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EMPLOYEE COMPENSATION

LEARNING OBJECTIVES
• Define compensation.
• Enumerate factors in compensation estimate.

• Give the issues in wage determination.

• Discuss the different factors in compensation and give examples.

• Explain the elements of the incentive plan.

8.1 Introduction
People work for pay while the private company and government pay for work. The
contemplation of work is both what the individual can do and what he has actually done.
The concept of compensation goes beyond payment for work done. It includes
benefits that the worker receives for being with the organization.

8.2 Theoretical Background of Compensation

Theoretically labor is an economic factor- an input to the production mix. As such
it can be considered as a commodity in the labor market. It has a price stated in a wage rate
for every job category in particular and the labor supply in general.
Furthermore compensation adheres to the concept of value added effect. This refers
to the productivity of labor in combination with other factors of production.
8.3 Factors in Compensation Estimate
The assignment of a pay rate to a job is affected by several factors which are taken into
consideration in the formulation of compensation policy.
1. Value-added factor. The value of work done and the amount the worker has added to
the value of the goods produced through the work rendered consequently determines the
level of compensation.
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2. Ability-to-Pay Factor. The enterprise cannot survive if it pays beyond its own capacity
to pay.
3. Government Wage Policy. Employers are not in complete liberty in determining
compensation rates. Government minimum wage policy exist.
4. Union Pressure. The labor union is constantly focused on the terms of employment in
its effort to optimize the benefits received by its member.
5. Cost of Living factor. Workers and their labor union constantly use the rise in prices as
the basis of demand for higher compensation. Although this may appear to be a strong
argument, it is more an appeal to emotion than to conviction.
6. Hierarchy of Jobs. The pay scale in the business organization is in consonance with the
position ladder that is in place. Positions in the higher responsibility and qualifications are
paid higher.
7. Non-Wage Benefit Factor. When the compensation package is considered, the wage or
salary is not the sole consideration. The non-wage benefits which actually have money
equivalent are considered.
8. Seniority Factor. Once on the job in a company, the worker will receive compensation
for staying and not moving out. There is a premium for loyalty to the company which is
equivalent in pay.
9. Hazard Factor. By itself, a job that is risky to life and limb is assigned a higher
compensation rate. Between two similar jobs, one of which is exposed to higher risk, the
more hazardous job will have more pay.
10. Scarcity Factor. There are jobs that require skills that cannot be easily obtained in the
recruitment market. There is truth that in employment, persons with scarce skills tend to
receive higher pay because the law of supply and demand operates.
8.4 Issues in Wage Determination
1. Attracting Quality Workers. The lowest pay for a job in the company should appeal to
the kind of workers whom the organization wishes to hire. When the pay is very low, the
quality of new workers becomes poor.
2. Retaining Quality Workers. High calibered workers may get out of the company for
greener pastures after having acquired some experience. Unless the company can offer a
wage level that will make the incumbent workers stay, the company will turn out to be
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the stepping stone for the movement to other companies. The loss of worker who has been
introduced to the job is costly considering that he or she was given full compensation even
while still learning the work during the early stage of employment.
3. Giving Skill-Based-Pay. The worker may carry a bundle of skills upon entry to the job
yet he would be paid only for the skill he was hired. The compensation program that has
only job based pay structure will ignore what the worker is capable of doing because the
policy is to pay the worker according to the job to be done. Multi-skilled workers are lost
to other firms when their employers do not have a skill-based pay programs.
4. Value of Seniority. Those who have stayed long in the firm have shown loyalty. This is
part of the consideration of the compensation. One issue is how long must the worker be
on the job in the firm before he or she acquires seniority. For some firms five years is
enough to acquire seniority.
5. Rate Differentiation. Different areas of the country have varying cost of living or
different minimum wage. Two workers doing the same or similar kind of work in the same
firm may, thus, be paid different rates of compensation.
6. Criteria for Wage Variation. Compensation level of jobs varies according to the skill
and the education required as well as according to duties and responsibilities connected
with it. In some cases, the hazard is taken into consideration.
7. Pay Progression Period. In an organization where the pay is not so much the result of
negotiation with the union than on the plan of the managers, pay progression is a crucial
issue. The worker is supposed to move onto the different steps in the salary scale over a
period time. The progression can be fast or slow depending on company policy.
8. Highly Paid Operative’s Promotion to Supervisory Position. Highly paid operatives
are not necessarily prepared to do supervisory work. They may excel as operatives but they
may lack the education, temper and mentality for supervision. Moreover, a highly paid
operative might have gone up in pay through collective bargaining or attrition in his work
group rather than from on-the-job achievement.
8.5 Incentive Compensation
There is a distinction between the base pay and the incentive pay. BASE PAY is for the job
to which the worker has been appointed, while INCENTIVE PAY is for the achievement
on the job. Incentive is a reward that is not regularly given to all employees.
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The following are the types of incentive pay:

1. PRODUCTIVITY PAY. When a worker or group of workers have exceeded
production targets while working without additional man-hours, it means the level of
productivity has gone up. Management has to recognize this fact and provide for a bonus
which is really a form of incentive pay to make a work groups meet or exceed targets.
2. COST-SAVING INCENTIVE. Workers who contribute to the reduction of
production cost may be accorded cost-saving incentive in the form of money added to the
base pay. This takes into consideration the speed of the job performance, the overall quality
of the output and the process of work are given the more attention.
3. INNOVATION INCENTIVE PAY. The organization is always in need of innovation
whether it is a tool, an accessory, a method or a material that the worker has devised to
improve production in general and the work or the worker in particular. The imaginative
worker who designs a safety devise for the operator may have done so to protect himself
but if the innovation can be applied plant wide, then a reward is in order. Workers are
capable of innovation on the job because they do the operation and actually handle the
materials.
4. OVERTIME RATES. To do overtime work is to be willing to force one’s private hours
to do work for the organization. This is compensable at an incentive rate. Overtime at a
rate equal only to the regular rate is going to have the negative effects, hence, the gradation
of overtime pay to be percentage higher than the base pay, depending on the day and the
duration of overtime. A good overtime pay pal has higher incentive effect when it exceeds
what is provided by the law.
5. HAZARD PAY. When the job is basically dangerous, a hazard pay is given in addition
to the base pay. This is to compensate acceptance of what may not normally be accepted
as an assignment. Exposure to pollutants and industrial disease entitles the worker to
hazard pay which serves as an incentive for him or her to take the job.
6. DISTINCT ASSIGNMENT INCENTIVE PAY. Some work assignments are sited
away from home base or the central office. The place might be secluded and where the
usual amenities of life are not readily available. Such assignments entitled workers to
incentive compensation.
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7. SOCIAL SACRIFICE COMPENSATION. There are jobs where sacrifice of human

dignity is involved for the reason that they are considered offensive to the workers. Since
such jobs have to be done in spite of their nature, the base pay has to be augmented with
incentive pay. Some jobs with social sacrifice elements are garbage collection, septic tank
drainage and embalming.
8. SCARCE SKILL INCENTIVE PAY. In the field of education, the number of qualified
teachers of science in the secondary and of foreign language in the tertiary level do not
match the demand.
9. COMMISSION. This is payable to employees in the private sector and in the government
proprietary organization. A commission is a percentage of the output which is paid to the
individual who gets the base pay.
10. BONUS. Apart from the government mandated 14 th month pay, the company depending
on the profit level or productivity, may declare mid-year of Christmas bonuses.
8.6 Elements of the Incentive Plan
The incentive plan has to be prepared and established by policy in order to be effective.
1. METHOD OF APPRAISAL OF PERFORMANCE. The provision of the incentive pay
requires the measurement of performance. This may involve time reduction, output
increment or cost economy.
2. RATIONALE FOR REWARD. Whether the incentive is based on performance over a
period of time or of a single action, the award or reward behind it has to be
rationalized to the approving authorities and to the workers. When it derives from a law,
the rationale can be easily traced the legislative record and when a policy issuance, the
implementing order will provide the explanation.
3. EFFECTIVITY DURATION. Incentives have various duration of effectivity. An
incentive pay that is given as a salary step or grade for innovation is carried from year to
year until the individual is promoted to a position of higher salary grade.
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Learning Assessment
Answer the following questions and cite examples to support your
answer.
1. Explain this: “Equal Work, Equal Pay”
2. Why do people work?
3. Discuss the different factors in compensation. Cite examples.
4. Cite examples on issues in wage determination.

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P a g e | 67

PERFORMANCE APPRAISAL

LEARNING OBJECTIVES
• Define performance appraisal.
• Discuss the rationale of performance appraisal.

• Give the different criteria in the development of measuring

instrument.

9.1 Dimension of Performance

1. Good work done irregularly is given a negative. This is so because regular attendance
by presence and punctuality are deemed essential to performance. Absenteeism and
frequent tardiness wipe out whatever productivity the individual may have shown when on
the job.
2. A person on the job must be groomed and should show active and vibrant disposition on
the job. A disheveled tired appearance infects the work environment much to the detriment
of productivity. The worker who looks and feels good tends to be productive. Indication
of good health rather than a sickly appearance is vital consideration in performance.
3. Interaction with clients or customers. This is an area of performance. The employee
who can deal effectively with the public merits good performance rating because social
efficiency may be a factor in the job.
4. Ethical behavior of the worker is part of performance. The use of office time to do
personal business is unethical. The act may not lead to any administrative action being
taken by management but this will be remembered when evaluation of performance is
made.
5. The capacity to receive and perform delegated authority is a factor of performance. It
is also a means to find out whether the person can be promoted to a job with a greater
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responsibility. The employee who accepts a delegated authority and does the job with
commensurate responsibility and effectiveness gets good rating performance.
6. Initiative to do what has to be done without waiting to be told is part of performance.
The employee is not a nail to be hammered on the job. The discretion to act based on policy
within once a capacity is initiative. It is found in workers who know the job, the rules and
the need for action to be done especially when it means solving a problem or taking an
opportunity to obtain or protect the interest of the company.

