REWARDS MANAGEMENT rewarding people. It is concerned with the design implementation, and maintenance of a rewards system containing compensation and benefits with the intention of improving organizational and individual performance. Rewards management includes financial and_non-financial rewards. It also involves formulating policies and implementing strategies to reward employees fairly and equitably according to their contribution to. the organization. It adopts a total rewards approach that considers all aspects of a reward. It is integrated as well with HR efforts to achieve commitment, motivation, engagement, and development of employees (Armstrong, 2009). Total reward is defined by Thompson [2002] as having all tangible (salary, variable pay, and benefits) and non- tangible (responsibility, career opportunities, learning, and development) elements which are provided by the work itself and the quality of work life given by the organization. The total reward model indicates the tangible aspect, i.e., compensation and benefits are monetary in nature, and are usually more enticing than intangible ones if a company seeks to recruit and retain personnel. However, this aspect can be easily copied by competitors. The intangible aspect of a total reward (e.g., learning, development, and work environment) further enhances the tangible aspects and inspires loyalty among employees ea the company. Thus, they become loyal and devoted to of the eanization. It also gives satisfaction to the members intats srentlorce. The combined effect of the tangible and impace le aspects of a total reward provides the real and meaning of rewards to employees. Re management involves the process of Scanned with CamScannerre the tangible tion, @ reten! ¢ thoroughly s.0 ation, rewards its that ar ‘ remuneration: f penefits : The three Rs, namely TN compensation “ 1 types of compensation and aspects of total reward OF yyards refers (0 all forms of work performance. Seecassed in this chapter RET ange for al Phe chat will incres™’ ot benefits that employees © eset aco something TT eration reters to i al ‘g the ability t0 € : 1 and loyalty to tt Jan ma ne organiz Retention . de by the firm. employee's satisfaction 8n¢ pensation and bene! REMUNERATION of compensation, @ task ertains to the computation nee Remuneration pertains (0 °° 1 separtment’s responsibilities: Itis also considered to lie at the “heart. i @ HRM’s functional areas. As ceoer controversial and tedious function amor ee _ the most important subject among these area the HR staff who handles it is sacs responsible when employees are dissatisfied oF when controversies arise ae vof compensation packages that are unfair, ineffective, and inadequate. Itis, therefore, necessary to lay a good foundation for fair compensation to make an organization wark Compensation is the tangible equivalent of any work or task performed in the organization. It can be either direct or indirect. Direct co i rect compensation refers to monetary rewards such as salaries, wages, commissions, bonuses, allowance, and other forms of eee monetary payments. Indirect compensation include: nefi yy companies to . ludes the bei p' : ation ir efits offered by is employees such as hospitalization, insurance, days-off, su: T outi ; fe eae ys-off, summer outings, sport: ‘The common terminologi rminolo; assi following (Biswas, 2013): gies assigned to.compensation and benefit: a : Ss are the 1. Base Pay Scanned with CamScanner6. aA incentive Compensation Incentives or bonuses are objectives set by the organizat Allowances ‘These are temporary add-ons t transportation, and meal allowan overtime Pay Biven to emplo ion, Ployees who achieve certain 0 the basic ay s ice dati ces, ete” PAY Such as rice ration, This is provided for work Tendered beyond the normal work he Risk Benefits _ These are payments for medical, death, or disabil n , death, or disability provided to employees depending on the risks involved in eke stat jobs they perform. pe of Retirement Benefits These are benefits provided to employees who have reached the compulsory retirement age after serving a company for a certain number of years. Equity Compensation Usually given to senior executives, this compensation comes in the form of stock options. Perquisites These are extended to members of the senior management. Examples include first-class travel, lodgings, accommodations, lunch/ dinner meetings, country club memberships at company’s expense, etc. Compensation is a primary consideration in an employee's work life. It is the primary reason why employees look for a job. They use compensation as a means to satisfy their own needs: To earn a living is one of the objectives of a person who seeks employment. In essence, a person's work life starts with being employed and getting paid, and ends by being paid upon resignation or Tetirement. As shown in the diagram below, an effective compensation plan has the following criteria. n Pian Figure 15 ~ Criteria for an Effective Compensatio Scanned with CamScanner> 7 1. Cost-containment ability of the com Compentation should be based 07 the Pany