Pay Matters: Navigating the Essentials of Compensation Administration

Chapter 1: Foundations of
Compensation Administration

Kick Off

Welcome to the Foundations of Compensation Administration. Compensation is more than

just a paycheck; it's a strategic tool critical in attracting, motivating, and retaining employees.
It also reflects an organization’s values and can significantly impact its culture and
performance. Whether you're a human resources professional, a manager, or someone new to
the field, understanding how compensation works is essential for building fair, competitive,
and legally compliant pay systems.

In this module, you'll gain a clear understanding of what compensation encompasses, including
the different types of pay and benefits, the purpose and structure of total rewards systems, and
the principles that guide effective compensation strategies. This foundational knowledge will
help you approach compensation not just as an administrative task, but as a key lever in driving
organizational success.

This is your starting point. Let’s dive into the essentials of compensation and discover why it
truly matters.

Learning Outcomes

This module covers essential topics on the Foundations of Compensation Administration In

particular, at the end of this module, the students can:

1. Discuss the nature and objectives of compensation

2. Determine the classifications of compensation
3. Explain the policies affecting compensation
4. Identify the components of a compensation system
5. Discuss the different theories of wages
6. Differentiate between salary and wage as concepts
7. Explain the different compensation concepts
8. Identify and discuss labor market theories.

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Pay Matters: Navigating the Essentials of Compensation Administration

Learning Contents

This module contains discussion on the following topics:

1. The Nature and Objectives of Compensation

2. Classifications of Compensation
3. Policies Affecting Compensation
4. Components of a Compensation System
5. The Different Theories of Wages
6. The Difference Between Salary and Wage Concepts
7. The Different Compensation Concepts
8. The Labor Market Theories

I. THE NATURE AND OBJECTIVES OF COMPENSATION

The Nature of Compensation

Compensation encompasses all forms of financial returns and tangible services and benefits
employees receive as part of an employment relationship (Espena, 2017). It includes direct
financial payments such as wages, salaries, incentives, and bonuses, as well as indirect benefits
like health insurance, retirement plans, and other perks. In the Philippine context,
compensation is not only a tool for employee motivation but also a means to comply with
labor laws and ensure organizational competitiveness (Resurreccion, 2012).

The Objectives of Compensation

The primary objectives of compensation are multifaceted, aiming to balance organizational

goals with employee satisfaction:

1. Attraction and Retention of Talent

A competitive compensation package helps attract qualified candidates and retain

valuable employees, reducing turnover and associated recruitment costs (Espena, 2017).

2. Motivation and Performance Enhancement

Properly structured compensation systems can motivate employees to perform at their

best, aligning individual goals with organizational objectives (Resurreccion, 2012).

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Pay Matters: Navigating the Essentials of Compensation Administration

3. Legal Compliance

Adhering to government regulations on minimum wage, benefits, and other employment

standards is crucial to avoid legal repercussions and maintain corporate integrity (Espena,
2017).

4. Internal and External Equity

Ensuring fairness within the organization and in comparison to industry standards
fosters a sense of justice among employees, which can enhance morale and loyalty
(Espena, 2017).

5. Cost Management

Organizations aim to design compensation structures that are cost-effective while still
being attractive to employees, balancing financial sustainability with employee
satisfaction (Espena, 2017).

6. Reinforcement of Organizational Culture and Values

Compensation systems can be designed to reward behaviors and outcomes that align
with the organization's culture and values, promoting desired organizational behaviors
(Resurreccion, 2012).

Truly, compensation is a strategic component of human resource management that serves to

attract, motivate, and retain employees while ensuring legal compliance and organizational
competitiveness. In the Philippine setting, understanding the nature and objectives of
compensation is vital for developing effective HR policies that contribute to both employee
satisfaction and organizational success.

II. CLASSIFICATIONS OF COMPENSATION

Compensation plays a pivotal role in attracting, retaining, and motivating employees within
any organization. In the Philippine context, both the public and private sectors adhere to
structured systems to ensure that compensation is fair, equitable, and aligned with the duties
and responsibilities associated with each position. Central to this system is the concept of
classification, which groups jobs based on factors such as skill level, responsibility, and
supervisory role. Guided by legislation like Republic Act No. 6758, also known as the
Compensation and Position Classification Act of 1989, the Philippine government has
institutionalized a standardized approach to compensation management. This paper explores
the various classifications of compensation, drawing from academic sources and official
government frameworks, to provide a comprehensive understanding of how compensation
systems are implemented in the Philippines.

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Pay Matters: Navigating the Essentials of Compensation Administration

1. Republic Act No. 6758 – Compensation and Position Classification Act of

1989

Republic Act No. 6758, enacted on August 21, 1989, prescribes a revised compensation
and position classification system in the government. It aims to ensure equal pay for
substantially equal work and to base differences in pay upon substantive differences in
duties and responsibilities, and qualification requirements of the positions. The
Department of Budget and Management (DBM) is tasked with establishing and
administering a unified Compensation and Position Classification System applicable to
all government entities.

2. Position Classification System (PCS)

Under RA No. 6758, the Position Classification System categorizes positions into classes
based on the following considerations:

2.1 Kind or subject matter of work

2.2 Level of difficulty and responsibility
2.3 Qualification requirements for the work
2.4 This system groups positions into four main categories:
2.5 Professional Supervisory
2.6 Professional Non-Supervisory
2.7 Sub-Professional Supervisory
2.8 Sub-Professional Non-Supervisory

These classifications guide the determination of appropriate compensation and benefits

for government personnel.

3. Compensation Plan (CP)

The Compensation Plan outlines the salary grades and corresponding compensation for
various positions. It includes:

Salary Grades: A numerical scale representing the relative value of positions.

Salary Rates: The actual pay assigned to each salary grade.
Allowances and Benefits: Additional financial benefits provided to employees.

This plan ensures that compensation is equitable and aligned with the responsibilities
and qualifications required for each position.

4. Job Evaluation Methods

To determine the appropriate classification and compensation for positions, various job
evaluation methods are employed:

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Pay Matters: Navigating the Essentials of Compensation Administration

Classification Method: Positions are grouped into classes based on similar duties,
responsibilities, and qualifications. Each class corresponds to a specific salary
grade.
Point Factor Method: Positions are evaluated based on compensable factors such
as skills, responsibilities, and working conditions. Points are assigned to each
factor, and the total points determine the position's classification.

These methods ensure a systematic and objective approach to compensation

management.

Examples of Compensation Classifications

Government Sector

In the government sector, positions are classified into the four categories mentioned earlier.
For instance:

Professional Supervisory: Positions requiring professional qualifications and

supervisory responsibilities, such as Department Heads.

Sub-Professional Non-Supervisory: Positions that require specific skills but do not

involve supervisory duties, like Utility Workers.

Each category has a corresponding salary grade, ensuring that compensation is commensurate
with the position’s requirements and responsibilities.

Private Sector

While RA No. 6758 applies to government entities, private companies often adopt similar
classification systems to ensure competitive and equitable compensation. For example:

Managerial Positions: Such as General Managers, who are compensated based on their
strategic role and decision-making authority.

Clerical Positions: Like Administrative Assistants, whose compensation reflects their

support role within the organization.

These classifications help private companies structure their compensation plans effectively.

The classifications of compensation in the Philippines, as outlined in RA No. 6758 and

supported by various job evaluation methods, aim to ensure equitable and competitive
compensation for all employees. By systematically categorizing positions based on duties,
responsibilities, and qualifications, both the government and private sectors can maintain
fairness and transparency in their compensation practices.

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Pay Matters: Navigating the Essentials of Compensation Administration

III. POLICIES AFFECTING COMPENSATION

In the Philippines, compensation policies are shaped by a combination of legislative

frameworks, executive orders, and administrative guidelines that aim to ensure fairness, equity,
and efficiency in the remuneration of workers across various sectors. These policies are
particularly pertinent in the public sector, where standardization and regulation are paramount.

Republic Act No. 6758, known as the Compensation and Position Classification Act of 1989,
serves as the cornerstone of compensation policies in the public sector. It mandates the
establishment of a unified compensation and position classification system to ensure that
compensation is based on the duties and responsibilities of positions, as well as the
qualifications required. This Act aims to eliminate disparities in pay and promote equal pay for
equal work among government employees.

Further reinforcing this framework, Republic Act No. 11466, or the Salary Standardization
Law V, was enacted to provide for a standardized salary schedule for government employees.
This law aims to attract and retain competent professionals in the public sector by offering
competitive salaries. However, its implementation has faced challenges, particularly in local
government units (LGUs) with limited budgets, leading to disparities in compensation among
employees performing similar roles. For instance, nurses in higher-class municipalities receive
higher salaries compared to those in lower-class municipalities, despite having the same
qualifications and responsibilities.

In the private sector, compensation policies are primarily governed by the Labor Code of the
Philippines, which sets the minimum wage standards and regulates working hours, overtime
pay, and other employment benefits. Employers are required to comply with these standards
to ensure that workers receive fair compensation for their labor.

Additionally, the Magna Carta for Public School Teachers (Republic Act No. 4670) provides
specific provisions regarding the compensation and benefits of public school teachers. It
mandates the payment of additional compensation for teachers who are required to render
services beyond their regular working hours. Despite this, there have been instances where
teachers have not been adequately compensated for extended work, leading to calls from
educators for the government to address this issue and ensure fair remuneration for all work
performed.

Moreover, policies promoting inclusivity and diversity have also influenced compensation
practices. Republic Act No. 10524 mandates that persons with disabilities (PWDs) receive
equal pay for equal work, ensuring that they are compensated on par with their non-disabled
counterparts. This law also encourages private corporations to employ PWDs by offering tax
incentives, thereby promoting a more inclusive workforce.

In the academic sector, compensation policies are often determined by the governing boards
of higher educational institutions, as stipulated in Republic Act No. 8292. This Act grants

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Pay Matters: Navigating the Essentials of Compensation Administration

these institutions the authority to fix and adjust salaries of faculty members and administrative
officials, subject to the provisions of the revised compensation and classification system and
other pertinent budget and compensation laws governing hours of service .
lawphil.net

Hence, while the Philippines has established a robust framework of policies to regulate and
standardize compensation across various sectors, challenges remain in ensuring equitable
implementation. Disparities in compensation, particularly between different regions and
sectors, highlight the need for continuous review and adjustment of these policies to address
emerging issues and promote fairness in remuneration.

IV. COMPONENTS OF A COMPENSATION SYSTEM

A well-structured compensation system is essential for attracting, retaining, and motivating

employees. In the Philippine context, compensation systems are influenced by various factors,
including legal requirements, organizational policies, and market standards. The following
components are integral to a comprehensive compensation system:

1. Base Pay

Base pay refers to the fixed compensation an employee receives for performing their job
duties. It is typically determined based on job evaluation, market rates, and internal equity
considerations. In the Philippines, base pay must comply with the minimum wage laws
set by the Regional Tripartite Wages and Productivity Boards.

2. Variable Pay

Variable pay includes compensation elements that are contingent on individual, team, or
organizational performance. These may include:

Bonuses: Additional payments made periodically, such as the 13th-month pay

mandated by law.

Commissions: Earnings based on sales or performance targets.

Profit Sharing: Distribution of a portion of company profits to employees.

Stock Options: Opportunities for employees to purchase company stock at a

discounted rate.

Variable pay serves to align employee performance with organizational goals and can
enhance motivation and productivity.

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Pay Matters: Navigating the Essentials of Compensation Administration

2. Benefits

Employee benefits are non-wage compensations provided to employees in addition to

their base pay. In the Philippines, benefits can be categorized as:

Mandatory Benefits: Required by law, including contributions to the Social

Security System (SSS), PhilHealth, and the Home Development Mutual Fund (Pag-
IBIG).

Voluntary Benefits: Offered at the discretion of the employer, such as health

insurance, retirement plans, and educational assistance.

Benefits contribute to employee well-being and job satisfaction, and they play a crucial
role in the overall compensation package.

4. Allowances

Allowances are additional payments made to employees to cover specific expenses

incurred in the course of their work. Common allowances in the Philippines include:

Transportation Allowance: For commuting expenses.

Meal Allowance: To cover daily food costs.

Clothing Allowance: For work-related attire.

Allowances are typically provided to ensure that employees are not financially burdened
by job-related expenses.

5. Incentives

Incentives are rewards given to employees for achieving specific performance targets or
milestones. These can be:

Individual Incentives: Based on personal performance metrics.

Group Incentives: Based on team or departmental performance.

Organizational Incentives: Tied to company-wide achievements.

Incentives are designed to encourage high performance and align individual efforts with
organizational objectives.

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Pay Matters: Navigating the Essentials of Compensation Administration

6. Recognition Programs

Recognition programs acknowledge and celebrate employee achievements and

contributions. These programs can include:

Employee of the Month Awards: Public acknowledgment of outstanding

performance.

Service Awards: Recognition for years of service.

Spot Awards: Immediate recognition for exceptional contributions.

Recognition programs foster a positive work environment and reinforce desired

behaviors.

7. Legal Compliance

A compensation system must adhere to all applicable labor laws and regulations. In the
Philippines, this includes compliance with:

The Labor Code governs employment practices, including wages, working hours,
and conditions.

Republic Act No. 6758 prescribes a revised compensation and position

classification system in the government.

Republic Act No. 11466 modifies the salary schedule for civilian government
personnel.

Ensuring legal compliance protects both the employer and employees and promotes
fairness in compensation practices.

8. Market Competitiveness

To attract and retain talent, organizations must offer compensation packages that are
competitive within their industry and geographic location. This involves:

Conducting Salary Surveys: To benchmark against industry standards.

Adjusting Pay Scales: To remain competitive and account for inflation and cost
of living changes.

Market competitiveness ensures that organizations can attract skilled employees and
reduce turnover.

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Pay Matters: Navigating the Essentials of Compensation Administration

A comprehensive compensation system in the Philippines encompasses various components,

each playing a vital role in employee satisfaction and organizational success. By integrating
base pay, variable pay, benefits, allowances, incentives, recognition programs, legal
compliance, and market competitiveness, organizations can develop a compensation strategy
that aligns with their goals and meets the needs of their employees.

