CHAPTER 1:

Compensation- refers to all forms of financial returns, cash or non-cash, and tangible service and benefits of EE-ER relationship

**COMPONENTS OF TOTAL COMPENSATION:

a. Cash compensation
i. Base Pay- rate pay calculated per hour. (Hourly rate- Wage. Monthly rate- Salary)
ii. Salary- periodic payment
iii. Merit increase- increment to base pay in recognition of past work behavior.
iv. Bonus - not 13th mo. pay. When the company and/or performance of the Ee improves/increases. Great
performance = bonus.
v. Cost of Living Adjustment- percentage increment to base pay provided to all employees regardless of performance.
● Added in the base pay given across the board (due to rise in inflation/cost of living)
vi. Incentive/ Variable pay- goal in a given time. it is announced before the employee performs. Inducement for future
performance. one-time payment for meeting previously (2 types)
b. Benefits:
i. Allowances- compensation given to provide the item in short of supply.
ii. Income protection- given to help protect employees from financial risk
iii. Work-life program programs and helps employees better integrate.

3 Groups of Benefits
1. Government mandated - sss, gsis, paternity leave, pagibig, service incentive leave.
2. Company initiated benefits - voluntary given by the company (not required by law) ex. Healthcare, vacation leave, sick
leave
3. Union negotiated benefits - benefits agreed in the CBA by the Er and union. Ex. Union assistance leave

3 BUILDING BLOCKS OF PAY MODEL:

1. Strategic Policies
2. Techniques
3. Strategic Objective

A) STRATEGIC POLICIES/ Foundational Policies:

1. Internal Alignment- comparison of a compensation in job and skills from one position to another within the single
corporation
2. External Competitors- comparison of how your company pays compare to other competitors.
3. Employee Contribution- refers on how you reward the contribution of your employees
4. Administration/Management- deals with policies, procedure and communication regarding compensation. “TO GIVE
THE RIGHT PAY TO THE RIGHT PEOPLE WHO ARE DOING/ACHIEVING A RIGHT OBJECTIVES IN A RIGHT WAY”

B) PAY TECHNIQUES
1. Merit pay/ Merit Increase
o It will only be given once it’s done; Unpredictable.
o Given because of a good and above performance.
o Increase or added in salary
o Based on performance
2. Incentive Pay
o Announced from the start and will be expecting a return once the order has been done.
o Amount given due to achievement of an objective set or target set
 o Not added to salary or basic pay.

C) STRATEGIC OBJECTIVES
- These are goals identified by an organization as necessary for the achievement of its strategy for success
3 PRIMARY OBJECTIVES OF COMPENSATION FOR HR:

Attract | Retain | Motivate

3 TYPES OF BENEFITS:

1. Legally Mandated Benefit- required by law.

2. Company Initiated Benefit- not required by law but given voluntarily by the company
3. Union Negotiated Benefit- contain in the CBA

CHAPTER 2: STRATEGIC PERSPECTIVE

Strategic Perspective- takes position that how employees are compensated can be source of suitable competitive advantage

Competitive Advantage- your company’s resource which competitors do not have (people, technology, capital, etc)

COMPANY STRATEGY:

● Innovator/ innovation- risktaker

● Cost-cutter –focuses on efficiency
● Customer focused
5 Strategic Guidelines for Comparison Compensation:

1. Objectives
2. Internal Alignment
3. External Competitiveness
4. Employee Contributions
5. Management
STEPS IN DEVELOPING A TOTAL COMPENSATON STRATEGY:

1. Asses a total compensation Implications

a. Flexible/ Cafeterial benefit plan- benefit plan that employees are allowed to choose certain benefit within limits.
2. Map a total compensation strategy
3. Implement
4. Reassess
3 TEST/ SOURCES OF COMPETITIVE ADVANTAGE:

1. Alignment- makes sure it supports the company strategy

*3 Aspects: (align with…)
- Business strategy
- Externally with the economic and sociopolitical conditions
- Internally within the overall HR systems
2. Differentiate- compensation strategy or pay system cannot be easily imitated.
3. Add Value- company monitors if they can also have return of investment used for benefit.
Best Fit- compensation strategy aligned with business strategy that is developed or custom built for you company

Best Practices- 1. Conduct Research/ survey of best practice 2. Copy/Select the best practice 3. Adopt the practice and make
sure it fits the company
Virtuous Cycle- successful organization, circle gain upward momentum

Vicious Cycle- low profit, downward momentum

Strategy- refers to fundamental direction that an organization designs.

PAY DECISIONS:

1. Stated strategy 2. Unstated Strategy

Employee Needs- how to better satisfy individual needs and preferences.

CHAPTER 3: INTERNAL ALIGNMENT

Internal Alignment- pay relationships among different job, skills, and competencies within a single corporation

Pay Structure- group of pay rates/ salary for the different jobs in a single company.

*hiring rate - minimum, midpoint, maximum

Job Grade- group of positions with the approximately the same value. (to attain fairness to employees working the same thing.)
Result of Job Evaluation

Pay Range- Distance from the minimum to maximum of job grade. (used to give increase without promotion)

Pay Differential - difference from 1 job grade to another

Promotion- movement of a person from a position to a higher position

Demotion- movement to lower position

Transfer- movement to same level or job grade.

GOOD CHARACTERISTICS OF A PAY STRUCTURE:

1. Support organization strategy - how an org plans to achieve its purpose.

2. Support workflow - support the efficiency flow of an org’s work and design.
3. Support Fairness - based on the work and skills required to perform work.
a. Procedural Fairness- fairness in the process of determining the salary pay structure/ salaries
b. Distributive Fairness- fairness in the amount of salaries or rewards given to employees.
4. Motivates Behavior - design the structure so that they engage people to help achieve org objectives.

Job-Based Structure- structure based on the work content

Person- Based Structure- structure based on knowledge, skills, abilities, competencies of a person whether used in the job or
not.

Red circle rate - overpaid

Green circle rate - underpaid below the minimum grade

EXTERNAL FACTORS:

1. Economic Pressure
a. Labor
b. Product
2. Government policies- minimum wage
 3. Culture and customs
4. Stakeholders
ORGANIZATIONAL FACTORS:

1. Organizational Strategy
2. Human Capital
3. Work Design/technology
4. Overall HR policies
5. Employee Acceptance
6. Cost implications
Tailored Structure

● Appropriate for a company that work is almost the same

● Less likely to make mistake because there’s a procedure given
Loosely Coupled

● Appropriate for company with creative positions.

● More flexible so they could give reward for innovative people/ innovator
Egalitarian Pay Structure:

● Belief that all employees should be treated equally

● Pay differential is smaller
● Structure is good for team performance
● Fewer job grades
● Fewer promotional opportunities
Hierarchal Pay Structure:

● Values differences in work content, individual skills and contribution to organization.

● Differential are bigger and larger
● Motivating for individual performance
● Job grades are many
● More promotional opportunities
Institutional model - copy others best practices

EFFECTS/CONSEQUENCES OF INTERNALLY ALIGNED PAY STRUCTURE:

1. Undertake training
2. Increase experience
3. Reduce turnover
4. Facilitate performance
5. Facilitate career progression
6. Reduce pay related grievances
7. Reduce pay related work stoppages
CHAPTER 4: JOB ANALYSIS
Job Analysis- a systematic process of collecting information that identifies similarities and differences in the work.