9.2 The Rational of Performance Appraisal

Theoretically, labor is an economic factor- an input to the production mix. As such
it can be considered as a commodity in the labor market. It has a price stated in a wage rate
for every job category in particular and the labor supply in general.
1. Furthermore compensation adheres to the concept of value added effect. This refers to
the productivity of labor in combination with other factors of production. The cost of labor
is a major percentage of the operation of a public or private organization.
2. Worker’s performance are used in setting the criteria and standards of performance
internally for the organization.
3. The performance appraisal serves the means for management to identify workers who
have potential for training either for movement or for increased effectiveness on the present
assignment.
4. Performance appraisal data can be useful to management in formulating their guide in
future recruitment.
5. Performance appraisal is useful in the formulation of incentives for workers and the
improvement of management control.
6. Management decision on promotion is influenced by the result of performance
appraisal.
7. Performance appraisal becomes the basis for gauging the effectiveness of their
supervisory policy
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9.3 Vital Precepts in Performance Appraisal

1. The supervisor has the inherent duty to do appraise performance. As the person in
immediate contact with the worker and the source of direction, the supervisor must appraise
performance.
2. Targets and measures of performance must be known to the worker. The purpose of
performance appraisal is to give the worker the opportunity to meet the challenges of his
job at present and in the future.
3. Evaluation ratings must be disclosed to the worker. The worker should be informed
about his rating so that he or she can improve his or her performance. The results should
be an effective guide to the worker.
4. The rater should be objective and competent. Personal bias should be avoided by the
rater lest he or she violates the confidence reposed on him or her by the higher authorities.
5. A good appraisal system has reasonable targets and standards. When the performance
targets and standards are very high and can be attained only by exceptional workers, the
majority of the workforce have failed even before they started to work.
6. Performance appraisal should not interrupt operation. Where performance appraisal is
on-going, it should be business as usual for the organization.
7. No performance evaluation procedure is perfect. A procedure is an attempt to do a set
activities in the best way possible.
8. Management action should come after performance appraisal. The appraisal of
performance is not an end in itself. It is a means to obtain actionable feedback for the
improvement operation.
9.4 Performance Appraisal Methods
1. Consensual target method. Under this method the target for each worker is based on
the agreement of what the target should be for the next year. The target is set based on the
job, the work load, the skills of the worker and the prior year performance. The target is
raised as the work volume increases.
2. Graphic rating by the supervisor. The supervisor maintains a graph to describe each
worker in terms of quantity work done, dependability on the job, job knowledge,
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attendance and accuracy of work. This method makes the worker aware of how he is faring
because the graph may be shown on request.
3. Essay Appraisal method. The rater is enjoined to come up with a written description
of the behavior and productivity of the worker on the basis of observation.
4. Behaviorally Anchored Rating Scale. This method is popularly known by its acronym
of BARS. Under this method, anchors are identified. They are stated behavior for which
values are assigned on the basis of level of performance of the worker.
5. Checklist method. Under this method the human resource staff secures from the
supervisor and the worker the activities on the job. A checklist for yes-no answers to a
series of questions is formulated.
6. Standard Performance Comparison. This method utilizes industry standards for
productivity and behavior as it may standards set by the form based on past experience.
7. Critical Incidents Method. The supervisor maintains a logbook with some pages
assigned to each worker. These are strength and weakness columns which will contain
entries made by the supervisor as work goes on over the rating period.
8. Peer and Subordinate Evaluation. This method is applied to supervisors, specialist and
middle managers. A set of criteria is designed for peers and for subordinates which are
then administered as a weighted checklist.
9.5 Common Errors in Performance Appraisal
1. Leniency. People, including raters, like to be kind or nice to others and being lenient is
mistaken for kindness.
2. Central tendency syndrome. Who may give ratings that are neither too high nor too
low for everyone being rated.
3. Halo effect. If the worker is ranked poor in one criterion, the rater tends to rank the
worker similarly in other areas.
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Learning Assessment
Answer the following questions and cite examples to support
your answer.
1. How important is performance appraisal?
2. Discuss the different criteria in the development of measuring
instrument.
3. Discuss the rationale of performance appraisal.
4. In the performance appraisal methods, which do you think is better?
Why? Explain.

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EMPLOYEE BENEFITS AND RETIREMENT PLAN

LEARNING OBJECTIVES
• Define employee benefit and understand its importance.

• Distinguish employee benefit from employee incentive.

• Appreciate the purpose of granting employee benefits.

• Familiarize the classifications of employee benefits.
• Know the steps in managing the employee benefit programs.

10.1 Employee Benefits Defined

Employee benefit is an indirect form of compensation given to help improve the
quality of work and personal lives of employees. These are the different compensations
provided to employees besides their regular wages/salaries. These may or may not be
monetary. These may include insurances (group, health, family, accident etc.), retirement
benefits, sick leave, vacations, education fund etc. The rewards given to an employee or
group of employees for maintaining membership in the organization.
Benefits are different from incentives which are rewards given for good
performances.

TYPES OF
PURPOSE INTENDED RECIPIENT
COMPENSATION
payment for doing a every employee in the
BASE SALARY
job organization

payment for doing a

INCENTIVES a few good performers
job well

those who are mandated by law

payment for staying
BENEFITS and those who elected to
on the job
receive optional benefit
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Although benefits are not exactly directed towards soliciting good employee
performance, it helps in the preparation of the groundwork for achieving organizational
objectives
10.2 Reasons for Granting Employee Benefits
1. Employers grant benefits to keep the organization competitive.
2. Benefits are granted to motivate employees to perform.
3. Benefits are granted to keep a union out.
4. Benefits are granted to comply with legal requirements.
5. Benefits are granted to keep turnover costs low.
10.3 Classification of Employee Benefits
a. Legally required Benefits
Benefits of the employees legally mandated by the law
b. Voluntary Benefits
Not government mandated but are usually given to employees
c. Employee Services Benefits
Its purpose is to improve the work life of the employees which make it easy for
them to be productive and loyal to the organization
10.4 Legally Required Benefits
1. MINIMUM WAGE
Republic Act No. 6727
(also known as the “Wage Rationalization Act”)
- mandates the fixing of the minimum wages applicable to different industrial sectors,
namely, non -agriculture, agriculture plantation, and non - plantation, cottage/handicraft,
and retail/service, depending on the number of workers or capitalization or annual gross
sales in some sectors.

Basis
The basis of the minimum wage rates prescribed by law shall be the normal working
hours of eight (8) hours a day.
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2. HOLIDAY PAY
(Article 94, Labor Code of the Philippines)
Holiday pay refers to the payment of the regular daily wage for any unworked
regular holiday.
Unless otherwise modified by law, order, or proclamation, the following are the
twelve (12) regular holidays in a year under Executive Order No. 292, as amended by
Republic Act 9849:
When Araw ng Kagitingan falls on the same day as Maundy Thursday or Good
Friday, a covered employee is entitled to at least two hundred percent (200%) of his/her
daily wage even if said day is unworked. Where the employee is required to work on that
day, he/she is entitled to an additional 100% of the daily wage.
New Year ’s Day January 1
Maundy Thursday Movable Date
Good Friday Movable Date
Araw ng Kagitingan Monday nearest April 9
Labor Day Monday nearest May 1
Independence Day Monday nearest June 12
National Heroes’ Day Last Monday of August
Eidl Fitr Movable Date
Eidl Adha Movable Date
Bonifacio Day Monday nearest November 30
Christmas Day December 25
Rizal Day Monday nearest December 30
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3. PREMIUM PAY
(Article 91-93, Labor Code of the Philippines)
Premium pay refers to the additional compensation for work performed within eight
(8) hours on non -work days, such as rest days and special days.
Premium Pay on Special Days
Unless otherwise modified by law, order, or proclamation, the following are the
four (4) special days in a year under Executive Order No. 292, as amended by Republic
Act 9849, as further amended by Republic Act No. 10966 that shall be observed in the
Philippines:
Ninoy Aquino Day Monday nearest Au
All Saints Day N
Feast of Immaculate Conc
Last Day

The “no work, no pay” principle applies during special days and on such other
special days as may be proclaimed by the President or by Congress.
Workers who are not required or permitted to work on special days are not entitled
to any compensation.
On the other hand, work performed on special days merits additional compensation
of at least thirty percent (30%) of the basic pay or a total of one hundred thirty percent
(130%). Where the employee works on a special day falling on his rest day, he/she shall
be entitled to an additional compensation of at least fifty percent (50%) of his/her basic
wage or a total of one hundred fifty percent (150%).

4. OVERTIME PAY
(Article 87, Labor Code of the Philippines)
Overtime pay refers to the additional compensation for work performed beyond
eight (8) hours a day.
Overtime Pay Rates
The COLA shall not be included in the computation of overtime pay. The minimum
overtime pay rates vary according to the day the overtime work is performed, as follows:
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1. For work in excess of eight (8) hours performed on ordinary working days: Plus 25%
of the hourly rate.

2. For work in excess of eight (8) hours performed on a scheduled rest day or a special
day: Plus 30% of the hourly rate on said days.

3. For work in excess of eight (8) hours performed on a special day which falls on a
scheduled rest day: Plus 30% of the hourly rate on said days.

4. For work in excess of eight (8) hours performed on a regular holiday: Plus 30% of the
hourly rate on said days.

5. For work in excess of eight (8) hours performed on a regular holiday which falls on a
scheduled rest day: Plus 30% of the hourly rate on said days.

5. NIGHT SHIFT DIFFERENTIAL

(Article 86, Labor Code of the Philippines)

Night Shift Differential (NSD) refers to the additional compensation of ten percent (10%)
of an employee’s regular wage for each hour of work performed between 10 p.m. and 6
a.m.

