DPB50123: HUMAN RESOURCE

MANAGEMENT
CHAPTER 6: COMPENSATION MANAGEMENT
MOHAMAD SHUKRI BIN MUDA
COMMERCE DEPARTMENT
POLITEKNIK METRO BETONG SARAWAK
 COMPENSATION FOR EMPLOYEE

Definition
 All forms of pay or rewards given to employees and
arising from their employment.
 Compensation packages with good pay and advantages
can help attract and retain the best employees. 
 Helps in encouraging the employees and improving
organizational effectiveness.
 Includes payments like bonuses, profit sharing,
overtime pay, recognition rewards and sales commission.
 Includes non-monetary perks like a company-paid
car, company-paid housing and stock opportunities.
 COMPONENTS OF COMPENSATION

Financial Compensation
 Direct financial payments
 It is naturally made up of salary payments and health benefits.
 The creation of salary ranges and pay scales for different positions within an organization
are the central responsibility of compensation management staff.
 In line with the industry standards facilitates employees getting paid fairly.
 Helps the employer not to worry about the costly loss of trained staff to a competitor.
 E.g.: salary, incentive, commission, bonus
 COMPONENTS OF COMPENSATION

Financial Compensation
 Indirect payments
 It focuses on the personal encouragements of each individual to work.
 People are most productive in jobs where they share the company's values and priorities.
 Includes things like free staff development courses, subsidized day care, the chances for
promotion or transfer within the company, public recognition, the ability to effect change or
bring some changes in the workplace, and service to others.
 COMPONENTS OF COMPENSATION

Non-financial Compensation
 The job
 Interesting, challenging and responsible
 Opportunity for recognition and advancement

 Feeling of achievement
 Job characteristics
 Skill variety

 Task identify
 Task significance
 Autonomy

 Feedback
 COMPONENTS OF COMPENSATION

Non-financial Compensation
 Job environment
 Policies
 Supervision
 Co-workers
 Status symbols
 Working conditions
 EMPLOYEE'S BENEFITS

Statutory Benefits
 Employee Provident Fund Act 1991

 Employee Social Security Act 1969

 Employment Act 1955

 Maternity protection
 Gazetted paid leaves
Non-statutory Benefits
 Time-off payments

 Health care

 Insurance

 Financial services

 Allowances
 EMPLOYEE'S BENEFITS

Statutory Benefits
 Employee Provident Fund Act 1991
 Retirement saving scheme for employees who are reliable to contribute EPF in Malaysia.
 The savings contributed will be managed and invested under conventional savings or
shariah compliant savings.
 Comprised of the employee’s and employer’s monthly contributions and yearly dividends
earned.
 Monetary payments that are subject to EPF contribution are:
 Salaries
 Payment for unutilised annual or medical leave
 Bonuses
 Allowances (with some exceptions)
 Commissions
 Incentives
 Arrears of wages
 Wages for maternity leave, study leave, half-day leave
 Other contractual payments or otherwise
 EMPLOYEE'S BENEFITS

Statutory Benefits
 Employee Social Security Act 1969
 Provides for benefits and pension if a worker is injured or disabled during working hours or while
travelling to and from work.
 There are 2 schemes - Employment Injury Scheme and Invalidity Scheme
 Employment Injury Scheme - protects an employee against occupational accident or disease

 Invalidity Scheme - insures an employee who is unable to work due to incurable or unlikely to
be cured condition or death
 It is compulsory for all Malaysian and permanent resident employees to register with SOCSO except
for Federal and State Government permanent employees, domestic servants, and those who are self-
employed.
 Foreign workers are protected under SOCSO as well since January 2019.
 Monetary payments that are subject to SOCSO contribution are:
 Salaries

 Overtime payments

 Commissions

 Wages for maternity leave, study leave, half-day leave

 Other contractual payments or otherwise

 EMPLOYEE'S BENEFITS

Statutory Benefits
 Employment Act 1955
 Maternity protection
 Every female employee shall be entitled to maternity leave for a period of not less than 60 consecutive days
in respect of each confinement.
 Maternity leave shall not commence earlier than a period of 30 days immediately preceding the
confinement of a female employee or later than the day immediately following her confinement.
 A female employee shall be entitled to receive maternity allowance if she:
• Has been employed more than 4 months before confinement
• Is employed more than 90 days during the 9 months immediately before her confinement.
 If a female employee dies from any cause during the maternity leave period, her maternity allowance shall
be paid to her nominee.
 The employer cannot terminate a female employee who remains absent from her work after the expiration
of the maternity leave as a result of illness related to pregnancy or confinement and certified by a
registered medical practitioner until her absence exceeds a period of 90 days after the maternity leave.
 EMPLOYEE'S BENEFITS