V. THEORIES OF WAGES

Understanding wage determination is crucial for analyzing labor markets. Several theories
explain how wages are set:

Subsistence Theory: This theory posits that wages are set at a level sufficient for
workers to meet their basic needs, such as food, shelter, and clothing. In the Philippine
context, Caparas Jr. (1969) emphasized that a just wage should allow workers to afford
a decent standard of living, including education, healthcare, and savings for emergencies.

Wage Fund Theory: Proposed by Adam Smith, this theory suggests that wages are paid
from a predetermined fund, and the amount available is divided among workers. The
number of workers and the total fund determine individual wages. However, critics argue
that this theory oversimplifies wage determination and doesn't account for dynamic
economic factors.

Bargaining Theory: According to this theory, wages are determined through

negotiations between employers and employees or their representatives. Factors
influencing these negotiations include labor productivity, profitability of the business,
and the possibility of substituting labor with machinery. In the Philippines, labor unions
play a significant role in bargaining for better wages and working conditions.

Marginal Productivity Theory: This theory asserts that wages are determined by the
marginal productivity of labor, meaning workers are paid according to the additional
value they bring to production. While this theory is widely accepted in economic
literature, its application in the Philippines is influenced by factors such as education,
skills, and industry standards.

Efficiency Wage Theory: This theory suggests that employers may pay wages above
the market equilibrium to increase worker productivity, reduce turnover, and attract
higher-quality employees. In the Philippine context, companies in competitive industries
may offer higher wages to retain skilled workers.

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Pay Matters: Navigating the Essentials of Compensation Administration

VI. DIFFERENCE BETWEEN SALARY AND WAGE CONCEPTS

In the Philippines, the terms "salary" and "wage" are often used interchangeably, but they have
distinct legal and practical implications:

Salary: Typically refers to a fixed regular payment, often expressed on an annual basis but
paid monthly. Salaried employees are usually in managerial or professional roles and may
not be entitled to overtime pay.

Wage: Generally refers to compensation based on hours worked, often paid weekly or
biweekly. Wage earners are typically hourly workers and are entitled to overtime pay for
hours worked beyond the standard workweek.

The distinction is important for determining eligibility for benefits such as overtime, holiday
pay, and other labor protections under Philippine law.

VII. DIFFERENT COMPENSATION CONCEPTS

Compensation encompasses more than just wages or salaries. It includes:

Direct Compensation: Monetary payments such as base pay, bonuses, and

commissions.

Indirect Compensation: Non-monetary benefits like health insurance, retirement

plans, and allowances.

Intrinsic Compensation: Non-material rewards such as job satisfaction, recognition,

and career development opportunities.

In the Philippines, compensation packages often include a combination of these elements to

attract and retain employees.

VIII. LABOR MARKET THEORIES

Several theories explain the functioning of labor markets:

Dual Labor Market Theory: This theory divides the labor market into two segments:
the primary sector, characterized by stable jobs with good wages and benefits, and the
secondary sector, consisting of low-wage, unstable jobs. In the Philippines, this
segmentation is evident in the disparity between formal and informal employment sectors.

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Pay Matters: Navigating the Essentials of Compensation Administration

Human Capital Theory: According to this theory, investments in education and training
increase workers' productivity and, consequently, their wages. In the Philippines, higher
educational attainment is associated with higher income levels, reflecting the application
of this theory.
scribd.com

Labor Market Segmentation Theory: This theory suggests that the labor market is
divided into distinct sub-markets or segments, each with its own set of rules and
characteristics. Factors such as race, gender, and education can influence which segment
a worker belongs to. In the Philippines, this is observed in the differences between urban
and rural employment opportunities.

Efficiency Wage Theory: As mentioned earlier, this theory posits that paying workers
above the market rate can lead to increased productivity and reduced turnover. Some
Philippine companies adopt this approach to maintain a competitive edge.

Wrap Up

The study of compensation administration is essential in understanding how organizations

strategically reward their employees in exchange for work performance, motivation, and
loyalty. Throughout this module, we explored the core components of a compensation system,
such as base pay, benefits, incentives, and recognition, while examining the various theories
of wages, compensation concepts, and labor market dynamics. We also analyzed the legal
framework in the Philippine context—including Republic Acts and labor policies—that guide
fair compensation practices and ensure compliance with national standards. These
foundational elements collectively influence how organizations attract, retain, and develop
their human capital.

By mastering these fundamentals, students and HR practitioners alike are better equipped to
design, evaluate, and implement compensation programs that are both equitable and
competitive. Understanding the distinctions between salary and wage, the relevance of
performance-based pay systems, and the impact of labor economics enables more informed
decision-making within human resource management. Ultimately, effective compensation
administration supports not only organizational goals but also promotes employee well-being,
productivity, and workplace harmony in both public and private sectors.

Learning and Teaching Processes

• Lecture
• Class Discussion

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Pay Matters: Navigating the Essentials of Compensation Administration

Recommended learning materials and resources for supplementary reading.

Compensation Administration
https://themba.institute/human-resource-management/compensation-administration/

Flexible Teaching Learning Modality (FTLM)

Online Film Viewing: The Principle of Compensation

https://www.youtube.com/watch?v=9p-FBJw6MRo

Assessment Task: Quiz: Fundamentals of Compensation Administration

Type: Written (Pen-and-Paper) Time: 20–30 minutes Total Points: 20

Part I: Multiple Choice (1 point each) Choose the letter of the correct answer.

Which of the following refers to the fixed amount paid to an employee on a regular basis,
usually monthly?
A. Wage
B. Salary
C. Allowance
D. Bonus

What theory states that wages are based on the value of the worker’s contribution to
production?
A. Subsistence Theory
B. Wage Fund Theory
C. Marginal Productivity Theory
D. Bargaining Theory

Which law in the Philippines governs the standard salary schedule for government employees?
A. RA 6727
B. RA 6758
C. RA 10963
D. RA 9485

Which of the following is an example of indirect compensation?

A. Overtime pay
B. Profit sharing
C. PhilHealth contribution
D. Performance bonus

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Pay Matters: Navigating the Essentials of Compensation Administration

What is the main difference between salary and wage?

A. Salary is paid daily; wage is paid monthly
B. Wage is fixed; salary varies
C. Salary is for managers; wage is for freelancers
D. Salary is fixed per period; wage is based on hours worked

Part II: True or False (1 point each) Write T if the statement is True, and F if it is False.

________ The efficiency wage theory suggests that paying employees less will result in higher
productivity.

________ Allowances are considered part of direct compensation.

________ The Labor Code of the Philippines sets the minimum wage rates for all workers in
the country.

________ A good compensation system considers both monetary and non-monetary rewards.

________ Job satisfaction is unrelated to the compensation employees receive.

Part III: Short Answer (2 points each) Answer briefly but clearly.

Name two components of a compensation system and briefly describe each.

Give one example of a Philippine labor policy that affects compensation and explain its
purpose.

Why is understanding labor market theories important in designing compensation systems?

What is the role of performance-based incentives in a compensation system?

Give one reason why companies in the Philippines may choose to offer above-minimum wage
rates.

Answer Key

Part I: Multiple Choice (1 point each)

B. Salary
C. Marginal Productivity Theory
B. RA 6758
C. PhilHealth contribution
D. Salary is fixed per period; wage is based on hours worked

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Pay Matters: Navigating the Essentials of Compensation Administration

Part II: True or False (1 point each)

F – Efficiency wage theory suggests higher pay can lead to higher productivity.
T – Allowances are part of direct compensation.
F – Minimum wage rates are set regionally by the RTWPBs, not uniformly by the Labor
Code.
T – A well-designed compensation system includes both monetary and non-monetary
rewards.
F – Job satisfaction is often linked to how employees are compensated.

Part III: Short Answer (2 points each) (Note: Accept other similar correct answers)

Base Pay – Fixed amount paid regularly for performing a job.

Benefits – Non-cash perks such as health insurance or retirement contributions.
RA 6758 – Establishes standardized compensation for government employees to ensure
fairness and equity.
Labor market theories help explain wage trends and guide employers in setting
competitive, fair compensation aligned with supply and demand for labor.
Performance-based incentives motivate employees to exceed targets and align individual
goals with organizational objectives.
To attract and retain skilled employees in a competitive labor market or to improve
employee morale and productivity.

References

Republic Act No. 6758, August 21, 1989. (n.d.). Retrieved from
https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/2/1626

Department of Budget and Management. (n.d.). Position Classification and Compensation

Manual. Retrieved from https://fr.scribd.com/doc/214571808/Position-Classification-and-
Compensation-DBM-Manual

Central Luzon State University. (n.d.). HRM Chapter 8: Reward Management in Human
Resource Management. Retrieved from https://www.studocu.com/ph/document/central-
luzon-state-university/filipino/hrm-chapter-8-this-is-about-the-reward-management-in-
human-resource-management/67966618

Republic Act No. 4670, An Act Providing for the Magna Carta for Public School Teachers.
(1966). Retrieved from https://www.officialgazette.gov.ph/1966/06/18/republic-act-no-
4670/

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Pay Matters: Navigating the Essentials of Compensation Administration

Republic Act No. 6758, An Act Prescribing a Revised Compensation and Position
Classification System in the Government and for Other Purposes. (1989). Retrieved from
https://www.officialgazette.gov.ph/1989/08/21/republic-act-no-6758/

Republic Act No. 10524, An Act Expanding the Positions Reserved for Persons with
Disability, Amending for the Purpose Republic Act No. 7277, as Amended, Otherwise Known
as the Magna Carta for Persons with Disability. (2013). Retrieved from
https://www.officialgazette.gov.ph/2013/05/15/republic-act-no-10524/

Republic Act No. 11466, An Act Modifying the Salary Schedule for Civilian Government
Personnel and Authorizing the Grant of Additional Benefits, and for Other Purposes. (2019).
Retrieved from https://www.officialgazette.gov.ph/2019/01/08/republic-act-no-11466/

Republic Act No. 8292, An Act Providing for the Modernization of the System of Governance
in the Higher Education Sector, Amending for the Purpose Presidential Decree No. 1341, as
Amended, and Other Laws, and for Other Purposes. (1997). Retrieved from
https://www.officialgazette.gov.ph/1997/06/06/republic-act-no-8292/

Department of Budget and Management. (2020). National Budget Circular No. 572. Retrieved
from https://www.dbm.gov.ph/wp-content/uploads/2020/03/NBC-572.pdf

Department of Labor and Employment. (2019). Department Order No. 202, Series of 2019.
Retrieved from https://www.dole.gov.ph/php_assets/uploads/2019/12/DO_202-19.pdf

Miranda, J. M., & Martires, R. M. (2023). Exploring the Legal Framework for Offsetting
Overtime in the Philippine Private University Sector. Respicio & Co. Retrieved from
https://www.lawyer-philippines.com/articles/exploring-the-legal-framework-for-offsetting-
overtime-in-the-philippine-private-university-sector

Caparas Jr., J. (1969). Wage Determination and the Just Wage Concept in the Philippines.
Philippine Economic Society.

Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. W. Strahan
and T. Cadell.

Mincer, J. (1974). Schooling, Experience, and Earnings. National Bureau of Economic

Research.

Esguerra, E. F. (2019). Automation, gigs, and other labor market tales: The Philippines in the
Fourth Industrial Revolution. Philippine Review of Economics, 56(1&2), 1-22.

Son, H. H. (2005). The role of labor market in explaining growth and inequality in income:
The Philippines’ case. Philippine Review of Economics, 42(1), 1-18.

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Pay Matters: Navigating the Essentials of Compensation Administration

Chapter 2: Job Values and

Compensation Decisions

Kick Off

Job values and compensation decisions are central to attracting, motivating, and retaining
talent. Today's employees seek more than just a paycheck, they look for meaning, growth,
recognition, and alignment with personal and professional goals. Understanding what people
truly value in their work helps organizations design compensation strategies that go beyond
financial incentives and support long-term engagement and satisfaction.

This module explores how compensation decisions are made, including considerations around
fairness, market competitiveness, internal equity, and performance. You’ll learn how job values
shape employee expectations and how misaligned pay structures can lead to disengagement
and turnover. By the end, you’ll be equipped to think more strategically about compensation,
not just as a cost, but as a powerful tool for reinforcing organizational values and supporting
a motivated, high-performing workforce.

Learning Outcomes

This module delves on fundamental areas of Job Values and Compensation Decisions. In
particular, at the end of this module, the students can:

1. Discuss the nature of job analysis

2. Describe the dimensions of job analysis
3. Demonstrate awareness of the job analysis process
4. Prepare job descriptions
5. Identify the nature of job evaluation
6. Categorize compensable factors
7. Perform job evaluation methods
8. Categorize the dimensions of a wage survey
9. Analyze the sources of the wage survey
10. Discuss data collection and analysis
11. Practice job analysis, job evaluation, and market rate analysis in designing
compensation decisions.

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Pay Matters: Navigating the Essentials of Compensation Administration

Learning Contents

This module contains discussion on the following topics:

1. The Nature of Job Analysis

2. The Dimensions of Job Analysis
3. The Job Analysis Process
4. Job Descriptions
5. The Nature of Job Evaluation
6. Categories of Compensable Factors
7. Job Evaluation Methods
8. The Dimensions of a Wage Survey
9. The Sources of the Wage Survey
10. Data Collection and Analysis
11. Job Analysis, Job Evaluation, and Market Rate Analysis
12. Designing Compensation Decisions.

I. THE NATURE OF JOB ANALYSIS

Job analysis is a systematic process used to determine and document the duties,
responsibilities, necessary skills, outcomes, and work environment of a particular job. In the
Philippine context, it serves as a foundational element in human resource management,
influencing various HR functions such as recruitment, training, performance evaluation, and
compensation. According to Dr. Roque (2005), job analysis involves determining and
reporting pertinent information related to the nature of a specific job, encompassing tasks,
responsibilities, and the qualifications required to perform them effectively.

