000.00 per employee
per annum.

Employee allowance
Universal benefit awarded to employees in the various levels in an organization.
They are nontaxable
Come in various forms
Exempt from tax if they do not exceed the price ceilings set by law
Fringe benefits that exceed the price limit will be subjected to tax paid by the
benefactor
Only de minimis benefits with small value and limited only to facilities and
privileges furnished by companies to promote goodwill, health, efficiency, and
contentment to employees are exempt from tax.
Given at a companys discretion and goodwill.

Classification of employee benefits and services

Mandatory Employee Benefits / Legally Required Benefits in the Philippines
Benefits Given Because of Management Generosity
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WEEK 10: Compensating Human Resources and Employee Benefits & Services

Executive Compensation
Employee Services

Classification of employee benefits and services (Mandatory Employee Benefits / Legally

Required Benefits in the Philippines
Social Security System (SSS) created to provide private employees and their families
with protection against disability, sickness, old age, and death.
Sickness Benefit
Maternity Benefit
Retirement Benefit
Disability Benefit
Death Benefit
Funeral Grant
Government Service Insurance System (GSIS) equivalent of SSS for Philippine
Government Employees
Life Insurance
Retirement benefits
Disability Benefits
Funeral Benefits
Survivorship Benefits
Home Development Mutual Fund (HDMF) provident savings system providing housing
loans to employees, and to self-employed person who elect to join the fund.
Multi-purpose Loan
Calamity Loan
Housing Loan
Philippine Health Insurance Corporation (PhilHealth) administered by the Philippine
National Health Corporation designed to provide employees with practical means of
paying for adequate medical care in the Philippines.
Inpatient Benefits
Outpatient Benefits
Lifetime membership for retired members
Employees Compensation AKA disability benefits. Compensation package for
employees and their dependents in the event of work-related injury, sickness, disability,
or death
13th Month Pay year end bonus equivalent to one month salary
Service Incentive Leave employees who has served for one year is entitled to five days
leave of absence with pay every year.
Paternity Leave married male employees are given seven working days leave with pay
after legitimate wifes child birth or miscarriage for the first four deliveries or
miscarriage.
Meal and Rest Periods. Employees are entitled to one hour break for meals and 15
minutes break in the morning and afternoon counted as working hours.
Right to holiday pay under Article 94 of the Labor Code
Premium Payment compensation for work hours rendered exceeding the maximum
number of working hours.
Night Shift Differential 10% of the regular wage for work performed between 10:00
PM 6:00 AM
MGT 2: HUMAN RESOURCE MANAGEMENT
WEEK 10: Compensating Human Resources and Employee Benefits & Services

Classification of employee benefits and services (Benefits Given Because of Management

Generosity)
Holiday / Christmas Bonus
Midyear Bonus
Cost of Living Allowance
Paid Holiday and Vacation Leaves
Sick Leaves
Emergency / Bereavement Leave
Birthday Leave
Healthcare / HMO Coverage
Group Life Insurance
Pension Plans

Classification of employee benefits and services (Executive Compensation)

Cash Compensation sum of all the standard cash salary compensation that the
executives receives for the year.
Long-term Incentive Plans encompass all compensations that are tied to performance
for tax purposes.
Retirement Packages packages given to executives after they retire.
Executive Perks other benefits including use of private jet, travel reimbursements, etc.

Classification of employee benefits and services (Employee Services)

Personal services benefits such as credit union, counseling service, and legal service
Job related services such as free uniforms, food services or cafeteria, educational
subsidies, stock ownership options, etc.