Chapter 6

Rewards
and
Recognition
Dwight Sabello
Ian Carl Patindol
Formulating a Company
Compensation Policy
A company must create a comprehensive compensation policy that
outlines the elements, design, cost, and frequency of cash, near-cash
compensation, and benefits.

This policy should consider the basis of pay, market philosophy,

employee commitment to the company, and communication strategy.
Dimension of a
Compensation Philosophy

Pay for performance. Many companies have adopted a pay for performance
compensation policy to be flexible and respond to new goals and priorities.

Some companies also have a paternalistic policy to show appreciation for

employees' loyalty and commitment, or to help them cope with the cost of
living during hard economic times.
Dimension of a Compensation
Philosophy

Market Competitiveness. This can be seen through the manner by which a company
approaches its market. Market rates will be expressed in terms of total compensation
whenever possible.

This includes comparing average total compensation through surveys and blending pay for
performance with a market philosophy. This ensures that employees are rewarded for their
performance and skills, while also maintaining pay competitiveness with the external labor
market.
Most companies need an external benchmark to set salaries,
which can vary depending on the competitive level and the
environment from which the workforce is taken. This
benchmark could be a geographical area, industry, or region
such as Asia Pacific.

Positioning in the market is the process of setting

Dimension of a
Compensation
compensation levels against relevant market survey data.
Companies may position themselves comparatively across the
organization, but competitively on a selective basis. This is

Philosophy
typically done for high performing individuals, specific job
groups, or those who represent unique and scarce resources.
 Basic
Salary
The pay that an employee receives from an employer is
the primary reason for his being on the job. That pay is
generally termed as "basic salary".
Some of the principles surrounding the
setting of basic salary rates are :
Pay must be equitable in relation to what other employees get for what they
do. Equity can be set based either on qualifications required for the job; the
duties and responsibilities of the job;the supply and demand of workers so
that where it is scarce, the rate may naturally be higher. An employee's pay
must be commensurate to his efforts.

Although pay rates must be adequate for the services each employee
renders, they must be realistic, based on the company's capacity to pay and
to compete in the labor market so that it can continue to atract and retain
the right employees.

The type of industry and the cost structure of the company in running its
business, particularly in the relative value of salaries and wages against
other expenses, also dictates the size of basic salary.
 Basic salary is adjusted through various
methods including :

Merit Increase
Merit pay funding (merit budgets) is the result of the consideration of
several factors: external salary surveys, economic considerations, market
movement, internal/external pay equity, and business performance.

Promotion increases, which may be based on a percentage of the new

salary band midpoint. A choice of range (in terms of percentage) for
promotion increase may be provided based on the positioning of current
skills on the new job.
 Variable
Compensation
There are various forms of variable compensation. The
amount of variable compensation depends on results of
pre-established targets. It is good to remember not only
the obvious factor that this is potentially additional
income to the employee but that it is also compensation
at risk. Some are individual variable compensation,
others are team-based, and still others are company-
wide.
 Sales Incentive Plans
Sales employees are almost always provided a compensation package with
a variable compensation component. In one company, the key points and
guiding principles of its sales incentive plan were articulated as follows:

• Sales incentives are earned based on actual results

delivered against meaningful expectations

• Exceptional performance yields top of the market rewards.

On target earning represent a market competitive pay level.

• Profitable, balanced business performance is required and

rewarded.

• Provide one face to the customer for our products and

services.

• Total compensation is more than base salary and

incentives.
 Management Incentive Plans
Management incentives that provide variable compensation are effective
tools in shaping and directing behaviors to support company objectives.
While not everything rests on the incentive plan, it still serves as an
effective tool. A sample management incentive plan in a company has the
following features :

• Performance objectives measured in the incentive plan are

profit contribution, customer satisfaction, and employee
satisfaction. A condition of receiving the incentives
attached to these measures of individual performance is a
corporate performance condition of contribution margin
• The performance measures are weighted with profit
contribution at 60%, discretionary performance objective at
20% and customer satisfaction and employee satisfaction at
10% each.
BENEFITS
SOCIAL SECURITY
The law provides for the compulsory coverage of all employees in
private firms up to the age of 60, with a maximum monthly salary
coverage that gets reviewed on a regular basis. Funds for the payment
of the various benefits shared by the employer and employees
according to the schedule.

The Social Security Law has undergone several amendments in order

to enlarge its coverage and improve the benefits for its members.
LIFE INSURANCE
Providing employees with life insurance coverage as a
protective form of benefit is a common practice. Policies are
usually fully paid for by the company, and this benefit is
acknowledge as a supplement to the government-mandated
and limited Employees Compensation Commission insurance
coverage.
LIFE INSURANCE
The usual terms of a life insurance coverage benefit are:
• Coverage
A group insurance policy is usually taken to cover a portion
of the income earned by the employee to provide security and
protection for dependents.
• Premium
The premium is usually borne solely by the company
• Beneficiary
The employee nominates the beneficiary at the time of
insurance enrollment.
RETIREMENT

