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Actual Application of Wage Structure and Design Theories

COMPENSATION DESIGN Considerations


( COMPENSATION PHILOSOPHIES) 1. Adapt a TOTAL PAY PERSPECTIVE
Other Bonuses / Incentives 13 th & 14 th mo.Pay Fixed Allowance
Fixed Annual Cash Compensation, F A C C TOTAL COMPENSATION Variable Bonuses Fixed Bonus

Base Pay

Fixed Monthly Cash Compensation,F M C C

Total Annual Cash Compensation,T A C C

Non-Cash Benefits

COMPENSATION DESIGN Considerations


( COMPENSATION PHILOSOPHIES) 2. Shift towards TWO-COMPONENT PAY SYSTEM
1 2

TAC C =

FIXED PAY

VARIABLE PAY

( BP + Fixed Allowance + Fixed Bonus ) + ( Variable Bonus + Performance Pay + Etc.)

FIXED PAY

- To pay for the VALUE of work performed. ( Same pay for same position. Or Equal Work Equal Pay)

VARIABLE PAY

- To pay for the employees contribution and/or worth in terms of competencies/capabilities and Performance. ( Extra Pay for Extra Work or added qualification)

COMPENSATION DESIGN Considerations


( COMPENSATION PHILOSOPHIES) 3. CONSERVATIVE MARKET POSITIONING Know and validate the ABC position in the MARKET Align the rates and choose a Conservative position reflective of and/or proportionate to the companys standing. Must consider, foremost, the business FINANCIAL STATUS and the organizations VALUES.

4.

DETERMINE AND OBSERVE THE IDEAL PAY LINE : ESTABLISH DESIRED PAY GAPS ACROSS EMPLOYEE CLUSTERS AND LEVELS.

COMPENSATION DESIGN Considerations


( COMPENSATION PHILOSOPHIES) 5. BUILT-IN MECHANISM IN MAINTAINING THE COMPENSATION STRUCTURE & IDEAL PAY LINE . Anchor the compensation structure on the desired pay line. Adjustment in any point of the Ideal Pay Line shall be used to trigger corresponding adjustments in rest of the curve. Anchor the Hiring rates on the structure. Make ABC Compensation Policy reflective of the Compensation Philosophies.

6.

AFFORDABILITY AND SUSTAINABILITY Consider both short-term IMPACT and long-term IMPLICATIONS in coming-up with decisions on pay adjustments.

RECOMMENDATIONS
A. PROPOSED APPROACH 1. Translate the Compensation Philosophies into concrete figures in terms of : Percentage Pay gaps between employee levels and clusters Conservative Pay Position relative to the Market Fixed Pay VS Variable Pay Allocation New Compensation Structure and corresponding Hiring Rates & Promotion Increases

2.

Collapse the current supervisory layers from three (3) to two (2) levels - This is in accordance with ABCs organizing principles - Meanwhile, consider all supervisors at equal footing, to be given a uniform adjustment --- that intended for the first level, S1. - Upon validation of the supervisory levels ,(through up-coming JE), give the remaining balance due for supervisors under S2 level.

RECOMMENDTIONS
B. PROPOSED PAY ADJUSTMENTS ( Effective Jan. 2001)

LEVEL
Supervisory : S1 S2

ECONOMIC
1,000 1,000

CATCH UP

TOTAL

As Needed

Managerial
Executive

:
:

M
E

2,000
-

RECOMMENDTIONS
B. PROPOSED COMPENSATION STRUCTURE ( Effective Jan. 2009)

LEVEL

NEW STRUCTURE, p (Regularization Rate)

HIRING RATE, P (85% of Structure)

PROMOTION INCREASE

R&F L1 L2 L3 L4 L5 SUPVRY S1 S2 MGRL M 35,300 30,000 10,000 7,500 8,000 8,500 9,000 9,500 15,977 19,727 6,375 6,800 7,225 7,650 8,075 13,580 16,768 500 500 500 500 1,000 2,000 5,000

RECOMMENDATIONS B. PROPOSED PAY ADJUSTMENTS ( Contn.)

SPECIFIC PROPOSAL FEATURES : 1. 2. Allocate increases between Monthly Base Pay and Allowance, if needed Update the Compensation Structure
Peg current L1 minimum as the starting point of new Structure (Minimum Rate)

Effect uniform gap of 500 across R & F levels


Increase the minimum supervisory rate to 15,977 to at least exceed average rate of L4 and L5, then maintain a P2,000 gap between Supervisors S1 & S2 Set minimum Managerial rate to P30,074 to raise current P 718 gap between highest-paid supervisors to lowest paid managers substantially enough to P 3,782 Implement the New Structure effective January 1, 2001.

RECOMMENDATIONS B. PROPOSED PAY ADJUSTMENTS ( Contn.) RESULTING IMPACT : 1. ABC New Compensation Curve will approximate 1st Quartile of the market

2.
3.

More or Less Equate XX Pay Levels


Ideal Gaps within Clusters and between Levels are instituted an anchor for Hiring Rates, Promotion increases, and subsequent adjustments for all levels.

RECOMMENDATIONS C. POST PAY ADJUSTMENT ACTIVITIES 1. 2. Ensure that no employee shall receive a basic salary below the new minimum Translate into an official Compensation Policy the following : - New Salary Structure and its maintenance - Compensation Philosophies - other compensation commitments Implement other HR Systems that shall complement and/or support ABCs Compensation System such as, but not limited to: - Job Evaluation System - Performance Management System - Competency-based Training Programs - Etc. Conduct periodic compensation study ( at least every three years), to check how the company is fairing against the community. Industry and market. ENSURE PROPER MANAGEMENT AND MAINTENANCE OF THE SYSTEM

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