Computation of Night Shift Differential

The COLA shall not be included in the computation of night shift pay. The table below
may be used to guide computations:
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Work on: Pay equals

Ordinary day 100% or 1

Sunday or rest day 130% or 1.3
Special day 130% or 1.3
Special day falling on rest day 150% or 1.5
Regular Holiday 200% or 2
Regular Holiday falling on rest day 260% or 2.6
Double holiday 300% or 3
Double holiday falling on rest day 390% or 3.9

Ordinary day, night shift 1 x 1.1 = 1.1 or 110%

Rest day, night shift 1.3 x 1.1 = 1.43 or 143%
Special day, night shift 1.3 x 1.1 = 1.43 or 143%
Special day, rest day, night shift 1.5 x 1.1 = 1.65 or 165%
Regular Holiday, night shift 2 x 1.1 = 2.2 or 220%
Regular Holiday, rest day, night shift 2.6 x 1.1 = 2.86 or 286%
Double holiday, night shift 3 x 1.1 = 3.3 or 330%
Double holiday, rest day,night shift 3.9 x 1.1 = 4.29 or 429%

Ordinary day, overtime(OT) 1 x 1.25 = 1.25 or 125%

Rest day, overtime 1.3 x 1.3 = 1.69 or 169%
 P a g e | 78

Special day, overtime 1 .3 x 1 .3 = 1.69 or 169 %

Special day, rest day, overtime
Regular Holiday, overtime
Regular Holiday, rest day, overtime
Double holiday, overtime
Double holiday, rest day, overtime
1 .5 x 1 .3 = 1.95 or 195 %
2 x 1.3 = 2.6 or 260 %
2 .6 x 1 .3 = 3.38 or 338 %
3 x 1.3 = 3.9 or 390 %
3 .9 x 1 .3 = 5.07 or 507 %

Ordinary day, night shift, overtime 1 x 1.1 x 1.25 = 1.375 or 137.5 %

Rest day, night shift, overtime
Special day, night shift, overtime
Special day, rest day, night shift, OT
Regular Holiday, night shift, OT
Reg. Holiday, rest day, night shift, OT
Double holiday, night shift, OT
Double holiday, rest day, night shift, OT
1 .3 x 1 .1 x 1.3 = 1.859 or 185.9%
1.3 x 1.1 x 1.3 = 1.859 or 185.9%
1 .5 x 1 .1 x 1.3 = 2.145 or 214.5%
2 x 1.1 x 1.3 = 2.86 or 286%
2 .6 x 1 .1 x 1 .3 = 3.718 or 371.8%
3 x 1.1 x 1.3 = 4.29 or 429%
3 .9 x 1 .1 x 1 .3 = 5.577 or 557.7%

6. SERVICE CHARGES
(Article 96, Labor Code of the Philippines)
Sharing
All rank-and-file employees of employers and contractors working therein collecting
service charges are entitled to an equal share in the eighty-five percent (85%) of the
P a g e | 79

total of such charges. The remaining fifteen percent (15%) of the charges may be retained
by management to answer for losses and breakages and for distribution to managerial
employees, at the discretion of the management in the latter case. Service charges are
collected by most hotels and some restaurants, nightclubs, cocktail lounges, among
others.

Payments
The shares of the employees in the service charges shall be distributed to them once
every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days.

Where the company stopped collecting service charges, the average share previously
enjoyed by the employees for the past twelve (12) months immediately preceding such
stoppage shall be integrated into their basic wages.

Tips
Where a restaurant or similar establishment does not collect service charges but has a
practice or policy of monitoring and pooling tips given voluntarily by its customers to its
employees, the pooled tips should be monitored, accounted, and distributed in the same
manner as the service charges.

7. SERVICE INCENTIVE LEAVE

(Article 95, Labor Code of the Philippines)
Coverage
Every employee who has rendered at least one (1) year of service is entitled to Service
Incentive Leave (SIL) of five (5) days with pay.

Meaning of “one year of service”

The phrase “one year of service” of the employee means service within twelve (12)
months, whether continuous or broken, reckoned from the date the employee started
working.
 P a g e | 80

The period includes authorized absences, unworked weekly rest days, and paid regular
holidays. If through individual or collective agreement, company practice or policy, the
period of the working days is less than twelve (12) months, said period shall be considered
as one year for the purpose of determining the entitlement to the service incentive leave.

8. MATERNITY LEAVE BENEFITS

(RA 1161, as amended by RA 8282)
Coverage
This benefit applies to all female employees, whether married or unmarried.

Entitlement
Every pregnant employee in the private sector, whether married or unmarried, is entitled
to maternity leave benefit of sixty (60) days in case of normal delivery or miscarriage, or
seventy-eight (78) days, in case of Caesarian section delivery, with benefits equivalent to
one hundred percent (100%) of the average daily salary credit of the employee as defined
under the law.

MATERNITY LEAVE BENEFITS

(Rule XVI of the Omnibus Service Rules)
Section 11. Conditions for the grant of maternity leave.
Every woman in the government service who has rendered an aggregate of two (2) or
more years of service, shall, in addition to the vacation and sick leave granted to her, be
entitled to maternity leave of sixty (60) calendar days with full pay.
Maternity leave of those who have rendered one (1) year or more but less than two (2)
years of service shall be computed in proportion to their length of service, provided, that
those who have served for less than one (1) year shall be entitled to 60-days maternity
leave with half pay.
It is understood that enjoyment of maternity leave cannot be deferred but should be
enjoyed within the actual period of delivery in a continuous and uninterrupted manner not
exceeding 60 calendar days.
P a g e | 81

Section 13. Every woman, married or unmarried, may be granted maternity leave more
than once a year. - Maternity leave shall be granted to female employees in every instance
of pregnancy irrespective of its frequency.
Section 14. Every married or unmarried woman may go on maternity leave for less than
sixty (60) days. - When a female employee wants to report back to duty before the
expiration of her maternity leave, she may be allowed to do so provided she presents a
medical certificate that she is physically fit to assume the duties of her position.
Section 17. Maternity leave of a female employee with pending administrative case. -
Every woman employee in the government service is entitled to maternity leave of
absence with pay even if she has a pending administrative case.
Section 18. Maternity leave of contractual employees. - All contractual female employees
whether or not receiving 20% premium on their salary shall be entitled to maternity leave
benefits like regular employees in accordance with the provisions of Section 11 hereof."

9. PATERNITY LEAVE BENEFITS

(Republic Act 8187)
Coverage
Paternity Leave is granted to all married male employees in the private sector, regardless
of their employment status (e.g., probationary, regular, contractual, project basis). The
purpose of this benefit is to allow the husband to lend support to his wife during her period
of recovery and/or in nursing her newborn child.

Government employees are also entitled to the paternity leave benefit. They shall be
governed by the Civil Service rules.

Usage of the paternity leave shall be after the delivery, without prejudice to an employer’s
policy of allowing the employee to avail of the benefit before or during the delivery,
provided that the total number of days shall not be more than seven (7) calendar days for
each covered delivery.
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Conditions for Entitlement

A married male employee shall be entitled to paternity leave benefit provided that he has
met the following conditions:
1. He is an employee at the time of the delivery of his child;
2. He is cohabiting with his spouse at the time that she gives birth or suffers a
miscarriage;
3. He has applied for paternity leave with his employer within a reasonable period of
time from the expected date of delivery by his pregnant spouse, or within such period as
may be provided by company rules and regulations , or by collective bargaining
agreement; and
4. His wife has given birth or suffered a miscarriage.

10. SOLO PARENT LEAVE

(Republic Act 8972)
“Parental leave” shall mean leave benefits granted to a solo parent to enable him/her to
perform parental duties and responsibilities where physical presence is required.

“Child” refers to a person living with and dependent on the solo parent for support. He/she
is unmarried, unemployed, and below eighteen (18) years of age, or even eighteen (18)
years old and above but is incapable of self-support because he/she is mentally- and/or
physically-challenged.

The Parental Leave Benefit

The parental leave, in addition to leave privileges under existing laws, shall be for seven
(7) work days every year, with full pay, consisting of basic salary and mandatory
allowances fixed by the Regional Wage Board, if any, provided that his/her pay shall not
be less than the mandated minimum wage.
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Coverage
Parental leave for solo parents is granted to any solo parent or individual who is left
alone with the responsibility of parenthood due to:
1. Giving birth as a result of rape or, as used by the law, other crimes against chastity;
2. Death of spouse;
3. Spouse is detained or is serving sentence for a criminal conviction for at least one (1)
year;
4. Physical and/or mental incapacity of spouse as certified by a public medical
practitioner;
5. Legal separation or de facto separation from spouse for at least one year provided that
he/she is entrusted with the custody of the children;
6. Declaration of nullity or annulment of marriage as decreed by a court or by a church:
Provided, that he/she is entrusted with the custody of the children
7. Abandonment of spouse for at least one (1) year;
8. Unmarried father/mother who has preferred to keep and rear his/her child/children,
instead of having others care for them or give them up to a welfare institution;
9. Any other person who solely provides parental care and support to a child or children:
Provided, that he/she is duly licensed as a foster parent by the Department of Social
Welfare and Development (DSWD) or duly appointed legal guardian by the court; and
10. Any family member who assumes the responsibility of head of family as a result of
the death, abandonment, disappearance, or prolonged absence of the parents or solo
parent: Provided, that such abandonment, disappearance, or prolonged absence lasts for
at least one (1) year.

Non-conversion to Cash
In the event that the parental leave is not availed of, it shall not be convertible to cash,
unless specifically agreed on previously.

Conditions for Entitlement

A solo parent employee shall be entitled to the parental leave, provided that:
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1. He/she has rendered at least one (1) year of service, whether continuous or broken;
2. He/she has notified his/her employer that he/she will avail himself/herself of it, within
a reasonable period of time; and
3. He/she has presented to his/her employer a Solo Parent Identification Card, which may
be obtained from the DSWD office of the city or municipality where he/she resides.

11. LEAVE FOR VICTIMS OF VIOLENCE AGAINST WOMEN AND THEIR

CHILDREN
(Republic Act 9262)
Definition
- refers to any act or a series of acts committed by any person against a woman who is his
wife, former wife, or against a woman with whom the person has or had a sexual or dating
relationship, or with whom he has a common child, or against her child whether legitimate
or illegitimate, within or without the family abode, which will result in or is likely to
result in physical, sexual, psychological harm or suffering, or economic abuse including
threats of such acts, battery, assault, coercion, harassment or arbitrary deprivation of
liberty

Coverage and Purpose

Women employees who are victims as defined in RA 9262 shall be entitled to the paid
leave benefit under such terms and conditions provided herein.

The leave benefit shall cover the days that the woman employee has to attend to medical
and legal concerns.

Requirement for Entitlement

To be entitled to the leave benefit, the only requirement is for the victim -employee to
present to her employer a certification from the barangay chairman (Punong Barangay)
or barangay councilor (barangay kagawad) or prosecutor or the Clerk of Court, as the
case may be, that an action relative to the matter is pending.
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The Benefit
In addition to other paid leaves under existing labor laws, company policies, and/or
collective bargaining agreements, the qualified victim - employee shall be entitled to a
leave of up to ten (10) days with full pay, consisting of basic salary and mandatory
allowances fixed by the Regional Wage Board, if any.

The said leave shall be extended when the need arises, as specified in the protection order
issued by the barangay or the court.

12. SPECIAL LEAVE FOR WOMEN

(Republic Act 9710)
Coverage
Any female employee regardless of age and civil status shall be entitled to a special
leave benefit under such terms and conditions provided herein.