to - 1. Pay the right compensation packag' 2. Objective he task being performed j, n the Ped by ion should be based © ledge about the job, the open ‘a8 well 05 his/her skills and know! 3. Motivating Compensation should b the his/her to always strive 4. Productivity-providing ar - Co eae should ensure that Se happy ang satisfied. These conditions result in greater P' 5. Equitable i ir i ay is commensurate ¢, Compensation is fair to all if the pay om employee's contribution to the organization. ployee’s morale and encoy, my ost the € the best, performanes*® for better, if not 6. Non-discriminating eae Compensation should ensure that no one suffers discrimination Itis based on performance free from prejudices based on age, religion civil status, gender, and other discriminatory factors. 7. Sustaining Compensation should provide for the employee's needs and ig concerned with his/her welfare. It should also sustain the Organization's goals and objectives by guaranteeing, exemplary employee Performance. 7 8. Adequate Legal Compliance Provided as well, 9. Time-bound 10. Inducing loyalty 1. Obligatory Companies a Suen employment contragy the Obligation to i Pay their ‘The employees indion eee Signed by employees well. 2. No inseourye ates this parti fie Company representatives am 0 insecurity cul: responieinge : ine 7 CARE shoul : needs, “° that ake t] at he/she win, se © employee fee] secure. He/st® Fceive can Satisfy his/her bas* Scanned with CamScanner“eons pensation plans are influen ape Need by Gorenal factors are the following: °Y Poth externa And internal f re ‘ pemand and Supply of Lao, Net Ifa particular Position is tim : higher. Jobs that require foyer SY 8Peciatiz 8 1 the pay is a demand for highly killed wrt Provide tower sali tould be is high. This is because of i sein Ompensats the other hand, there ar c N for such z Is Tequire in gs) iti FPS h © instances when 0° Such Positions. 9; workers with the required een ates SBS inte Market of Inbor force with such skills my positions will be a litt ill not Ss a big perey : © over the min bs. Compens ‘Theteachingprofessionrequines Thus, compensation is higher fo: Compensation is based on rani qe attainment, competency, sli the Subject taught. 2. Prevailing Economic Conditions - The government imposes certain regulation such as the minimum wage law. It establishes a price floor especially for ote that pay minimum wages. A price floor is set 50 that janitors, a chambermaids, bellboys and the like will not be taken advantage by employers who try to underpay their employees. There ar ich wil ssed government interventions related to benefits which will be discu: “Tater. ympensation On the other hand, the internal factors which may influence comp decisions are as follows: 1. Budget joned in the chapter on The first consideration is budget. As mentioned in ion i decision that an HRP, computing the rate of compensation is a key i ch lary given to eacl organization makes, especially with regard to the salary employee. Scanned with CamScannerence of compensation ensation may motivate ° nt of With organization Mal 6 Motivation ernal fact tion. A fe ‘or is the influ 2. Employes ir and just comp’ Another int mployee mouval r : ; Employee to perform well in the attainme! goals. 3, Employee Productivity ond i ii ustri } jon in many 1”! tries, firms have Because of increased competition in “ tion activity. An effective means op searched for ways to improve P! y , sat increasing productivity is to provide good compensation package ;. its employees. .g used by firms: The following are the compensation strategie’ 1. Minimum or Average Level Strategy This strategy is best for small- OF medium-sized firms that can only afford the minimum wage for employees 2. Above Average Pay Strategy : Many firms which can afford salaries above the minimum wage believe that money is a good motivator. If organizations pay more, employees are motivated to increase their productivity. 3. Competitive and Compa able Pay Strategy This involves the use of salary surveys and studies. Companies employees with salary grades that are using this strategy assigns ‘common to most companies within the industry. There are a handful of companies that offer employees information on compensations for different sectors, positions, jobs, and industries, Compensation surveys are provided to companies for a certain fee. Professional and consultancy firms which avail of these services use the data to determi " or establish the salaries of employees in different positions. an REWARDS Rewards entail decidin, i g on compensations safer i and methods of tse te ten ors compensation, many companies establish te . A good pay structure makes use of job evaluation. aes JOB EVALUATION To determine obj. objectively the asales m; i Worth or value of a ob, then anda sales supervisor Te: =a? ues factors idered: 8 functions of the job. it, worl Scanned with CamScanneree F once the job evaluation is done. , “oneal, tablished, The four methods OF job exec etOte op @° Ranking ‘uation 5 * AR specialists w jobs from the pay levels is set This hierarchy Te the follows Y