CHAPTER

5
COMPENSATION AND
BENEFITS

HRM Principles & Practices

© Oxford University Press Malaysia, 2008 5– 1
 The different types of payment structures, including basic pay, benefits
and incentives.
- Definition of Compensation and Benefits
- Remuneration Packages
 Wage systems currently in use.
- Time-related and Piece-related systems
 The reasons why employers offer benefits to employees.
 The statutorily required benefits.
- Brief Discussion of Employment Act 1955
- Coverage, working hours, public holiday, rest day
 Some common non-statutory benefits.
 The various methods of rewarding employees.
All Rights Reserved
HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 2
 Compensation/ remuneration –
includes all forms of pay and reward received by the
employees for the performance of their jobs.
 Benefits-

other forms of compensation which not including wages are

known as benefits.
 Wages –

basic payment
o Incentive –

Payment is tied to the achievement of specific objectives

that have been pre-determined and communicated to the
employees that are on the plan
The purpose of the incentive scheme is to influence behaviour
to reach the objectives by providing an incentive to work
towards the goals.
All Rights Reserved
HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 3
 Wagesare important to employees—
improve standard of living and status
 Wages are important to employers—
cost of production
 Wages
are important to society—
competitiveness of Malaysian businesses

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 4
 REMUNERATION

WAGES BENEFITS INCENTIVES

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 5
 Employer’s Goals
 To maximize profits
 To have an attractive package
 To retain the best employees
 To have a system simple to administer

Employee’s Goals

 To maximize income
 To have a stable income

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 6
 Time-relatedsystem
wages are paid for a set period of work on an
hourly, weekly or monthly basis.

 Piece-work/piece related system/payment by

results

Worker are paid according to the number of units

produced in a given time

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 7
External Factors:
- Legislation and Government Policy
- Unions
- Selection Policy
- Employment Conditions
- Company Profitability

Internal Factors (Factors affect Individual levels of pay):

- Seniority
- Increase the cost of living
- Performance
- Degree of skill

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 8
Benefits can:
 Certain benefits are statutorily required
 Help attract staff to join the organization
 Help retain existing employees
 Increasemorale of employees, which may lead to
higher productivity

Types of benefits:

1. Statutory benefits
2. Non statutory benefits
HRM Principles & Practices
© Oxford University Press
All Rights Reserved

6– 9 Malaysia, 2008
 Maternity leave
- Every female employee is entitled to maternity leave of
60 days for every confinement, maximum 90 days
- During the maternity leave, maternity allowance is
payable to employee providing she has more than 5
surviving children and she served the employer for at
least 90 days before giving birth.

 Time-off payments
-A weekly rest day
 Section 59 of Employment Act stipulates that all
employees are entitled to one rest day per week.

HRM Principles & Practices All Rights Reserved

© Oxford University Press
6– 10 Malaysia, 2008
-Public holidays
 Section 60 entitles all workers covered by
Employment Act to a minimum of 11 paid
gazetted public holidays per year.
 Five of the holidays are specified by the Act and
must include:
 National Day
 The Yang di Petuan Agong’s Birthday
 The State Ruler’s Birthday
 Labour Day
 Malaysia Day

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 11
-Annual leave
 The Employment Act provides that paid annual
leave shall be given as follows:
 Less than 2 years: 8 days leave per year
 2-5 years: 12 days leave per year
 More than 5 years: 16 days leave per year

-Sick leave
 Employees are entitled to paid sick leave, be given
as follows:
 Less than 2 years: 14 days per year
 2-5 years: 18 days leave per year
 More than 5 years: 22 days per year
All Rights Reserved
HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 12
 Contribution to Employees Provident Fund
- Objective: To ensure that every worker has sufficient funds to sustain
him once he has retired upon reaching the minimum retirement age
of 60.
- Currently, employees are permitted to withdraw their savings from
the fund at the age of 55, even though they are working.
- Statutory contribution: Employees (Below 60 years old)- 8%
Employers – 12%
- Employees are not required to become members of EPF:
 Domestic servants
 Foreign workers
 Government servants on a pension scheme
- There are provision for the self-employed, partners in a business,
sole proprietors, pensionable employees in public sector & foreign
workers to contribute if they wish. They must pay a minimum or
RM50 per month to the Fund. They also can choose to pay any
amount above this up to RM5,000 per month as they wish.