Statutory Benefits
 Employment Act 1955
 Gazetted paid leaves
 Public holidays are certain days gazetted by government that allow most employees to
either take the day off work without loss of pay, or be paid penalty rates for working on
such days.
 An employee is entitled to a day off on a public holiday, except where the employer
reasonably requests the employee to work on a particular public holiday. 
 If the employer asks the employee to work on a public holiday, the employee can refuse to
work if the employer's request is not reasonable, or if the employee's refusal to work is
reasonable.
 EMPLOYEE'S BENEFITS

Non-statutory Benefits
 Time-off payments
 Paid time off (PTO) is a benefit program offered by many companies which allows
employees to take off for a specific number of days and still receive compensation.
 This generally includes absences related to vacation, illness or personal circumstances. 
 Each employer has the power to implement their own plan and accrual policies. 
 Many organizations calculate paid time off based on length of employment or the average
number of hours worked in one pay period.
 EMPLOYEE'S BENEFITS

Non-statutory Benefits
 Health care
 May be extended to an employee’s dependent
 Payment for dental and optical bills
 Employee has rights to address illnesses/conditions properly – can prevent the severity and
frequency occurrence
 Allows the employer the flexibility to customize the insurance plan according to health
situation of employees
 EMPLOYEE'S BENEFITS

Non-statutory Benefits
 Insurance
 Medical insurance
 Medical insurance covers the costs of physician and surgeon fees, hospital rooms, and prescription drugs.

 Dental and optical care might be offered as part of an overall benefits package.

 It may be offered as separate pieces or not covered at all.

 Coverage can sometimes include the employee's family (dependents).

 Employers usually pay all or part of the premium for employee medical insurance. Often employees pay a percentage of the
monthly cost. The cost of insurance through an employer
 Disability insurance
 Disability insurance replaces all or part of the income that is lost when a worker is unable to perform their job because of
illness or injury.
 This benefit is not commonly offered.
 There are two main types of disability insurance:
• Short-term disability insurance begins right away or within a few weeks of an accident, illness, or some other disability. For example,
someone hurt in a car accident would be offered a few paid weeks to recover.
• Long-term disability insurance provides benefits to an employee when a long-term or permanent illness, injury, or disability leaves the
individual unable to perform his or her job. For example, an employee with spinal injuries could be entitled to long-term disability benefits
until retirement age.
 EMPLOYEE'S BENEFITS

Non-statutory Benefits
 Insurance
 Life Insurance
 Life insurance protects the family of the employee in case of death.
 Benefits are paid all at once to the beneficiaries of the policy — usually a spouse or
children.
 You can get life insurance through an employer if they sponsor a group plan. Company-
sponsored life insurance plans are standard for almost all full-time workers in medium
and large firms across the country. You can also buy it privately, but this is usually more
expensive.
 EMPLOYEE'S BENEFITS

Non-statutory Benefits
 Financial services
 For cars, houses etc, usually with lower interest
 Alternatively, interest rates may be subsidized by the employer
 EMPLOYEE'S BENEFITS

Non-statutory Benefits
 Allowances
 The amount of something that is allowed, especially within a set of rules and regulations or for a
specified purpose. Various allowances are paid in addition to basic pay.
 Some of these allowances are as follows:
 Dearness Allowance − This allowance is given to protect real income of an employee against price rise.
Dearness allowance (DA) is paid as a percentage of basic pay.
 House Rent Allowance − Companies who do not provide living accommodation to their employees pay
house rent allowance (HRA) to employees. This allowance is calculated as a percentage of salary.
 City Compensatory Allowance − This allowance is paid basically to employees in metros and other big
cities where cost of living is comparatively more. City compensatory allowance (CCA) is normally a fixed
amount per month, like 30 per cent of basic pay in case of government employees.
 Transport Allowance/Conveyance Allowance − Some companies pay transport allowance (TA) that
accommodates travel from the employee’s house to the office. A fixed amount is paid every month to cover a
part of traveling expenses
 EMPLOYEE’S REWARDS

Rewards in Employee Compensation

 Reward is an incentive plan to reinforce the desirable behavior of workers or
employers and in return for their service to the organization.
 Rewards can be monetary in the form of salary or non monetary in the form of awards
for some special services to the company or simply giving an employee a work which
he enjoys doing.
 The primary objective of organizations in giving rewards is to attract, maintain and
retain efficient, high performing and motivated employees.
 Rewards are considered separate from salary but they may be monetary and have a
cost to company.
 Aligned to organizational goals, when an employee helps the organization to achieve
any of its organizational goals he/she is rewarded.
 EMPLOYEE’S REWARDS