Definition of Term
“Gynecological disorders ” refers to disorders that would require surgical procedures
such as, but not limited to dilatation and curettage and those involving female
reproductive organs such as the vagina, cervix, uterus, fallopian tubes, ovaries, breast,
adnexa and pelvic floor, as certified by a competent physician. It shall also include
hysterectomy, ovariectomy and mastectomy.

Conditions for Entitlement

1. She has rendered at least six (6) months continuous aggregate employment service for
the last twelve (12) months prior to surgery;
2. She has filed an application for special leave with her employer within a reasonable
period of time from the expected date of surgery or within such period as may be provided
by company rules and regulations or collective bargaining agreement; and
3. She has undergone surgery due to gynecological disorders as certified by a competent
physician.
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The Special Leave Benefit

The employee is entitled to special leave benefit of two (2) months with full pay based
on her gross monthly compensation

13. THIRTEENTH-MONTH PAY

(Presidential Decree 851)
Coverage
All employers are required to pay their rank and file employees thirteenth-month pay,
regardless of the nature of their employment and irrespective of the methods by which
their wages are paid, provided they worked for at least one (1) month during a calendar
year. The thirteenth - month pay should be given to the employees not later than
December 24 of every year.

Minimum Amount
The thirteenth-month pay shall not be less than one -twelfth (1/12) of the total basic salary
earned by an employee in a calendar year.

The "basic salary" of an employee for the purpose of computing the thirteenth-month pay
shall include all remunerations or earnings paid by his or her employer for services
rendered. It does not include allowances and monetary benefits which are not considered
or integrated as part of the regular or basic salary

Thirteenth-Month Pay of Resigned or Separated Employee

An employee who has resigned or whose services are terminated at any time before the
time of payment of the thirteenth -month pay is entitled to this monetary benefit in
proportion to the length of time he or she has worked during the year, reckoned from the
time he or she has started working during the calendar year up to the time of his or her
resignation or termination from the service. Thus, if he or she worked only from January
to September, his or her proportionate thirteenth-month pay should be equal to one -
twelfth (1/12) of his or her total basic salary earned during that period.
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14. SEPARATION PAY

(Articles 298-299, Labor Code of the Philippines)
Formerly Articles 283 - 284 renumbered pursuant to DOLE Department Advisory
No. 1, Series of 2015 issued on 21 July 2015

An employee’s entitlement to separation pay depends on the reason or ground for the
termination of his or her services. An employee may be terminated for just cause (i.e.,
gross and habitual neglect of duty, fraud, or commission of a crime), and other similar
causes as enumerated under Article 297 (formerly Article 282) of the Labor Code and,
generally, may not be entitled to separation pay. On the other hand, where the termination
is for authorized causes, separation pay is due.

Basis of Separation Pay

The computation of separation pay of an employee shall be based on his/her latest salary
rate.

Inclusion of Regular Allowance in the Computation

In the computation of separation pay, it would be error not to integrate the allowance with
the basic salary. The salary base properly used in computing the separation pay should
include not just the basic salary but also the regular allowances that an employee has been
receiving.

15. RETIREMENT PAY

(Article 302, Labor Code of the Philippines)
Formerly Article 287 renumbered pursuant to DOLE Department Advisory No. 1,
Series of 2015 issued on 21 July 2015
1. Employees shall be retired upon reaching the age of sixty (60) years or more but not
beyond sixty-five (65) years old [and have served the establishment for at least five (5)
years].
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2. This benefit applies to all employees except:

a. government employees;
b. employees of retail, service and agricultural establishments/operations
regularly employing not more than ten (10) employees.

15. RETIREMENT PAY

(Republic Act 1616)
RA 1616 provides for a gratuity benefit for retiring members who will qualify under this
retirement mode. The gratuity is payable by the last employer. The employee shall also
be entitled to a Refund of Retirement Premiums paid, personal share with interest and
government share without interest.
To qualify under the mode, a retiree must:
• be in government service on or before May 31, 1977
• has rendered at least 20 years of service regardless of age and employment status
• his/her last 3 years of service prior to retirement must be continuous, except in cases
of death, disability, abolition or phase out of position due to reorganization.

16. BENEFITS UNDER THE EMPLOYEES’ COMPENSATION PROGRAM

(Presidential Decree 626)
The Employees’ Compensation Program (ECP) is a government program designed to
provide a compensation package to public and private sector employees or their
dependents in the event of work -related sickness, injury, disability, or death.

The Benefits
• Loss of income benefit or a cash benefit given to a worker to compensate for lost
income due to his or her inability to work.
• Medical benefits which include the reimbursement of the cost of medicine for the
illness or injury, payments to providers of medical care, hospital care, surgical expenses,
and the costs of appliances and supplies where necessary. The medical services are
limited to ward services of an accredited hospital
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• Rehabilitation services which include physical therapy, vocational training, and special
assistance provided to employees who sustain a disability as a result of sickness or injury
arising out of employment. The objective is to develop the workers’ mental, vocational,
and social potential and to help them remain as productive members of society
• Career’s allowance which is provided to an employee who suffers from a work-
connected permanent partial and permanent total disability.
• Death and Funeral benefits which are granted to beneficiaries of an employee in the
event of work -connected death. Death benefits shall also be granted to the beneficiaries
in cases where the cause of the employee is a complication or natural consequence of his/
her compensated permanent total disability.

Kinds of Disability
There are three (3) types of loss of income benefits:
Temporary Total Disability (TTD) benefit which is given to an employee who is unable
to work for a continuous period not exceeding 120 days.
b. Permanent Partial Disability (PPD) benefit which is given to a worker who loses a body
part and consequently the loss of the use of that body part.
c. Permanent Total Disability (PTD) benefit which is given if the employee’s inability to
work lasts for more than 240 days. PTD benefit can be claimed in the following cases:
1. complete loss of sight of both eyes;
2. loss of two limbs at or above the ankles or wrists;
3. permanent and complete paralysis of two limbs ;
4. brain injury resulting in incurable imbecility or insanity ; and
5. such cases as determined by the SSS and approved by the Commission

Filing of Claims
Employees can claim only for work-connected sickness, injuries, or death.
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Who may file: The claimant or his/her representative may file an appropriate claim with
the GSIS, in case of public sector claimant, or with the SSS, in case of private sector
claimant.
When: A claim must be filed within three (3) years from:
a. In case of sickness – from the time the employee lost his earning capacity;
b. In case of injury – from the time it was sustained;
c. In case of death – from the time of death of the covered member.

17. PHILHEALTH BENEFITS

(RA 7875, as amended by RA 9241 and 10606)
The National Health Insurance Program
The National Health Insurance Program (NHIP), formerly known as Medicare, is a health
insurance program employees and their dependents whereby the healthy subsidize the
sick who may find themselves in need of financial assistance when they get hospitalized.

The Philippine Health Insurance Corporation or PhilHealth is the mandated administrator

of the Medicare program (now known as NHIP) under the National Health Insurance Act
of 2013 (Republic Act 7875 as amended by RA 9241 and 10606)

Coverage
The program covers the following:
1. Members In The Formal Economy - includes those with formal contracts and fixed
terms of employment including workers in the government and private sector, whose
premium contribution payments are equally shared by the employee and the employer.
2. Sponsored Members - includes members whose contributions are being paid for by
another individual, government agencies, or private entities.
3. Members In The Informal Economy - includes a wide range of individuals and sectors
ranging from the self -earning to migrant workers.
4. Lifetime Members - members who have reached the age of retirement under the law
and have paid at least 120 monthly premium contributions.
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5. Indigent Members - persons who have no visible means of income, or whose income
is insufficient for family subsistence, as identified by the Department of Social Welfare
and Development (DSW D), based on specific criteria.
6. Senior Citizens - those who are 60 years old and above and are not currently covered
by any of the existing membership categories of PhilHealth.

The Benefits
A unified benefit package for all PhilHealth members is being implemented which
includes the following categories of personal health services:
1. Inpatient hospital care:
• Room and board;
• Services of health care professionals;
• Diagnostic, laboratory, and other medical examination services;
• Use of surgical or medical equipment and facilities;
• Prescription drugs and biologicals, subject to the limitations stated in Section 37 of RA
7875; and
• Inpatient education packages.
2. Outpatient care:
• Services of health care professionals;
• Diagnostic, laboratory, and other medical examination services;
• Personal preventive services;
• Prescription drugs and biologicals, subject to the limitations described in Section 37 of
RA 7875; and
• Emergency and transfer services.

18. SOCIAL SECURITY BENEFITS

(RA 1161, as amended by RA 8282)
The Social Security Program
The Social Security Program provides a package of benefits in the event of death,
disability, sickness, maternity, and old age. Basically, the Social Security System (SSS)
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provides for a re placement of income lost on account of the aforementioned

contingencies.

Coverage
A private employee, whether permanent, temporary or provisional.

Benefits
1. Sickness
The sickness benefit is a daily cash allowance paid for the number of days a member
is unable to work due to sickness or injury.
2. Maternity
A covered female employee who has paid at least three monthly maternity
contributions in the twelve-month period preceding the semester of her childbirth,
abortion, or miscarriage and who is currently employed shall be paid a daily maternity
benefit equivalent to one hundred per cent of her present basic salary, allowances and
other benefits or the cash equivalents of such benefits for sixty days
3. Disability
It is a cash benefit paid to a member who becomes permanently disabled, either
partially or totally.
A member who suffers partial or total permanent disability, with at least one (1)
contribution paid to the SSS prior to the semester of contingency, is qualified.
4. Retirement
It is a cash benefit paid to a member who can no longer work due to old age.
5. Death & Funeral
The death benefit is a cash paid to the beneficiaries of a deceased member.
The types of death benefits are:
1. the monthly pension - granted only to the primary beneficiaries of a deceased
member who had paid 36 monthly contributions before the semester of death.
2. the lump sum amount - amount granted to the primary beneficiaries of a deceased
member who had paid less than 36 monthly contributions before the semester of death.
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19. PAG-IBIG BENEFITS

(Republic Act No. 9679)
The Home Development Mutual Fund (HDMF)
The Home Development Mutual Fund, otherwise known as Pag -IBIG (Pagtutulungan
sa kinabukasan: Ikaw, Bangko, Industriya at Gobyerno ) Fund is a mutual provident
savings system for private and government employees and other earning groups,
supported by matching mandatory contributions of their respective employers with
housing as the primary investment.

