PENGURUSAN UPAH DAN

PAMPASAN
AH30803
Component in Compensation and Reward
Management
Learning Objective
To enable student to understand the definition of
compensation and its components
Contents

Definition of Compensation &

Component of Compensation

Direct Financial Compensation

Indirect Financial Cmpensation

Benefits of Non-Monetary
Compensation
Definition of Compensation &
Component of Compensation
Compensation is a benefit, reward or
consideration as result of mutual
relationship through contract of service or
employment.
 Try to Define What Exactly Is
Compensation?
Compensation is a systematic approach to
providing monetary value to employees in
exchange for work performed.
Compensation may achieve several purposes
assisting in recruitment, job performance,
and job satisfaction.
Compensation may be used to
Recruit and retain qualified employees.
Increase or maintain morale/satisfaction.
Reward and encourage peak performance.
Achieve internal and external equity.
Reduce turnover and encourage company
loyalty.
Modify (through negotiations) practices of
unions.
 What is Compensation
Management?
Process of compensation management is to
establish & maintain an equitable wage &
salary structure & an equitable cost
structure .it involves job evaluation, wage &
salary survey, profit sharing &control of pay
costs.
Two important functions of compensation
Equity function
Motivation function
 What are the components of a
compensation system?
The components of a compensation system include:
Job Descriptions
Job Analysis
Job Evaluation
Pay Structures
Salary Surveys
Policies and Regulations
 Job Descriptions
A critical component of both compensation and
selection systems, job descriptions define in writing the
responsibilities, requirements, functions, duties,
location, environment, conditions, and other aspects of
jobs. Descriptions may be developed for jobs
individually or for entire job families.
 Job Analysis
The process of analyzing jobs from which job
descriptions are developed. Job analysis
techniques include the use of interviews,
questionnaires, and observation.
 Job Evaluation
A system for comparing jobs for the purpose
of determining appropriate compensation
levels for individual jobs or job elements.
There are four main techniques: Ranking,
Classification, Factor Comparison, and Point
Method.
 Pay Structures
Useful for standardizing compensation
practices. Most pay structures include several
grades with each grade containing a
minimum salary/wage and either step
increments or grade range. Step increments
are common with union positions where the
pay for each job is pre-determined through
collective bargaining.
 Salary Surveys
Collections of salary and market data. May include
average salaries, inflation indicators, cost of living
indicators, salary budget averages. Companies may
purchase results of surveys conducted by survey vendors
or may conduct their own salary surveys. When
purchasing the results of salary surveys conducted by
other vendors, note that surveys may be conducted
within a specific industry or across industries as well as
within one geographical region or across different
geographical regions. Know which industry or
geographic location the salary results pertain to before
comparing the results to your company.
 Policies and Regulations
Compensation will be perceived as fair if it is comprised
of a system of components developed to maintain
internal and external al equity.

