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Topic: Compensation Administration: Key Terminologies
Topic: Compensation Administration: Key Terminologies
COMPENSATION
ADMINISTRATION
KEY TERMINOLOGIES:
Compensation- is the equivalent form that is given to the
individual for his work. It is also called job reward.
Pink collar – Jobs associated with women like nursing, secretarial, etc.
This, being a rather sexist term, is no longer used.
Pay level refers to the average pay for jobs, for departments, or for the
entire enterprise.
Compensation
1. Compensation- is the equivalent form that is given to the individual for his
work. It is also called job reward.
2. History of Compensation
It started in ancient Sumeria where they outline the law of Ur-nammu (king). The law of Ur
provided monetary compensation for specific injury to worker’s body parts, including fracture. In
middle age, it was changed by feudalism.
In US (before 1900), the only recourse to a worker who was injured in the course of his
employment was to sue his employer. In 1911, they adopted Workmen’s Compensation Act. This
law is essentially a “no fault system”.
B. Extrinsic rewards-are those which take place after work and which provide
a direct satisfaction at the time of work is done.
A. Salary- refers to the payment for white-collar jobs. It includes mental work.
It is paid at stated intervals, such as every fifteen days.
B. Wages- refers to the payment for blue-collar jobs. It includes manual labor.
Wages are measured by hour, day or week.
Theories of Wages
1. Classical Wage Theory- is based upon the fundamental concept that labor is a commodity and we
have to pay the price according to supply and demand.
2. The Just Wage of St. Thomas Aquinas- is described as wage which permits the recipient worker to
live in a manner in keeping with his position in society.
3. The Wage Fund Theory- holds the idea that the working capital of the nation provides a fund from
which wages can be paid. The fund is to be divided by all the workers proportionately.
4. Bargaining Theory of John Davidson- proposes that a labor is a commodity like anything that
could be bought at a price by the user. As a commodity, it carries with it a price that is determined
by the bargaining process between the buyer and seller.
5. The Marginal Productivity Theory- offers the best explanation of the wages in modern industry.
The supply of labor in any given economy on work and are available for work.
6. The Purchasing Power Theory- tries to establish the relationship between wages and the level of
economic activity.
7. Labor Theory of Value- emphasizes that labor is the source of all products and that without this
important component, there could be no goods for human consumption.
8. The Standard of Living Theory of Wages- means that wages should be based on the cost of living.
Most companies participate in wage and salary surveys or they conduct their own surveys.
Informal surveys maybe conducted through telephones and informal interviews. Formal salary and wage
surveys used questionnaires based on benchmark job that are also present in other companies and
industries. In the formal survey methods, the human resource department prepares a set of questionnaires
incorporating common job present in the company and is comparable with other jobs in other industries.
Before embarking on a wage and salary surveys, the human resources department should study the
wage and salary data that are already available. In any request for survey data, each should be recognized
that job title alone is not good enough for matching jobs. Each job title should be accompanied with one
paragraph job descriptions so that it is possible to accurately compare jobs. In addition to the base salary,
the information should include data on shift premiums, over time payment practices, and methods of wage
payment.
STEPS IN CONDUCTING THE SURVEY
DETAILED
DESCRIPTION OF JOBS
COMPILATION OF
SALARY DATA
RESULTS OF SURVEY
Establishing the boundaries of the pertinent labor market is the most critical
step in the survey procedure. It involves the selection of the industry or the firm
to be included in the survey.
This will ensure a representative sampling of the jobs that will be selected as
universal for a particular wage or salary survey.
Key jobs are labor grades that are comparatively stable in duties and
responsibilities. These are occupation that are common in most industries and
scattered through the ladder of labor classification and commonly familiar to most
people in the industry.
The data gathered will provide management with the opportunity of arriving
at the arithmetical average, the median, and the range or rate paid and the
supplementary wage data.
The results are properly evaluated and HRD prepares the corresponding
recommendations to the management of the most appropriate action to take
relative to the revisions of the current wage structure. Participating companies
are also provided with the summary of the findings to foster continuous
cooperation.
Several decisions to consider after the organization completes the salary survey
1. Whether the company should pay salaries above, below, or the same level as
the others in the same industry in the community are paying for the same
jobs.
2. Whether the company should pay a single rate for each job or slots the job
into ranges or grades which would provide room for merit increases.\
3. How many pay grades or salary ranges to use, and how wide each pay grade
should be.
4. What is the range of the amount in terms of money value that should be
allotted for each salary grade
Wage and salary structure is the hierarchical arrangement of jobs with corresponding pay rates
attachment. Pay grades are assigned to the positions based on the result of the job evaluation and the
relationship between the derived pay system and the results of the salary survey.
Wage and salary structure design is the establishment of job classes and rate ranges. All jobs
within a class are treated in the same way for economical administration purposes. Pay structure ranges
should be used in developing a schedule for both rank-and-file employees, technical and managerial
positions. Pay structure range for managerial positions are basically based on rank, depending upon their
assignments and contributions to the company's profitability index.
NOTE: The greater the differences in job classes, the greater should the number of pay grades in the salary structure.
After determining the pay structure, assigning employees to their proper job classifications
follows. If the job are properly evaluated and were developing before the implementation of any structure,
most existing salaries should fall within the salary range established for their jobs.
• Green circle rate refers to the employee's salary which falls below the minimum of the pay grade
for that specific job.
• Red circle rate, on the other hand, refers to the employee's salary which falls above the maximum
of the corresponding pay grade. Red circle rate can be handled in two ways:
a. Review the performance of the employee.
b. If the performance review reveals that the employee is not worthy to be promoted and such
salary increase was discreetly earned for some obvious reasons, then the employee will not get normal
merit increase due to the implementation of the new structure.
METHODS OF WAGE PAYMENT
The main purpose of a formal wage and salary management plan is to have a systematic method of
payment to ensure that employees receive a fair wage and salary for the work they performed.
Payment on the basis of time worked is more satisfactory under the following conditions:
• Employees have little or no control over how much work they produced.
• There is no clear-cut relationship between the effort made to produce the work and the amount of
work produced.
• Work delays occur often and are beyond the employee's control.
• Quality of work is very important.
• Units of work produced cannot be distinguished and cannot be measured.
