CHAPTER 5: STAFFING

Compensation/ Wages and Performance Evaluation

Compensation/wages-
all forms of pay given by
employers to their
employees for the
performance of their job.

Performance Evaluation- a process

undertaken by the organization, usually
done once a year, designed to measure
employees’ work performance.
Compensation/wages and performance evaluation are related to each
other because the employees' excellent or poor performance also
determines the compensation given to them, after considering other
internal and external factors like the actual worth of the job, compensation
strategy of the organization, conditions of the labor market, cost of living,
and area wage rates, among others.

Types of Compensation

Direct compensation - includes workers' salaries, incentive pays, bonuses,

and commissions

Indirect compensation - includes benefits given by employers other than

financial remunerations; for example: travel, educational and health
benefits, and others

Nonfinancial compensation - includes recognition programs, being

assigned to do rewarding jobs, or enjoying management support, ideal
work environment, and convenient work hours
Connecting Compensation to Organizational Objectives
Worker compensation/wages had tremendously changed in the 21 't century due
to increased market competitions (both local and global), required skills from
workers, and changes in technology, among others.

Along with these, organizations' pay philosophies have also changed.

Instead of paying employees based mainly on their job positions or titles, they are
now given pay according to their individual competencies or according to how
much they could contribute or have contributed to their company's success.

Wage experts now prepare compensation packages that create value for both the
organization and its employees.
Compensation: A Motivational Factor for Employees
Compensation pay represents a reward that an employee receives for good
performance that contributes to the company's success; in relation to this, the
following must be considered:

Pay Equity — related to fairness; the Equity Theory is a motivation theory focusing
on employees' response to the pay that they receive and the feeling that they
receive less or more than they deserve.
Employees generally feel that their pay must be commensurate to the effort
exerted in the performance of their job. In other words, pay equity is achieved
when the pay given to them by their employers is equal to the value of the job
performed; thus, this motivates them to perform well and to do their jobs to the best
of their abilities.

Expectancy Theory - another theory of motivation which predicts that employees

are motivated to work well because of the attractiveness of the rewards or benefits
that they may possibly receive from a job assignment.
The employee's perception of the compensation or pay attached to a job position is
an important factor in ascertaining the motivational value of compensation.
Bases for Compensation

Employees may be compensated on the following bases:

Piecework basis — when pay is computed according to the number of units produced
Hourly basis — when pay is computed according to the number of work hours
rendered.
Daily basis — when pay is computed according to the number of work days
rendered.
Weekly basis - when pay is computed according to the number of work weeks
rendered.
Monthly basis — when pay is computed according to the number of work months
rendered.
Compensation rates are influenced by internal and external factors. Among the
internal factors are the organization's compensation policies, the importance of the
job, the employees' qualifications in meeting the job requirements, and the
employer's financial stability.

External factors, on the other hand, include local and global market conditions, labor
supply, area/tegional wage rates, cost of living, collective bargaining agreements,
and national and international laws, among others.
Purposes of Performance Evaluation:
Administrative and Developmental Improving individual job performance through
performance evaluation is just one of the reasons why employees are subjected to
assessments on a continuous basis.

There are other purposes behind employee assessment that are beneficial to
both the company and the employees, these are:
Administrative Purposes — These are fulfilled through appraisal/ evaluation
programs that provide information that may be used as basis for compensation
decisions, promotions, transfers, and terminations. Human resource planning may
also make use of it for recruitment and selection of potential employees.

Developmental Purposes — These are fulfilled through appraisal/ evaluation

programs that provide information about employees' performance and their
strengths and weaknesses that may be used as basis for identifying their training
and development needs. Through this approach, the workers become more
receptive to the explanations given by the organization's management regarding
the importance of having evaluations at regular intervals—that these are conducted
to improve their competencies in order to prepare them for future job assignments.
Performance Appraisal Methods
Methods of evaluating workers have undergone development in order to adapt new
legal employment requirements and technical changes.

Trait methods — performance evaluation

method designed to find out if the
employee possesses important work
characteristics such as
conscientiousness, creativity, emotional
stability, and others

Graphic rating scales — performance appraisal

method where each characteristic to be evaluated
is represented by a scale on which the evaluator
or rater indicates the degree to which an
employee possesses that characteristic
Forced-choice method - performance
evaluation that requires the rater to
choose from two statements purposely
designed to distinguish between positive
or negative performance; for example:
works seriously—works fast; shows
leadership—has initiative

Behaviorally anchored rating scale

(BARS) — a behavioral approach to
performance appraisal that includes five
to ten vertical scales, one for each
important strategy for doing the job and
numbered according to its importance
Behavior observation scale
(BOS) — a behavioral
approach to performance
appraisal that measures
the frequency of observed
behavior
CHAPTER 5: STAFFING
Rewards System
Definition of Terms
Reward — is something given or done in return, especially in the form of salary, a
gift, prize, incentive pay, benefits, or recompense for merit, service or achievement,
and which may have a motivating effect on the employee.

Organizations offer
competitive rewards
systems to attract
knowledgeable and
skilled people and to
keep them motivated and
satisfied once they are
employed in their firm.
Further, rewards promote
personal growth and
development and present
fast employee turnover.
Managements offer different types of rewards:
Monetary Rewards - rewards which pertain to money, finance, or currency.
a. pay/salary - financial remuneration given in exchange for work performance that
will help the organization attain its goals; examples: weekly, monthly, or hourly pay,
piecework compensation, etc.

b. benefits - indirect forms of compensation given to employees/workers for the

purpose of improving the quality of their work and personal lives; health care
benefits, retirement benefits, educational benefits, and others.
c. incentives - rewards that are based upon a pay-for-performance philosophy; it
establishes a baseline performance level that employees or groups of employees
must reach in order to be given such reward or payment; examples: bonuses, merit
pay, sales incentives, etc.

d. executive pay - a compensation package for executives of organizations which

consists of five components: basic salary, bonuses, stock plans, benefits, and
perquisites

e. stock options - are plans that grant employees the right to buy a specific number
of shares of the organization's stock at a guaranteed price during a selected period
of time
Nonmonetary Rewards - rewards which do not pertain to money, finance, or
currency; refer to intrinsic rewards that are self-granted and which have a positive
psychological effect on the employee who receives them.

a. award - nonmonetary reward that may be given to individual employees or

groups/teams for meritorious service or outstanding performance; trophies,
medals, or certificates of recognition may be given instead of cash or extrinsic
rewards

b. praise - a form of nonmonetary, intrinsic reward given by superiors to their

subordinates when they express oral or verbal appreciation for excellent job
performance