Process of Job analysis- basic duty of an HR

Job Family- grouping of related job with broadly similar content

Job- grouping of task performed by one person that make up the total work assignment of that person
Task- smallest unit of analysis, as specific statement of what a person does

JOB ANALYSIS PROCEDURE:

1. Develop preliminary job information

2. Conduct initial tour of worksite
3. Conduct interview
4. Conduct second tour of worksite
5. Consolidate job information
6. Verify job description
3 METHODS: 1. Survey 2. Interview 3. Observation
Job Description- Information collected is summarized and documented in a way that will be useful for HR decisions, and job
evaluation. (Result of Job analysis)

Job Specification- contains qualification of a person who can do the job of the position. (KSAOs require to adequately perform
the tasks.)

USES OF JOB DESCRIPTION:

1. Used in Performance Evaluation

2. Guide employee in the performance of the job
3. Recruitment and Selection
4. Training purposes
5. Safety purposes
6. Job counseling
CHAPTER 5: JOB EVALUATION
Job evaluation- a process of systematically determining the relative value/ worth of jobs to create a job structure for the
organization.

MAJOR DECISIONS IN JOB EVALUATION:

1. Establish the purpose- has 4 good characteristics of pay structure

2. Single or Multiple Plan- single, there’s only one evaluation. Multiple, have separate evaluation plan
3. Benchmark Jobs- typical job used as reference for pay comparison within or outside the organization.
3 CHARACTERISTICS OF BENCHMARK JOBS:
● Its contents are well known and relatively stable over time.
● The job is common across a number of different employers.
● A sizeable proportion of the workforce is assigned in this job.
4. Job evaluation
a. Ranking method- simply orders the job description from highest to lowest based on global definition
i. Alternation- determines highest, lowest, 2nd highest, 2nd lowest, etc.
ii. Paired comparison- compared to every position. Uses a matrix to compare
b. Classification Method- series of classes covers the range of jobs.
c. Point Method- point system of job evaluation uses a point scheme. It is the most scientific and useful in job evaluation
i. Compensable Factor- characteristics of the job which the organization values. - education, experienced, working
conditions
WHO WILL GIVE NO. OF POINTS IN THE POSITION:

● HR Managers
● Manager of a position rated
 ● Manager of other department
CHAPTER 6: PERSON BASED STRUCTURE
Person-based structure- structure based on knowledge, skills, abilities, competencies of a person whether used in the job or
not. - Also known as “Skill-Based”

2 KIND OF SKILL BASED:

1. Depth- a person is an expert in one skill

2. Breadth- generalist; a person who has a lot of skills
SKILLS CERTIFICATION:

1. Job demo
2. Peer evaluation
3. Test (written)
Core competencies- competences linked to the mission of the organization.

Competency- knowledge, skills, abilities, necessary for a success of a performance.

Competency Indicator- observable behavior that demonstrate the levels of competence of a person

COMPETENCY REQUIRES COMPETENCY CERTIFICATION:

● Done by HR and Manager

● Competency is for exempt position
● Skill based
CHAPTER 7: EXTERNAL COMPETENCY
External Competitors- Pay relationships among different organizations.

FACTORS THAT SHAPE EXTERNAL COMP:

1. Labor Market
2. Labor Demand
3. Labor Supply
4. Employee Size
5. Organization Factors
6. People’s preference
LABOR DEMAND THEORIES:

1. Compensating Differential Theory- if job has negative characteristics, employers must offer higher wages to
compensate negative features.
2. Efficiency Wage Theory- high wages may increase efficiency and lower labor cost
3. Signalling Theory- employers deliberately design pay levels and mix as part of a strategy that signals to both
perspectives
4. Reservation Wage Theory- job seekers will not accept jobs whose pay is below to what they expected.
3 PAY POLICIES:

1. Match Pay Policy- matches rates paid by competitors

2. Lead Policy- paying above the market rate
3. Lag Policy- paying below market rates.
4. Flexible policy- happens when employers go beyond.
Pay Mix- combination of salary and benefits
Relevant Market- companies with which your company competes for skills, products and services.