2. By the Amount of Work Produced- earnings depend on how much work the employee completes or on
related factor, such as the quality of work. This method is called an incentive wage plan. The most common
incentive plan is called piecework. Piecework salaries are determined by the number of pieces produced or
completed, and each piece is assigned a piece value that is called piece rate.
Computation for piecework salaries is as follows:
NxU=W
where N- number of units produced
U- rate per unit in pesos
W- wages earned per day or per week
The company of any organization must have a clear-cut wage and salary policy. These policy
guidelines will help the organization have better relationships with employees and develop a more
comprehensive employee financial planning program. The wage and salary policy must appeal to all
employees and stimulate them to greater efforts.
1. The wage and salary plan must be easily understood. Every worker wants to
know how his company wage plan works. To keep employees in the dark as
to how their earnings are determined could lead to distrust on the
management and fear that they are not getting paid for what they have
earned.
2. Salaries in the wage plan should be easily computed. Most employees like to
compute, from to time, what they are earning, and to make sure that the
salaries are correct. Therefore, a wage payment plan should be simple
enough to allow quick calculations. The methods of wage payment must be
explained during the orientation program and employees must be made to
understand that wages are related to employees effort and productivity and
based on a wage plan that relates to duties and responsibilities of the
positions and other factors considered in the job evaluation program.
3. Salaries should be made relevant with efforts. Standards should be set and
can be reached by good workers. Standards should be set so as to challenge
a worker, making him reach for extra effort. Once he has achieved the
standard, he should be rewarded for this effort with increased earnings.
4. Incentive wage plans should provide payment for incentive earnings to
employees soon after they have been earned by efforts exerted to reach
standards. In this way, the reward or penalty is fixed in their minds in relation
to the work they do. Obviously, it would be too costly and unwieldy to
prepare a payroll every day. A weekly payment of wages is most reasonable.
5. The method of payment should be stable and unvarying. Frequent changes
in wage payment plans may lead workers to think that management is trying
to confuse and or even cheat them. It is important to choose a plan that will
fit the needs of the organization, so that they needs of the organization, so
that the necessity of frequent subsequent changes is eliminated.
Moral Renewal in the Workplace
2. Choose character
John C. Maxwell is right in his observation that, “We have no control over a lot of things in life.
We do not get to choose our parents. We don’t select the location or circumstances of our birth
and upbringing. We don’t get to pick our talents and IQ. But we do choose our character. In fact,
we create it every time we make choices.”
4. Avoid Compromising
While life is not black or white but shades of gray, there are instances when you have to choose
between right and wrong. A wrong can never be right even if a compromised is reached.
Take the feedback positively as a gift for your improvement. Don’t rationalize but instead work at
developing after you.
Remember that tyrants happen only when the led blindly accept tyranny or do not do anything
about it. To make leaders honest, they must know that they are also being watched and evaluated,
and that position and possessions are only temporal and empheral.
Humility to admit mistakes is great but not enough. There must be correction. Even the bible
mains stiff-necked after many rebukes will suddenly be destroyed – without remedy.
Task yourself to show improvement. Have reasonable milestone that you must monitor and check
regularly. Then, celebrate your little victories. But do not boast about your achievement if
humility is the virtue you are trying to instill in yourself.
Never underestimate what ordinary people can do, especially when they heed the call of one
leader who has killed in dallas, almost four decades ago,”…ask not what your country can do for
you; ask what you can do for your country.”
The type of job one does and the financial compensation he or she receives are very important in
our society. Job type is linked to status as is wealth. While the type of job one performs is
arguably more important status wise then wealth
In the past we used to use the other descriptions to classify workers. The terms blue collar or
white collar employees were used to describe the type of vocation.
Today we classify our work roles into three categories called labor grades. These labor grades are
described below.
Skilled labor – these are workers who have received specialized training to do their their jobs.
They have developed and honed a special skill and may or may not need to be licensed or certified
by the state.
Unskilled labor – these are workers who have received no special training and have few specific
skills. As our society has grown into an increasingly technological one, the members of this group
have developed more and more skills.
Professionals – arguably the elite of the labor grades, these are those workers who need an
advanced degree to do their jobs. Lawyers and teachers.
DETERMINANTS OF COMPENSATION
1. ECONOMIC CONDITION
• least partly related to compensation
• a major influence upon what an employee is paid
• impact of unions on the wages, both industry-wide and in each organization are tied to this
economic environment
2. SOCIAL ENVIRONMENT
• members of a society have ideas about the "worth" of different jobs, and these ideas need
to be taken into account which give an impact on compensation decisions
• the social environment has been changing dramatically along with the changing views of
the workforce which spurred the recent impact on compensation decisions and changes in
law
NOTE: The wage level of an organization is a response to the changing pressures of the labor market. If it is too low, the organization
may have difficulty attracting and holding qualified people. There may also be legal penalties from those charged with administering
minimum wage and public-contract laws. Unions within or seeking entry into the organization may exert pressure. If the pay level is
too high, on the other hand, the competitive position of the firm in the product market may suffer. In times of wage controls, too high
a level may bring government sanctions.
2. BASE PAY
• The biggest part of most employees' compensation is usually their base pay and it is the amount
on the employee's pay stub labeled gross wages.
Together the pay level and base pay involve external and internal standards. Pay level decisions ensure that the organization is in line
with the requirements of the external environment thus related to external competitiveness. While pay structure decisions ensure that
the pay for jobs is internally consistent thus related to internal equity.
3. VARIABLE PAY
• variable pay plans clearly tie pay to performance
• puts some proportion of the employee's pay at risk
This function is becoming more important for two reasons. The first is the increased sophistication of
planning and control that is being reflected in the administration of Human Resources. This is particularly a
function of computerization which has allowed compensation administration to provide much more and
timely information. The second reason is that with the high cost of American labor, controlling this cost in
today’s competitive world is critical. In addition, legality in terms of pay discrimination requires
organizations to keep accurate data on their workforce.
INTERNATIONAL COMPENSATION AND RELOCATION
1. EFFICIENCY
2. EQUITY
3. COMPLIANCE
1. INTERNAL CONSISTENCY
• OBJECTIVE: to determine equitable rates of pay by considering the similarities and
differences in work content or job skills as well as the different contributions employees with
different jobs and skill levels make to a company's goals.
• Internal consistency depends on how a company is structured
NOTE: The number of levels and the degree of pay differentials are based on three general criteria: the
value of a job and a job's responsibilities, the skills and knowledge needed, and job performance and
productivity. Employers can use these criteria to modify employee behavior by indicating what kinds of
responsibilities, performance, productivity, skills, and knowledge employees need to move into a different
level and receive a higher pay rate.