Of pay tevet ing, 1 levels Grading System To eliminate the the grading system, level of job di biases cay They classify ge Taking, Teller 1: Teller 2: Over-the Teller 3: Over-the-counter we the new accounts secti Perwork and assistance tp Teller 4: Over-the Teller 5: Minimal Over. The example above describes the de; of tellers according to a pay grade. This method is also simple and easy to use because concrete standards have been set. However, the grades may be too generalized; therefore, there may be instances where jobs are too complex to define in terms of functions. Bree and level of responsibility 3. Point System Job evaluators who use this method trust it more than ranking + and classification. The eléments of a job such as the skills, degree of responsibility, working conditions, and amount of physical effort required, among others, are given specific points based on the job and how much of each factor is required per job. ici en at i ‘ahi Some schools use the point system to aera i, rears example, education has a corresponding weit four degrees based on the position. Weight: Ist, 2nd, 3rd, 4th Education: (50%) 100 150 200 250 is 500 250. ‘The maximum number of points is 500 * 50% or Scanned with CamScannerse method because BENS ON defi, paggty itt this met see Maweven an tlite uit UP particular jobs. However, put, 2 Wo are oies ; ince these ean hANKE Over nk tyes a8 NY rere ts mare ot ith 7 eC eget 01 GWEN OT jective chs and V3 ag or CONIEIONS, wet an yy eiroummistanices OF cond dopey © a Petor Syatent point syste this method is based on five factory: point sys Sivgitar t0 the jearee of respe exitls, degree oF responsiiliy Seay conditions, These BY un Mente Benge (eaicevich, 201} TENT Ragen cvierit Tat awe EET SEU see etety rely oft previous job analysis ‘pility, physical effort, mental effort, ang onsibility, PM sal factors were developed by rather simple to operate because { beforehand. However, it may esults which may no longer oomplete be valid, ALYSIS cai MARKET RATE AN od is popularly used in determining job rates, be maser ama ant rate data of some exganizations ar Tre ality and ye Thats, itis iimportant that the sample organizations at vee eae data have been collected should be truly’ representative of the industry, sector, or type of business where the jobs are existent 0 edd, in pxher words, the jobs being compared should be similar to the Jops bees tin the qnarket data. It is important thet the Jatest or most recent market rate data are ANE Published rates, for example, should be updated and used as @ basis for p rates. Companies can choose from various sources of market rate data (Michael Armstrong, 2009): 1, General published surveys ‘These are readily accessible and available data. They are subdivided into international, national, local, or regional data, The cost of each survey depends on the extent of data which organizations need. Published surveys have a wide coverage. Since there is consistency in publication, trend analysis can be done over time, However, there is always the risk of the data getting outdated because of the long time it takes to publish them or because of constantly changing trends and statistics that render them obsolete, 2. Online data These data are easy to access Sent a “asy and pu limited. purchase. However, they are 3. Industrial occupational surveys Thi Vs i apenas oa esurveys done by job organizations and trade associations fanny oe these industrial surveys are based ‘on the jobs it industry, job matches are easier to do. The quality of nd more reliable than that generated by consultant databa: ent consultancy firm pon Purchase firm that Provides: Scanned with CamScannermarket data, data are wey industries and segments obtain, re » Nonethele 5. Special surveys " "special sury Fe conducted by organization. Therefore nd are f » the orgs Pc8sed on a part, participants as well ag tye methoqe tion hae © Particular however, is that much s a Dlogy usey me and effore Needed for tre choose participants for the sury ici may and thus the re € Organizatio: to Pay mt Guired sample gies to maPahts may be Uncoopera be obtained. ake the data retianie May not There are other sources of my, lished journals, informal oo, m ‘i Pp The data obtained from market data are presented tral tendency such as the arithmetic al is the average value w me Mean and th “hile the median ie the mi distribution. Data can also be Measured through t within the top 25%) and low ver (the value below 25%) arket rate data th: St employers can y Us mtacts, and job Advertisements," US*SUch ag by using measures of Ban 22. The arithmes dle vay clar ue in a Particular anes (Such as the vale quartiles, pay AND GRADE STRUCTURES Pay and grade struct in the corporate hierarchy, They enable employees career and pay opportunities, A grade structure becomes iew, before t @ pay structure wi each grade or level (Michael he job acceptance. vhen pay Armstrong and Di Tanges are attached to uncan Brown, 2001), DEVELOPING Pay AND GRADE STRUCTURES structure, The ke: the incremental poi Another impor will be based on. tate; or Salary s Pay progression, » and