Rewards in Employee Compensation

 Rewards can be of two types:
 Intrinsic: They are incentives which satisfy an employee internally by giving meaningful
work, autonomy, responsibility in areas of their expertise and developmental opportunities
to employees
 Extrinsic: They are mostly tangible incentives by providing the employees pay,
advancement, recognition, time off etc.
 EMPLOYEE’S REWARDS

Common Financial Rewards

 Salary increment
 Employees receive a salary or wage for performing the functions of their position.
 The specific salary amount paid is dependent on many factors such as: market rates, qualifications of
the employee, their experience, their competence and aptitude, and their potential for advancement.
 It is certainly a common expectation among employees that salary increases will be provided on a
periodic basis.
 A salary increment is usually provided to an employee for many reasons:
 To recognize increased competence or skills;

 To compensate the employee for taking on additional responsibilities;

 To acknowledge strong performance;

 To align pay with market rates; and

 To provide for a cost of living adjustment.

 EMPLOYEE’S REWARDS

Common Financial Rewards

 Bonus
 Individuals are rewarded based on attainment of performance-based goals (individual,
team and/or company).
 Goals must be realistic and closely matched to the business and people involved.
 Payout potential should be large enough to be significant to the individual.
 Bonuses can be set up to directly drive and support the company’s needs (for example,
profitability, annual results, successful completion of projects and/or significant project
milestones).
 EMPLOYEE’S REWARDS

Common Financial Rewards

 Profit sharing
 Payment is tied to company profits.
 A pre-determined percentage of profit is shared among all employees.
 Profit-sharing bonuses are generally paid out once a year in the form of cash or on a
deferred basis.
 EMPLOYEE’S REWARDS

Common Financial Rewards

 Shares/Stocks
 An individual receives the option to buy company shares for a set price during a specified time
frame.
 Option can be exercised by the individual at any time during the agreed-upon term and subject to
any vesting schedule.
 Stock options are often part of management’s executive compensation but may be offered to key
employees in lieu of a higher salary—especially where the business is not yet profitable and/or
cash flow is constrained.
 If the business does well and the company’s stock rises, the holders of the options share in the
financial benefits.
 In general, if the company permits a long period from the date of issue to the last date for
exercising the option, it will encourage the employee to stay with the company and be fully
committed to its success.
 EMPLOYEE’S REWARDS

Common Financial Rewards

 Commissions
 Commissions are a common way to remunerate employees (salespeople) for securing the sale of a
product or service.
 The intent is to create a strong incentive for the individual to invest the maximum effort into their
work.
 Commissions are usually calculated as a percentage of the sale of the product or service (for
example, 5% of a computer component’s retail selling price).
 Payment may be either straight commission (no base salary) or a combination of base salary and
commission. 
 The commission structure is based on reaching specific targets or quotas that have been
previously agreed upon by management and the employee.
 These targets or quotas are typically tied to sales revenue, unit sales or some other volume- based
metric.
 EMPLOYEE’S REWARDS

Non-financial Rewards
 Performance awards
 A grant of company shares or units in which the recipient's rights in the shares or units are
contingent on the achievement of pre-established performance goals, and restricted until
the end of a set performance period.
  At the end of the performance period, the company will determine if the performance goals
originally outlined when the performance award was granted have been achieved.
 If these goals have been met or exceeded, the company may adjust the awarded number of
shares accordingly.
 Performance awards may also involve an additional vesting period at the end of the
performance period.
 Once these vesting requirements have been met, an employee owns the shares or cash
outright and may treat them as they would any other share of stock or cash in their account.
 EMPLOYEE’S REWARDS

Non-financial Rewards
 Letters of appreciation
 A letter of appreciation is written to acknowledge the efforts of person, for the good deed or
a work done, it not only shows the element of courtesy and etiquette but is a significant way
to make a positive impression. 
 It helps to motivate employees as well as fosters a strong team relationship and a healthy
company culture.
 It is also vital in the process of developing and sustaining effective employee
engagement and recognition
 EMPLOYEE’S REWARDS

Non-financial Rewards
 Sponsorship to seminar, conference and overseas tour
 Each sponsorship package delivers other great benefits, such as the promotion of company
brand and expertise internationally.
 A purpose of maximizing speaking opportunities, offering complimentary delegate
registrations.
 EMPLOYEE’S REWARDS

Non-financial Rewards
 Rewards for long service
 Long-service awards are considered one of the most important forms of recognition because
they reward staff for loyalty to the business.
 Awards may be offered after three, six or 12 months at organisations that recognise staff
may not be in a role for long and have high staff turnover.
 Traditional gifts of clocks, pens and watches are still offered, but awards have evolved to
include vouchers for travel and brand-name luxury goods.
 To motivate and engage staff while reinforcing the message of rewarding loyalty
THANK YOU