More specifically, six primary but interrelated factors can shape a company's pay
structure:
1. Social Customs: Beginning in the thirteenth century, employees began demanding a "just" wage.
This idea evolved into the current notion of a federally mandated minimum wage. Hence,
economic forces do not determine wages alone.
2. Economic Conditions: Demand for labor influences employee wages. Employers pay wages based
on the relative contributions employees make to production goals. In addition, supply and demand
for knowledge and skills helps determine wages.
3. Company Factors: Pay structures depend on the kind of technology a company has and on whether
a company uses pay as an incentive to motivate employees to improve job performance and to
accept more responsibilities.
4. Job Requirements: Some jobs may require greater skills, knowledge, or experience than others and
hence fetch a higher pay rate.
5. Employee Knowledge and Skills: Likewise, employees bring different levels of skills and
knowledge to companies and hence they are qualified to work at different levels of a company
hierarchy and receive different rates of pay as a result.
6. Employee Acceptance: Employees expect fair pay rates and determine if they receive fair wages
by comparing their wages with their coworkers' and supervisors' rates of pay. If employees
consider their pay rates unfair, they may seek employment elsewhere, put forth little effort in their
jobs, or file lawsuits.
2. EXTERNAL COMPETITIVENESS
• how a company's rates of pay compare to those of its competitors
• achieving external competitiveness in the area of compensation means balancing the need to
keep operating costs (including labor costs) low with the need to attract and retain quality
workers
Compensation managers achieve external competitiveness by comparing wage levels within their industry, examining their companies'
resources and goals, and establishing their own pay levels accordingly. In general, companies can set their pay levels to lead, match, or
follow competitors' pay practices. Contemporary compensation policies include "variable pay," where pay levels reflect the fluctuation
of the firms' success or decline, and positioning as "employer of choice." "Employer of choice" emphasizes the total compensation
package, and may include employment security, educational opportunities, and the promise of intellectual challenges or latitude. In
practice, some employers use different policies for different units and/or job groups.
3. EMPLOYEE CONTRIBUTIONS
• This policy area involves the weight companies choose to place on employee performance in
determining a compensation program. This approach enables companies to give their
employees a measure of control over their compensation and ideally thereby influence their
performance. This policy assumes that employees are significantly motivated by pay, which
studies fail to confirm or refute conclusively. Nevertheless, pay studies suggest that pay is one
of several important employee motivators, just not the consummate one. Compensation based
on employee contributions generally is distributed on the basis of employee evaluations.
4. ADMINISTRATION
• The administrative policy refers to the tasks of compensation managers in designing and
implementing a pay program. Taking into consideration the previous three policies,
compensation managers must choose the components that they will include in a company's
compensation program—that is, which kinds of base pay, wage and salary add-ons, incentives,
and benefits they will offer employees with different jobs and skill levels. Administration also
involves determining whether the pay program will attract and retain needed employees
successfully, whether employees consider the pay program fair, how competitors pay their
employees and if competitors are more or less productive.
PERFORMANCE APRAISAL
• A method of evaluating the behavior of employees in the work spot. It is a systematic and objective
way of evaluating both work- related behavior and potential employees. It is also a process that
involves determining and communicating to an employee how she or he is performing the job and
ideally, establishing a plan of improvement.
1. ADMINISTRATIVE
• through facilitating an orderly means of determining salary increases and other rewards, and by
delegating authority and responsibility to the most capable individuals
2. INFORMATIVE
• fulfilled when the appraisal system supplies data to managers and appraises about individual
strengths and weaknesses
3. MOTIVATIONAL
• entails creating a learning experience that motivates workers to improve their performance
1. PRAGMATIC
•it helps to ensure that the system will be easily understood by employees and effectively put into
action by managers
2. RELEVANT
• systems must identify and evaluate only the critical behaviors that contribute to job success or else
not specifically relevant to the job may result in wasted time and resources
3. UNIFORM
• allows a company to systematically compare the appraisals of different employees with each other
The actions and results that are measured will depend on a variety of factors specific to the company and
industry. Most importantly, criteria should be selected that will encourage the achievement of
comprehensive corporate objectives. This is accomplished by determining the exact role of each job in
accomplishing company goals, and which behaviors and results are critical for success in each position.
Furthermore, different criteria for success should be weighted to reflect their importance. Some
performance appraisal analysts recommend concentrating assessment on productivity and quality, which
can be objectively measured and compared. Focus on these two factors enable companies to determine if
workers are performing their tasks at an acceptable pace and if they are performing their tasks at an
acceptable level of quality. By assessing these factors, evaluators also can avoid biased appraisals.
In determining who should address performance, managers of the performance appraisal system usually
select an employee's immediate supervisor to provide the assessment, which is then reviewed by a higher-
level manager or the personnel department. In addition, other appraisers may be selected depending on:
their knowledge of, and opportunity to observe, the appraiser’s behavior, their ability to translate
observations into useful ratings, and their motivation to provide constructive input about the employee's
performance. Other evaluators may include coworkers, subordinates, customers, or even the employees
themselves.
After selecting performance appraisal criteria and evaluators, the designers of the system must determine
which assessment techniques to use. Numerous methods may be applied depending on the nature of the
industry, company, or job. As noted earlier, many organizations utilize a combination of several techniques
throughout the organization. In general, the most popular rating techniques fall into one of four categories:
(1) rating, in which evaluators judge workers based on different characteristics; (2) ranking, whereby
supervisors compare employees to one another; (3) critical incidents, in which evaluators create
descriptions of good and bad behavior and then assign those descriptions to employees; and (4)
techniques that use multiple or miscellaneous criteria, such as employee-directed standards.
In addition to selecting evaluation techniques, managers of appraisal systems must devise a means of
effectively communicating the results of assessments to employees. Often, the communication process is
built-in to the appraisal technique, but sometimes it isn't. Feedback about performance is important for
improving worker behavior. For instance, a worker who receives a very positive appraisal will likely
become motivated to perform. On the other hand, a poor appraisal could have the opposite effect. For that
reason, assessors have a number of feedback techniques at their disposal to help ensure that the end
result of any assessment is constructive. Examples of feedback methods are written follow-ups, goal
setting to overcome deficiencies, and allowing workers to have input into their appraisal to explain reasons
for success or failure. Importantly, most feedback techniques stress a relationship between employees and
their negative behavior (i.e., employee still have value, despite their inadequate)
FORMS OF BIAS
1. CROSS-CULTURAL BIAS
• a consequence of an evaluator's expectations about human behavior
• those expectations often clash with the behavior of appraises who have different beliefs or cultural
values
For instance, an evaluator with an Asian heritage may be more likely to rate an older employee higher because he has been taught to
revere older people.
