Compensating Employees

BAC-HRM 201: Human Resource Management

Introduction:
 Everything has a price they say.
 Executives and employees of various levels work
for organizations thinking that some of their needs
would be satisfied.
 Those needs refer to rewards and compensation,
which are considered as important factors in
motivating executives and employees to do their
assigned tasks.
What is Compensation?
Compensation is an important aspect in HRM.
Compensation is:
 what employees receive an exchange for their work.
 a function of personnel management of providing
adequate and equitable remuneration of personnel
for their contribution to organization objectives.
Other terms in Compensation:
Compensation Administration – refers to the process
of managing a company’s compensation program.
Pay for Performance – is a system that rewards
employees based on their performance.
What are the objectives of Compensation?
Maintaining an effective compensation program requires
the achievement of objectives like the ff:
1. It must attract and maintain employees of the right
quality and mix.
2. It must continually motivate employees to attain the
desired level of output.
3. It must be maintained at the desired competitive
level.
4. It must be fair, equitable and cost efficient.
5. It must comply with legal requirements.
6. It must be acceptable to the employees.
7. It must support the organization’s corporate strategy.
What is the bases for Compensation?
Compensation may be based on the following:
1. Time
2. Productivity, or
3. Combination of time and productivity
Time
 Employees may be paid according to the time they
spent on the job. They may be hourly, daily or
salaried/monthly.
 There are times when the demand of employees’
time varies from day to day – as a result, the daily
compensation of any employee will also vary.
What is the bases for Compensation?
Productivity
This is a compensation where the employees is paid
according to his or her output. There are two-types:
1. Commission – are usually set as a percentage of
output like sales. For instance, a salesman is paid ten
percent (10%) commission for all sales he or she
made during a given period.
2. Piece rate basis – is paid according to the number
of units he or she produced. For instance, a worker is
paid one hundred pesos (P100.00) per unit of his or
her output.
Types of Compensation?
Rewards that are used to compensate employees for
their efforts may be classified into three(3) types:
1. Pay – known as base/basic salary that an employee
receives for doing a job.
2. Incentives – are rewards given to employees for
performing beyond the standard requirements. This
is normally given apart from the basic salary.
3. Benefits – are rewards given to an employee or
group of employees for maintaining membership in
the organization.
Types of Incentives
1. IndividualIncentive Plans – are those designed
to motivate the individual employees to perform
beyond standard requirements.
 Piece-rate System
 Commissions
 Bonuses- a bonus is an extra payment given to
employees for good performance.
 Merit Pay- individual pay increases based on the
rated performance of individual employees in a
previous time period.
Types of Incentives
2. Group Incentive Plans – are those designed to
reward work teams, project members, or
departments. Instead of individual output, the
emphasis is on group output.

3. Organizational Incentive Plans- are rewards

designed to cover all employees in an organization.
It may consist of gain or profit sharing and employee
stock ownership.
Types of Employee Benefits
1. Legally Required Benefits– are those that are
mandatory by the law.
 Social Security Benefits (e.g. SSS, GSIS)
 Thirteenth Month Pay
 Paid Vacation, Paid Sick Leave, and Paid Holidays
 PAG-IBIG Fund Benefit
 PhilHealth
 Maternity Leave
 Paternity Leave
Types of Employee Benefits
2. Voluntary Benefits– are those that are
voluntarily provided by some companies.
 Group Life Insurance
 Health Insurance
 Pension Plans
Types of Employee Benefits
3. Employee Services– designed to improve the work
life of the employees which make it easy for them to
be productive and loyal to the organization.
 Educational Programs
 Company Sponsored Social and Recreational Events
 Counseling Services
 Credit Unions
 Free Uniform
 Housing and Moving Expenses
 Food Services
 Company Paid Transportation and Parking
Determining Rewards
The rate of employee compensation is influenced
directly or indirectly by a combination of internal
and external factors.
External Factors: Internal Factors:
1. Labor Market Conditions 1. Employer’s
2. Area Wage Rates compensation Policy
3. Cost of Living 2. Employee’s relative

4. Collective Bargaining
worth
3. Worth of a job
4. Employer’s ability to
pay
The Pay-level Decision
The pay-level decision is made by comparing the pay
of employees in the organization with that of those
working in other organizations. As such,
management may adapt any of three pay-level
strategies:
1. High-pay Strategies – Employees are paid at
higher-than-average levels if this strategy is adapted.
This is done to help the organization attract and
maintain the best employees.
2. Low-pay Strategy – This is a decision made by
management to pay at minimum levels just enough
to hire the required number of employees.
The Pay-level Decision
Continuation:
3. Comparable-pay Strategy – This is a decision
made by management to pay at levels comparable
with other organizations.
Compensating Employees