Coverage
1. Mandatory Membership
• All employees who are or ought to be covered by the Social Security System (SSS),
provided that actual membership in the SSS shall not be a condition precedent to the
mandatory coverage in the Fund.
• All employees who are subject to mandatory coverage by the Government Service
Insurance System (GSIS), regardless of their status of appointment, including members
of the judiciary and constitutional commissions
• Uniformed members of the Armed Forces of the Philippines, the Bureau of Fire
Protection, the Bureau of Jail Management
• Filipinos employed by foreign - based employers, whether they are deployed here or
abroad or a combination thereof
2. Voluntary Membership
An individual at least 18 years old but not more than 65 years old may register with
the Fund under voluntary membership. However, said individual shall be required to
comply with the set of rules and regulations for Pag-IBIG members including the amount
of contribution and schedule of payment. In addition, they shall be subject to the eligibility
requirements in the event of availment of loans and other programs/benefits offered by
the Fund.
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The Benefits
The Fund offers its members the following benefits:
1. Savings
2. Short Term Loans
3. Housing Programs

Monthly Contribution
The monthly contributions for the members are below indicated:

20. Government Service

Insurance Benefits
(Republic Act 8291)
The principal benefit package of the GSIS consists of compulsory and optional life
insurance, retirement, separation, and employee’s compensation benefits.

Life Insurance
1. Life Endowment Policy (LEP)
GSIS started with the LEP program. Designed to provide members with life insurance
coverage while still in active service, LEP provides maturity benefits to policy holders
upon reaching the maturity of their policy.
2. Enhanced Life Policy (ELP)
ELP took effect on August 1, 2003. It provides an automatic yearly insurance coverage
to new members of GSIS based on their monthly compensation. ELP is designed to
provide an enhanced death benefit for the family of the deceased member.
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Retirement
GSIS offers various retirement programs that retiring members may choose from
depending on their age and length of service.
1. Retirement Under RA 8291
Five-year lump sum or cash payment with instant pension.
2. Retirement under Republic Act 660
Also called “Magic 87,” this option provides both annuity and lifetime pension.
3. Retirement under Republic Act 1616
Refund of GSIS premiums and gratuity payment from employers.
4. Retirement under Presidential Decree 1146
Only those who have been in government service after May 31, 1977 but before June 24,
1997 may avail of this retirement program. Retirement under PD 1146 gives members a
choice between a Basic Monthly Pension (BMP) and Cash Payment.
5. Retirement under Republic Act 7699 (Portability Law ) Combining
GSIS and SSS periods with paid premiums to qualify for retirement programs offered by
both pension funds.

Separation
Eligibility and Benefits
1. If the member has been in the service for at least three years but less than 15 years, and
below 60 years of age:
- Cash payment equivalent to 100% of the Average Monthly Compensation (average
salary in the last three years) for every year of service payable upon reaching age 60.
2. If the member has been in the service for at least 15 years and is below 60 years of age:
- Cash payment equivalent to 18 times the Basic Monthly Pension (BMP) payable upon
separation and monthly pension for life starting at age 60.
Unemployment or involuntary Separation
The unemployment benefit is paid when permanent government employees who have
paid the required 12 months integrated contributions under RA 8291 are involuntarily
separated from the service as a result of the abolition of their office or position usually
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resulting from reorganization. The benefit is in the form of monthly cash payments
equivalent to 50% of the average monthly compensation (AMC). The duration of the
benefit depends on the length of service and ranges from two months to a maximum
of six months.

10.5 Voluntary Benefits

1. Group Life Insurance
Private insurers are able to reduce their rates and provide additional benefits if a
company insure all it employees as a group.
The immediate effect is lower premiums and acceptance by the insurer regardless of the
health or physical condition of the employees.
2. Health Insurance
The cost associated with maintaining one’ health is oftentimes beyond the capability of
most employees. Some illnesses deteriorate the financial resources of many employees
and the anxiety that they feel about such possibility may ultimately spill over on their
long-term performance. The more progressive firms realize the importance of such
predicament and so they avail of the services of health insurance companies.
3. Pension Plans
At the option of the company, pension plans may be purchased from private pension
companies for the purpose of providing additional pension benefits to workers who retire
from the service
4. Emergency / Bereavement Leave
This provides the employees with time off from work to plan and to attend a funeral and
to deal with the family matters surrounding a death
5. Birthday Leave
There are already companies that started giving their employees a present on their
birthdays such as giving day off during the actual birth date of the employee
6. Cost of Living Allowances
Some companies provide their employees with yearly rice, medicine and clothing
allowance
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10.6 Employee Services

1. Education Programs
Some employees feel the need for education. Some companies provide tuition money to
interested and qualified employees on or before the enrolment period.
2. Pre – retirement Programs
Early retirement is an option that has become popular for many employees. As such, the
more progressive companies endeavor to provide a pre-retirement planning program for
their employees
3. Company Sponsored Social Recreational Events
Social functions that are organized for employees and their families include picnics and
outings, song and dance parties and intramural programs. Employees may participate on
a voluntary basis
4. Counseling Services
To minimize the risk of inadequate performance, organization offer counseling services
hat cover concerns as varied as alcohol and chemical dependence, emotional problems,
careers, financial, legal matters and termination
5. Credit Unions
The company’s management takes the initiative by providing briefing to the employees
on the benefits afforded by credit unions.
6. Free Uniform
Unlike other services, free uniform is enjoyed by all employees of the company. The
effect is immediate because the individual employee is relieved of spending for uniforms
7. Housing and Moving Expenses
Employees who are transferred to other locations will be most concerned with this benefit.
Some employers make the necessary moves by helping employees find living quarters
and pay for their travel and living expenses.
8. Food Services
Vending machines and cafeterias are the most common means of providing food services
to employees.
9. Company Paid Transportation and Parking
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The maintenance for parking space and the provision of paid transportation to
employees are services that will appreciated by the beneficiaries.

10.7 Steps in Managing the Employee Benefits Program

1. Make decision on which benefit strategy to adapt.
2. Determine desires of employees regarding benefits and services through the
involvement of participants and unions.
3. Communicate benefits to employees.

4. Monitor costs of benefits.

Learning Assessment
Answer the following questions and cite examples to support
your answer.
1. Why do employees offer benefits? Is it because the law requires it,
because it makes good business sense, or because it is right to do?
How much responsibility should employers have the health? Take the
perspective of both a shareholder and an employee in answering this
question.
2. If you were advising a new company on how to design its health care
plan, what would you recommend? Why?
3. Explain “Benefits are important way to attract and retain key talents”.

 Book
 www.bookboon.com : Human Resource Management
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EMPLOYEE SEPARATION AND RETENTION

LEARNING OBJECTIVES
• Distinguish between involuntary and voluntary turnover and
describe their effects on an organization.
• Discuss how employees determine whether the organizations treat
them fairly.
• Identify legal requirements for employee discipline.
• Summarize in which organizations can fairly discipline
employees.
• Explain how job dissatisfaction affects employee behavior.
• Describe how organizations contribute to employees’ job
satisfaction and retain key employees.

11.1 Introduction
Every organization recognizes that it needs satisfied, loyal customers. In addition,
success requires satisfied, loyal employees. Retaining employee helps retain customers
and increase sales. Organizations with low turnover and satisfied employees tend to
perform better. On the other side of the coin, organizations have to act when an employees
performance consistently falls short. Sometimes terminating a poor performer is the only
way to show fairness, ensure quality and maintain customer satisfaction.
11.2 Managing Involuntary and Voluntary Turnover
Organizations must try to ensure that good performers want to stay with the
organization and that employees whose performance is chronically low are encouraged
or forced to leave. Both of these challenges involve employee turnover, that is employees
leaving the organization.
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INVOLUNTARY TURNOVER
 Turnover initiated by an employer
 Often with employees who would prefer to stay
VOLUNTARY TURNOVER
 Turnover initiated by the employees
 Often when the organization would prefer to keep them

11.3 Reasons why Discharging Employees can be very Difficult

LEGAL ASPECTS
If the organization and employee do not have a specific employment contract, the
employer or employee may end the employment relationship at any time. Employees who
have been terminated sometimes sue their employers for wrongful discharge. A discharge
can also be found illegal if it violates a law or public policy. In a typical lawsuits for
wrongful discharge, the former employee tries to establish that the discharge violated
either an implied agreement or public policy. Most employers settle these claims out of
court. Even though few former employees win wrongful discharge suits and employers
usually win when they appeal, the cost of defending the lawsuit can be hundreds of
thousands of dollars.
PERSONAL SAFETY
Distressing as it is that some former employees go to the courts, far worse are the
employees who react to a termination decision with violence. Violence in the workplace
has a become a major organizational problem. Although any number of organizational
actions or decisions may incite violence among employees, the “nothing else to lose”
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101

aspect of an employee’s dismissal makes the situation dangerous especially when the
nature of the work adds other risk factors.
11.4 Employee Separation
Because of critical financial and personal risks associated with employee dismissal,
it is easy to see why organizations must developed a standardized, systematic approach
to discipline and discharge. These decisions should not be left solely to the discretion of
individual managers and supervisors. Policies that can lead to employee separation should
be based on principles of justice and law, and they should allow for various ways to
intervene.
11.5 Principles of Justice
The sensitivity of a system for disciplining and possibly terminating employees is
obvious and it is critical that the system be seen as fair. Employees form conclusions
about the system’s fairness based on the system’s outcomes and procedures and the way
managers treat employees when carrying out those procedures.

Outcome Fairness
 A judgement that the consequences given to employees are just
 Consistent outcomes
 Knowledge of outcomes
 Outcomes in proportion to behaviors
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Procedural Justice
 A judgement that fair methods were used to determine the consequences an
employee receives
 Consistent procedures
 Avoidance of bias
 Accurate information
 Way to correct mistakes
 Representation of all interests
 Ethical standards

Interactional Justice
 A judgement that the organization carried out its actions in a way that took the
employee’s feelings into account
 Explanation of decision
 Respectful treatment
 Consideration
 Empathy

11.6 Legal Requirements

The law gives employers wide latitude in hiring and firing, but employers must
meet certain requirements. They must avoid wrongful discharge and illegal
discrimination. They also must meet standards related to employees’ privacy and
adequate notice of layoffs.