2. PERSONAL PREJUDICE
• results from a rater's dislike for a group or class of people and when that dislike carries over into the
appraisal of an individual, an inaccurate review of performance is the outcome
For example, according to Kurt Kraiger and J. Kevin Ford writing in the Journal of Applied Psychology, studies have shown that
black raters and white raters are much more likely to give high rankings to members of their own race
3. HALO EFFECT
• caused by a rater's personal opinions about a specific employee that are not job-related
• The term "halo" stems from the distortion of appraises, like an angel with a halo over its head, can
do no wrong. This type of bias, however, also applies to foes of the rater. The effect is particularly
pronounced when the appraises is an enemy or very good friend of the evaluator
For example, some evaluators want their subordinates to like them (leniency bias) or want to feel like they are being a "tough judge"
(strictness)
5. ERROR OF CENTRAL TENDENCY
• occurs when appraisers are hesitant to grade employees as effective or ineffective
• they pacify their indecisiveness by rating all workers near the center of the performance scale, thus
avoiding extremes that could cause conflict or require an explanation
1. PAST ORIENTED
• Past-oriented techniques assess behavior that has already occurred. They focus on providing
feedback to employees about their actions, feedback that is used to achieve greater success in the
future
TRADITIONAL FORMS:
• RATING SCALES
For the rating scale, the evaluator simply checks a box beside each factor to indicate, for example, excellent, good, fair, or
poor. A value may be assigned to each level of success—a rating of fair, for instance, might be worth two points—and the
appraisee's score totaled to determine his or her ranking.
• CHECKLIST
For the checklist, the evaluator simply marks statements such as "works well with others" believed to describe the worker
being appraised.
FAIRER APPROACH
• BEHAVIORALLY ANCHORED RATING SCALES (BARS)
They are designed to identify job-related activities and responsibilities and to describe the more effective and less effective
behaviors that lead to success in specific jobs. The rater observes a worker and then records his or her behavior on a BAR.
The system is similar to checklist methods in that statements are essentially checked off as true or false. BARSs differ,
however, in that they use combinations of job-related statements that allow the assessor to differentiate between behavior,
performance, and results. Therefore, BARSs can be more effectively utilized in the goal-setting process
ADVANTAGE: they are extremely job specific, easy to administer, and eliminate most biases
DISADVANTAGE: they can be difficult and expensive to develop and maintain
FORCED-CHOICE
• LIST OF PAIRED STATEMENTS
The statements in each pair may both be negative or positive, or one could be positive and the other negative. The
evaluator is forced to choose one statement from each pair that most closely describes the individual. An example of a pair
of statements might be "Always on Time" and "Never on Time."
ADVANTAGE: it can be used very successfully to give feedback to employees and it is less susceptible to some forms of bias
DISADVANTAGE: difficult because they require ongoing, close observation and because they do not lend themselves to
standardization and are time consuming
ADVANTAGE: improves reliability and standardization because a personnel professional is doing the assessment and less susceptible
to biases.
DISADVANTAGE: generally expensive and impractical for most firms, and are typically utilized only in special instances—to
counteract charges of bias, for example
2. FUTURE ORIENTED
• future-oriented appraisal techniques emphasize future performance by assessing employees'
potential for achievement and by setting targets for both short- and long-term performance
PSYCHOLOGICAL TESTS
They are a much less intricate method of determining future potential. They normally consist of interviews with the employee and his
supervisors and coworkers, as well as different types of tests and evaluations of intellectual, emotional, and work-related
characteristics. The psychologist puts his or her findings and conclusions in a report that may or may not be shared with the employee.
Psychological testing is slow and costly, and must be administered extremely carefully because of the long-term implications of the
evaluation on the employee's future. Success is largely dependent on the skill of the psychologist.
SELF APPRAISAL
It entails employees making evaluations of their own performance. Although self-assessment techniques may also be coordinated with
past-oriented evaluations, they are particularly useful in helping employees to set personal goals and identify areas of behaviors that
need improvement. The advantage of such appraisals, which may be relatively informal, is that they provide an excellent forum for
input and feedback by superiors.
BENEFITS
• Employee benefits are any kind of compensation provided in a form other than
direct wages and paid for in whole or in part by an employer, even those
provided by a third party. Third-party benefits include those offered by the
government, which disburses Social Security benefits that have been paid for
by employers.
• They are an important means of meeting employee’s needs and wants.
THE PRIMARY ROLE OF BENEFITS: to provide various types of income protection to groups of
workers lacking income. Such income protection offers individual security and societal economic stability.
PRINCIPAL TYPES OF BENEFITS
DISABILITY
Benefits that provide disability income replacement include government programs such as
Social Security and workers' compensation. The bulk of these benefits are mandatory,
although numerous supplementary plans, most of which are tax favored, exist. Most
organizations seek to assemble a disability package that will provide adequate safeguards, yet
not act as a disincentive to return to work. A common objective is long-term income
reimbursement of 60 percent of pay, which is preceded by higher levels of reimbursement,
often as much as 100 percent during the first six months of disability. Long-term disability pay
typically ends at retirement age (when pension payments begin), or when the worker recovers
or finds another job. In addition, supplementary benefits such as disability insurance helps
employees weather periods without pay due to disabilities not covered by government
programs.
Other disability related incentives may include sick pay, including cash awards for unused sick
days at the end of the year. Employers may vary the quality of their disability package with
different copayment options, limits on payments for voluntary coverage, and extended
coverage for related health insurance, life insurance, and medical benefits related to the
disability.
MEDICAL
TYPES:
1. TRADITIONAL FEE-FOR-SERVICE PLANS
The insurer pays the insured directly for any hospital or physician costs for which the insured is covered.