CHAPTER 9: PAY PERFORMANCE

Motivational Theories:

1. Maslow’s Hierarchal Need

- Base pay must satisfy the needs, recognition as self-esteem, security of tenure as safety, and etc.
2. Herzberg’s two-factor theory
- Hygiene Factor: factors (salaries/benefits) that when present, EE is contented but not motivated. If removed, EE will be
discontented.
- Satisfier (recognition): factors that motivates the EEs to perform if you pay them by performance and gets motivated.
They should be recognized.
3. Reinforcement theory
- The reward must follow the performance:
o Behaviors that are rewarded will be repeated
o Behaviors that are not rewarded will become demotivated and will be discontinued.
4. Goal-setting theory- When there’s a goal given and achievement of the goal is rewarded, they will perform well.
5. Agency theory- ERs prefer static or constant salary every month.
6. Expectancy theory
- Have 3 Factors/ elements of Vroom’s theory:
o Expectancy- Belief that the employee can do the job
o Instrumentality- EE believes if he does the job, he’ll be rewarded
o Valence- the value that EE places on the reward
7. Equity theory- the EE will be motivated if they feel that the output (reward) is equal to their input.
Total Reward System- “integrated reward system”

*COMPONENTS OF TOTAL REWARD SYSTEM

1. Compensation- wages, commission, bonuses
2. Benefits
3. Social Interaction
4. Security
5. Status/Recognition
6. Work Variety
7. Workload
8. Work Importance
9. Authority
10. Advancement
11. Feedback
12. Work Condition
13. Development Opportunity

Variable Pay- pay varies on the level of performance

KINDS of
a. Low Self Esteem- wants large, decentralized org
b. Risk Taker- wants more pay based on performance
c. Risk Averse- wants less performance based pay
d. Individualist- want pay plans based on individual performance.

STRATEGY:
- Plan must support corporate objectives and must help improve quality of service.
STRUCTURE- HR creates the structure also.
STANDARDS:
a. Objectives- must be specific and clear
b. Measures- must understand measures you’re going to use performance plan.
c. Eligibility- who is eligible to join or plan
d. Funding- sources or where you will get the funds for plan.

CHAPTER 10: PAY FOR PERFORMANCE PLANS

*Preparation for an effective PFP plan:

1. Plan is clearly communicated
2. Plan is understood.
3. Rewards are easy to calculate
4. Employees participate in administering the plan
5. Employees believe they can trust the company
6. Rewards are given as soon as possible after the performance.
7. Employees believes that they are treated fairly

Pay for Performance Plans- also known as Variable Pay; it varies from performance

Individual Short Term Incentive Plans:

1. Merit Increase- increase in base pay
2. Lump-sum Bonus- one time pay given to employee because of performance –end of year; generates saving in the
company
3. Spot Awards- rewards given on the spot; when EE performs beyond the prescribed expectation to the EE’s job.
4. Incentive Plans- if you hit the goal, you’ll receive the incentive award
Straight Piecework- most commonly used in Indiv. Incentive plan

Advantages of Individual Incentive Plans:

a. Less direct supervision
b. Labor costs estimated to be more accurate as payment

Group Incentive Plans:

Gain-sharing Plan- tied up to cost saving generated
a. Improshare- any savings arising from production of the agreed upon output in fewer than expected hours is shared by
the employee and firm. (50-50)
b. Profit sharing- paying employees a percentage of a company’s overall profits

Advantage- teamwork
Disadvantage- there’ll be freeloaders= demotivated

LONG TERM:
1. Employee Stock Ownership Plans
- company allows EEs to buys shares in a discounted rate with limited number.
- Can only be bought by eligible (no. of years, perf level)
2. Performance Plan- if company didn’t achieve target, you won’t receive this.
- Accumulated every 3 years to retain employees
3. Broad-Based Option Plans-employees no longer need to pay per share, rather given to pay for share rather to you
4. Combination Plan- mixing individual and group
CHAPTER 11: PERFORMANCE APPRAISAL
Performance Evaluation- determining the performance of the person and measuring achievements and accomplishments.