Wrongful Discharge
Discipline practices must avoid the charge of wrongful discharge. This means the
discharge may not violate an implied agreement. Terminating an employee may violate an
implied agreement if the employer had promised the employee job security or if the action
is inconsistent with company policies.
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103

Another reason a discharge may be considered wrongful is that it violates public

policy. Violations of public policy include terminating the employee for refusing to do
something illegal, unethical, or unsafe.
Human resource professionals can help organizations avoid (and defend against)
charges of wrongful discharge by establishing and communicating policies for handling
misbehaviour.
 They should define unacceptable behaviors and identify how the organization
will respond to them.
 The organization should train the managers to avoid making promises that imply
job security.
 In writing and reviewing employee handbooks, HR professionals should avoid
any statements that could be interpreted as employment contracts.

Discrimination
Another benefit of a formal discipline policy is that it helps the organization comply
with equal employment opportunity requirements. As in other employment matters,
employers must make decisions without regard to individual’s age, sex, race or other
protected status.
11.7 Employees’ Privacy
The courts also have long protected individual’s privacy in many situations. At the
same time, employers have legitimate reasons for learning about some personal matters,
especially when behaviour outside the workplace can affect productivity, workplace safety
and employee morale.

Measures for Protecting Employees’ Privacy

 Ensure that information is relevant
 Publicize information-gathering policies and consequences
 Request consent before gathering information
 Treat employees consistently
 Conduct searches discreetly
 Share information only with those who need it
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11.8 Notification of Layoffs

Sometimes terminations are necessary not because of individuals’ misdeeds but
because the organizations determines that for economic reasons it must close a facility. An
organization that plans such broad-scale layoffs may be subject to the Workers’
Adjustment Retraining and Notification Act. This federal law requires that organizations
with more than 100 employees give 60 days notice before any closing or layoff that will
affect at least 50 full-time employees. If employers covered by this law do not give notice
to the employees (and their union, if applicable), they may have to provide back pay and
fringe benefits and pay penalties as well. Several states and cities have similar laws, and
the federal law contains a number of exemptions. Therefore, it is important to seek legal
advice before implementing a plant closing.
Progressive Discipline
Organizations look for methods of handling problem behaviour that are fair, legal
and effective. A popular principle for responding effectively is the hot-stove rule.
According to this principle, discipline should be like a hot stove. The glowing or burning
stove gives warning not to touch. Anyone who ignores the warning will be burned. The
stove has no feelings to influence which people it burns and it delivers the same burn to
any touch. Finally, the burn is immediate. Like the hot stove, an organizations discipline
should give warning and have consequences that are consistent, objective and immediate.
The principles of justice suggest that the organization prepare for problems by
establishing a formal discipline process in which the consequences become more serious
if the employee repeats the offense. Such a system is called progressive discipline.
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11.9 Behaviors Encountered in Many Organizations

 Tardiness
 Absenteeism
 Unsafe work practices
 Poor quantity or quality of work
 Sexual harassment of co-workers
 Coming to work impaired by alcohol or drugs
 Theft of company property
 Cyberslacking (conducting personal business online during work hours)

11.10 Alternative Dispute Resolution

Sometimes problems are easier to solve when an impartial person helps to create
the solution. Therefore, at various points in the discipline process, the employee or
organization might want to bring in someone the help with problem solving. Rather than
turning the courts every time an outsider is desired, more and more organizations are
using alternative dispute resolution (ADR).

Open-Door Policy
Based on the expectation that two people in conflict should first try to arrive at a
settlement together, the organization has a policy of making managers available to hear
complaints. Typically, the first “open door” is that of the employee’s immediate
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supervisor and if the employee does not get a resolution from that person, the employee
may appeal to managers at higher levels. This policy works only to the degree that
managers who hear complaints listen and are able to act.
Peer Review
If the people in conflict cannot reach an agreement, they take their conflict to a
panel composed of representatives from the organization at the same levels as the people
in the dispute. The panels hear the case and tries to help the parties arrive at a settlement.
To set up a panel to hear disputes as they arise, the organization may assign managers to
positions on the panel and have employees elect non management panel members.
Mediation
If the peer review does not lead a settlement, a neutral party from outside the
organization hears the case and tries to help the people in conflict arrive at a settlement.
The process is not binding, meaning the mediator cannot force a solution.
Arbitration
If mediation fails, a professional arbitrator from outside the organization hears the
case and resolves it by making a decision. Most arbitrators are experienced employment
lawyers or retired judges. The employees and employer both have to accept this person’s
decision.

11.11 Employee Assistance Programs

While ADR is effective in dealing with problems related to performance and
disputes between people at work, many of the problems that lead an organization to want
to terminate an employee involve drug or alcohol abuse. In these cases, the organization’s
discipline program should also incorporate employee assistance program (EAP). An EAP
is a referral service that employees can use to seek professional treatment for emotional
problems or substance abuse.
The programs are usually identified in official documents published by the
employer, such as employee handbook. Supervisors are trained to use the referral service
for employees whom they suspect of having health-related problems. The organization also
trains employees to use the system to refer themselves when necessary. The
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organization regularly evaluates the costs and benefits of the program, usually once a
year.

11.12 Outplacement Counseling

An employee who has been discharged is likely to feel angry and confused about
what to do next. If the person feels there is nothing to lose and nowhere else to turn, the
potential for violence or a lawsuit is greater than most organizations are willing to tolerate.
This concern is one of reason many organizations provide outplacement counselling, which
tries to help dismissed employees manage the transition from one job to another.
Some organizations have their own staff for conducting outplacement counselling.
Other organizations have contracts with outside providers to help with individual cases.
Either way, the goals for outplacement programs are to help the former employee address
the psychological issues associated with losing a job – grief, depression and fear – while
at the same time helping the person find a new job.

11.13 Job Withdrawal

Organization need employees who are fully engaged and committed to their work.
Therefore, retaining employees goes beyond preventing them from quitting. The
organization needs to prevent a broader negative condition, called job withdrawal – or a
set of behaviors with which employers try to avoid the work situation physically, mentally
or emotionally.
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11.14 Job Dissatisfaction

Many aspects of people and organizations can cause job dissatisfaction, and
managers and HR professionals need to be aware of them because of correcting them can
increase job satisfaction and prevent job withdrawal. The causes of job dissatisfaction are
personal dispositions, tasks and roles, supervisors and co-workers and pay and benefits.
Personal Dispositions
Job dissatisfaction is a feeling experienced by individuals, so it is not surprising
that many researchers have studied individual personality differences to see if some kinds
of people are more disposed to be dissatisfied with their jobs. In general, job turnover is
higher among employees who are low in emotional stability, conscientiousness, and
agreeableness.
Negative Affectivity
Pervasive low levels of satisfaction with all aspects of life, compared with other
people’s feelings. People with negative affectivity experience feelings such as anger,
contempt, disgust, guilt, fear and nervousness more than other people do at work and away.
They tend to focus on the negative aspects of themselves and others.
Core Self-Evaluations
Bottom-line opinions individuals have of themselves and maybe positive or
negative. People with a positive core self-evaluation have high self-esteem, believe in
their ability to accomplish their goals and are emotionally stable. They also tend to
experience job satisfaction. People with negative core self-evaluations tend to blame other
people for their problems including their dissatisfying jobs.

11.15 Tasks and Roles

As a predictor of job dissatisfaction, nothing surpasses the nature of the task itself.
Many aspects of a task have been linked to dissatisfaction. Of particular significance are
the complexity of the task, the degree of physical strain and exertion required, and the value
the employee places on the task.
In general, employees are bored and dissatisfied with simple, repetitive jobs. People
also are more dissatisfied with jobs requiring a great deal of physical strain and
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exertion. Because automation has removed much of the physical strain associated with
jobs, employers often overlook this consideration. Still, many jobs remain physically
demanding. Finally, employees feel dissatisfied if their work is not related to something
they value.
Employees not only perform specific tasks but also have roles within the
organization. A person’s role consists of the set of behaviors that people expect of a person
in that job. These expected behaviors include the formally defined duties of the job but
also much more. Sometimes things get complicated or confusing. Co-workers, supervisors
and customers have expectations for how the employee should behave often going far
beyond a formal job description and having a large impact on the employee’s work
satisfaction.

11.16 Role-Related Sources of Dissatisfaction

Role Ambiguity
Uncertainty about what the organization and others expect from the employee in
terms of what to do or how to do it. Employees suffer when they are unclear about work
methods, scheduling and performance criteria, perhaps because others hold different ideas
about these. Employees particularly want to know how the organization will evaluate their
performance. When they aren’t sure, they become dissatisfied.
Role Conflict
An employee’s recognition that demands of the job are incompatible or
contradictory; a person cannot meet all the demands.
For example, a company might bring together employees from different functions
to work on a team to develop a new product. Team members feel the role conflict when
they realize that their team leader and functional manager have conflicting expectations of
them.
Role Overload
Results when too many expectations or demands are placed on a person. After an
organization downsizes, it may expect so much of the remaining employees that they
experience role overload.
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11.17 Supervisors and Co-Workers

Negative behavior by managers and peers in the workplace can produce tremendous
dissatisfactions. Often much of the responsibility for positive relationship is placed on
direct supervisors but in the recent survey, employees said that the leadership and
visibility of senior managers play an even greater role in their level of engagement with
their work. Employees want some evidence that the company’s leader care about them,
so they are more likely to be dissatisfied if management is distant and unresponsive.

11.18 Pay and Benefits

For all the concern with positive relationships and interesting work, it is important
to keep in mind that employees definitely care about their earnings. A job is the primary
source of income and financial security for most people. Pay is also an indicator of status
within the organization and in society at large, so it contributes to some people’s self-
worth. For all these reasons, satisfaction with pay is significant for retaining employees.
With regard to job satisfaction, the pay level – that is, the amount of income
associated with each job – is especially important. Employers seeking to lure away
another organization’s employee often do so by offering higher pay. Benefits, such as
insurance and vacation time, are also important, but employees often have difficulty
measuring their worth. Therefore, although benefits influence job satisfaction, employees
may not always consider them as much as pay itself.

11.19 Behavior Change

A reasonable expectation is that an employee’s first response to dissatisfaction
would be to try to change the conditions that generate the dissatisfaction. As the
employees try to bring about changes in policy or personnel, the efforts may involve
confrontation and conflict with the employee’s supervisor. In an organization where
employees are represented by a union, more grievances may be filed.
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11.20 Physical Job Withdrawal

If behavior change has failed or seems impossible, a dissatisfied worker may
physically withdraw from the job. Options for physically leaving a job range from
arriving late to calling in sick, requesting a transfer or leaving the organization altogether.
Even while they are on the job, employees may withdraw by not actually working. All
these options are costly to the employer.