In the Philippines, job analysis is particularly crucial due to the unique cultural and
organizational dynamics. Filipino values such as pakikisama (smooth interpersonal
relationships) and malasakit sa kapwa (concern for others) often influence job roles and
expectations. These cultural nuances necessitate a tailored approach to job analysis to ensure
that job descriptions and specifications align with both organizational needs and cultural
contexts. Furthermore, adherence to local labor laws and ethical standards is paramount
during the job analysis process to ensure compliance and fairness.

II. THE DIMENSIONS OF JOB ANALYSIS

Job analysis is the process of studying and understanding what a job involves. It helps
organizations know what tasks are part of a job, what qualifications are needed, and how a job
fits within the company. This process is important because it supports many HR activities like
hiring, training, and setting salaries. Job analysis looks at different parts or "dimensions" of a

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Pay Matters: Navigating the Essentials of Compensation Administration

job to give a complete picture. The dimensions of job analysis encompass several key aspects
that provide a comprehensive understanding of a job's requirements and expectations.

1. Job Content

This dimension focuses on the specific tasks and responsibilities associated with a job.
It involves identifying the duties performed, the sequence of tasks, and the purpose of
each task within the broader organizational context. Understanding job content helps in
designing accurate job descriptions and specifications, ensuring that employees are aware
of their roles and responsibilities.

2. Job Context

Job context refers to the environment in which a job is performed. This includes the
physical setting, work conditions, tools and equipment used, and the organizational
culture. Analyzing the job context helps in assessing the impact of environmental factors
on job performance and employee well-being.

3. Job Requirements

This dimension identifies the qualifications, skills, knowledge, and abilities necessary to
perform the job effectively. It encompasses educational requirements, technical skills,
experience, and personal attributes. Understanding job requirements aids in recruitment
and selection processes, ensuring that candidates possess the necessary competencies for
the role.

4. Job Relationships

Job relationships pertain to the interactions and communication between the job holder
and others within the organization. This includes relationships with supervisors, peers,
subordinates, and external contacts. Analyzing job relationships helps in understanding
the collaborative aspects of a job and the interpersonal skills required for effective
performance.

5. Job Outcomes

Job outcomes refer to the results or outputs expected from performing the job. This
includes both tangible outcomes, such as products or services delivered, and intangible
outcomes, like customer satisfaction or employee engagement. Defining job outcomes
is crucial for setting performance standards and evaluating employee effectiveness.

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Pay Matters: Navigating the Essentials of Compensation Administration

6. Job Evaluation

Job evaluation involves assessing the relative worth of a job within the organization. This
dimension helps in determining appropriate compensation levels by considering factors
like skill requirements, responsibilities, and working conditions. Job evaluation ensures
internal equity and supports fair pay practices.

Understanding the dimensions of job analysis provides a comprehensive framework for

evaluating and managing jobs within an organization. By systematically analyzing job content,
context, requirements, relationships, outcomes, and evaluation, organizations can make
informed decisions in areas such as recruitment, training, performance management, and
compensation. This holistic approach contributes to aligning job roles with organizational
goals and enhancing overall organizational effectiveness.

III. THE JOB ANALYSIS PROCESS

Job analysis is a systematic procedure used to identify and determine the duties,
responsibilities, and requirements of a job, as well as the type of person who should be hired
for it. This process serves as the foundation for various human resource functions, including
recruitment, selection, training, compensation, and performance management. The process
typically involves several key steps:

Determining the Purpose: Clarifying the objectives of the job analysis, such as creating
job descriptions or determining compensation levels.

Collecting Job Information: Gathering data through methods like interviews,

questionnaires, observations, and reviewing existing job descriptions.

Analyzing Job Data: Organizing and interpreting the collected information to identify
key tasks, responsibilities, and required qualifications.

Developing Job Descriptions and Specifications: Creating detailed documents that

outline the duties, responsibilities, and qualifications for the job.

Reviewing and Updating: Regularly revisiting the job analysis to ensure it remains
accurate and relevant.

In the context of the Philippines, studies have shown that job analysis significantly influences
employee performance. For instance, research conducted at the University College of
Management Studies (UCOMS) found a positive relationship between well-conducted job
analysis and improved employee performance, highlighting its importance in organizational
effectiveness (Goulart, Rodríguez-Menés, & Armayones, 2022).

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Pay Matters: Navigating the Essentials of Compensation Administration

IV. JOB DESCRIPTIONS

A job description is a formal written document that outlines the essential duties,
responsibilities, qualifications, and working conditions associated with a specific position
within an organization. It serves as a foundational tool in human resource management,
guiding various functions such as recruitment, performance evaluation, compensation, and
legal compliance. By clearly delineating the expectations and requirements of a role, job
descriptions help ensure alignment between organizational needs and employee capabilities.

Key Components of Job Descriptions

Job descriptions typically encompass several critical components:

Job Identification: This section includes the job title, department, location, salary grade,
and reporting relationships. It provides a clear identification of the position within the
organizational structure.

Job Summary: A concise overview of the job's primary purpose and objectives, offering
a snapshot of what the role entails.

Duties and Responsibilities: A detailed list of the tasks and functions the employee is
expected to perform. This section should be specific and prioritized to reflect the job's
core activities.

Qualifications: The required education, experience, skills, and certifications necessary

to perform the job effectively. This may also include preferred qualifications that are not
mandatory but desirable.

Working Conditions: Information about the work environment, including physical

demands, travel requirements, and any potential hazards associated with the job.
ncbi.nlm.nih.gov

Compensation and Benefits: Details about the salary range, bonuses, benefits, and
other perks associated with the position.

Signatures: To validate the job description, it should be signed by the employee and the
supervisor, indicating mutual understanding and agreement.
ncbi.nlm.nih.gov

These components collectively provide a comprehensive understanding of the job, facilitating

effective recruitment and performance management processes.

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Pay Matters: Navigating the Essentials of Compensation Administration

Importance of Job Descriptions

Job descriptions play a pivotal role in several aspects of organizational management:

Recruitment and Selection: They serve as a benchmark for identifying suitable

candidates by clearly outlining the job's requirements and expectations.

Performance Management: By establishing clear duties and responsibilities, job

descriptions provide a basis for evaluating employee performance and setting objectives.

Compensation and Benefits: They assist in determining appropriate salary grades and
benefits by assessing the job's complexity and requirements.

Legal Compliance: Well-crafted job descriptions help ensure adherence to labor laws
and regulations by clearly defining job roles and expectations.

Employee Development: They identify the skills and qualifications required for the
role, aiding in training and development initiatives.

Challenges in Developing Job Descriptions

Despite their importance, creating effective job descriptions can be challenging. Common
issues include:

Vagueness: Ambiguous language can lead to misunderstandings about job expectations.

Overgeneralization: Describing duties in overly broad terms may fail to capture the
specific requirements of the role.

Inflexibility: Rigid job descriptions may not accommodate changes in job functions or
organizational needs.

Bias: Language that inadvertently favors certain groups can lead to discrimination and
legal challenges.

To address these challenges, organizations should involve relevant stakeholders in the

development process, regularly review and update job descriptions, and ensure the use of clear,
inclusive, and precise language.

Overall, job descriptions are essential tools in human resource management, providing clarity
and structure to job roles within an organization. By encompassing key components such as
job identification, summary, duties, qualifications, working conditions, compensation, and
signatures, they facilitate effective recruitment, performance management, and legal
compliance. However, organizations must be mindful of potential challenges in developing

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Pay Matters: Navigating the Essentials of Compensation Administration

job descriptions and take proactive measures to ensure they accurately reflect the job's
requirements and expectations.

V. THE NATURE OF JOB EVALUATION

Job evaluation is a systematic process used to determine the relative worth of jobs within an
organization. It ensures internal equity by assessing jobs based on factors like skill, effort,
responsibility, and working conditions. The primary methods of job evaluation include:

Ranking Method: Jobs are compared to each other and ranked based on overall worth.

Classification Method: Jobs are grouped into predefined classes or grades.

Point Method: Jobs are evaluated based on specific compensable factors, each assigned
a point value.

Factor Comparison Method: A combination of ranking and point methods,

comparing jobs based on key factors.

In the context of the Philippines, job evaluation plays a crucial role in establishing fair
compensation structures. A study by Silalahi et al. (2023) highlighted the importance of job
evaluation in aligning employee compensation with job responsibilities, thereby enhancing
motivation and retention

VI. CATEGORIES OF COMPENSABLE FACTORS

Compensable factors are fundamental elements used in job evaluation to assess the relative
value of jobs within an organization. These factors represent the criteria upon which job
comparisons are based and directly influence the determination of equitable and competitive
pay structures. Each factor reflects a different dimension of job content and requirement,
helping employers design fair wage systems by linking pay to job complexity and responsibility
rather than personal attributes.

1. Skill: This factor encompasses the qualifications necessary to perform a job, including
education, experience, training, and specialized knowledge.

Components:

• Education: The level of formal schooling required, e.g., high school diploma,
bachelor’s degree, or postgraduate qualifications.
• Experience: The amount of practical, hands-on exposure or industry-related
practice needed.

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Pay Matters: Navigating the Essentials of Compensation Administration

• Technical Knowledge: Specific domain expertise, such as accounting principles,

programming languages, or operating machinery.
• Problem-solving Ability: The degree to which the job requires cognitive or
analytical thinking.
• Relevance: Jobs requiring high levels of skill are generally compensated more to
attract and retain qualified professionals. In the Philippines, positions in healthcare
and IT sectors often command higher wages due to specialized skill requirements
(Javier, n.d.).

2. Effort: It refers to the physical and mental energy required to perform a job.

Types:

• Physical Effort: Lifting, walking, operating machinery, and other forms of bodily
exertion.
• Mental Effort: Concentration, decision-making, attention to detail, and managing
complex information.
• Relevance: Jobs demanding significant effort, especially those involving sustained
concentration or manual labor, are recognized for their intensity and are often
evaluated higher in job-worth hierarchies. For example, roles in construction or
BPO call centers in the Philippines are evaluated with attention to sustained effort
over long hours (Macalinao, 2010).

2. Responsibility: This factor measures the extent of accountability and autonomy

associated with a job, including decision-making authority and impact on
organizational outcomes.

Components:

• Supervisory Responsibility: The extent to which the job involves overseeing others.
• Financial Responsibility: Managing budgets, resources, or financial decisions.
• Impact of Decisions: Influence on company performance, client satisfaction, or
stakeholder relations.
• Relevance: Jobs with higher responsibility levels (e.g., managerial roles) are typically
compensated more due to the risk and impact associated with poor decision-making.
In Philippine government agencies, civil service ranks and salaries correlate heavily
with supervisory scope and public accountability.

3. Working Conditions: It refers to the environment and risks associated with

performing a job. It considers both the physical and psychological aspects of the job
setting.

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Pay Matters: Navigating the Essentials of Compensation Administration

Components:

• Hazardous Conditions: Exposure to chemicals, machinery, heights, or contagious

diseases.
• Work Environment: Noise levels, cleanliness, temperature, or confined spaces.
• Work Schedules: Irregular hours, night shifts, or prolonged periods of travel or
standing.
• Relevance: Jobs performed in difficult or unsafe environments often warrant
hazard pay or differential compensation. In the Philippines, workers in mining,
manufacturing, and public health are often subject to additional compensation due
to high-risk working conditions (DOLE, 2022).

5. Communication and Interpersonal Skills: Though not always a standalone factor,

many organizations include this to measure the job’s demand for effective interaction
with others.

Examples:

• Negotiating with clients or vendors.

• Handling customer service queries.
• Leading team meetings or public speaking.
• Relevance: Jobs with high interpersonal interaction demand tact, diplomacy, and
communication proficiency, influencing the value placed on such roles, especially in
marketing, education, and diplomatic services in the Philippine setting.

Summary Table of Compensable Factors

Factor Key Elements Example Jobs

Education, experience, technical
Skill Engineer, Pharmacist
knowledge
Effort Physical/mental exertion Call center agent, laborer
Manager, Government
Responsibility Supervisory scope, decision-making
Official
Working Conditions Hazards, physical environment Miner, Nurse
Communication
Diplomacy, negotiation, persuasion Sales Executive, HR Officer
Skills

Compensable factors are vital in designing compensation systems that are perceived as fair,
transparent, and equitable. By analyzing jobs through these criteria, organizations ensure that
pay is determined by job demands rather than personal characteristics. In the Philippine
context, these factors are tailored to local industry needs, labor laws, and socio-economic
conditions, highlighting the importance of contextual relevance in job evaluation.

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Pay Matters: Navigating the Essentials of Compensation Administration

VII. DIMENSIONS OF A WAGE SURVEY

Wage surveys are tools used to collect data on compensation practices within a specific
industry or geographic area. These surveys provide valuable insights into prevailing wage
rates and help organizations make informed decisions about their compensation
structures. Key dimensions of a wage survey include:

Job Matching: Ensuring that jobs in the survey are comparable to those within the
organization. This involves aligning job titles, duties, and responsibilities.

Geographic Scope: Determining the geographic area from which data will be collected.
This could range from local to national levels, depending on the organization's needs.

Industry Representation: Selecting organizations within the same industry to ensure

that the survey data is relevant and applicable.

Data Collection Methods: Deciding on the methods for collecting wage data, such as
questionnaires, interviews, or online platforms.

Data Analysis: Analyzing the collected data to identify trends, averages, and outliers.
This analysis helps in making comparisons and adjustments to the organization's
compensation structure.

VIII. THE DIMENSIONS OF A WAGE SURVEY

A wage survey is a systematic process of gathering, analyzing, and comparing compensation

data to establish equitable and competitive pay structures. In the Philippine setting, wage
surveys are crucial for ensuring compliance with labor standards and maintaining
competitiveness in the job market. Key dimensions include:

Scope of Data: Determining which industries, job roles, and regions to include.

Frequency: Deciding how often to conduct surveys (e.g., annually, biennially).

