HUMAN RESOURCE MANAGEMENT

COMPENSATING EMPLOYEES

Submitted by:
Tossie Gamboc
Querobin Jade Dulaon
Sheryl Ibarra
G.R. B. Fabian
Ariel Jake Garcia

Submitted to:
Mrs. Felomena B. Bernardo

MAY 2018
Compensating Employees
 Everything has a price. For instance, business persons engage in business hoping that
they will make some profits. Bankers, politicians, and entrepreneurs produce goods or services
thinking that they will be compensated for their efforts. In the same light, 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 of HRM. As such, it becomes necessary to define it
as well as other terms related to it.

 Is what employees receive in exchange for their works.

 (Personnel Management)- the function of providing adequate and equitable

remuneration of personnel for their contribution to Organization.
 COMPENSATION ADMINISTRATION- refers to the process of managing a
company’s compensation program.
 STRATEGIC COMPENSATION- is a pattern of planned compensation programs
intended to enable an organization to achieve its goals.
 PAY FOR PERFORMANCE- is a system that rewards employees based on their
performance.

Objectives of Compensation
Maintaining an effective compensation program requires the achievement of certain objectives
like the following:

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 and equitable.
5. It must be cost efficient, i.e., producing the desired outputs at the lowest possible costs.
6. It must comply with the legal requirements.
7. It must be acceptable to the employees.
8. It must support the organization’s corporate strategy.

BASES FOR COMPENSATION

 TIME

-Employees may be paid according to the time they spent on the job.
-This may either be hourly or salaried.
*(number of hours worked)
Total # of hours employee worked X Employee’s hourly rate

-Hourly pay, referred to as wages. (ex. Part-time job)

 PRODUCTIVITY

- Employees are paid according to their output.

- TWO TYPES
*Commission – set as percentage of output like sales.
*Piece Rate- number of units he/she produced.

 COMBINATION OF TIME AND PRODUCTIVITY

- Employees are paid base salaries in addition to a percentage of the amount of

output produced.
- (ex. Basic salary of P5,000 plus P100 for every unit she/he produced.)
TYPES OF COMPENSATION

 PAY

- also known as base salary

- Refers to standard salary that an employee receives for doing a job.
- Given to regular employees.

 INCENTIVES

- rewards given to employees for performing beyond standard requirements.

- given apart from the base salary.
- only a portion of employees will be given by this compensation.
 BENEFITS

- Are rewards given to employees or group of employees for maintaining membership

in the organization.

Determining Rewards

The rate of employee compensation is influenced directly or indirectly by a combination of

internal and external factors.
 THE EXTERNAL FACTORS

 LABOR MARKET CONDITIONS – price of any commodity, including

labor, depends much on supply and demand. When there is an oversupply
of labor, wage rates tend to be lower. Supply however, cannot be referred to labor
in general because not all segments of the labor force are in the same supply
situation. Some professions like nursing and teaching may be in short supply but
this may not be true with others.
 AREA WAGE RATES – organization within a given area compete with one
another in attracting qualified manpower. This forces employers to adapt wage
rates that are competitive.
Employers pay too high (labor costs will excessive)
Employers pay too low (failure to attract qualified applicants).
  COST OF LIVING – Inflation erodes the purchasing power of employees. To
help them, there is a need to make periodic adjustments in compensation they
receive. Employers in developed countries may give higher compensation
compare to developing countries.
 COLLECTIVE BARGAINING – When labor unions exist, collective bargaining
becomes a routine activity jointly undertaken by labor and management. In area
where union exist, wage rates tend to be higher. As a result skilled labor tends to
gravitate towards unionized firms, making it different for non-unionized firms to
recruit or maintain talents. To offsets this disadvantage, the non-unionized firms
must offer wage rates that are higher or at least at par with those paid by
unionized firms.