11.21 Psychological Withdrawal

Employees need not leave the company in order to withdraw from their jobs.
Especially if they have been unable to find another job, they may psychologically remove
themselves. They are physically at work, but their minds are elsewhere.
Psychological withdrawal can take several forms. If an employee is primarily
dissatisfied with the job itself, the employee may display a very low level of job
involvement. Job involvement is the degree to which people identify themselves with
their jobs.
When an employee is dissatisfied with the organization as a whole, the person’s
organizational commitment may be low. Organizational commitment is the degree to
which employee identifies with the organization and is willing to put forth effort on its
behalf. Employees with high organizational commitment will stretch themselves to help
the organization through difficult times. Employees with low organizational commitment
are likely to leave at the first opportunity for a better job.

11.22 Job Satisfaction

Organizations want to prevent withdrawal behaviors. The driving force behind job
withdrawal is dissatisfaction. To prevent job withdrawal, organizations therefore need to
promote job satisfaction, a pleasant feeling resulting from the perception that one’s job
fulfils or allows for the fulfilment of one’s important job values.
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11.23 Aspects of Job Satisfaction

 Job satisfaction is related to a person’s values, defined as “what a person consciously
or unconsciously desires to obtain”
 Different employees have different views of which values are important, so the same
circumstances can produce different levels of job satisfaction
 Job satisfaction is based on perception, not always on an objective and complete
measurement of the situation. Each person compares the job situation to his or her
values and people are likely to differ in what they perceive.

11.24 Creating a Positive Environment

 Bring in a “happiness coach”. Trainers with expertise in a positive psychology
can teach methods such as mediation and the practice and expression of gratitude.
 When confronted with news, dilemmas and changes, start with the assumption that
the situation is not necessarily bad (or good). Define setbacks as learning experiences.
Keeping an open mind can help you and your team identify more alternatives and
opportunities.
 Look for employee behaviors to praise and coach managers to do the same. Use
performance feedback to identify strengths employees can build on, not just weaknesses to
correct.
 Use selection and development tools that match employees’ talents to positions
and career paths in the organization.
 Structure work so employees can see why it matters and so they have enough
control over their time to engage in activities they care about. Define how the
organization contributes to society and express that mission to employees.
 Ask for ideas from employees and listen to their ideas.
 Model positive behaviour by demonstrating compassion, forgiveness and
gratitude.
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11.25 Increasing Job Satisfaction

Personal Dispositions
Employee selection in the first instance plays a role in raising overall levels of
employee satisfaction. People making the selection decisions should look for evidence of
whether the employees are predisposed to being satisfied. Interviews should explore
employees’ satisfaction with past jobs.
Employers should recognize that dissatisfaction with other facets of life can spill
over into the workplace. A worker who is having a problems with a family member may
attribute some of the negative feelings to the job or organization. When employees express
negativity and dissatisfaction in many years, managers should consider that the employee
may be clinically depressed. The manager should suggest that the employee contact the
organization’s employee assistance program or his or her physician.

Tasks and Roles

JOB COMPLEXITY
Not only can job design add to enriching complexity but employees themselves
sometimes take measures to make their work more interesting.
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MEANINGFUL WORK
When it comes to generating satisfaction, the most important aspect of work is the degree
to which it is meaningfully related to workers’ core values.
CLEAR AND APPROPRIATE ROLES
Organizations can do much to avoid role-related sources of dissatisfaction. They can
define roles, clearly spelling out work methods, schedules and performance measures.
 Number of hours required to complete job requirements
 Number of family-friendly policies

Supervisors and Co-Workers

The people shared the same values, attitudes and philosophies. Most individuals find this
very important and many organizations try to foster a culture of shared values. Even when
this does not occur across the whole organization, values shared between workers and their
supervisors can increase satisfaction.
The co-workers and supervisor may provide social support, meaning they are sympathetic
and caring. Social support greatly increases job satisfaction, whether the support comes
from supervisors or co-workers. Turnover is also lower among employees who experience
support from other members of the organization.
The co-workers or supervisor may help the person attain some valued outcome. For
example, they can help a new employee figure out what goals to pursue and how to achieve
them.

Pay and Benefits

Organizations recognize the importance of pay in their negotiations with job candidates.
HR professionals can support their organizations in this area by repeatedly monitoring pay
levels in their industry and for the professions or trades they employ.
Satisfaction with pay structure – the way the organization assigns different pay levels to
different levels and job categories.
Satisfaction with pay raises – people generally expect that their pay will increase over time.
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11.26 Monitoring Job Satisfaction

Employers can better retain employees if they are aware of satisfaction levels so
they can make changes if employees are dissatisfied. The usual way to measure job
satisfaction is with some kind of survey. A systematic, ongoing program of employee
surveys should be part of the organization’s human resource strategy. This program
allows the organization to monitor trends and voluntary turnover.
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Learning Assessment
Answer the following questions and cite examples to support your
answer.
1. State the reasons why discharging employee can be very difficult.
2. Discuss and cite examples on the differences between involuntary
turnover and voluntary turnover.
3. How are you going to notify layoffs?

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LABOR RELATIONS AND COLLECTIVE BARGAINING

LEARNING OBJECTIVES
• Explain what labor relations and union means.
• Discuss what private sector union and public sector union
differences.
• Define collective bargaining and the issues related to it.
• Discuss the different types of collective bargaining.
• Explain the difference between collective bargaining agreement
and collective negotiation agreement.
• Discuss the steps in collective negotiation between the union and
management.

12.1 Labor Relations

 It refers to the interactions between employers and employees or their representatives
and the mechanisms for regulating such interactions.
 It is an integrated mechanism for labor dispute settlement.

12.2 What is Union?

A union is an organized group of workers who collectively use their strength to
have a voice in their workplace. Through a union, workers have a right to impact wages,
work hours, benefits, workplace health and safety, job training and other work-related
issues.
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12.3 Classification of Unions

12.4 Private Sector Union or Labor Organization

History and Legal Bases
The right to form union is guaranteed by the 1987 Constitution. The freedom of
association clause of the Bill of Rights of the Constitution of 1935, protecting the right to
form associations and societies for purposes not contrary to law in general, has been
expanded in the present basic law to include specifically the right of employees in both the
public and private sectors “to form unions”.
Requirements of Registration
INDEPENDENT UNION

a) Name of the applicant labor union, its principal address, the name of its officers
and their respective addresses, approximate number of employees in the bargaining unit
where it seeks to operate
b) Minutes of the organizational meeting(s) and the list of employees who participated
in the said meeting(s)
c) Name of all its members comprising at least 20% of the employees in the bargaining
unit
d) Annual financial reports
e) Constitution and by-laws, minutes of its adoption or ratification, and the list of the
members who participated in it.
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Rights of Legitimate Labor Organizations

Pursuant to the Labor Code of the Philippines, the rights of the legitimate labor
organizations are mentioned in Article 242 which summarized as follows:
1. Undertake activities for the benefit of members.
2. Sue and be sued.
3. Exclusive representative of all employees.
4. Represent union members.
5. Furnished by employers of audited financial statement.
6. Own properties.
7. Exempted from taxes.
Unfair Labor Practices of Labor Organizations
1. Restraint or Coercion
2. Causing Employer Discrimination
3. Violation of the Duty to Bargain Collectively
4. Feather-Bedding
5. Asking for or Accepting Negotiation of Attorney’s Fees
6. Violation of CBA

12.5 Public Sector Union or Public Employees Organization

History and Legal Bases
1987 CONSTITUTION

• Section 8, Article III (Bill of Rights)

“The right of the people, including those employed in the public and private sectors, to
form unions, associations, or societies for purposes not contrary to law shall not be
abridged.”
• Section 2(5), Article IX-B (Constitutional Commission)
The right to self-organization shall not be denied to government employees.”
• Section 3, Article XIII (Social Justice & Human Rights)
“It shall guarantee the right of all workers to self-organization, collective bargaining and
negotiations, peaceful concerted activities including the right to strike in accordance with
law.
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• Executive Order No. 180 – June 1, 1987

(Guidelines for the Exercise of the Right to Organize of Employees)
• Implementing Rules of EO 180 – Sept. 28, 2004
(Rules and Regulations to Govern the Exercises of the Rights of Government Employees
to Self-Organization)
Registration of PSU
Registration of Employees’ Organization” refers to the process by which an
employees’ organization acquires legal personality so as to be entitled to the rights and
privileges under Executive Order No. 180 upon compliance with the documentary
requirements and the issuance of the corresponding certificate of registration by the DOLE
and the CSC.
A Certificate of Registration legitimizes a union/ organization so it can now avail
the rights, privileges and protection granted by law. Its legal personality can only be
questioned by an independent petition for cancellation of its registration. (Section 6, Rule
V, IRR of EO 180)
The registration of an employees’ organization is the first step towards its
accreditation by the CSC as the sole and exclusive negotiating representative of the
agency’s rank-and file employees.

12.6 Collective Bargaining

It is a system or a process by which employees, through their duly chosen
representative, negotiate with their employer regarding the terms and conditions of their
employment.
In the Philippines, collective bargaining was formally introduced as part of the labor
relations system by means of a law, C.A. 213, passed on 21 November 1936, whose stated
purpose was “to define and regulate legitimate labor organizations”.

12.7 Issues in Collective Bargaining

 Wage related issues – these include such topics as how basic wage rates are determined,
cost of living adjustments, wage differentials, overtime rates, wage adjustments and wage
systems applied
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 Supplementary economic benefits – these include issues such as pension plans, paid
vacations, paid holidays, health insurance plans, dismissal pay, reporting pay, and
supplementary unemployment benefits
 Institutional issues – these consist of the rights and duties of employers, employees, and
unions, including union security, check-off procedures, employee stock ownership plans,
and quality of work- life programs
 Administrative issues – these include such issues as seniority, employee discipline and
discharge procedures, employee health and safety, technological changes, work rules, job
security, and training

12.8 Types of Collective Bargaining

 Distributive Bargaining - Under it, the economic issues like wages, salaries and bonus
are discussed. In distributive bargaining, one party’s gain is another party’s loss
 Integrative Bargaining - This involves negotiation of an issue on which both the parties
may gain, or at least neither party loses
 Attitudinal Restructuring Bargaining - This involves shaping and reshaping some
attitudes like trust or distrust, friendliness or hostility between labor and management.
 Intra- Organizational Bargaining - It generally aims to resolving internal conflicts. This
is a type of maneuvering to achieve consensus with the workers and management. Even
within the union, there may be differences between groups.