There is a Retirement Law under Republic Act No. 7641, the key
provision of which is a mandatory retirement pay of 22.5 days of
monthly basic salary for every year of service at age 60. Providing
retirement benefit is a common practice in many companies today
to supplement the SSS retirement benefit. The company's expenses
for the retirement plan is sizeable and is a long-term commitment.
ELEMENTS OF
RETIREMENT PLAN
• Type of plan
The plan can be a defined benefit or a defined contribution plan. A defined
contribution plan is when the employee contributes a certain amount
through the employment period, and the company also contributes a
certain amount based on the amount of the employee contribution, with
the final retirement benefit based on these contributions and the retirement
fund income.
ELEMENTS OF
RETIREMENT PLAN
• Tax Qualifications
All company contributions to the fund are tax deductible and the income
earned by the fund is tax exempt. Full tax-exempt benefit as a tax-
qualified retirement plan maximized investment returns, which reduces
overall contribution cost.
ELEMENTS OF
RETIREMENT PLAN
• Eligibility requirements
This usually expressed in terms of the age of the employee and any
conditions on the length of service. Generally, the normal retirement age
of employee is 60. Early retirement is age 50, with 10 years service. Late
retirement occurs for employees over age 60.
ELEMENTS OF
RETIREMENT PLAN
• Benefits under other conditions
Benefits may also be give if any of the following occur; death, disability,
voluntary resignation, or involuntary resignation of the employee.
ELEMENTS OF
RETIREMENT PLAN
• Vesting Schedule
This defines the partial benefit retirement amount for service shorter than
that required under normal retirement. (See Exhibit 6.3)
ELEMENTS OF
RETIREMENT PLAN
• Funding and sharing
A retirement plan is noncontributory if the retirement fund is fully funded
from the company's operations. It is contributory if part of the retirement
fund comes from employee contributions.
ELEMENTS OF
RETIREMENT PLAN
• Investment Management
Most retirement funds are managed by a trustee. The following are the
benefits of a trusteed retirement fund that cannot be availed of by the non-
trusteed:

• Tax exemption
• Cost effectiveness
• Professional management through the
services of portfolio/fund managers
• Ease of administrative burden
• Protection
Car and Car related
Benefits
Car benefits are typically limited to specific groups of employees based
on their management rank or job nature, such as sales and marketing or
professional services. In some cases, only the head of an organization and
their direct reports or executive team members may receive car benefits.
The form in which a car benefit program would be designed and provided
may range from any of those stated below. Companies may adopt all or
some of them for different eligible groups.

• Assignment of a company car to include personal use;

• Financial assistance through full or partial financing of a loan made
either directly to the company or through a bank or lending institution
with the company providing guaranty;
• Fixed monthly car allowance to cover full or partial business-related
expenses for car and car-related expenses;
• No financial support but negotiation with bank or lending insitution
for favorable lending rates to selected executives and employees in
exchange for continued business with the bank and for providing
continuing administrative support such as salary deduction for
amortization.
The other provisions of a car benefit
program may be:
• Car make/model
• Acquisition
• Replacement period
• Personal Usage
• Related Expenses
• Purchase option and price
• Tax impact of car benefit
OTHER BENEFITS
Allowance
Companies could provide to selected employees various forms of
allowances to compensate for extraordinary circumstances based on
certain conditions. Below are some examples;

• Overtime Meal/Transportation Allowance

Most companies provide meal and/or transportation allowance during
overtime work. This is an addition to and distinctly separate from
overtime pay and premium pay for work outside of normal office hours of
the employee. An example for overtime meal allowance is shown;
Examples of overtime
transportation allowance policies
are as follows;
• Actual transportation expenses incurred shall be reimbursed by the
company
• Employees are to use the fastest and most economical means of
transportation to charge the overtime transpotation expenses.
• Taxi fare reimbursement can be claimed for overtime work/night shift
duty from 9:00 pm to 6:00 am. During this time, most public utility
transportation facilities (buses and jeepneys) are no longer opreating
regular schedules and routes. At the same time, this policy will secure
the health and well being of the employee.
Examples of overtime
transportation allowance policies
are as follows;
• Employees rendering overtime work or who are on night shift duty
are entitled to taxi fare (from their place of assignment to residence),
but only if the of assignment begins or ends at 9:00 pm through 6:00
am of the following day.
• Provincial Allowance. An employee regularly assigned to work in the
provincies shall be entitled to fixed monthly provincial allowance in
addition to the regular salary.
• Standby Allowance. Companies with a strict standard of customer
services, usually those with a commitment to be available 24 hours a
day, seven days a week, need to schedule their employees, usually
engineers, to be on call.
RECOGNITION
Companies use recognition programs and contests to focus effort on
tactical objectives and celebrate the success of teams and individuals.
There are various forms of recognition-financial and nonfinancial,
individual and team. Here are few of these forms.

Sample Recognition Program in a Hotel

A recognition program can be an excellent vehicle to celebrate effective
behavior and achievements from day to day work. A hotel wanted to
reward and reinforce the many acts of customer satisfaction or delight by
its employees. The program is based on an expected results that a
delighted customer would return and recommend the hotel to friends and
associates.
Sample Recognition Program for Sales

In a sales and marketing organization, a quote achievement

recognition program is used to foster an environment for
excellence, innovation, and sustained and progressive
individual achievement. Those qualified to attend an
international sales convention and celebration held in a
prestigious resort or similar international destinations are
those sales people who surpassed theri quotes.
Social Security System Benefits
• Sickness Benefit
• Maternity Benefit
• Disability Benefit
• Retirement Benefit
• Death Benefit
• National Health Insurance Program Benefit
• Loans
• Salary Loan
• Privatization Fund Loan Program