Methodology: Choosing between primary data collection (e.g., direct surveys) and
secondary data sources (e.g., government reports).

Data Analysis: Interpreting the data to identify trends, averages, and outliers.

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Pay Matters: Navigating the Essentials of Compensation Administration

IX. THE SOURCES OF A WAGE SURVEY

1. Government Sources

Government agencies in the Philippines play a crucial role in providing reliable, nationwide
wage data. Some key institutions include:

• Philippine Statistics Authority (PSA)

The PSA regularly publishes labor market data, including wage and salary information
by industry, region, and occupation. Reports like the “Labor Force Survey (LFS)” and
“Occupational Wages Survey (OWS)” are vital sources.

• Department of Labor and Employment (DOLE)

DOLE provides regional wage board decisions and minimum wage orders, which help
organizations align with legal compensation standards. They also publish annual wage
reports.

• National Wages and Productivity Commission (NWPC)

This agency under DOLE gives updated wage statistics and sectoral productivity
information to help organizations design equitable wage systems.

2. Industry Associations and Chambers of Commerce

Industry groups often conduct wage surveys among their members to establish benchmarks.
Examples include:

• Philippine Chamber of Commerce and Industry (PCCI)

• Semiconductor and Electronics Industries in the Philippines Foundation,
Inc. (SEIPI)

These surveys are especially useful because they provide industry-specific compensation
data.

3. Private Survey Firms and Consulting Agencies

Companies often turn to private HR consultancy firms for more tailored or comprehensive
compensation data. Notable firms include:

• PwC Philippines (Isla Lipana & Co.)

• SGV & Co. (Ernst & Young Philippines)

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Pay Matters: Navigating the Essentials of Compensation Administration

• Towers Watson/Willis Towers Watson

• KPMG Philippines

These firms often charge a fee for access to detailed compensation reports, which include total
rewards benchmarking, benefits comparison, and executive compensation data.

4. Academic and Research Institutions

Universities and think tanks (e.g., Ateneo de Manila University, UP School of Labor and
Industrial Relations) conduct wage and labor market research that contributes to a broader
understanding of compensation trends.

5. Internal Company Data

Many organizations rely on their own historical compensation data or self-administered

surveys across partner companies or industry collaborators.

• This helps in making internal equity assessments and trend analysis over time.
• It is often less costly but may lack external validity without external benchmarking.

Summary Table of Wage Survey Sources

Source Description & Relevance Examples

Government Agencies Official, legal, and statistical wage data PSA, DOLE, NWPC
Industry Associations Industry-specific benchmarks SEIPI, PCCI
Commercial, detailed compensation
Private Survey Firms PwC, SGV, KPMG
surveys
UP-SOLAIR, Ateneo HR
Academic Institutions Research-backed data and analysis
Center
Internal Company Self-conducted company
Custom, focused data for internal use
Surveys surveys

X. DATA COLLECTION AND ANALYSIS

Effective data collection and analysis are pivotal in wage surveys:

Data Collection Methods:

Surveys and Questionnaires: Directly gathering information from employers and

employees.

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Pay Matters: Navigating the Essentials of Compensation Administration

Interviews: Conducting one-on-one discussions for in-depth insights.

Public Records: Utilizing existing data from government publications.

Data Analysis Techniques:

Descriptive Statistics: Calculating averages, medians, and modes to summarize data.

Comparative Analysis: Benchmarking against industry standards.

Trend Analysis: Identifying patterns over time to forecast future compensation trends.

Job Analysis, Job Evaluation, and Market Rate Analysis

These processes are integral to establishing fair compensation structures:

Job Analysis: Systematically studying job roles to determine duties, responsibilities, and
required qualifications.

Job Evaluation: Assessing the value of a job concerning other jobs within an
organization to establish a hierarchy.

Market Rate Analysis: Comparing internal compensation data with external market
data to ensure competitiveness.

XI. DESIGNING COMPENSATION DECISIONS

Designing compensation decisions in the Philippine context requires a nuanced understanding

of local values, labor laws, and economic conditions. Filipino scholars emphasize the
integration of cultural values and legal frameworks into compensation strategies to ensure
fairness, motivation, and compliance.

Cultural Considerations

Filipino values such as bayanihan (communal unity), utang na loob (debt of gratitude),
and pakikisama (smooth interpersonal relationships) significantly influence workplace
dynamics and expectations. These values suggest that compensation systems should not
only be equitable but also foster a sense of community and mutual respect among
employees. Tomas D. Andres, a Filipino intercultural consultant, highlights the
importance of aligning management practices with Filipino cultural values to enhance
organizational effectiveness and employee satisfaction .

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Pay Matters: Navigating the Essentials of Compensation Administration

Legal Framework

The Philippine Labor Code and various wage orders issued by the Regional Tripartite
Wages and Productivity Boards set the minimum wage standards across different
regions. Employers must design compensation packages that comply with these legal
requirements while considering the financial sustainability of their organizations.
Additionally, adherence to laws concerning benefits such as 13th-month pay, social
security, and health insurance is crucial.

Economic Factors

The Philippine economy, characterized by its diverse industries and varying regional
economic conditions, necessitates a flexible approach to compensation. Employers must
consider factors like industry standards, cost of living in different regions, and the
availability of skilled labor when designing compensation packages. For instance,
compensation in Metro Manila may differ significantly from that in rural areas due to the
higher cost of living and competitive labor market in urban centers.

Strategic Alignment

Compensation decisions should align with the organization's strategic goals. For
example, if an organization aims to attract top talent, offering competitive salaries and
benefits is essential. Conversely, if the goal is to retain existing employees, non-monetary
rewards such as career development opportunities, work-life balance, and recognition
programs may be more effective. Regular reviews and adjustments to compensation
packages ensure they remain aligned with both organizational objectives and external
market conditions.

Designing compensation decisions in the Philippines requires a holistic approach that

integrates cultural understanding, legal compliance, economic considerations, and strategic
alignment. By doing so, organizations can create compensation systems that not only attract
and retain talent but also foster a positive organizational culture and contribute to overall
business success.

Wrap Up

As we wrap up the module on Job Values and Compensation Decisions, we’ve seen that
compensation is not merely about salaries and benefits, it’s a strategic tool that reflects how
an organization values its employees. Understanding job values such as fairness, internal
equity, and market competitiveness is essential in designing compensation systems that
motivate performance and align with organizational goals. Tools like job analysis, job
evaluation, and wage surveys provide the data needed to ensure that compensation decisions
are both justifiable and effective.

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Pay Matters: Navigating the Essentials of Compensation Administration

In the Philippines, designing compensation also means navigating legal requirements, regional
wage variations, and cultural influences. Organizations must strike a balance between
attracting talent, maintaining financial sustainability, and complying with labor standards.
Ultimately, sound compensation decisions support employee satisfaction, strengthen
organizational culture, and contribute to long-term business success.

Learning and Teaching Processes

• Lecture
• Class Discussion

Recommended learning materials and resources for supplementary reading.

Compensation Decision-Making in the Company

https://business-essay.com/compensation-decision-making-in-the-company/

Flexible Teaching Learning Modality (FTLM)

Online Film Viewing: HR Basics: Compensation

https://www.youtube.com/watch?v=wZoRId6ADuo

Assessment Task: Understanding Compensation Basics

Title: Design a Simple Compensation Plan
Objective: To apply basic concepts of compensation by creating a basic salary and benefits
plan for a fictional position.

Instructions:

1. Choose a Job Title Select one job position (e.g., Sales Associate, HR Assistant,
Customer Service Representative).
2. Describe the Job: Write 3–5 sentences describing the main duties and
responsibilities of the job.
3. Set the Compensation Package Based on your understanding and basic research:
4. Set a monthly salary (within the Philippine context).
5. List at least 3 benefits you will include (e.g., 13th month pay, government-
mandated benefits, health insurance, meal allowance).
6. Explain Your Decision In 3–4 sentences, explain why you chose that salary and
those benefits. What factors did you consider (e.g., cost of living, industry standards,
job responsibilities)?

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Pay Matters: Navigating the Essentials of Compensation Administration

Rubric (Total: 10 points):

Criteria Points
Clear job description 2 pts
Appropriate salary set 2 pts
Benefits listed and relevant 2 pts
Explanation and reasoning 3 pts
Neatness and completeness 1 pt

References

Austria, J. B., & Mendoza, R. A. (2020). Compensation practices and organizational

commitment among professionals in Metro Manila. Philippine Journal of Labor and Industrial
Relations, 39(2), 31–55.

Austria, M. C. (2020). Strategic human resource management: Philippine perspectives. Manila: C & E
Publishing.

Department of Labor and Employment (DOLE). (2022). Handbook on Workers’ Statutory

Monetary Benefits (2022 ed.). Manila: DOLE Bureau of Working Conditions. Retrieved from
https://bwc.dole.gov.ph

De Guzman, A. B., & Dela Cruz, M. R. (2018). Human Resource Management in the Philippine
Context. Manila: University of the Philippines Press.

De Vera, C. G. (2021). Wage disparities and job satisfaction: A study of BPO workers in Metro
Manila. Ateneo Human Resource Review, 8(1), 45–60.

Garcia, M. E., & Aquino, R. D. (2020). Strategic Compensation in the Philippines. Quezon City:
University of the Philippines Press.

Goulart, K. S., Rodríguez-Menés, J., & Armayones, J. M. C. (2022). Job descriptions, from
conception to recruitment: A qualitative review of hiring processes. JRC Working Papers on
Labour, Education and Technology, (2022-06).

Javier, M. I. (n.d.). Job analysis and compensation of employees. Polytechnic University of the
Philippines. Retrieved from https://www.studocu.com/ph/document/polytechnic-
university-of-the-philippines/bachelor-of-science-in-business-administration/job-analysis-
and-compensation-of-employees/16629452

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Pay Matters: Navigating the Essentials of Compensation Administration

Jones, R. (2023). Methods of job analysis in HRM: Powerful strategies for success. CHRMP.
https://www.chrmp.com/effective-methods-for-conducting-job-analysis-in-hrm/

Macalinao, M. T. (2010). Wage and salary. Southern Luzon State University. Retrieved from
https://www.scribd.com/doc/34865773/Wage-and-Salary

Miranda, E. A. (2018). Human resource management in the Philippine setting (3rd ed.). Manila: Rex
Book Store.

Philippine Statistics Authority. (2023). Occupational Wages Survey. Retrieved from

https://psa.gov.ph

Ramli, M., & Susanto, E. (2023). The Influence of Job Descriptions and Job Placements on
the Work Performance of Educational Personnel of Indragiri Islamic University. International
Journal of Humanities, Social Sciences and Business (INJOSS), 2(1), 120-125.

Roque, R. (2005). Human Resource Management: A Philippine Perspective. Manila: Rex Book Store.

Silalahi, M., Putra, H. S., Candra, V., & Simatupang, S. (2023). The Impact of Job Descriptions
on Employee Performance. International Journal of Economic, Business, Accounting, Agriculture
Management and Sharia Administration (IJEBAS), 3(6), 2038-2043

Tan, R. S., & Mendoza, A. F. (2019). Research Methods in Human Resource Management. Makati:
Ateneo de Manila University Press.
Villanueva, V. D. (2019). Wage benchmarking and industrial competitiveness: A study on manufacturing
wages in Calabarzon. Philippine Institute for Development Studies.

Zain, A. (2023). Job analysis | HRM | Read free online notes of lessons online. ZainBooks.
https://www.zainbooks.com/books/human-resource-management/human-resource-
management1_14_job-analysis.html

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Pay Matters: Navigating the Essentials of Compensation Administration

Chapter 3: Salary Structure

Decisions

Kick Off

Today, we begin a focused exploration into one of the most strategically significant areas of
compensation management: salary structure decisions. This module is designed to help you
understand how salary structures serve as a foundation for fair, competitive, and business-
aligned pay practices. Whether you are developing a structure from scratch or optimizing an
existing one, this topic is critical to both operational effectiveness and employee engagement.

Throughout the session, we will cover the purpose and components of salary structures,
including pay grades, ranges, midpoints, and bandwidths. We’ll also explore how market data
and benchmarking inform pay decisions, and how internal equity plays a key role in building
trust and transparency within the organization. In addition, we’ll look at various types of
structures, from traditional models to more modern, flexible designs, and consider when and
why each might be used.

Salary decisions extend far beyond setting numbers. They reflect an organization’s values,
culture, and priorities. A well-crafted structure not only supports business objectives but also
sends a powerful message to employees about fairness, opportunity, and recognition. As we
move forward, consider this guiding question: What does your current salary structure say
about your organization, and is it saying what you want it to?

Let’s begin by equipping ourselves with the principles and practices that lead to stronger, more
effective compensation decisions.

Learning Outcomes

This module covers topics pertaining to Salary Structure Decisions. In particular, at the end
of this module, the students can:

1. Define minimum wage;

2. Identify the factors affecting a salary structure;
3. Describe the development of a salary structure;
4. Distinguish the types of salary structures; and
5. Practice the administration of a salary structure.

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Pay Matters: Navigating the Essentials of Compensation Administration

Learning Contents

This module contains discussion on the following topics:

1. The Concept of Minimum Wage

2. Factors Affecting a Salary Structure
3. The Development of a Salary Structure;
4. The Types of Salary Structures
5. Administration of a Salary Structure.

I. THE CONCEPT OF MINIMUM WAGE IN THE PHILIPPINE CONTEXT

Definition and Legal Framework

In the Philippines, the minimum wage is the lowest legal salary that employers are required to
pay their workers. Its primary purpose is to ensure workers receive fair compensation, enough
to cover basic living costs, thereby protecting them from exploitation. The Regional Tripartite
Wages and Productivity Boards (RTWPBs), guided by the National Wages and Productivity
Commission (NWPC), are responsible for setting and reviewing the minimum wage rates.
Their decisions are influenced by various factors, including the cost of living, prevailing wage
rates, and the general economic condition.