COMMON ERRORS IN THE APPRAISAL

1. Halo Error- a one positive factor given, the rater tend to give high/ positive rating to all factors.
2. Horn Error- a one negative factor given by the rater tend to give low rate to all factors.
3. First impression Error- the rater tend to base or judge the employee based on his impression.
4. Recency Error- the rater tend to rate only the most recent months and not the whole year performance
5. Liniency Error- rater tend to give higher rate more than what the employees deserves.
6. Severity Error- the rater gives lower rare more than the employee deserves.
7. Central Tendency Error-
8. Clone Error- the rater will give higher rate to the person he thinks that he feels comfortable with and has same
character.
9. Spillover Error- the rater tends to base his next rate from the previous rates, or spills over to the upcoming rates.
3 Types of Errors:
a. Rating Process
b. In Observation
c. In storage and Recall
d. Actual Evaluation
USES OF PERFORMANCE APPRAISAL:
1. Training and development award
2. Promotions
3. Determine merit increases, bonuses
4. Disciplinary actions/ terminating basis
5. Pay for performance plan
Manager’s Task:
1. Monitors process
2. Gives feedback
3. Coaching
4. Assistance
Ways to improve rater training:
1. Do not use straight lecturing.
2. Individualized/small groups discussion is more effective when sessions are combined with extensive practice and
feedback, and rating accuracy improves
3. Longer training programs are more successful

CHAPTER 12: THE BENEFIT DETERMINATION PROCESS

5 Factors that contributed to the Increase of Benefits:

1. Wage and Price Control
2. Government Impetus- legally mandated benefits
3. Employer Impetus- company initiated benefits
4. Unions
5. Cost effectiveness of Benefits
ECC- Employee Compensation Commission, work connected to injuries or illnesses

Company Initiated Benefits- company benefits given by the employer out of generosity even if not mandated by law.

BENEFIT ADMINISTRATION ISSUES:

 1. WHO ARE PROTECTED/COVERED BY THE BENEFITS
a. Employee
b. Family/ dependents
c. Contractual
d. Probationary
e. Retirees (2 yrs)
2. HOW MUCH CHOICE SHOULD EMPLOYEES HAVE AMONG AN ARRAY OF BENEFITS
a. Flexible benefit
b. Standard benefit- benefit given by the company

3. METHODS OF FINANCING
a. Non-contributory- employer shoulders the total cost of benefits. EE doesn’t share
b. Contributory- cost of benefits are shared between employee and employer.
c. Employee financed- employee pays the total cost for the benefit
4. BENEFITS ARE LEGALLY DEFENSEABLE

COMPONENTS OF BENEFIT PLAN:

1. Employee benefit communication
a. So they know the benefit
b. They know how to make use of it
Factors influencing the choice of Benefit Package:
1. Employer Factors
a. Relationship to total compensation costs
b. Cost relative to benefits
c. Role of Benefits in Attraction, Retention, Motivation
d. Legal Requirements
2. Employee Factors:
a. Equity: fairness
b. Personal Needs as linked to age, sex, marital status, number of dependents

Administering the Plan: FUNCTIONS:

1. Communicating about the benefits program
*Method of Communicating Employee Benefits:
a. Employee Handbook
b. Employee Orientation
c. Bulletin board
d. Email
e. Intranet
f. Memorandum to the employee
g. General Assembly
h. Collective Bargaining Agreement

2. Claims Processing- you cannot avail for benefits without asking for it.
CLAIM PROCESSOR:
a. Determine whether the act has in fact occurred
b. Determine if the employee is eligible for the benefit

3. Cost Containment
Ways of Limiting Cost/ Cost Containment:
a. Probationary Period- they have limited benefits
b. Benefit Limitation
c. Copay- Both ee-er contributes
d. Administrative cost containment- bidding from different program/companies
e. Outsourcing