2. PREPAID PLAN
Insurance companies arrange to pay health care providers for any service for which an enrollee has coverage. The insurer effectively
agrees to provide the insured with health-care services, rather than reimbursement dollars. Prepaid plans offer the advantages of
lower costs, which results in reduced administrative expenses and a greater emphasis on cost control. The most common type of
prepaid plan is the health maintenance organization.
RETIREMENT
SOCIAL SECURITY mandates that workers and employers jointly fund an account that is managed by
the federal government. The combined contribution totals about 15 percent of a worker's total salary. The
money is placed in the fund, and most of it is invested in interest-paying securities and bonds backed by
the government. The government pays benefits to beneficiaries when they reach retirement age. The
amount of expected benefits varies by age, with younger contributors expected to receive at least a
meager portion of their and their employer's total contribution.
PENSION PLANS are primarily financed by employers. Unlike the Social Security fund, funds created by
private employers are subject to strict government controls designed to ensure their long-term existence.
The two major categories of pension funds are defined benefit and defined contribution. Defined-benefit
programs represent the traditional approach where workers are assured a determined income level (given
expected Social Security disbursements) at retirement. The company finances the worker's account and
manages the investments. In contrast, defined-contribution plans utilize investment techniques such as
stock and bond purchases with an amount of money defined by the employer. Companies make regular
contributions to workers' accounts through those different instruments, and may also integrate employee
contributions. The employee simply receives the value of the contributions, with interest, at retirement.
The obvious benefits are deferred taxes and flexibility in comparison to defined-benefit programs.
SAVINGS PLANS these plans include various tax favored savings such as individual retirement accounts
(IRAs) and investment options. Employers may also provide retirement benefits such as retirement
counseling, credit unions, investment counseling, and sponsorship of retiree clubs and organizations.
UNEMPLOYMENT
SEVERANCE PAY it may take the form of a lump sum or continuing payments.
UNEMPLOYMENT PAYS PLANS these are employer-funded accounts designed to ensure adequate and regular payments
to workers, usually members of labor unions, during periods of inactivity.
SURVIVORS
Like disability compensation, benefits for the survivors of deceased employees are comprised primarily of
mandatory Social Security and workers' compensation benefits. Eligibility for such mandatory benefits is
determined by factors such as age, marital status, and parental responsibilities. In addition, however, a
plethora of different privately financed benefits are available for employer, most of which have a tax
favored status. Most plans are set up to make payments to a beneficiary designated by the employee.
Payment levels are usually contingent on the cause of death. For example, survivors of a worker killed
while on the job would likely receive much more than survivors of an employee who died at home or on
vacation. A common survivorship benefit is some form of term life insurance that takes advantage of tax
preferences and exemptions. Those plans often allow employees to contribute, thus significantly raising
the expected payoff at death.
Read more: Employee Benefits - expenses http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Employee-
Benefits.html#ixzz0vQcDql8I
Benefits fall into ten principal categories based on their function: educational,
employee incentive, family, government, health, lifestyle, recreational, retirement,
savings, and transportation benefits (examples provided below). While some benefits
are mandatory—those required by federal or state legislation—the majority are
supplementary. With supplementary benefits, employers choose whether or not to
offer them. Mandatory benefits provide economic security for employees who lack
income as a result of unemployment, old age, disability, poor health, or other factors.
Supplementary benefits not only serve as safety nets for employees, but also as
incentives to attract employees and to encourage employee loyalty.
Based on the book Employee Benefits: Plain and Simple, the major benefits included
in each category are listed below:
EXAMPLES
With the on-going changes in the labor market environment, due to such factors as the globalization of
business and social advances of women, one major task for increasing a company's competitiveness is to
have management that can make use of human resource diversity. In 2002, Toyota started a Diversity
Project based on the concept expressed in Toyota's Global Vision 2010 of "promoting the creation of
environments featuring people from around the world with various abilities and values who are given the
opportunity to experience self-realization as individuals." Through this, Toyota aims to increase its
employees' motivation and optimize the value of its human resources.
See the Global Vision 2010
Toward Promotion of Women's Participation In 2002, based on the principle of respecting diversity and
with the aim of reforming management throughout the company, Toyota set its sights on women's
participation, reviewing its arrangement with regard to female employees, and taking steps to put a better
environment in place. In order to promote the creation of an environment more conducive to participation
by motivated female employees, Toyota has made a three-pronged effort to: (1) Help enable women to
work and raise children at the same time; (2) Assist in women's career building, and (3) Reform the
working environment and employee awareness. Toyota has also introduced flexible working arrangements
and constructed child-care facilities at business sites.
•System for Helping Employees Accomplish both Child •Trends in Number of Employees Taking Child Rearing
Rearing (or Nursing Care) and Work Leave
*A system similar to the child rearing system is used in the
case of nursing care
As of March 2003, Toyota had approximately 5,800 •Trends in Ratio of Female Employees
female employees, accounting for 9% of the total (Example of Administrative Positions)
workforce, but the number of women employed has
grown steadily each year as female students' awareness
increases.
As of March 2003, Toyota employed about 800 disabled •Trends in Toyota's Disabled People Employment Ratio
people in many kinds of positions at various workplaces.
Toyota believes in helping the disabled achieve
autonomy within society, and makes it a basic rule to
have them work together with other employees. Human
consideration is given to the conditions of their disability
at the business sites and ways are devised to
accommodate them in workplace facilities so as to create
a workplace environment that is safe and easy to work
in.
As of the end of March 2003, Toyota's disabled
employees ratio was 1.95%, exceeding the 1.8% Legal
Employment Quota.*
*Legal Employment Quota: In accordance with the "Law
for Employment Promotion, etc. of the Disabled,"
private companies normally employing 56 or more
employees are obligated to employ disabled people
(either physically or intellectually disabled) at a ratio
exceeding 1.8% of their total workforce
http://www.toyota.co.jp/en/environmental_rep/03/rinen.html#k02
In addition, we continue to evaluate options for additional and/or alternative key performance indicators
that contribute to our continuous improvement goals and meet the transparency expectations of our
stakeholders.