The minimum wage in the Philippines varies by region and sometimes by industry, which
accounts for the differing economic conditions and living costs across the country. While the
minimum wage aims to reduce poverty and ensure fair wages, it is not without challenges.
Critics argue that an excessively high minimum wage might lead to unemployment as
businesses, especially small enterprises, may struggle to meet wage demands.

Purpose and Significance

The primary purpose of minimum wage legislation is to shield workers from being forced, by
economic necessity or weak bargaining position, to accept compensation below what is
deemed fair or decent. In a labor market characterized by surplus labor or high unemployment,
the minimum wage helps prevent a downward spiral of low pay, ensuring some level of equity
in worker compensation.

By law, minimum wage rates should at least approximate a basic standard of living, covering
essentials such as food, shelter, clothing, and a measure of healthcare and education-related
expenses. Higher minimum wages can stimulate domestic consumption, potentially driving
local economic growth. They also help reduce income inequality by elevating the pay floor.

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Pay Matters: Navigating the Essentials of Compensation Administration

II. FACTORS AFFECTING SALARY STRUCTURE WITH SPECIAL FOCUS IN

THE PHILIPPINE SETTING

Understanding the salary structure in the Philippines requires examining various

interconnected elements. Salary structures are not arbitrary; they are carefully designed based
on multiple internal and external factors. Below are the key factors, with extended insights and
local relevance:

1. Job Role and Skill Requirements:

The nature of the job, its responsibilities, and the skill level required significantly
influence how much compensation is offered. Jobs that require higher levels of
education, technical expertise, or years of experience usually come with higher salaries.

• Professional and Technical Skills: Roles in engineering, IT, medicine, and law
typically pay more due to the high level of training required.
• Risk and Working Conditions: Jobs involving physical risk or difficult
conditions (e.g., construction, mining) may also offer hazard pay or additional
compensation.

According to Ballesteros (2022), roles in BPOs and IT-related industries in the

Philippines often offer higher-than-average salaries due to global demand and the high-
value output of these sectors.

2. Education and Experience

Employers in the Philippines place high value on educational attainment and relevant
work experience. While a college degree is often a basic requirement, postgraduate
qualifications or certifications can significantly boost a worker’s pay.

• Seniority: In many Filipino companies, pay increases with tenure as a form of

loyalty incentive.
• Accreditation: For regulated professions (e.g., nursing, teaching), PRC licenses
can influence salary levels.

As noted by Fernandez (2021), even among public school teachers, those with higher
educational attainment (e.g., master's degrees) receive salary adjustments under the Salary
Standardization Law (SSL).

3. Industry and Sector

Different industries pay differently based on profitability and labor demand. In the
Philippines:

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Pay Matters: Navigating the Essentials of Compensation Administration

• High-paying sectors: Information technology, finance, oil and gas, and aviation
tend to offer higher salaries.
• Lower-paying sectors: Agriculture, manufacturing, and retail often offer
minimum wage or close to it.

The Philippine Statistics Authority (2023) consistently shows that workers in the finance
and insurance sector receive the highest average monthly compensation.

4. Geographic Location

Wages in the Philippines vary considerably by region due to differences in cost of living,
economic activity, and labor supply.

• Urban vs. Rural Divide: Metro Manila offers the highest wages due to higher
living costs and concentration of corporate offices.
• Regional Wage Boards: Minimum wages are set by the RTWPBs to reflect local
economic conditions.

Example: A factory worker in NCR may earn Php 610/day, while the same role in
BARMM could earn just Php 350/day due to regional economic disparities (NWPC,
2024).

5. Company Size and Financial Capacity

Large corporations or multinationals often have more financial flexibility to offer

competitive salaries and benefits compared to micro, small, and medium enterprises
(MSMEs).

• Corporate Benefits: Big companies may offer health insurance, bonuses, and
performance incentives.
• SME Constraints: Smaller businesses may adhere strictly to the minimum wage
and offer limited benefits.

Research Insight: Lizada (2020) notes that many MSMEs in the Philippines rely on low
wage levels to sustain operations, especially in provinces where labor is abundant.

6. Labor Market Conditions and Supply-Demand Dynamics

When the demand for specific skills exceeds supply, wages for those roles increase.
Conversely, oversupply of labor (e.g., general clerical work) may depress wages.

• In-demand skills: Cybersecurity, digital marketing, and renewable energy jobs

are gaining ground.

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Pay Matters: Navigating the Essentials of Compensation Administration

• Oversaturated fields: Teaching and nursing have large applicant pools but
relatively low compensation packages.
• Current Trends: The rise of remote work post-COVID has also allowed Filipino
professionals to earn international wages while based locally, altering traditional
salary structures (Domingo, 2023).

7. Government Policies and Labor Laws

Laws like the Labor Code, Wage Rationalization Act, and Salary Standardization Law
shape salary structures directly.

• Minimum Wage: Sets the wage floor across regions.

• Mandatory Benefits: Employers must factor in SSS, PhilHealth, Pag-IBIG, 13th
month pay, etc.
• Taxation: Income tax brackets also affect take-home pay and salary negotiations.
• Legal Framework: Wage-setting policies are guided by social justice principles
outlined in the Philippine Constitution, aiming to promote equitable pay (De
Mesa, 2019).

III. THE DEVELOPMENT OF A SALARY STRUCTURE

Developing a salary structure is a strategic process that ensures fairness, competitiveness, and
alignment with organizational goals. In the Philippines, this process is influenced by both local
labor laws and organizational needs.

1. Job Analysis and Evaluation

The first step involves conducting a thorough job analysis to understand the duties,
responsibilities, and requirements of each position. This is followed by job evaluation to
determine the relative worth of jobs within the organization. For instance, a government
agency might analyze the roles of administrative assistants and compare them to
technical staff to establish a fair pay scale.

2. Market Survey
Gathering data on prevailing wage rates for similar positions in the industry and region
ensures external competitiveness. A private company in Metro Manila, for example, may
survey other tech firms to determine the going rate for software developers, ensuring
they offer competitive salaries to attract top talent.

3. Establishing Pay Grades

Grouping jobs of similar value into pay grades, each with a defined salary range, helps in
standardizing compensation. For example, a manufacturing company might create

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Pay Matters: Navigating the Essentials of Compensation Administration

separate pay grades for machine operators, supervisors, and managers, each with its own
salary range based on job evaluation.

4. Policy Formulation

Developing compensation policies that reflect the organization's philosophy and

objectives ensures fairness and legal compliance. A multinational corporation operating
in the Philippines may establish policies that align with both local labor laws and global
compensation standards.

5. Implementation and Monitoring

Implementing the salary structure and regularly reviewing it to adapt to changes in the
labor market and organizational needs is crucial. For instance, a retail chain may annually
review its salary structure to adjust for inflation and changes in the cost of living.

In a nutshell, the development of a salary structure involves a systematic process to ensure

fair, competitive, and legally compliant employee compensation. It begins with job analysis
and evaluation to determine the value of each position, followed by a market survey to align
pay with industry standards. Organizations then create pay grades that group similar jobs
together and set corresponding salary ranges. Compensation policies are established to reflect
organizational goals and ensure internal equity and external competitiveness. Finally, the salary
structure is implemented and regularly reviewed to adapt to economic changes, employee
needs, and organizational growth. This structured approach helps attract and retain talent
while maintaining fairness and cost control within the organization.

IV. TYPES OF SALARY STRUCTURES

Organizations in the Philippines may adopt various types of salary structures, depending on
their size, industry, and compensation philosophy.

1. Job-Based Pay Structure

This traditional approach determines compensation based on the duties and

responsibilities of the job. Positions are grouped into pay grades, and employees are paid
according to their job classification. For example, a government agency might classify
positions such as clerks, analysts, and directors into different pay grades, each with its
own salary range.

2. Person-Based Pay Structure

This structure compensates employees based on their skills, knowledge, or

competencies, rather than the job itself. It is often used in roles where specialized skills

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Pay Matters: Navigating the Essentials of Compensation Administration

are critical. For instance, a hospital may offer higher pay to nurses with specialized
certifications or advanced degrees, regardless of their job title.

3. Broadbanding

This involves consolidating multiple pay grades into a few broad bands, offering greater
flexibility in compensation and career progression. A call center company might
implement broadbanding to allow employees to move across different roles without
being constrained by rigid pay grades.

4. Market-Based Pay Structure

Compensation is determined based on prevailing market rates for similar positions,

ensuring external competitiveness. A tech startup in Cebu may set salaries for software
engineers based on what similar companies in the region are offering, ensuring they
remain competitive in attracting talent.

There are several types of salary structures that organizations may adopt depending on their
goals, size, and industry. The job-based pay structure assigns salaries based on the duties and
responsibilities of a position, often organized into pay grades. The person-based pay structure
focuses on compensating employees for their skills, knowledge, or competencies rather than
just the job title. Broadbanding simplifies pay structures by merging multiple grades into fewer,
wider bands, offering flexibility and career mobility. Meanwhile, the market-based pay
structure sets salaries according to prevailing market rates, ensuring external competitiveness.
Each type serves different organizational strategies but all aim to promote fairness, motivation,
and alignment with business goals.

V. ADMINISTRATION OF A SALARY STRUCTURE

Effective administration of a salary structure ensures that compensation practices are

consistent, equitable, and aligned with organizational objectives.

Objectives of Salary Administration

• Equity and Fairness: Ensuring that employees are compensated fairly for their work,
both internally and externally. For example, a company may conduct regular audits to
ensure that employees in similar roles with similar experience are paid equitably.

• Motivation and Retention: Designing compensation packages that motivate

employees and reduce turnover. A retail company might implement performance-
based bonuses to incentivize employees and retain top performers.

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Pay Matters: Navigating the Essentials of Compensation Administration

• Cost Control: Managing compensation expenses to align with the organization's

budget and financial goals. A non-profit organization may establish salary caps to
ensure that compensation remains within budgetary constraints.

• Legal Compliance: Adhering to labor laws and regulations, such as the Labor Code
of the Philippines and the Wage Rationalization Act (Republic Act No. 6727), which
govern minimum wage rates and other employment standards. For instance, a
manufacturing firm in Davao City must ensure that its pay rates comply with the
regional minimum wage laws.

Components of Salary Administration

• Pay Structure Design: Developing and maintaining the salary structure, including pay
grades and ranges. A university may periodically review and update its salary structure
to reflect changes in the academic and administrative landscape.

• Performance Management: Linking compensation to employee performance

through merit increases and incentive programs. A BPO company might implement a
quarterly performance review system to determine eligibility for merit-based salary
increases.

• Benefits Administration: Managing employee benefits, such as health insurance,

retirement plans, and other perks. A financial institution may offer comprehensive
health benefits and a retirement savings plan to its employees as part of its
compensation package.

• Communication: Clearly communicating compensation policies and decisions to

employees to ensure transparency and trust. An educational institution might hold
annual town hall meetings to discuss changes in compensation policies and address
employee concerns.

Encompassing, the development, types, and administration of salary structures are integral to
effective human resource management in the Philippines. By aligning compensation practices
with organizational goals and legal requirements, organizations can attract, motivate, and retain
a competent workforce. Implementing a well-structured and fair compensation system not
only enhances employee satisfaction but also contributes to the overall success and
sustainability of the organization.

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Pay Matters: Navigating the Essentials of Compensation Administration

Wrap Up

Salary structure decisions are fundamental to strategic human resource management, as they
directly affect employee satisfaction, organizational competitiveness, and financial
sustainability. The development of a salary structure involves a thoughtful process—starting
from job evaluation and market benchmarking to setting pay grades and ranges that are fair
and legally compliant. Different types of salary structures, such as job-based, person-based,
broadbanding, and market-based systems, offer organizations flexibility to align compensation
with their internal equity principles and external market demands. These structures are tools
that help in addressing various organizational needs, whether it be motivating high-performing
employees, attracting skilled talent, or managing operational costs.

Effective administration of salary structures ensures that these systems are implemented
properly and updated regularly to reflect economic trends, industry practices, and workforce
expectations. It includes performance-based pay adjustments, benefits management, and open
communication with employees about pay policies. In the Philippine context, salary structure
decisions must also comply with labor regulations such as the Labor Code and minimum wage
laws, emphasizing fairness and social responsibility. Ultimately, well-informed salary structure
decisions not only support a productive and engaged workforce but also drive the organization
toward achieving its long-term goals.

Learning and Teaching Processes

• Lecture
• Class Discussion

Recommended learning materials and resources for supplementary reading.

How to Create a Well-Designed Salary Structure

https://www.aihr.com/blog/salary-structure/

Flexible Teaching Learning Modality (FTLM)

Online Film Viewing: Lesson 9: Pay Structure Decisions

https://www.youtube.com/watch?v=J3mjL3SD6Go

Assessment Task: Salary Structure Design and Analysis

Title: Designing and Evaluating a Salary Structure for a Hypothetical Organization

Objective: To assess the student’s understanding of the principles, types, and administration
of salary structures and their ability to apply these concepts in a practical setting.

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Pay Matters: Navigating the Essentials of Compensation Administration

Instructions:
1. Organizational Profile Creation. Create a brief profile of a hypothetical organization
(e.g., industry, size, location, number of employees, and organizational structure).
Clearly state the company’s vision, mission, and compensation philosophy.

2. Job Analysis and Pay Grades

o Select 5 key job positions within your organization.
o Conduct a basic job analysis for each position (outline key responsibilities,
required skills, and qualifications).
o Rank the jobs based on their relative value and assign them to appropriate pay
grades.

3. Choose a Salary Structure Type

o Select and justify the type of salary structure your organization will use (e.g., job-
based, person-based, market-based, broadbanding).
o Explain how this structure supports your company’s goals and employee
motivation.

4. Market-Based Salary Ranges (Research Required)

o Research current salary data (from DOLE, JobStreet, or Payscale PH) for each
job and propose salary ranges.
o Compare internal pay equity and market competitiveness.

5. Salary Structure Policy Proposal

o Draft key policies for managing the salary structure (e.g., frequency of review,
merit increases, performance linkage, legal compliance).
o Describe how your organization will communicate and administer this
structure.