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 13
 Contribution to Employees Social Security Organization or
Purchase of insurance policy

- To provide employees with compensation and financial

benefits should they be involved in an accident at work,
contract an occupational disease or become an invalid (from
whatever cause).
- Employment Injury and Invalidity Schemes (Below 60 years
old): Employer (1.75%) & Employee (0.5%) of monthly wages
- Employment Injury Scheme (60 years old and above & still
working): 1.25% of the employee’s monthly wages solely borne
by the employer.

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 14
Time-off payments:
 Marriage
 Birth of a child (paternity leave)
 Personal emergencies
 Pilgrimage
 Studies
 Death of a relative

HRM Principles & Practices All Rights Reserved

© Oxford University Press
6– 15 Malaysia, 2008
 Health Care:
Becoming a valuable benefit to employees with
the rising cost of medical care.
 Payment of medical bills
 Hospitalization benefits
 Payment of optical bills
 Payment of dental bills

HRM Principles & Practices All Rights Reserved

© Oxford University Press
6– 16 Malaysia, 2008
 Insurance (other than SOCSO):
- Employers commonly buy life and accident insurance
group policies, which are usually combined with medical
benefits, to protect their employees

 Financial services:
- Loans to buy houses, cars and other items such as
computers may be given to employees, usually with
interest rates lower than those charged by the banks

HRM Principles & Practices All Rights Reserved

© Oxford University Press
6– 17 Malaysia, 2008
 Retirement benefits
- Some employers are willing to pay a higher contribution to
EPF on behalf of their employees.
- Large organizations may establish special retirement funds
as an extra to the EPF.

 Educational assistance
- Companies may set up libraries of reading materials and
computer-readable files to encourage workers to develop
themselves.
- Companies may also can pay fees if employees wish to
attend any training courses.
- Scholarships may also be offered to employees if they want
to further their studies.

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 18
 Subsidies and Services
- Example:
 Canteens
 Transportation to and from work
 Childcare facilities
 Club membership and accommodation at holiday
resorts
 Quarters for the staffs
 Renting/provide hostels for young female or
foreign workers
 Air Asia and Malaysia Airlines offer free flight
tickets
All Rights Reserved
HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 19
Incentives and rewards:
 Drive behaviour to higher levels
 Create competition
 Help to retain the best performers

To be effective, reward schemes must:

 Allow many employees to be winners

 Be perceived as fair
 Drive suitable behaviours
 Be perceived as attractive
HRM Principles & Practices All Rights Reserved
© Oxford University Press
6– 20 Malaysia, 2008
 Wage increments
- Salary of employees increase due to their good
performance.
- This may motivate them to work harder.
 Bonuses
- It is a lump sum of money awarded for
outstanding performance in any activity which the
organization wants to encourage.

HRM Principles & Practices All Rights Reserved

© Oxford University Press
6– 21 Malaysia, 2008
 Profit-sharing schemes
- It is a plan that gives employees a share in the
profits of a company. Under this type of plan, an
employee receives a percentage of a company's
profits based on its quarterly or annual earnings.

 Commissions
- Salespeople have reward systems which are different
to that provided for other employees in the same
organization.

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 22
 Performance awards
- Employers recognize the value of performance awards
which can be given for a variety of special achievements
such as Worker of the Month, Most Promising Executive
 Letters of appreciation
- Praise in term of writing, oral in public or privately can
be source of employee satisfaction.
 Long service awards
- Employers valued loyalty and recognized long service
with some token of appreciation.
- Ex: gold watch, a gold bar, a trip overseas, special
dinner event
HRM Principles & Practices All Rights Reserved
© Oxford University Press
6– 23 Malaysia, 2008
 Sponsorship to attend conferences
- High achievers are sent to attend seminars,
conferences and overseas tour.

All Rights Reserved

HRM Principles & Practices
© Oxford University Press Malaysia, 2008 5– 24
Maimunah Aminuddin (2008).Human Resource Management:
Principles and Practices. 3rd edition. Oxford University : Press
Malaysia.
All Rights Reserved

2– 25