Employment Experience10
Crew members satisfied that they receive the training needed to do a good job
Year 2005 2006 2007 2008
Percentage 80.611 82 84 8512
Managers who feel the person they report to supports their professional development
Year 2005 2006 2007 2008
Percentage 81.613 8214 8314 8212
Community
SOCIAL TAXES
INCOME TAXES
Food, packaging and tier-1 equipment suppliers that have affirmed our Code of Conduct for
Suppliers2,3
Year 2005 2006 2007 2008
% of Supplier facilities 89.0 93.5 92 954
Supplier meat (including beef, pork and poultry) processing plants audited
Year 2005 2006 2007 2008
# of Suppliers 521 562 513 4845
Items, per market menu, that contain at least 1 serving of fruit or vegetables
Year 2005 2006 2007 2008
Average # NA 6.1 6.1 6.4
Items, per market menu, that contain at least ½ serving of fruit or vegetables
Year 2005 2006 2007 2008
Average # NA 9.9 10.9 11.4
1
Except as otherwise noted, figures are for our nine largest markets: Australia, Brazil, Canada, China,
France, Germany, Japan, the U.K. and the U.S. Organizational structures vary by market. McDonald’s Japan
is a publicly traded company and is approximately 50% owned by McDonald’s Corporation. Effective 2007,
McDonald’s Brazil is owned by a developmental licensee. Data for energy usage and greenhouse gas
emissions for 2008 is in the process of being verified.
2
Total number of suppliers varies from year to year based upon business needs. Includes suppliers
identified to and confirmed by our program management firm as having signed the Code. Data reported is
based on a cumulative total.
3
Beginning in 2010 we will report new, more informative KPI's related to our Supplier Code of Conduct. A
preview of our new reporting capability can be seen in Employee Welfare section of this report.
4
Beginning in 2008, this metric is being reported differently. Going-forward this metric will reflect only
suppliers identified as active in the system, having gone through the audit process and having affirmed
our Code of Conduct. This change is being made to more accurately reflect our current supplier base and
those suppliers that share our values by affirming our Code of Conduct.
5
See details on animal welfare audits for coverage and results of audits.
6
Consumer packaging does not include pre-packaged items such as salad dressings.
7
Not including Brazil.
8
Not including China.
9
In 2008, the report methodology for the US and Canada markets was changed; this resulted in overall
decrease in total packaging weight which was not solely attributed to changes in packaging design.
10
Data for restaurant employees are for company operated restaurants only.
11
Not including Australia, Canada, China, Japan.
12
Not including Canada.
13
Not including Australia, Canada, China, Japan, U.K..
14
Not including Japan, Canada
Benefits
We strive to hire and keep the brightest and the best. And to do that, we’ve put
together perks designed to make you smile — even before you pick up your
paycheck. From flexible schedules and competitive wages to management training
and investment opportunities, our benefits let you know you’re a valued part of our
team.
You don’t have to achieve upper-level management status to reap the rewards. When
you’re a part of our restaurant crew, you’ll enjoy a competitive wage, a schedule that
fits your needs, a team that’s there to support you in every way, and a workplace
that’s close to wherever you need to be. It’s a great way to earn extra income for
anyone, from students to moms and dads.
• Competitive wages
• Free uniforms*
• Free or discounted meals
• Flexible hours
• Medical insurance*
• Prescription drug coverage*
• 24-hour nurse line access
• Vision discount*
• Available dental*
Additional Benefits
• Short-term disability*
• Term life insurance*
• 401(k)*
• Paid holidays*
• Vacation*
• Educational assistance*
Our benefits program is designed to attract, energize, reward and retain top talent—
the kind of people who will enhance our brand and produce solid results.
Protecting your and your family's health and financial future is important. That's why
we offer the following plans:
Medical
McDonald’s offers three Preferred Provider Organization (PPO) medical plan options
that use the First Health network of providers. The plans have different benefit levels
and pay more for in-network covered costs than for out-of-network covered costs. All
three of the plans feature a prescription drug program and an unlimited lifetime
benefit maximum. In addition, the McDonald's medical plans cover preventive care,
including annual physical exams for employees and covered family members (up to
$400 per person per year), well-baby care, and child immunizations and inoculations.
In some areas, HMOs are also available.
Vision Supplement
Employees enrolled in one of the four McDonald's medical plans may elect the vision
supplement plan, which provides coverage for eyeglasses and contact lenses, plus a
mail-order contact lens replacement program, and discounts on Lasik laser vision
correction surgery.
Dental
Our dental plan allows employees to see the dentist of their choice and covers a wide
range of dental services. Preventive services, including sealants for children, are
covered at 90% with no deductible. Basic and major services are covered at 80%,
after a deductible. The plan also covers 50% of eligible orthodontia expenses for
adults and children after a one-time deductible.
Spending Accounts
The flexible spending accounts let employees set aside pre-tax dollars to pay for
certain health care and day care expenses. Employees can set aside up to $5,600 in
the Healthcare Spending Account for expenses not covered or only partially covered
by their medical and dental plans. For day care expenses that allow employees or
their spouses to work, they can set aside up to $5,000 in the Day Care Spending
Account.
Both short and long term disability coverage is provided at no cost to employees.
Short term disability provides benefits if an employee cannot work for more than 10
consecutive days; how long benefits continue depends on the nature of the
employee's disability and years of service. Long term disability coverage replaces
60% of the employee's monthly base salary while he or she is disabled.
McDonald's provides basic life insurance of two times the employee's base salary at
no cost to the employee. In addition, employees can purchase additional life
insurance coverage for themselves (either term or universal life). Basic dependent
life insurance for their spouse or domestic partner and/or children is also provided at
no cost to the employees. And, if an employee elects optional life insurance for
himself/herself, he/she can purchase additional dependent life insurance coverage.
Our pay and rewards program follows a "pay for performance" philosophy: The better
your results, the greater your pay opportunities.
Base Pay
Because employees' base pay is the most significant portion of their compensation,
McDonald's maintains the competitiveness of our base pay through an annual review
of both external market data and internal peer data. In our corporate, division and
region offices, McDonald's has a broadbanding compensation system. Broadbanding
allows for flexibility in terms of pay, movement and growth.
Incentive Pay
Incentive pay provides our employees with the opportunity to earn competitive total
compensation when performance meets and exceeds goals. For our corporate,
division and region offices, the Target Incentive Plan (TIP) links employee
performance with the performance of the business they support. TIP pays a bonus on
top of employees' base salaries based on business performance and their individual
performance.
Long term incentives are granted to eligible employees to both reward and retain key
employees who have shown sustained performance and can impact long-term value
creation at McDonald's.
Recognition Programs
Our recognition programs are designed to reward and recognize strong performers.