6. Reflection Essay (300–500 words). Reflect on the challenges you faced in creating a
fair and competitive salary structure. Discuss how salary structure decisions impact
employee behavior and organizational success.

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Pay Matters: Navigating the Essentials of Compensation Administration

Rubric:

Criteria Excellent (10) Good (8) Fair (6) Poor (4)

Organizational profile clarity
Accuracy of job analysis and evaluation
Justification of salary structure type
Use of market data and salary range
Policy clarity and administration plan
Insightfulness of reflection essay
Overall organization and presentation

Submission Format:
• Word or PDF document
• Font: Times New Roman, Size 12, 1.5 spacing
• Include citations in APA 7th edition for any data or references used

References

Balgoma, F. L., Diamante III, L., Casiao, C. F., Custodio, C., Dela Cruz, J. L., & Tumaque, K.
C. (2019). Compensation Administration. Polytechnic University of the Philippines.

Philippines. Labor Code of the Philippines: as amended with implementing rules and
regulations. Department of Labor and Employment. Retrieved from
https://en.wikipedia.org/wiki/Labor_policy_in_the_Philippines

Republic Act No. 6727, Wage Rationalization Act. Retrieved from

https://en.wikipedia.org/wiki/Labor_policy_in_the_Philippines

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Pay Matters: Navigating the Essentials of Compensation Administration

Chapter 4: Forms of
Compensation

Kick Off

Compensation plays a crucial role in attracting, retaining, and motivating employees in any
organization. It goes beyond just salaries or wages because compensation includes a wide range
of financial and non-financial rewards given to employees in exchange for their contributions
to the company. In this module, we will explore the different forms of compensation,
including direct compensation such as basic pay, overtime, and bonuses, as well as indirect
compensation like benefits, incentives, and recognition programs. Understanding these
components is vital for designing effective compensation systems that support both employee
satisfaction and organizational performance.

In the context of a Philippine setting, compensation must also align with labor laws, cultural
expectations, and economic conditions. For instance, compliance with the minimum wage law,
holiday pay regulations, and mandatory benefits such as SSS, PhilHealth, and Pag-IBIG
contributions are essential aspects of compensation management. This module will help
students analyze how these various forms of compensation contribute to workforce
motivation and engagement, and how organizations balance internal equity and external
competitiveness. Through real-life examples and practical applications, students will gain
insights into how compensation decisions influence employee behavior and organizational
success.

Learning Outcomes

This module covers essential topics on the Forms of Compensation. In particular, at the end
of this module, the students can:

1. discuss compensation philosophies;

2. classify the forms of contingent pay;
3. explain the compensation for executives;
4. describe the compensation for salespeople; and
5. discuss the computerization of payroll system.

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Pay Matters: Navigating the Essentials of Compensation Administration

Learning Contents

This module contains discussion on the following topics:

1. The Different Compensation Philosophies

2. Forms of Contingent Pay
3. Compensation for Executives
4. Compensation for salespeople
5. Digitization of the Payroll System.

I. THE DIFFERENT COMPENSATION PHILOSOPHIES

Philosophies of Compensation provide frameworks for understanding how compensation

systems influence employee behavior and organizational outcomes. These philosophies
encompass psychological, economic, and sociological perspectives, each offering unique
insights into the design and impact of compensation strategies. Below is a comprehensive
discussion of key compensation philosophies:

1. Pay-for-Performance Philosophy

Overview: The Pay-for-Performance (P4P) philosophy links compensation

directly to individual or organizational performance metrics. It includes merit
increases, bonuses, and other incentives designed to reward employees for their
contributions. This approach aims to align employee efforts with organizational
goals, thereby enhancing productivity and motivation.

Academic Foundation: Vroom's Expectancy Theory (1964) supports this

philosophy by suggesting that individuals are motivated to act in a certain way if
they expect that their actions will lead to desired outcomes. In the context of
compensation, employees are more likely to exert effort if they believe that their
performance will lead to tangible rewards.

Real-World Example: Buffer, a social media management company, publicly

shares the salaries of all employees, including the CEO, to promote transparency
and fairness. This approach fosters a performance-driven culture where
compensation is closely tied to individual and organizational performance.

2. Market-Based Compensation Philosophy

Overview: This philosophy involves setting compensation levels based on external

market data, ensuring that an organization's pay scales are competitive within its
industry and geographic location. Regular benchmarking against market rates helps
attract and retain top talent.

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Pay Matters: Navigating the Essentials of Compensation Administration

Academic Foundation: The Hedonic Model of Compensation, as discussed by

Lazear and Shaw (2007), posits that employees value not only monetary
compensation but also non-monetary benefits. By aligning compensation with
market standards, organizations can offer attractive total rewards packages that
meet employee preferences.

Real-World Example: Cisco Systems employs a market-plus approach,

determining the prevailing rate for a specific job and adding a percentage to it. This
strategy ensures competitiveness in the labor market and helps attract and retain
top talent.

3. Job-Based Compensation Philosophy

Overview: Under this philosophy, compensation is determined based on the value

of the job itself, considering factors such as responsibilities, required skills, and
experience. This approach ensures internal equity and provides a clear structure for
pay and job progression.

Academic Foundation: Equity Theory, developed by Adams (1963), emphasizes

the importance of fairness in compensation. By evaluating jobs based on their
inherent value, organizations can establish equitable pay structures that align with
employee perceptions of fairness.

Real-World Example: Google employs a data-centric strategy in shaping its

compensation, encompassing performance-based salary structures designed to
recognize and reward top-performing individuals. This approach ensures internal
equity and encourages employees to take on additional responsibilities.

4. Person-Based Compensation Philosophy

Overview: This philosophy focuses on compensating employees based on their

individual characteristics, such as skills, experience, and education. It emphasizes
the value that individuals bring to the organization and aims to reward personal
development and growth.

Academic Foundation: The concept of human capital, as discussed by Becker

(1964), suggests that investments in employee skills and education enhance their
productivity and value to the organization. By aligning compensation with
individual attributes, organizations can incentivize personal development and
retain skilled employees.

Real-World Example: Companies like Microsoft and IBM have implemented

person-based compensation systems that reward employees for acquiring new

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Pay Matters: Navigating the Essentials of Compensation Administration

skills and certifications, thereby encouraging continuous learning and

development.

5. Entitlement-Based Compensation Philosophy

Overview: The Entitlement philosophy assumes that employees who have worked
an extra year are entitled to greater wages, regardless of their performance. This
approach often includes automatic raises and bonuses, fostering a sense of job
security and loyalty among employees.

Academic Foundation: Maslow's Hierarchy of Needs (1943) suggests that

individuals are motivated by a series of hierarchical needs, starting with
physiological needs and progressing to self-actualization. By providing stable and
predictable compensation, organizations can address employees' security needs,
leading to increased job satisfaction and loyalty.

Real-World Example: Many public sector organizations and unions operate

under an entitlement-based compensation system, where employees receive
regular, predetermined salary increases based on tenure rather than performance.

6. Egalitarian Compensation Philosophy

Overview: This philosophy promotes equal pay for all employees, regardless of
their role or performance. It aims to foster a sense of fairness and unity within the
organization by minimizing pay disparities.

Academic Foundation: Theories of organizational justice, such as those

proposed by Greenberg (1990), highlight the importance of fairness in
organizational processes. By ensuring equal compensation, organizations can
enhance employee satisfaction and reduce perceptions of inequality.

Real-World Example: Companies like Gravity Payments have implemented

egalitarian compensation systems, where the CEO and all employees earn the same
salary, to promote fairness and employee engagement.

7. Mission-Based Compensation Philosophy

Overview: Organizations with a mission-based compensation philosophy may

offer lower base salaries but provide other non-monetary benefits, such as a strong
organizational culture and a sense of purpose. This approach attracts employees
who are aligned with the organization's mission and values.
talenttoteam.com

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Pay Matters: Navigating the Essentials of Compensation Administration

Academic Foundation: Social Exchange Theory, as discussed by Blau (1964),

posits that individuals engage in social interactions that provide reciprocal benefits.
By offering meaningful work and aligning compensation with organizational
values, organizations can attract employees who are motivated by intrinsic rewards.

Real-World Example: Non-profit organizations often adopt mission-based

compensation philosophies, offering employees the opportunity to contribute to a
cause they are passionate about, in exchange for lower monetary compensation.

8. Flexible Compensation Philosophy

Overview: The Flexible compensation philosophy allows employees to choose

from a range of benefits and compensation options to tailor their total rewards
package to their individual needs and preferences. This approach enhances
employee satisfaction and retention by offering personalized compensation
solutions.

Academic Foundation: The Hedonic Model of Compensation (Lazear & Shaw,

2007) suggests that employees value non-monetary benefits and that firms can
attract and retain employees by offering a mix of pay and benefits that align with
employee preferences.

Real-World Example: Companies like Deloitte and Accenture offer flexible

compensation packages that allow employees to choose from various benefits,
such as health insurance, retirement plans, and wellness programs, to create a
personalized total rewards package.

9. Lockstep Compensation Philosophy

Overview: Lockstep compensation, or seniority-based compensation, is a system

where employees' salaries are based purely on their seniority within the
organization. This approach promotes loyalty and reduces intra-office competition.

Academic Foundation: Theories of organizational behavior, such as those

proposed by March and Simon (1958), suggest that organizational structures and
compensation systems influence employee behavior and attitudes. By
implementing lockstep compensation, organizations can foster a stable and
cohesive workforce.

Real-World Example: The legal profession often employs lockstep compensation

systems, where law firm associates receive predetermined salary increases based on
their years of service, regardless of individual performance.

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Pay Matters: Navigating the Essentials of Compensation Administration

10. Social Compensation Philosophy

Overview: Social compensation refers to when individuals work harder and

expend more effort in a group setting to compensate for other group members. In
the context of compensation, it suggests that employees may increase their efforts
to ensure the group's success, especially if they perceive the group product as
important.

Academic Foundation: The social compensation hypothesis, as documented by

Williams and Karau (1991), states that individuals may contribute more towards a
collective product when they perceive that other group members will perform
insufficiently, or if the group product is personally meaningful.

Real-World Example: In team-based organizations, employees may increase their

efforts to ensure the team's success, especially when individual performance is
linked to team outcomes.

The philosophies of compensation provide essential frameworks for aligning employee

rewards with organizational goals, values, and market realities. Whether performance-based,
market-driven, or egalitarian, each philosophy offers unique strategies for motivating,
retaining, and engaging talent, ultimately contributing to organizational success.

II. FORMS OF CONTINGENT PAY

Definition and Overview

Contingent pay refers to compensation that is directly linked to an employee's performance,

skills, competencies, or contributions to the organization. Unlike fixed salaries, contingent pay
varies based on individual or organizational achievements. This approach aims to motivate
employees by aligning their rewards with their performance outcomes.

Types of Contingent Pay

1. Performance-Based Pay

Performance-based pay (also called incentive pay) rewards employees based on how well
they meet specific goals or performance standards. This includes bonuses or incentives
awarded when employees meet or exceed predefined performance targets. In the
Philippines, this is commonly seen in sectors like business process outsourcing (BPO),
where employees receive performance bonuses based on metrics such as call handling
time or customer satisfaction scores.

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Pay Matters: Navigating the Essentials of Compensation Administration

Examples:
• Sales bonuses for exceeding targets
• Annual performance bonuses for hitting KPIs
• Performance incentives in BPOs for high customer satisfaction scores

Advantages:
• Encourages productivity and goal-oriented behavior
• Differentiates high and low performers
• Helps align employee efforts with company goals

Disadvantages:
• May lead to unhealthy competition or stress
• Quality might be sacrificed for quantity
• Can be demotivating if goals are unrealistic

Philippine Context: Call centers and retail companies often implement performance-
based incentives to reward employees for exceeding sales or customer service metrics.
According to Sevilla and Ortigas (2021), performance-based systems in Philippine
corporations improve employee morale when goals are clearly defined and feedback is
timely.

2. Skill-Based Pay:

Employees receive additional compensation for acquiring and demonstrating specific

skills or competencies. For instance, a Filipino nurse who acquires certification in a
specialized medical procedure may receive a higher pay rate.

Definition: Employees are paid more when they acquire new and relevant skills that are
valuable to the organization.

Examples:
• A technician who gains certification in a new system
• A call center agent who learns another language and is reassigned to bilingual
support
• Nurses who train in critical care and receive a higher rate

Advantages:
• Encourages continuous learning and skill development
• Enhances organizational flexibility (multi-skilled workforce)
• Promotes career growth and employee retention

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Pay Matters: Navigating the Essentials of Compensation Administration

Disadvantages:
• Can be expensive for the employer
• May reward skills that aren’t currently needed
• Measurement of skill proficiency can be subjective

Philippine Context: Companies in healthcare, manufacturing, and IT sectors

commonly use this model to promote upskilling. TESDA and CHED-accredited
programs are often integrated into skill-based pay schemes.

Del Rosario (2020) highlighted that skill-based pay in Philippine manufacturing increases
both productivity and employee commitment, particularly in lean manufacturing
environments.

3. Competence-Related Pay

This form rewards employees for their ability to perform current and future roles
effectively. In Philippine manufacturing industries, workers may receive pay increases as
they demonstrate proficiency in operating advanced machinery.

Definition: Pay is determined by the employee's ability to apply knowledge, skills, and
behaviors in ways that contribute to organizational success, not just by the tasks they
perform.

Examples:
• A supervisor who consistently demonstrates leadership and conflict-resolution
skills may receive a pay premium.
• A teacher who creates impactful learning programs beyond the curriculum

Advantages:
• Encourages excellence in behavior and decision-making
• Reinforces organizational values and culture
• Encourages leadership development

Disadvantages:
• Difficult to measure competencies objectively
• May cause perceptions of favoritism
• Not all employees may understand how to demonstrate competencies

Philippine Context: In public service and education, some departments reward

employees not just for tenure or credentials, but for behavioral competencies such as
innovation, teamwork, and ethics.