 INTERNAL FACTORS

 EMPLOYER’S COMPENSATION POLICY – in giving compensation

Organization’s Policy is followed.
 WORTH OF THE JOB – in giving compensation value or worth of jobs are
considered.
 EMPLOYEE’S RELATIVE WORTH – employees performance differ from
each other.
 EMPLOYER’S ABILITY TO PAY – In giving compensation, affordability
factor must be considered, this is dependent on the funds allotted by the employer
for operational expenses.

Components of a Compensation Program

The various objectives of compensation can be achieved if a systematic compensation program is

installed. This programs consists of the following:
1. Job Analysis- which will specify skills, responsibilities, hazards, and work complexity
pertaining to each job.
2. Job Evaluation - which determines the worth of each job to the organization.
3. Salary Survey- used to determine the competitive position of the Organization within the
industry in terms of Compensation.
4. Performance Evaluation - which is used to determine the performance level of every
employee.
5. Pay for Performance - indicates the relationship between performance and increases in pay,
as well as the desired behavior of the employee.

JOB EVALUATION SYSTEM

1. Ranking Method- involves the arrangement of jobs in a simple rank order
from highest to lowest.

2. The Classification Method- this where the various jobs are categorized
under various classes or grades.

The classes or grades may be constructed by doing the following steps:

1. Identifying common denomination like skills, knowledge, and responsibilities;
2. Creating distinct job classes or grades like teaching jobs, clerical jobs,
technical jobs.
3. Ranking the classes in an overall order of importance using pre-determined
criteria; and
4. Placing the jobs in the appropriate classifications.

3.The Factor Comparison Method- compares all the jobs on a factor-by-factor

basis.
The following steps are undertaken by under the factor comparison method:

4. The Point Method- jobs are broken down into characteristics or factors like
skill, responsibility, complexity and decision-making.
The Compensation Structure
 1. Pay-Level Decision

 Which concerns the level at which the organization wants to compete in the labor
market.
 This is made by comparing the pay of employees in the organization with those
who are working in other organization.
1. High Pay Strategy – employees are paid at higher –than-average levels if this
strategy is adapted. If effective, it will 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. This strategy is often
used by firms, which cannot afford higher rates.
3. Comparable-Pay Strategy – this is a decision made by management to pay at
levels comparable with other organizations.
*Pay Surveys- used in making decision regarding to compensation.
- Also referred to as compensation survey, means used to gather information on
compensation paid on various jobs within an area or industry.

 2. Pay-Structure Decision- concerns setting a value for each job within the organization
to all other jobs.
After deciding on which pay-level strategy to adapt, the pay structure can be
constructed. This is accomplished by performing the following:
1. Establishing the job structure through job evaluation, and
2. Establishing pay rates or ranges compatible with the ranks, classifications, or points
arrived at through job evaluation.

 3. The Individual Pay Decision

- The third and final decision that have to be made concerns that of the individual who
holds a job similar to the job held by another.
- Employers usually maintain different rates of pay for individuals holding similar jobs.
Pay differentials are inevitable because of individual differences concerning experiences, skills,
performance and seniority.
 SUMMARY

Compensation is the most important factor in motivating employees. It is what employees

receive in exchange for their work. Compensation may also be viewed as a function of personnel
management, which makes sure that adequate and equitable remuneration is given to personnel
for their contribution to organizational objectives.
The objectives of compensation cover various aspects including attracting and
maintaining employee, to support the organization’s corporate strategy.
Compensation may be classified into pay, incentives, and benefits.
Internal and external factors influence the determination of rewards. The external factors
consist of labor market conditions, area wage rates, cost of living, and collective bargaining. The
internal factors consist the employer’s compensation policy, the worth of a job, employee’s
relative worth, and employer’s ability to pay.
The compensation program consists of components such as job analysis, job evaluation,
salary survey, performance evaluation, and pay for performance.
Job evaluation systems are classified into ranking, classification, factor comparison, and
point methods. Any of these is superior to the others depending on circumstances.
The setting of compensation structure depends on the pay-level decision, the pay-
structure decision, and the individual pay decision. The organization may adapt a high pay, a low
pay, or a comparable-pay strategy.\
Pay surveys are useful tools in designing a compensation structure.