12.9 Collective Bargaining Agreement

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 It is a contract executed upon request of either the employer or the exclusive bargaining
representative of the employees incorporating the agreement reached after negotiations
with respect to wages, hours of work and all other terms and conditions of employment,
including proposals for adjusting any grievances or questions under such agreement.

 With respect to representation aspect, the CBA lasts for 5 years. However, not later than 3
years after the execution of the CBA, the economic provisions shall be renegotiated.

 The application for CBA registration shall be filed at the Regional Office that issued the
certificate of registration or certificate of creation of chartered local of the labor union-
party to the agreement.

 The application for registration of the CBA shall be filed within thirty (30) days from the
execution of such CBA.
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12.10 Collective Negotiation Agreement

 It is a contract negotiated between an accredited employees’ organization as the negotiating
unit and the employer/ management on the terms and conditions of employment and its
improvements that are not fixed by law.

 When can a union start negotiation with management?

 After a certificate of union accreditation is issued and within one (1) year the union
shall submit its CNA proposal to management.

 When shall the CNA take effect?

 Upon it’s signing by the parties and ratification by majority of the rank-and-file
employees in the negotiating unit to be done within ninety (90) calendar days.
Otherwise, the application for registration shall be denied. (PSLMC Res. No. 02, s.
2007)
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12.11 Knowing the Subject of Negotiation

12.12 Examples of Negotiable Items

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12.13 What can be Negotiated?

Compensation Matters:

1. Increases in salary;
2. Allowance
3. Travel expenses; and
4. Other benefits that are specifically provided by law

12.14 Examples of Non-Negotiable Items

12.15 Strike and Lockout

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Requirements for a Strike or Lockout as an Industrial Action

1. Filing of a Notice of an Intent to strike with the Bureau of Labor Relations or the
National Conciliation and Mediation Board (NCMB);

2. Taking the vote of the workers or Board of Directors to undertake the action;
3. Reporting the results of the strike votes;
4. Observing the cooling-off period – fifteen (15) days for unfair labor practice strike or
lockouts, and thirty (30) days for economic strikes and lockouts; and
5. Observing the seven (7)-day strike ban period.

12.16 Mediation, Conciliation and Arbitration

 Conciliation and mediation are processes to help both employers and unions to peacefully
and voluntarily settle their dispute.

 Arbitration is a process of resolving a labor controversy without the use of strike or

lockout.
 Mediation, conciliation, and arbitration are the most favored means, both by the
Constitution and the Labor Code, as mode or procedure of dispute settlement.
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Learning Assessment
Answer the following questions and cite examples to support your
answer.
1. Discuss the different types of collective bargaining.
2. What do you understand by collective bargaining agreement? Cite
example to support your answer.
3. Discuss collective negotiation agreement. Cite examples.

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MANAGING HUMAN RESOURCES GLOBALLY

LEARNING OBJECTIVES
• Summarize how the growth in international business activity
affects human resource management.
• Identify the factors that most strongly influence HRM in
international markets.
• Discuss how differences among countries affect HR planning at
organizations with international operations.
• Describe how companies select and train human resources in a
global labor market.
• Discuss challenges related to compensating employees from
other countries.
• Explain how employers prepare managers for international
assignments and for their return home.

13.1 HRM in a Global Environment

• The environment in which organizations operate is rapidly becoming a global one.
• Foreign countries can provide a business with new markets.
• Companies set up operations overseas because of lower labor costs.
• Technology makes it easier for companies to spread work around the globe.
• Global activities are simplified and encouraged by trade agreements among nations.
• As these trends and arrangements encourage international trade, they increase and
change demands on human resource management.
• Organizations need employees who understand the customers and suppliers in
foreign countries.
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• Organizations need to understand the laws and customs that apply to employees in
other countries.

13.2 Employees in an International Workforce

• Parent-country national – employee who was born and works in the country in
which an organization’s headquarters is located.
• Host-country national – employee who is a citizen of the country (other than parent
country) in which an organization operates a facility.
• Third-country national – employee who is a citizen of a country that is neither the
parent country nor the host country of the employer.
• When organizations operate overseas, they hire a combination of parent-country
nationals, host-country nationals, or third-country nationals.
• Expatriates – employees assigned to work in another country.
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13.3 Employers in the Global Marketplace

• International organization – an organization that sets up one or a few facilities in
one or a few foreign countries.
• Multinational company – an organization that builds facilities in a number of
different countries in an effort to minimize production and distribution costs.
• Global organization – an organization that chooses to locate a facility based on
the ability to effectively, efficiently, and flexibly produce a product or service using
cultural differences as an advantage.

13.4 Transnational HRM Systems

• Transnational HRM system:

– makes decisions from a global perspective

– includes managers from many countries

– based on ideas contributed by people representing a variety of cultures

• Decisions that are the outcome of a transnational HRM system balance uniformity
with flexibility.
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13.5 Culture
• Culture – a community’s set of shared assumptions about how the world works
and what ideals are worth striving for.
• Culture can greatly affect a country’s laws.
• Culture influences what people value, so it affects people’s economic systems and
efforts to invest in education.
• Culture often determines the effectiveness of various HRM practices.
• Cultural characteristics influence the ways members of an organization behave
toward one another as well as their attitudes toward various HRM practices.
• Cultures strongly influence the appropriateness of HRM practices.
• Cultural differences can affect how people communicate and how they coordinate
their activities.
• Organizations must prepare managers to recognize and handle cultural
differences.
 Recruit managers with knowledge of other cultures
 Provide training
• For expatriate assignments, organizations may need to conduct an extensive
selection process to identify individuals who can adapt to new environments.
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13.6 Education and Skills Levels

• Companies with foreign operations locate in countries where they can find
suitable employees.

• The educations and skill levels of a country’s labor force affect how and the
extent to which companies want to operate there.

• In countries with a poorly educated population, companies will limit their

activities to low-skill, low-wage jobs.

13.7 Economic System

• The economic system provides many of the incentives or disincentives for

developing the value of the labor force.

• In developed countries with great wealth, labor costs are relatively high. This
impacts compensation and staffing practices.

• Income tax differences between countries make pay structures more

complicated when they cross national boundaries.

13.8 Political-Legal System

• The country’s laws often dictate the requirements for HRM practices: training,
compensation, hiring, firing, and layoffs.

• An organization that expands internationally must gain expertise in the host

country’s legal requirements and ways of dealing with its legal system.

• Organizations will hire one or more host- country nationals to help in the
process.

13.9 Human Resource Planning in a Global Economy

• Human resource planning involves decisions about where and how many
employees are needed for each international facility.
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• Decisions about where to locate include considerations such as the cost and
availability of qualified workers.

• These considerations must be weighed against financial and operational

requirements.

• Other location decisions involve outsourcing.

13.10 Criteria for Selection of Employees for Foreign Assignments

1. Competency in the employee’s area of expertise

2. Ability to communicate verbally and nonverbally in the foreign country

3. Flexibility, tolerance of ambiguity, and sensitivity to cultural differences

4. Motivation to succeed and enjoyment of challenges

5. Willingness to learn about the foreign country’s culture, language, and customs

6. Support from family members

13.11 Training and Developing a Global Workforce

• Training and development programs should be effective for all participating

employees, regardless of their country of origin.
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• When organizations hire employees to work in a foreign country or transfer them

to another country, the employer needs to provide the employees with training in
how to handle the challenges associated with working in a foreign
country.

13.12 Delivering Training in Other Countries

• Know your goals – clarify what overseas training is supposed to achieve.

• Consider international differences among trainees when developing the training

plan.

• Keep an eye on quality – overseas trainers should meet the same quality standards
as training at headquarters.

• Be clear about standards for confidentiality and intellectual property.

• Know the local laws that affect training programs.

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13.13 Cross-Cultural Preparation

• This is training to prepare employees and their family members for an assignment
in a foreign country.

• The training covers all three phases of an international assignment:

1. Preparation for departure

2. The assignment itself

3. Preparation for the return home

13.14 Compensating an International Workforce

• Market pay structures can differ substantially across countries in terms of both
pay level and the relative worth of jobs.

• This creates a dilemma for global companies:

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– Should pay levels and differences reflect what workers are used to in their
own countries?

– Should pay levels and differences reflect the earnings of colleagues in the
country of the facility, or earnings at the company headquarters?

• Compensation decisions affect a company’s costs and ability to compete.

• The challenge of competing with organizations in low-wage countries can be very

difficult.

• Decisions about benefits must take into account the laws of each country
involved, as well as employees’ expectations and values in those countries.
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13.15 International Labor Relations

• Labor relations on an international scale involves differences in laws, attitudes,
economic systems, and differences in negotiation styles.
• Organizations establish overall policies and goals for labor relations, overseeing
labor agreements, and monitoring labor performance.
• The day-to-day decisions about labor relations are usually handled by each
foreign subsidiary.

13.16 Managing Expatriates : Selecting Expatriate Managers

• Expatriate managers need technical competence in the area of operations.

• In addition, many other skills are necessary to be successful in an overseas

assignment:

– Ability to maintain a positive self-image and feeling of well-being

– Ability to foster relationships with host-country nationals

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– Ability to perceive and evaluate the host country’s environment

accurately

13.17 Managing Expatriates : Preparing Expatriates

• Pre-assignment site visit
• Job orientation
• Country orientation
• Culture orientation
• Language training
• Compensation / benefits / taxes counseling

• Housing counseling
• Health care / schools / shopping / recreation counseling
• Counseling by returning expatriates
• Local sponsorship from host country

13.18 Compensating Expatriates

• Balance sheet approach – this approach adjusts the manager’s compensation so
that it gives the manager the same standard of living as in the home country plus
extra pay for the inconvenience of locating overseas.
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• This approach involves an effort by the global organization to ensure that its
expatriates are “made whole.”
• After setting the total pay, the organization divides this amount into the four
components of the total pay package:
1. Base salary
2. Tax equalization allowance
3. Benefits
4. Allowances
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13.19 Helping Expatriates Return Home

• Repatriation – the process of preparing expatriates to return home from foreign
assignment.
1. Communication: the expatriate receives information and
recognizes changes at home while abroad
2. Validation: giving the expatriate recognition for the overseas
service when this person returns home.
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Learning Assessment
Answer the following questions and cite examples to support your
answer.
1. Discuss the different criteria of employee for foreign assignments.
2. Discuss the effects of culture on training design. Cite examples.
3. What do you understand on International Labor Relations? How
important is this in our country?

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