Law that are related to worker such as the Minimum

Wage Act and others act that are related to the ways of
an employer pay an employees.
What are Different Types of Compensation?
Different types of compensation include:
 Base Pay
 Commissions
 Overtime Pay
 Bonuses, Profit Sharing, Merit Pay
 Stock Options
 Travel/Meal/Housing Allowance
Direct Financial Compensation
consisting of pay received in the form of wages,
salaries, bonuses and commissions provided as regular
and consistent intervals.
Payment by the employer to the employee such as
wage/salary, overtime, bonuses, commissions or any
other cash payments.
Wage/salary  payment from employer to employee
after doing a task that has been entrusted by the time
agreed upon by the contract of service or
employement contract
Overtime payment by an employer to an employee
for work done beyond the prescribed working hours as
stated in Employment Act 1955.
The overtime working hours shall not exceed 104
hours in a month.
According to the act:
 Not more than eight hours a day,
 Not more than 5 consecutive hours without a break of
not less than thirty minutes
 Not more than ten hours a day
 Not exceeding forty-eight hours in a week,
 Should not exceed 12 hours a day for employees working
shifts
Bonus payment by employer to the employee based
on company’s profits, and the grant depends on the
terms in the contract of employment.
It is a discretion of an employer to pay or not to pay.
It has no mandatory provision in the labour laws in
Malaysia.
Commission is also a payment by employer to the
employee for doing a job beyond a target set.
Indirect Financial Compensation
including all financial rewards that are not included in
direct compensation and can be understood to form part
of the social contract between the employer and employee
such as benefits, leaves, retirement plans, education, and
employee services.
It is not a remuneration in the form of monetary term.
Given to both public and private sector
Have been stated in specific laws formulated by
government for those employees in the government sector
for employees in the private sector in the Employment Act
1955.
Example of Indirect financial Compensation
 Annual leave
 Public holidays
 Sick leave
 Maternity leave
 Provide child care to working women
 Marriage leave
 Leave granted due to bereavement of the family
members
 Enriching facilities (clinic panel)
 Life insurance
 Etc…
 Benefits of Non-Monetary
Compensation
referring to topics such as career development and
advancement opportunities, opportunities for
recognition, as well as work environment and
conditions.
An employer can have activity or field of work that can
increase motivation, productivity and job satisfaction
among employees.
It can also be regard as a benefit, reward or
compensation to workers
Can improve:
 Job satisfaction and motivation
 Enhance the competitiveness
 Quality of work
 Increase production
 Accelerate the achievement
 Quality of work
 Increase production
 Accelerate the achievement of the vision and mission of
the organization
Type of non-monetary compensation that can be
taken/applied by employer:
 Provide various experience
 Promotion opportunities
 Letter of appreciation and recognition
 Employee welfare
 Give freedom at work
 Terms and condition which is fair
 Provide Various Experience
Play important role in increasing their knowledge
pertaining to their work.
Employer may transfer one employee from one unit to
another unit to give employee experience in other
department
The impact of an employee’s transfer:
 Knowledge
 Enhancing motivation
 Increase job satisfaction
 Promotion Opportunities
Promotion and recognition is an award to an
employee.
It can enhance the spirit of hard work and can
enhance the enjoyment and satisfaction at work.
This component can be place under the monetary
compensation due to higher promotion where his
salary structure ladder will change.
However, this promotion will depend on the well
being of the organization
 Letter Of Appreciation And
Recognition
It is an appreciation and recognition by the employer
to the employee for service of excellence, and sacrifice
which had contributed to society and nation by his
contribution.
Can be an encouragement to work harder in
improving discipline, work satisfactory, productivity,
competitiveness and the organization will achieve its
goal.
 Employer Welfare
It is the care of the employer to the employee with
problems who are sick or being treated in hospital or
his immediate family members of the employee had
died, married workers and others.
This component will provide some positive effects on
the employee.
 Give Freedom At Work
It is a degree of discretion in the course of work
without supervision of the superior.
Such an approach would give pleasure to work,
employees feel comfortable working and no stress at
work.
This approach can enhance the motivation to work,
instilling a spirit a spirit of responsibility and maintain
trust among employees.
Terms And Condition Which Are Fair
It means employment contract which contain terms that
give justice to the workers, and not inconsistent with
national labour legislation
The employer and employees shall respect the terms
agreed in the employment contract.
Terms and condition of employment should not be
inconsistent with the principle of justice that will have
negative impact on the working environment such as
causing industrial disputes.
Harmonious working environment will give pleasure
working between employers, employees and their unions.
Types of Compensation
Financial
Direct Indirect
Equitable wages band salaries Insurance Plans, Life, Supplementary
Health, Dental, Vision, Disability,
Market adjustments or cot of living Coverage.
increases
Social security benefits, Retirement
Merit increases or performance Bonuses plans, Employment/Insurance, Workers
Compensation, Educations Services,
Fair Commissions Employees Services.

Paid Absences, Vacations, Holidays,

Sick Leave, Educational Loan, Join duty,
Compassions are leave.
 Non-Financial
The Job
Position
Interesting Duties and Responsibilities,
Challenges, Authority, Autonomy,
Opportunity for recognition
feeling of achievement, advancement
opportunity.
Work
Environment
Fair and Consistent, Practices and
policies, Competent Supervision
Fun and Effective Co-workers.
Comfortable and Safe Working
Environment,
Flexible Scheduling, Alternative
Working Arrangements.
Modified Retirement.