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Pay Matters: Navigating the Essentials of Compensation Administration

According to Garcia (2018), competence-based pay models in Philippine government

agencies help to professionalize civil service and reduce political favoritism.

4. Team-Based Rewards or Group Incentives: Organizations may offer

bonuses or profit-sharing plans to teams that achieve collective goals. In the Philippines,
some companies in the retail sector implement team-based incentives to encourage
collaboration and shared success.

Definition: Team-based pay rewards a group of employees for achieving shared goals.
The bonus is either equally shared or distributed based on contributions.

Examples:
• A project team gets a group bonus for completing a development task ahead of
the deadline
• A store staff receives a quarterly bonus for exceeding customer satisfaction
targets

Advantages:
• Enhances collaboration and mutual support
• Builds team spirit and reduces internal competition
• Encourages accountability at the team level

Disadvantages:
• May lead to “free riding” (some members do less work)
• High performers may feel under-rewarded
• Success depends heavily on group dynamics

Philippine Context: Retail and fast food chains (like Jollibee or SM Group) sometimes
use team-based incentives to promote cooperation during high-demand periods (e.g.,
holidays or sales).

Cruz & Bautista (2021) found that team-based pay in Filipino SMEs improves
collaboration and output, but warned of the need for clear contribution tracking
mechanisms.

5. Profit-Sharing: Employees receive a portion of the company's profits, often

distributed annually or semi-annually, depending on the company’s financial
performance.

Examples:
• A company distributes 10% of net profit to all employees based on tenure or rank
• Cooperatives in the Philippines giving patronage refunds or dividends

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Pay Matters: Navigating the Essentials of Compensation Administration

Advantages:
• Aligns employee interests with the company’s financial success
• Promotes a sense of ownership and loyalty
• Encourages long-term focus

Disadvantages:
• Delayed reward (may be annual or bi-annual)
• External factors can impact profits, even if employee performance is good
• May not motivate individual effort

Philippine Context: Employee-owned cooperatives and some large conglomerates like

San Miguel Corporation offer profit-sharing plans to engage and retain employees.

Reyes (2019) emphasizes that profit-sharing enhances employee retention and reduces
turnover, especially in family-run businesses in the Philippines.

6. Gainsharing: Gainsharing involves sharing cost savings or productivity gains with

employees, typically tied to performance improvements over a specific period.

Examples:
• Employees receive bonuses when factory output exceeds baseline levels without
increasing costs
• Office teams that reduce operational expenses get a portion of the savings

Advantages:
• Directly rewards process improvement
• Encourages employee innovation and cost-consciousness
• Creates a participatory culture

Disadvantages:
• Complex to administer
• Improvements must be measurable and sustainable
• Employees may feel demotivated if short-term gains are not visible

Philippine Context: Manufacturing and logistics firms such as in Calabarzon

implement gainsharing to improve productivity and reduce waste.

According to Tan and Santiago (2022), gainsharing in Philippine factories contributed to

a 12% increase in productivity and a measurable improvement in worker engagement.

While contingent pay offers flexibility and motivation, it must comply with the Labor Code of
the Philippines. Employers must provide mandatory benefits such as the 13th-month pay and

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Pay Matters: Navigating the Essentials of Compensation Administration

overtime compensation. Contingent pay should not replace these statutory benefits, but can
be offered in addition to them.

III. COMPENSATION FOR EXECUTIVES (IN THE PHILIPPINE CONTEXT)

Executive compensation in the Philippines is influenced by a combination of global best

practices and local regulatory frameworks. While multinational corporations often align with
international standards, local companies must navigate the complexities of Philippine labor
laws, such as the Labor Code and the Data Privacy Act. These regulations mandate compliance
in areas like tax deductions, benefits administration, and employee data protection. For
instance, the Bangko Sentral ng Pilipinas (BSP) has emphasized the importance of digital
financial services, including salary disbursement, to enhance financial inclusion and employee
welfare.

Executive compensation is a multifaceted structure that blends legal mandates, company

policies, and industry standards. While the Labor Code of the Philippines primarily addresses
the rights and benefits of rank-and-file employees, executives often receive compensation
packages that extend beyond the basic provisions of the law. These packages typically include
a base salary, performance bonuses, stock options, and other perks such as company vehicles,
housing allowances, and health benefits.

The base salary for executives varies significantly depending on the company's size, industry,
and financial standing. For instance, some top executives in major corporations can earn
between ₱2.2 million and ₱7 million per month, excluding additional benefits. These figures
underscore the competitive nature of executive compensation in the country.

Beyond monetary compensation, companies often offer stock options as part of the executive
package. These options serve as incentives, aligning the interests of the executives with the
long-term goals of the company. Additionally, non-cash benefits such as housing,
transportation allowances, and enhanced health coverage are commonly provided to attract
and retain top-tier talent.

It's important to note that while these compensation packages are prevalent in the private
sector, public sector executives, such as those in government-owned and controlled
corporations, may have different compensation structures. For example, the Bangko Sentral
ng Pilipinas (BSP) has faced discussions regarding the disparity between the compensation of
its executives and those in private corporations, highlighting the need for competitive
remuneration in the public sector.

Furthermore, the rise of the gig economy and remote work has introduced new dynamics in
executive compensation. Companies are increasingly adopting flexible compensation packages
that include performance-based incentives, stock options, and other non-traditional benefits

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Pay Matters: Navigating the Essentials of Compensation Administration

to attract and retain top talent. This shift requires a nuanced understanding of both local labor
laws and international compensation trends to ensure competitiveness and compliance.

IV. COMPENSATION FOR SALESPEOPLE IN THE PHILIPPINES

Sales compensation in the Philippines is typically structured to motivate performance and align
with organizational goals. Commonly, salespeople receive a base salary complemented by
commissions, bonuses, and other incentives tied to sales targets and performance metrics. This
structure aims to drive sales growth while providing financial rewards for individual
achievements.

However, challenges such as inconsistent performance, market fluctuations, and the need for
continuous training can impact the effectiveness of sales compensation plans. To address these
issues, companies are increasingly investing in training programs, performance management
systems, and data analytics to optimize sales strategies and compensation structures. These
investments help ensure that sales compensation remains a powerful tool for driving business
success.

The average monthly base salary for a salesperson in the Philippines is approximately ₱15,787,
with variations depending on factors like industry, experience, and location. For instance, sales
representatives in Metro Manila may earn higher base salaries compared to those in provincial
areas. In addition to the base salary, salespeople often receive commissions based on their
sales performance. Commission structures can vary, with some companies offering straight
commissions, while others provide a base salary plus commission or a tiered commission
system. For example, a salesperson might earn a 5% commission on sales up to ₱10,000, 7%
on sales between ₱10,001 and ₱20,000, and 10% on sales exceeding ₱20,000

Companies may also implement bonus schemes to further incentivize sales performance.
These bonuses can be awarded for achieving specific sales targets, securing new clients, or
exceeding quotas. In some cases, salespeople who meet or exceed their targets may receive
additional bonuses or higher commission rates, fostering a competitive and performance-
driven environment

While commission-based compensation offers the potential for higher earnings, it also
introduces variability in income. Salespeople may experience fluctuations in their earnings due
to factors such as market conditions, seasonality, and individual performance. To mitigate
income instability, some companies provide a draw against commission, offering salespeople
a guaranteed minimum income that is later offset by earned commissions

Hence, sales compensation in the Philippines is structured to reward performance and align
sales personnel's objectives with those of the organization. By offering a combination of base
salary, commissions, and bonuses, companies aim to motivate salespeople to achieve and
exceed sales targets, driving business success.
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Pay Matters: Navigating the Essentials of Compensation Administration

V. DIGITIZATION OF THE PAYROLL SYSTEM IN THE PHILIPPINES

The digitization of payroll systems in the Philippines is transforming how businesses manage
employee compensation. The Bangko Sentral ng Pilipinas (BSP) has been actively encouraging
employers to adopt digital payment methods for salaries, highlighting the benefits of financial
inclusion and employee welfare. This shift from manual to automated systems reduces errors,
enhances compliance with labor laws, and improves operational efficiency.

Technological advancements such as cloud-based payroll platforms, artificial intelligence (AI),

and mobile applications are further revolutionizing payroll management. These technologies
enable real-time processing, secure data handling, and greater transparency, thereby improving
the overall employee experience. For example, AI can automate complex payroll calculations
and identify anomalies, while mobile apps provide employees with easy access to their payslips
and other payroll-related information.

Wrap Up

In understanding the various forms of compensation, it becomes evident that organizations

must tailor their approaches to suit different roles, responsibilities, and strategic goals.
Executive compensation, often characterized by high base salaries, performance bonuses, and
non-monetary benefits such as stock options, reflects the value placed on leadership and
strategic decision-making. Meanwhile, compensation structures for salespeople are more
performance-driven, combining fixed salaries with commissions and incentives to promote
sales productivity. These distinct approaches demonstrate how compensation is not merely a
financial transaction but a tool for motivation, retention, and alignment of individual
contributions with organizational success.

Moreover, the modernization of payroll systems, especially through digitization, has reshaped
the way compensation is managed and delivered in the Philippines. Automation and digital
platforms not only streamline payroll processes but also ensure compliance with legal
standards and enhance transparency and accuracy. As businesses adapt to technological
advancements and changing workforce expectations, a strategic and flexible compensation
framework becomes essential. Ultimately, understanding and effectively managing the
different forms of compensation contribute significantly to workforce satisfaction,
organizational performance, and long-term sustainability.

Learning and Teaching Processes

• Lecture
• Class Discussion

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Pay Matters: Navigating the Essentials of Compensation Administration

Recommended learning materials and resources for supplementary reading.

Forms of Compensation
https://morganhr.com/blog/compensation-types/

Flexible Teaching Learning Modality (FTLM)

Online Film Viewing: Total Rewards: The Different Forms of

Compensation
https://www.youtube.com/watch?v=79Q_uPVwKp4

Assessment Task: Practical Application – Compensation Analysis

Objective: To evaluate students’ understanding of the different forms of compensation by

applying concepts to a real or hypothetical workplace scenario.

Instructions:

1. Choose one (1) of the following employee roles:

o Executive (e.g., CEO, CFO, Director)
o Salesperson
o Rank-and-file employee (e.g., administrative assistant, factory worker)

2. In a short bond paper written report (200–300 words), answer the following:
o Describe the typical compensation package for this role in the Philippines.
o Explain why the compensation structure is suitable for that role.
o Suggest one improvement that could be made to make the compensation more
competitive or fair.

3. Optional Bonus: If you have a family member or friend in this role, you may briefly
include their input or experience (without mentioning their name or company).

Submission Format: Typed, single-spaced, on one page. Submit via printed copy.

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References

Agcaoili, L. (2023, December 24). BSP urges employers to digitize workers’ salaries.
Philstar.com. https://www.philstar.com/business/2023/12/24/2320967/bsp-urges-
employers-digitize-workers-salaries

Becker, G. S. (1994). Human capital: A theoretical and empirical analysis with special reference to education
(3rd ed.). University of Chicago Press.

Cruz, M. A., & Bautista, R. V. (2021). Team-based pay and employee collaboration in Filipino
SMEs. Philippine Journal of Labor and Industrial Relations, 39(2), 84–98.

Darwinbox. (2025). Ultimate guide to cloud-based payroll system in the Philippines: Features,
benefits, and best payroll software. https://blog.darwinbox.com/payroll-management-in-the-
philippines-the-ultimate-guide-to-efficiency

Del Rosario, R. P. (2020). Skill-based pay and employee development in Philippine

manufacturing. Journal of Southeast Asian Human Resource Development, 12(1), 45–60.

Garcia, L. C. (2018). Competence-based compensation in the Philippine civil service: A

performance lens. Public Administration Quarterly, 42(3), 239–256.

Greenberg, J., & Colquitt, J. A. (Eds.). (2013). Handbook of organizational justice.

Routledge/Taylor & Francis.

Lazear, E. P., & Shaw, K. L. (2007). Personnel economics: The economist's view of human
resources. Journal of Economic Perspectives, 21(4), 91–114. https://doi.org/10.1257/jep.21.4.91

Maslow, A. H. (2023). A theory of human motivation. Independently published. ISBN:

9798394814679.

Reyes, A. D. (2019). Profit-sharing and employee loyalty in Philippine family businesses. Journal
of Asian Business Studies, 13(4), 512–530.

Sevilla, M. G., & Ortigas, J. L. (2021). Performance pay systems and morale in Philippine
corporations. Ateneo Journal of Management and Development, 28(1), 25–38.

Srinivas, S. (2023). Streamlining time & payroll management: A look at the Philippines.
ETHRWorldSEA. https://hrsea.economictimes.indiatimes.com/news/hrtech/streamlining-
time-payroll-management-a-look-at-the-philippines/111785747

Taclino, N. (2025). From peso to payslip: Innovations and challenges in the Philippine payroll
landscape. ILO ILO Today. https://www.iloilotoday.com/philippine-payroll-landscape/

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Pay Matters: Navigating the Essentials of Compensation Administration

Tan, F. R., & Santiago, D. A. (2022). The role of gainsharing in enhancing productivity:
Evidence from Calabarzon industrial parks. Philippine Review of Economics, 59(2), 123–140.

Vroom, V. H. (2023). Vroom’s expectancy theory. In L. Daouk-Öyry & H. El-Farr (Eds.), Handbook
of organizational behavior (pp. 123–135). SAGE Publications.
https://doi.org/10.4135/9781071924204

Williams, K. D., & Karau, S. J. (1991). Social loafing and social compensation: The effects of
expectations of co-worker performance. Journal of Personality and Social Psychology, 61(5), 570–
581. https://doi.org/10.1037/0022-3514.61.5.570

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Pay Matters: Navigating the Essentials of Compensation Administration

Chapter 5: Employee Benefits

Administration

Kick Off

This module on Employee Benefits Administration is designed to build a solid understanding

of how to effectively manage and support the benefit programs that are vital to employee
satisfaction and organizational success. You'll explore key areas including health and
retirement plans, legal compliance, enrollment processes, and communication strategies that
ensure employees fully understand and utilize their benefits.