For our corporate, division and region offices, these include the Presidents' Award
(given to the top 1% of individual performers worldwide) and the Circle of Excellence
Award (given to top teams worldwide to recognize their contributions for advancing
our vision).
Our company car program provides eligible employees with a company car for both
business and personal use. If eligible, employees can choose from a variety of
vehicles, depending on their level within the company. The program covers the cost
of insurance, maintenance and repair.
http://www.mcdonalds.com/us/en/careers/benefits.html
LABOR
MANAGEMENT
RELATION
___________________________________________________________________
KEY TERMINOLOGIES:
Labor- refers to the hired workers of an industry.
MINIMUM WAGE
Is the longest hourly, daily, monthly, wage that employers may
legally pay to employees or workers.
GOVERNMENT REGULATORS
Department of Labor and Employment (DOLE)
This department is responsible for the overall regulation of
employment in the Philippines.
3 areas of authority
1. Promotion of employment and apprenticeship
Family Wage
is a wage that is sufficient to raise a family on. This contrasts
with a living wage, which is generally taken to mean a wage
sufficient for a single individual to live on, but not necessarily
sufficient to also support a family. As a stronger form of living
wage, a family wage is likewise advocated by proponents
of social justice.
Labor Union
• association of workers for the purpose of improving their
economic status and working conditions through collective
bargaining with employers
• trade union (British English) or labor union (American English) is
an organization of workers that have banded together to achieve
common goals such as better working conditions
2. LABOR ORGANIZATIONS.
• The law defines "labor organization" as "any union or association
of employees which exists in whole or in pair for the purpose of
collective bargaining or of dealing with employers concerning
terms and conditions of employment"
• Main purpose of labor organizations is collective bargaining.
Collective bargaining denotes preferential mode of resolving
industrial disputes (Art. XIII, Sec. 3 Const.) is corollary to the right
of self-organization. It infers the existence of a labor
organization, and denotes its role in fostering industrial peace.
Without this companion right, a labor union will have no voice or
power to express the workers interest before the employer,
rendering it inutile. With it, workers are enabled to negotiate with
the employer on the same level and with more persuasiveness
than if they were to bargain individually and independently for
the improvement of their respective conditions.
• The other purposes of a labor union should be lawful. As
observed by the Supreme Court: "A labor union is wholesome if it
serves its legitimate purpose of settling labor disputes. That is
why it is given personality and recognition in concluding
collective bargaining commitments. But if it is made use of as a
subterfuge, or as a means to subvert valid commitments, it
outlives its purpose, for far from being an aid, it tends to
undermine the harmonious relations between management and
labor.
Applications for registration are filed with the labor relations division f
the DOLE Regional Office concerned or with the Bureau of Labor
Relations. In the case of government employees" organizations, in
addition to such registration, they shall also register with the Civil
Service Commission (Sec. 7, Ex. 0 . NO. 180). Upon approval, their cox
Tsunami registration certificates shall be signed jointly by the
Chairman of the Civil Service Commission and the Secretary of Labor
and Employment (Sec. 8, Id.).
8. SIGNIFICANCE OF REGISTRATION.
A legitimate labor organization, a registered labor union acquires the
following tights:
(a) to act as the representative of its members for the purpose of
collective bargaining;
(b) to be certified as the exclusive representative of all the employees
in an appointee bargaining unit for purposes of collective bargaining;
(c) to be furnished by the employer, upon written request, with his
annual audited financial statements, including the balance sheet and
the profit-and-loss statement, within 30 calendar days from receipt of
the request, after the union has been duly recognized by the employer
or certified as the sole and exclusive bargaining representative of the
employees in the bargaining unit, or within 60 calendar days before
the expiration of the existing collective bargaining agreement, or
during the collective bargaining negotiation;
(d) to own property, real or personal, for the use and benefit of the
labor organization and its members;
(e) to sue and be sued in its registered name; and
(f) to undertake all other actives designed to benefit the organization
and its members, including cooperatives, housing, welfare and other
projects not contrary to law.
The income and properties of legitimate labor organizations, including
grants, endowments, gifts, donations and contributions from fraternal
and similar organizations, local or foreign, which axe actually, directly
and exclusively used for their lawful purposes, shall be free from taxes,
duties and other assessments (Art. 242 LC, as am. by R.A. 6715).
I. INTRODUCTION.
The right to self-organization, and its companion right--the right
to collective bargaining, are accorded to labor to give it leverage in
dealing with the employer This is in recognition of the fact that these
parties are not placed upon a position of equality, but upon one of
inequa1ity Hence, the law grants these rights to labor to approximate
a semblance of equality in the relationship. However, organization and
negotiation by themselves may still be inadequate to achieve this
purpose. There is need for yet another element, which is the potential
to action by way of concerted activities. In a broad sense, the term
"concerted activities" means the activities of two or more employees
for the purpose of securing benefits or changes in terms and conditions
of employment, or for mutual aid or protection with respect to their
collective interests as employees. In its more common acceptance, the
term refers to organized union activities, such as strikes and picketing.
The resolution of industrial dispute through individual initiatives, like
collective bargaining, has the advantages of simplicity, certainty and
privacy. But concerted activities, because of their far-reaching
consequences to the economy and the larger social interests, are
subject to regulation. Thus, the pertinent Constitutional provision
grants to labor "the right to peaceful concerted activities, including the
right to strike in accordance with law" (Art. XIII, Sec. 3). It thereby
subjects this right to two conditions, namely: (a) that it be peaceful;
and (b) that it be in accordance with law. The Labor Code adds further
restrictions to the exercise of this right.
2. CONCEPTS.
• A strike may be defined as any temporary stoppage of work by
the concerted action of employees as a result of an industrial or
labor dispute.
• Lockout" means the temporary refusal of an employer to furnish
work as a result of an industrial or labor dispute.
NOTE: A lockout differs from a shutdown in that in a lockout the plant
continues to operate. The employee union-members locked out are
replaced by non-union substitutes and the plant continues to function.
In a shutdown, the plant ceases to operate by the willful act of the
employer himself. A lockout may affect all or less than all the
employee union-members. In its common acceptance, lockout is an act
directed at the union itself rather than at the individual members of
the union.
• Picketing is the stationing of persons before the premises of an
establishment involved in a labor dispute, generally
accompanied by the carrying and display or signs, placards or
banners stating the issues involved in the dispute.
