Alzona, James Ryan

BSMA 4-1

Employee Compensation
 Compensation
 Systematic approach to providing monetary value to employees in exchange for work
performed
 May achieve several purposes assisting in recruitment, job performance and job satisfaction
 May be used to
 Recruit and retain qualified employees
 Increase or maintain morale/satisfaction
 Reward and encourage peak performance
 Achieve internal and external equity
 Reduce turnover and encourage company loyalty
 Modify practices of unions
 Compensation management- process by which employees are scouted, engaged and retained
employees through competitive compensation plans that align with the company budget,
corresponding job market and government regulations
 Good compensation management should
 Attract and recruit talent
 Motivate employees
 Maintain morale
 Adhere to government regulations and company compensation philosophy
 Reflect the current job market
Steps in Compensation Management

1. Develop and apply a compensation philosophy

a) Compensation philosophy- formally documents the company reasoning behind employee
salaries, bonuses and benefits
b) Consistent adhering to compensation philosophy demonstrates company integrity and
transparency to employees and job candidates
2. Gather employee feedback
a) HR Leaders can conduct anonymous surveys, allowing employees to relay their honest
opinions and suggestions
b) Employees- can give the most accurate feedback regarding compensation plans
c) HR Leaders can explain why they will be running a survey- because employee opinions and
experience are invaluable and their job satisfaction matters
3. Follow through with employee feedback
a) HR Leaders can implement changes based on employee feedback
b) Adjusting compensation plans to address employees’ financial and lifestyle needs can lead
to greater retention and engagement
4. Explain the compensation plan to employees
a) HR Leaders can review compensation plans with managers, who in turn can clarify the plans
to their team members
b) This helps employees appreciate and benefit from every aspect of the compensation
package
5. Offer compensation to improve quality of life
a) Compensation can include life-enhancing benefits, such as a pleasant work setting, a
workplace wellness program, extra vacation days or daily fresh catering
Executive Compensation
 Should be closely aligned with the long-term interests of shareholders and with corporate goals
and strategies. It should include significant performance based criteria related to long term
shareholder value and should reflect upside potential and downside risk
 Compensation of CEO and other top executives- should be determined entirely by independent
directors, either as a compensation committee or together with the other independent directors
based on the committee’s recommendations
 Committee should understand all aspects of executive compensation and should review the
maximum payout and all benefits under executive compensation arrangements
 Committee should require executives to build and maintain significant continuing equity
investment in the corporation
 Committee should oversee its corporation’s executive compensation program to see that they
are in compliance with applicable laws and regulations and aligned with best practices

Non-executive Compensation
1. Make salary decisions based upon appropriate qualifications, contributions, performance and
equity and budget considerations
2. Encourage and reward excellent performance with merit increases whenever possible
3. Provide salary increases, when appropriate, within available funding
4. Motivate employees by demonstrating the link between performance and pay

 Salary ranges involve a number of factors

 Regional prevailing salary rates
 Contractual stipulations
 Negotiated bargaining agreements
 Mandatory benefits
 Statutory minimum wage
 Overtime pay
 Rest day premium
 Night shift differential premium
 13th month pay
 Service incentive leave pay
 Holiday pay and holiday premium
 Leave benefits
 Maternity leave
 Paternity leave
 Solo parent leave
 Special leave for female employees
 Special leave for victims of VAWC
 SSS- was created to provide private employees and their families against disability, sickness, old
age and death
 GSIS is the equivalent system for Philippine Government employees
 Home Development Mutual Fund- also known as PagIbig fund, is a provident savings system
supplying housing loans to private and Philippine government employees, and to self-employed
persona who elect to join the fund.
 Philippine Health Insurance Corporation- administered by the Philippine Health Insurance
corporation, and provides employees with a practical means of paying for adequate medical care
in the Philippines
 Managing labor costs
 Managerial/supervisory vs rank and file employees
 Where the distinction lies
 FBT vs BIT
 Non-employee relations
 Outsourcing
 Compensation packages
Non-employee relations
 Professional-client relationship
 Self-employed contractor
 Agency or commission based arrangements

Advantages
1. No mandatory employee benefits
2. Terms are contractual in nature, hence terminable
3. Payments can be claimed as allowed deductions, hence, reducing taxable net income

Elements of employer-employee relationship

1. Power to select and hire
2. Power to pay wages
3. Power to dismiss
4. Power to control

Job contracting
 State may restrict or prohibit the contracting out of labor to protect the rights of workers
 This is not absolutely prohibited. The DOLE issuance, Department Order 174 s. 2017, sets out
parameters for permissible contracting arrangements
 Concurrence of the following is essential for a contractor to be considered as a legitimate job
contractor
 Contractor is engaged in a distinct and independent business and undertakes to perform
the job or work on its own responsibility, according to its own manner and method
 Has substantial capital to carry out the job farmed out by the principal on his account,
manner and method, investment in the form of tools, equipment, machinery and
supervision
 In performing the work farmed out, he is free from the control and/or direction of the
principal in all matters connected with the performance of the work except as to the result
thereto; and
 Service agreement ensures compliance with all the rights and benefits for all the employees
of the contractor or subcontractor under the labor laws
 Taxable compensation Income
 Salaries, wages, compensation, commissions, emoluments and honoraria
 Bonuses and other benefits exceeding 90,000
 Allowances for transportation, representation, entertainment and other similar items
 Fees- including director’s fees paid to a director who is at the same time an employee of
the payer
 Taxable pensions
 Taxable retirement pay
 Bonuses and profit-sharing
 Other income of a similar nature, including compensation paid in-kind
 Tax exempt compensation income
 Statutory minimum wage, including holiday pay, hazard pay, overtime pay and night shift
differential
  13th month pay, Christmas bonus and productivity incentives not exceeding 90,000
 Mandatory contributions- SSS, PhilHealth and Pag-IBIG
 De minimis benefits
 If the net compensation income does not exceed 250,000
 Retirement pay- if the retiree is at least 50 yrs old, if the retiree has rendered at least 1-
years of service. If it his first retirement and the private retirement benefit plan is approved
by the BIR
 Separation pay- if the reason for separation is death, disability, sickness or for any cause
beyond the control of the employee
 Benefits from SSS, GSIS and PhilHealth

Pension contributions
 Employer establishing or maintaining a pension trust to provide for the payment of reasonable
pensions to his employees shall be allowed as a deduction a reasonable amount transferred or
paid into such trust during the taxable year in excess of such contributions
 But only if such amount
 Has not theretofore been allowed as a deduction
 Is apportioned in equal parts over a period of 10 consecutive years beginning with the year
in which the transfer or payment is made
 Present service cost- deductible in full
 Past service cost- amortized over a period of 10 years
Stock Options
At time of grant
 If for a price, employer is subject to 15% CGT
 If no payment was received, transaction is exempt from tax
 Employer is liable for DST
 There is no taxable income on the part of employee

Employee sold the stock options

-employer is unaffected
-If transferred for a consideration, employee is subject to 15% CGT based on gain
-if transferred without consideration, employee is subject to 6% donor’s tax based on the FMV of the
shares
Exercise of options
-book value or FMV of shares, whichever is higher
-less exercise price
-taxable benefit on the part of employee
 If managerial/supervisory employee- fringe benefits tax
 If rank and file employee- basic income tax
 Employer recognized compensation expense