Special Topics in HRM Jhonniño A.

Serdenia, MBA, CHRA

CHRA Review Material 2

Learning Objectives:
At the end of this module, you should be able to, to wit:
1. Understand the concept of variable pay;
2. Differentiate the types of compensation;
3. Distinguish an intrinsic reward from an extrinsic reward; and
4. Explain what is a performance standard.

I. Variable Pay

Variable pay is employee compensation that changes. It is often used to recognize and reward
employee contribution toward company productivity, profitability, teamwork, safety, quality, or
some other metric deemed important by senior leaders. This performance-based payment is
common in the sales field where pay is limited only by the salesperson's ability to close deals.

The employee who is awarded variable compensation has gone above and beyond their job
description to contribute to the organization's success. Variable pay is awarded in a variety of
formats—including profit sharing, bonuses, holiday bonus, deferred compensation, cash, and
goods and services such as a company-paid trip or a Thanksgiving turkey.

II. Reasons for Offering Variable Pay

Variable pay is an expected employee benefit to excite and retain employees. They want the
opportunity to earn variable compensation to bolster their base salary. And, today's employees
are also looking for more than just a base salary and benefits package when they decide to come
on board and work for an employer.

It is no longer enough for a company—even a global company—to offer the same generic
benefits to every person they hire. Employees now expect comprehensive benefits packages that
are tailored to their own personal circumstances—not just to broadly defined demographic needs.

Personalizing benefits packages starts with employers truly understanding what their employees
most want because benefits are only as valuable as each employee views them. The greater the
flexibility and variety of the benefits program, the more likely your employees are to feel
appreciated. For instance, a young employee with no children might see no value in a life
insurance benefit but would appreciate an extra day or two in paid time off.

Heathfield, S. (2019). Employers Offer Variable Pay, Benefits to Retain Employees.

https://www.thebalancecareers.com/variable-pay-and-benefits-for-employee-retention-1918287

III. Types of Compensation

The total compensation offered to an employee may be broken down into direct, indirect and
intangible compensation. Direct compensation involves monetary payments to employees for
time worked or results obtained. Indirect compensation involves expenditures made by an
Special Topics in HRM Jhonniño A. Serdenia, MBA, CHRA

employer on behalf of all employees and is typically referred to as "fringe benefits." Intangible
compensation involves non-monetary rewards such as....

Direct Compensation Components

 Base salary
 Premium payments (overtime, shift differentials, longevity pay.)
 Contingent programs (incentive plans or achievement award, merit pay)

Indirect Compensation Components

 Protection programs (Social Security, Worker's Compensation, Unemployment
Compensation, pension plans, health, dental, vision, life, accidental death and long term
disability insurance.)
 Paid Leave (vacations, holidays, jury duty, sick leave, military leave.)

Types of Compensation. (n.d.). The University of Texas.

https://www.uth.edu/hr/department/compensation/types-of-compensation.htm

IV. Extrinsic Rewards

Extrinsic rewards are usually financial or tangible rewards given to employees, such as pay
raises, bonuses, and benefits.
 They are extrinsic because they are external to completing the work itself and are
controlled by people other than the employee.
 They can be essential in jump-starting initial buy-in or participation from people in the
initial stages of readiness to change (pre-contemplation or contemplation).
 They usually have limited impact over time if they are not increased.
 They are a powerful lever to reinforce and drive the behaviors that a culture values most
but ouldn’t be the norm without. (e.g. sales commissions, performance bonuses, etc.)
 Think of them as a defibrillator to a stopped heart. Their job is to get the heart beating on
its own.

V. Intrinsic Rewards

Intrinsic rewards are psychological rewards that employees get from doing meaningful work and
performing it well.
 They are intrinsic because they are internal to the work being done and achieving them
largely depends on one’s own effort.
 They are essential to sustained behavior change.
 Can be created by allowing employees to do more self-managing and adding value to
their work by innovating, problem-solving and improvising.
 When someone achieves an intrinsic reward, there is a positive emotional reaction.
 Think of them as a pacemaker for a heart that is already beating. Their job is to keep the
heart on-pace and in rhythm.

VI. Performance Standard

Special Topics in HRM Jhonniño A. Serdenia, MBA, CHRA

Performance standards describe the accepted level of performance by an employee on the job.
They are based on the position, not the individual. They describe the specific indicators of
success for each skill within a competency map. They illustrate “what a good job looks like”.
The performance criteria are combined with a performance rating scale to develop performance
standards. The benefits of performance standards are:
 Provide a means for employers to measure job performance and productivity for each
skill.
 Present employees with specific performance expectations for each skill.
 Ensure a fair evaluation of all employees doing the same job tasks.
 Encourage communication between the supervisor and the employee.
 Promote a common understanding by employers and employees about job expectations.

Performance Standards. (n.d.). The Competency Group.

https://www.thecompetencygroup.com/competency-services/performance-standards/