LECTURE 8-COMPENSATION

& BENEFITS
AUGUST 2010
OVERVIEW
 INTRODUCTION: WHY?
 COMPENSATION
 BENEFITS
1. INTRODUCTION
1.1 WHY COMPENSATION &
BENEFITS ARE PROVIDED?
 As required by law and statutes such as
Employment Act, EPF, SOCSO etc
 Benefits can help attract staff and other potential
candidates to join the organization
 Benefits can help retain existing employees and will
increase their loyalty
 Benefits can increase morale of employees which
will lead to higher productivity and competency
2. COMPENSATION
2.1 DEFINITION
 Compensation:
 All forms of pay or rewards going to employees
arising(as a result) of their employment
 Can also be defined as a type of reward that
individuals receive in return of the effort of labour
 Salary compression
A salary inequity problem, generally caused by
inflation, resulting in longer-term employees in a
position earning less than workers entering the firm
today
2.2 TYPES
 Direct financial payments
 Employer exchanges monetary rewards for work done
 Include base pay(wages, salaries, incentives etc) and
variable pay(compensations linked to individual or
team performance such as bonuses)
 Indirect financial payments
 Tangible values received without receiving actual cash
 Including health insurance, vacation pay, retirement
pensions
2.3 FACTORS INFLUENCING
COMPENSATION PROGRAM
 External
 Legislation
 Act that is being used to impose the minimum payment for employees
or other requirements needed by the law
 Example: Msia has no minimum wage required except for those few
industries covered by the Wage Council
 Unions
 Important role in demanding compensation & employee benefits
 If workers belong to a strong trade union that has been granted
recognition, the union will activate the collective bargaining process
and negotiate for higher wages & benefits, and pay-related
issues(time off with pay, income security, cost of living adjustments etc)
 Example: Malaysian Trade Union Congress(MTUC), Congress of
Unions of Employees in the Public and Civil Services(CEUPACS),
National Union of Bank Employees(NUBE)
 Internal
 Selection policy/corporate policy
 High wages attract better workers
 Employment conditions
 If the labour market is tight, employers have no option but to offer competitive wages
and vice versa
 Company profitability
 Affects compensation & levels of pay
 Equity
 External equity: Comparing pay rates with other companies’
 Internal equity: Comparing pay rates for a certain job, with the same position in other
companies
 Individual equity: Fairness of an individual’s pay as compared to what the co workers
are earning for the same position
 Procedural equity: Perceived fairness of the processes and procedures used to make
decisions regarding allocation of pay
 2.4 PROCESS OF ESTABLISHING PAY
RATES
Salary survey
• Aimed to determine pay rates
• Source of info: questionnares, phone surveys and newspaper ads

Job evaluation
• A systematic comparison done in order to determine the worth of
one job relative to another
• Depends on: qualifications, complexity of job

Group similar job into pay grades

• Committee assign pay rates for each job

Price each pay grade curves

• Wage curve-shows the relationship between value of job and
average pay wage for job

Fine tune pay rates

• Developing and correcting pay rates
3. BENEFITS
3.1 INTRODUCTION
 Definition: Non-wage compensations provided to
employees in addition to their normal wages or
salaries
 Types:
 Statutory

 Non-statutory
 3.2 STATUTORY BENEFITS
 Employment Act 1955: Employers must give certain benefits to employees who are covered by the act:
 Maternity leave
 Section 37-44
 Every female employee is entitled to maternity leave for a period of not less than 60 days for every
confinement
 Maternity allowance- payable to the employee if she has no more than 5 surviving children and has
served the employer for at least 90 days before giving birth
 Rest day
 Section 59 one rest day per week
 All employees are entitled for one rest day per week although this is not a paid rest day
 Public holidays
 Section 60
 All employees by the act to pay gazetted public holidays per year
 Annual leave
 Section 60E
 Annual leave is given based o length of service
 Sick leave
 Section 60F
 Sick leave shall be given after the employee has been examined at the expense of the employer by
a registered panel clinic/ re gistered medical doctor
 Employee Provident Fund(EPF) Act
 Purpose: ensure that every employee has sufficient funds to
sustain him once he has retired
 11%: employer, 12%: employees’ wages
 Employee’s Social Security(SOCSO) Act
 To provide benefits for employees should they be involved
in an accident at work, contract an occupational disease or
become invalid
 Contributions are paid monthly on behalf of all employees
who earn less than RM2000 per month
 At the rate of 1.25%(employer’s contribution) and
0.5%(employee’s contribution)
3.3 NON STATUTORY BENEFITS
 Time-off payments
 Leaves for purpose of marriage, birth, emergencies, studies, etc
 Health care
 May be extended to an employee’s dependent
 Payment for dental and optical bills
 Insurance
 Life and accident group policies
 May extend to employees’ families
 Financial services/loans
 For cars, houses etc, usually with lower interest
 Alternatively, interest rates may be subsidized by the employer
 Subsidized services
 Canteens and transport
 Others: childcare facilities, club membership etc
 Allowances
 Transport, meal, housing, entertainment etc
 Educational facilities
 For employees to develop themselves
 Libraries, reading materials, scholarships