As benefits continue to evolve, staying informed is essential to maintaining compliance and

delivering value. Through this training, you'll gain practical knowledge and best practices that
can be applied in day-to-day operations and strategic planning. Let’s dive in and make the most
of this opportunity to strengthen our approach to benefits administration.

Learning Outcomes

This module covers essential topics on the employee Benefits Administration. In particular, at
the end of this module, the students can:

1. Identify the objectives and justification of employee benefits;

2. Classify government-mandated employee benefits; and
3. Discuss voluntary employee benefits.

Learning Contents

This module contains discussion on the following topics:

1. The Concept of Employee Benefits

2. The Objectives and Justification of Employee Benefits
3. What Are the Government-Mandated Employee Benefits?
4. Voluntary Employee Benefits

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Pay Matters: Navigating the Essentials of Compensation Administration

I. THE CONCEPT OF EMPLOYEE BENEFITS

Employee benefits encompass a broad range of non-wage compensations provided to

employees in addition to their regular salaries. These benefits are integral components of the
total compensation package and serve to enhance the overall well-being of employees. In the
Philippine context, employee benefits are categorized into statutory and non-statutory
benefits. Statutory benefits are mandated by law and include contributions to the Social
Security System (SSS), PhilHealth, and Pag-IBIG Fund, which provide employees with social
security, health insurance, and housing-related benefits, respectively. Non-statutory benefits,
on the other hand, are provided at the discretion of the employer and may include health
maintenance organization (HMO) coverage, life insurance, retirement plans, and various leave
entitlements such as vacation, sick, and maternity leave.

The importance of employee benefits extends beyond mere compliance with legal
requirements. As noted by Triple i Consulting, a well-structured employee benefits program
enhances employee well-being, fosters loyalty, and ensures compliance with government
regulations. It contributes to increased job satisfaction and boosts overall efficiency and
compliance with labor regulations. Moreover, offering competitive benefits packages can serve
as a strategic tool for attracting and retaining top talent in a competitive labor market. This is
particularly pertinent in the Philippines, where the labor force is diverse, and employees
increasingly value comprehensive benefits that support their health, financial security, and
work-life balance.

II. THE OBJECTIVES AND JUSTIFICATION OF EMPLOYEE BENEFITS

The primary objectives of employee benefits are to attract, motivate, and retain employees,
while also ensuring their health, security, and overall satisfaction. From an organizational
perspective, providing a robust benefits package can lead to increased employee morale,
reduced turnover, and enhanced productivity. These outcomes are particularly significant in
the Philippine setting, where the labor market is dynamic, and employees have various
employment options. By offering attractive benefits, organizations can differentiate
themselves as employers of choice.

Justifying the provision of employee benefits involves recognizing their role in promoting a
positive organizational culture and aligning with corporate social responsibility (CSR)
initiatives. Benefits such as health insurance and retirement plans demonstrate an employer's
commitment to the welfare of its employees, which can enhance the organization's reputation
and brand image. Furthermore, compliance with statutory benefits is not only a legal obligation
but also a reflection of the organization's ethical standards and commitment to social
responsibility. In the Philippines, adherence to laws such as the Labor Code, which mandates
benefits like the 13th-month pay and service incentive leave, is essential for maintaining legal
compliance and fostering trust among employees.

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Encompassing, employee benefits are a critical component of human resource management

in the Philippines. They serve to support the well-being of employees, ensure legal compliance,
and contribute to organizational success. By understanding the concept and objectives of
employee benefits, organizations can develop and implement effective benefits programs that
meet the needs of their workforce and align with their strategic goals.

III. GOVERNMENT-MANDATED EMPLOYEE BENEFITS IN THE

PHILIPPINES

Government-mandated employee benefits in the Philippines are statutory entitlements that

employers are legally obligated to provide to their employees. These benefits are designed to
ensure the welfare and protection of workers, and non-compliance can result in legal
consequences for employers.

1. Social Security System (SSS)

The SSS is a government-run social insurance program established under Republic Act
No. 1161, as amended by Republic Act No. 8282. It provides a package of benefits in
the event of death, disability, sickness, maternity, and old age. Both employees and
employers contribute to the SSS, with rates and ceilings set by the Social Security
Commission. Failure to remit contributions can lead to penalties and interest charges.

2. Philippine Health Insurance Corporation (PhilHealth)

PhilHealth is the national health insurance program established under Republic Act No.
7875, as amended by Republic Act No. 10606. It aims to provide accessible, affordable,
and adequate health care services to all Filipinos. Employers are required to register their
employees with PhilHealth and remit monthly contributions. The contribution rate is
shared equally between the employer and the employee.

3. Home Development Mutual Fund (Pag-IBIG Fund)

The Pag-IBIG Fund, established under Republic Act No. 9679, is a national savings
program that provides affordable housing financing to Filipino workers. Employees
earning at least ₱1,500 per month are required to contribute to the Pag-IBIG Fund, with
the employer matching the employee's contribution. The total contribution is capped at
₱200 per month, with each party contributing ₱100.

4. Thirteenth Month Pay

Presidential Decree No. 851 mandates that all employers provide their employees with
a thirteenth-month pay, which is equivalent to one-twelfth of an employee's basic salary

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earned within a calendar year. This benefit is exempt from income tax and must be paid
on or before December 24 of each year.
5. Service Incentive Leave (SIL)

Under the Labor Code of the Philippines, employees who have rendered at least one
year of service are entitled to five days of paid service incentive leave annually. This leave
can be used for vacation, sick leave, or personal reasons. Employers are required to grant
this leave and may convert unused SIL to cash if stipulated in company policies.

6. Other Statutory Benefits

Additional statutory benefits include holiday pay, overtime pay, night shift differential,
and maternity/paternity leave. These benefits are designed to compensate employees for
work performed during non-standard hours or to support employees during significant
life events.

IV. VOLUNTARY EMPLOYEE BENEFITS IN THE PHILIPPINES

Voluntary employee benefits are non-mandatory perks that employers may choose to offer to
enhance employee satisfaction, attract talent, and promote a positive work environment. While
not required by law, these benefits can play a crucial role in employee retention and
organizational success.

1. Private Health Insurance

Beyond the coverage provided by PhilHealth, employers may offer private health
insurance plans to their employees. These plans can provide more comprehensive
coverage, including outpatient services, dental care, and specialized treatments. Offering
private health insurance can be a significant factor in attracting and retaining employees.

2. Retirement Plans

Employers may establish retirement plans, such as 401(k)-like programs, to help

employees save for their post-retirement years. These plans often include employer
contributions and may offer tax advantages. Providing retirement plans demonstrates an
employer's commitment to the long-term financial well-being of their employees.

3. Paid Time Off (PTO) and Leave Benefits

While the Service Incentive Leave is mandated by law, employers may offer additional
paid time off, such as vacation leave, sick leave, and personal days. These additional leave
benefits can help employees maintain a healthy work-life balance and reduce burnout.

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Pay Matters: Navigating the Essentials of Compensation Administration

5. Performance Bonuses and Profit Sharing

Employers may implement performance-based bonuses or profit-sharing programs to

incentivize employees to achieve organizational goals. These programs can align
employees' interests with the company's success and motivate high performance.

5. Wellness Programs

Wellness programs can include initiatives such as gym memberships, mental health
support, and stress management workshops. These programs aim to improve employees'
physical and mental well-being, leading to increased productivity and job satisfaction.

6. Educational Assistance

Employers may offer educational assistance programs, such as tuition reimbursement or

scholarships, to support employees' professional development. Investing in employees'
education can lead to a more skilled and knowledgeable workforce.

7. Flexible Work Arrangements

Flexible work arrangements, including remote work options and flexible hours, have
become increasingly popular. These arrangements can help employees better manage
their personal and professional responsibilities, leading to improved job satisfaction and
retention.

Wrap Up

As we conclude the module on Employee Benefits Administration, it’s important to recognize

the critical role benefits play in supporting employee well-being and organizational success.
From government-mandated provisions such as SSS, PhilHealth, and Pag-IBIG contributions
to voluntary offerings like health insurance and wellness programs, a well-structured benefits
system not only ensures compliance but also enhances employee satisfaction and retention.
By understanding the legal framework and operational aspects of administering these benefits,
HR professionals are better equipped to deliver programs that are both strategic and people-
centered.

Moving forward, the knowledge gained in this module should empower you to assess,
implement, and continuously improve your organization’s benefits programs. Effective
administration requires staying updated on policy changes, maintaining accurate records, and
fostering clear communication with employees. Whether you’re managing daily processes or
shaping long-term strategies, your role in benefits administration contributes to building a
resilient and engaged workforce—one that feels valued and supported every step of the way.

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Pay Matters: Navigating the Essentials of Compensation Administration

Learning and Teaching Processes

• Lecture
• Class Discussion

Recommended learning materials and resources for supplementary reading.

What is Benefits Administration?

https://www.paycor.com/resource-center/articles/what-is-benefits-administration/

Flexible Teaching Learning Modality (FTLM)

Online Film Viewing: 4 Types of Employee Benefits Every HR

Professional Should Know
https://www.youtube.com/watch?v=boG6mZnPXXA

Assessment Task: Employee Benefits Administration Quiz

Instructions: Read each question carefully and answer as directed. Write your answers on the
space provided.

Part I – Multiple Choice (1 point each)

Choose the letter of the correct answer.

1. Which of the following is a government-mandated benefit in the Philippines?

A. Gym membership
B. Life insurance
C. PhilHealth contribution
D. Educational allowance
2. The 13th-month pay is mandated to be given no later than:
A. December 15
B. December 24
C. December 31
D. January 1
3. Pag-IBIG contributions are intended primarily to support:
A. Retirement income
B. Housing and savings
C. Health care services
D. Education assistance

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Pay Matters: Navigating the Essentials of Compensation Administration

4. A benefit that is not required by law but given by the employer as an incentive is
called:
A. Statutory benefit
B. Mandatory benefit
C. Voluntary benefit
D. Core benefit
5. Which law governs the provision of Service Incentive Leave (SIL)?
A. RA 7875
B. RA 8282
C. Labor Code of the Philippines
D. RA 9679

Part II – True or False (1 point each)

Write T if the statement is true and F if it is false.

6. Only regular employees are entitled to government-mandated benefits.

7. Employers may face penalties for not remitting SSS contributions.
8. Offering voluntary benefits can improve employee morale and retention.
9. The employer pays 100% of the PhilHealth contribution.
10. Employees can convert unused Service Incentive Leave into cash under certain
conditions.

Part III – Short Answer (2 points each)

Answer briefly but clearly.

11. What are two examples of voluntary employee benefits commonly offered in the
Philippines?
12. Why is it important for employers to comply with government-mandated benefits?
13. How do employee benefits contribute to employee retention?
14. What is the purpose of the Social Security System (SSS)?
15. Name one challenge HR professionals face in administering employee benefits.

References

Digest PH. (2021, May 12). Hiring Employees 101: Government Mandated Benefits. Retrieved
from https://www.digest.ph/blog/hiring-employees-101-government-mandated-benefits

eCompareMo. (2021, July 20). Employee Benefits Philippines: Complete List, Guide, and
FAQs. Retrieved from https://www.ecomparemo.com/info/heres-a-full-list-of-mandatory-
benefits-for-regular-employees-in-the-philippines

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Pay Matters: Navigating the Essentials of Compensation Administration

EOR Worldwide. (2021, June 15). Employee Benefits Philippines: Enhancing Success.
Retrieved from https://eorworldwide.com/blog/employee-benefits-philippines

Government Service Insurance System. (n.d.). Overview. Retrieved from

https://en.wikipedia.org/wiki/Government_Service_Insurance_System

Kittelson & Carpo Consulting. (2021, August 5). Philippines Mandatory Employee Benefits
& Contributions. Retrieved from https://kittelsoncarpo.com/labor-employment/employee-
benefit-contributions/

Labor Code of the Philippines. (n.d.). Specific features. Retrieved from

https://en.wikipedia.org/wiki/Labor_Code_of_the_Philippines

Lumina Homes. (2021, September 10). Employee Benefits in the Philippines. Retrieved from
https://www.lumina.com.ph/news-and-blogs/blogs/employee-benefits-in-the-philippines-
as-required-by-labor-laws/

Pag-IBIG Fund. (n.d.). Membership. Retrieved from https://en.wikipedia.org/wiki/Pag-

IBIG_Fund

Philippine Health Insurance Corporation. (n.d.). Mandate and functions. Retrieved from
https://en.wikipedia.org/wiki/Philippine_Health_Insurance_Corporation

Respicio & Co. (2021, October 15). Comprehensive Guide on Employee Benefits and
Remedies Under Philippine Law. Retrieved from https://www.lawyer-
philippines.com/articles/comprehensive-guide-on-employee-benefits-and-remedies-under-
philippine-law

Social Security System (Philippines). (n.d.). Services. Retrieved from

https://en.wikipedia.org/wiki/Social_Security_System_(Philippines)

Triple i Consulting. (n.d.). Employee benefits: Enhance workplace satisfaction and

productivity. Retrieved from https://www.tripleiconsulting.com/human-resources-
consulting/employee-benefits/

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Pay Matters: Navigating the Essentials of Compensation Administration

Epilogue
As we bring this module on Compensation Administration
to a close, we reflect on the vital role compensation plays in
shaping a fair, motivating, and strategic work environment.
Throughout the sessions, we explored the key elements of
compensation structures, including job evaluation, salary
benchmarking, pay equity, performance-based rewards, and
compliance with labor laws. These are not just technical HR
practices—they are the foundation of how we recognize and
reward human effort.

The knowledge gained from this module is meant to guide

you in designing and managing compensation systems that
are competitive, transparent, and aligned with organizational
goals. As compensation professionals, you are now better
equipped to balance internal fairness with external
competitiveness, support employee engagement, and
contribute to sustainable business growth. Moving forward,
let us use this understanding to build compensation strategies
that not only reward work, but also inspire excellence,
accountability, and equity in every role.
RLSJ

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