The regional branch of the NCMB may, at its own initiative or upon the
request of any affected party, supervise the conduct of the secret
balloting. In every case, the union or the employer shall furnish the
regional branch of the Board the notice of the meetings referred to in
the such meetings, as well as the results of the voting at least seven
days before the intended strike or lockout, subject to the cooling-off
period provided in this Rule (Sec. 7, Rule XIII, OR).
The cooling-off period and the seven-day strike ban after submission of
the result of the strike vote are mandatory in character.This rule was
reiterated in a recent case where the Court held that the requirements
of the cooling-off period and the seven- day strike ban must both be
complied with, although the union may take a strike vote and report
the same within the cooling-off period.
The Labor Code allows the following as lawful causes for a strike or
lockout: bargaining deadlocks, unfair labor practice, and union-busting.
However no labor union may strike, no employer may declare a lockout
on grounds involving inter- union and intra-union disputes.
The cooling-off period and the seven-day strike ban after submission of
the strike vote is mandatory. A strike is illegal for lack of strike notice,
no strike vote, and no notice of result and no valid ground. It does not
justify reinstatement since no good faith is involved. Compliance with a
return-to-work order issued by the Secretary of Labor is not a matter of
option or voluntaries, but of obligation. The real reason of the order is
to prevent impairment of public interest. Striking workers who refuse
to obey the order are not entitled to pay for work not done, nor to
reinstatement to the positions they abandoned by their refusal to
return as ordered.
A strike is illegal where the union continued it even after the DOLE
certified the dispute to the NLRC for compulsory arbitration. Such
certification has the effect of automatically enjoining the strike. What
makes such open defiance more glaring was the union's persistence in
continuing with the strike despite two return-to-work orders of the
Minister of Labor.
It has been ruled that strikers who engaged in violent, illegal and
criminal acts such as hijacking buses, injuring commuters, puncturing
tires, stealing expensive equipment, had lost their employment status.
The Labor Code considers the commission of these acts a "prohibited
activity", and any worker or union officer .who unknowingly
participates in their commission during a strike may be declared to
have lost his employment status. However, although the strike was
illegal because of the commission of illegal acts, only union officers
and strikers who engaged in violent illegal and criminal acts against
the employer are deemed to have lost their employment status. Union
members who were merely instigated to participate in the illegal strike
should be treated differently.
The liabilities of striking workers are stated in the text of the Labor
Code.
Thus: Any union officer who knowingly participates in an illegal
strike and any worker or union officer who knowingly participates in
the commission of illegal acts during a strike may be declared to have
lost their employment status (Art. 264-a. LC). The law, in using the
work "may", grants the employer the option of considering a union
officer who participated in an illegal strike as having lost his
employment. The penalty of dismissal for participating in an illegal
strike is limited only to the union leaders. An ordinary striking worker
cannot be terminated for mere participation in an illegal strike. There
must be proof that he committed illegal acts during a strike; a union
officer may be terminated for both acts. Thus, rank and file workers
who were merely misled in supporting illegal strikes should be
reinstated, but they should not be compensated for services skipped
during the illegal strike. Hence, striking Workers incur no liability for
the said strike. They cannot be held responsible for an illegal strike on
the basis of such membership. Only the officers of the union who
staged the illegal strike deserve to be punished. Similarly, a union
member may not be held responsible for the union's illegal strike on
the sole basis of such membership or on account of his having voted
affirmative for holding of the strike later declared illegal. There must
be a clear proof of actual participation in the illegal strike. A mere
finding of the illegality of strike should not be automatically followed by
a wholesale dismissal of strikers from their employment. This is
because of the security of tenure provision under the Constitution.
Workers defying a return-to-work order cannot be replaced.
RIGHTS OF LABOR
Employers have sacred task of caring for their workers. The following
are their basic duties toward their employees:
3. Collective Bargaining
4. Arbitration
5. Mediation
CHINA
JAPAN
Employment Agreements
Under the Civil Code, a contract in which one person performs services
for another with compensation may be construed as any one of the
following:
Prohibiting Discrimination
Title VII of the Civil Rights Act is the principal federal statute
with regard to employment discrimination prohibiting unlawful
employment discrimination by public and private employers, labor
organizations, training programs and employment agencies based on
race or color, religion, sex, and national origin. Retaliation is also
prohibited by Title VII against any person for opposing any practice
forbidden by statute, or for making a charge, testifying, assisting, or
participating in a proceeding under the statute. The Civil Rights Act of
1991 expanded the damages available to Title VII cases and granted
Title VII plaintiffs the right to jury trial.
The Factory Acts (first one in 1802, then 1833) and the 1832
Master and Servant Act were the first laws regulating labour
relations in the United Kingdom. The vast majority of employment law
before 1960 was based upon the Law of Contract. Since then there has
been a significant expansion primarily due to the "equality movement"
and the European Union.There are three sources of Law: Acts of
Parliament called Statutes, Statutory Regulations (made by a
Secretary of State under an Act of Parliament) and Case Law
(developed by various Courts).
The first significant modern day Employment Law Act was the
Equal Pay Act of 1970 although as it was a somewhat radical
concept it did not come into effect until 1972. This act was introduced
as part of a concerted effort to bring about equality for women in the
workplace. Since the election of the Labour Government in 1997, there
have been many changes in UK employment law. These include
enhanced maternity and paternity rights, the introduction of a National
Minimum Wage and the Working Time Directive which covers working
time, rest breaks and the right to paid annual leave. Discrimination law
has also been tightened, with protection from discrimination now
available on the grounds of age, religion or belief and sexual
orientation as well as gender, race and disability.
The Labor Code prescribes the rules for hiring and termination of
private employees; the conditions of work including maximum work
hours and overtime; employee benefits such as holiday pay, thirteenth
month pay and retirement pay; and the guidelines in the organization
and membership in labor unions as well as in collective bargaining.
The Labor Code contains several provisions which are beneficial
to labor. It prohibits termination from employment of Private
employees except for just or authorized causes as prescribed in Article
282 to 284 of the Code. The right to trade union is expressly
recognized, as is the right of a union to insist on a closed shop. Strikes
are also authorized for as long as they comply with the strict
requirements under the Code, and workers who organize or participate
in illegal strikes may be subject to dismissal. Moreover, Philippine
jurisprudence has long applied a rule that any doubts in the
interpretation of law, especially the Labor Code, will be resolved in
favor of labor and against management.