the grade boundaries. ‘tant consideration is th fixed pay, cales, whic e determination of whether the grades wherein each grade is associated with a singe pay 'h consist of incremental pay points with inerem oe ncy and are potentially _ Fixed pay points are simple. They also offer ane erverlise thay cote feeissed. However, being fixed, they do not is demotivation en the par f the settual experience on the job. Thus, there also connotes lack of salary the employees. this Srading and pay structure: al ‘ai “opesion which causes employee ne of erie cee godthuxall ne S A Salary scales are more capable They motivate employ rower, is that ntbetencies gained through rhe problem with salary scales, Tecruitment and retention. The prol Scanned with CamScanneri omplex than «from being more com las mination and unfairne; be open to : 8, ;, one must decide between a broad), to be chosen, deci si : {bands allow greater flexibility because employeg, "l ° de comparison between s provid Narrowbands provide comparison ‘a e. They are also used fOr incremen,® transparent, aside nts MA} they are not Large number ineremer If salary scales are or a narrowband. Broad pay bands tise and experienc’ grouped with wide and thrive on exper progression, JOBS TO GRADES Ff The job evaluation points are translated into job grades. There are no g, rules on how to construct a table as long corresponding job grades are reasonable. An exam 7 ~ Job Evaluation Points and Assigned Grades: Points Grade 100-130 1 131-176 2 477-235 3 236-310 4 sine progression of points ange ple is shown below: the Table JOB GRADES Most compensation schemes start wi eae rt with grade structures. Below is a sample Table 8 ~ Sample Grade Structure fess Minimum Salary | Midpoint Salary | Maximum Salary P11,250 Pisco | pie.75 4 | x | P1a7: | 00 Pta.000 | P22, 7 | 200 P21,600 | 27,000 25,920 | ’ } Lit | P90 L 32,400 2 1. The minimum and maxi of the salary midpoint, SU@tY ranges are from +/-15%-25% 2. The salary midpoi Ty midpoint is Stade midpoint usually 20%-30% hi ” igher than the i previous a ‘/-30%~-60% of the ete, Home tmPle, grades 1 and 2 oa Se bands that are too ‘ub-bands by splitting 4 Scanned with CamScannerven any 8 Nay’ ALSO COPY absent 808 WN, Professional Management 1 Tehnical 4. Clerical and Statr greaunvhile, iereMTENLAT prog any of the following option Experience Skills and competencies Contribution Performance CONTINGENT PAY contingent pay is a pay sche gtte following: performance, Snes Contingent pay can be applied to individ 0 base r of the base rate and ti contribution, or sills gre Is or groups, B any skills of employees, INDIVIDUAL PAY 1, Pay-for-performance scheme On top of the basic pay is a bonus giv motivates employees to perform well. Ir alse ae qood performance is always rewarded. It is aIsaHinaa tSTeNclnt I i e s Ly 2 Ls a linked to rely on performance. Thus, the company should have a good aaa management system. It should rely on quality and not quantity. 2. Pay-for-competency scheme This is given depending on the level of competency gained on the job. Itencourages enhancement of competence among the ‘workforce. However, it is quite hard to assess or gauge competence levels. It ignores output levels. An excellent competency framework is needed when using this type of contingent pay. . for- heme 3. Pay-for-contribution sche «and output levels. I inati etenc It focuses on the combination of comp: ane meter els ae i he opportunity to develop #! However, this may be provides employees t més and increase their output Jevels at the same oth te empetencl difficult to manage because managers have 10 and the performance cof employees: / geoust ensive 4. Pay-for-skills scheme A dey This payment scheme sl encoufages employees to learn may ore because a company May PEN toyee. or is not being used bY the on acquil y pends OP This ie : really neces Scanned with CamScanner—5, Pay for service This iv usually paid yearly on the ofan employee's Conthnyg nani! pantie fale since all are trent, river It view. On the one hand, people pereave | quired, OF COMPETENCE Jeet equally regardless of pertormance, Aki en cribute more ty th, On the other hand, iH nity to reward (hese a achievement of company objectives GROUP PAY 1, Team-based pay Joyeen who perfor simnilAr ON€ relgiag This is given to groups of EMP! ‘ot the achievement of certain quojy y measured in (er ~ paid a bonus whit lly mensiia, Members are paid @ Domi ivery standards, Mire rate, In some OFF 0 tic ased pry allows for cooperation ang sam-based Pa e ae aaa Also require flexibility. However, thi, {ive for highly cohesive pup the Hong tun, i ts ¢ emplo} ‘8 who per This arangement may spark conti a ae sikely te atril ing ¢ LO C . selves to be contributing more a aera diaappalnted if Dontises are divided equally. There car Pressure yroup norms. because some employees may not conform to group ni 2. Organization-wide Pay This is given to employees organizational performance or acl jobs and us or service del proportionately according bonus is divided equall teamwork, Working W pay scheme is only eff on the basis of the achievement of ‘hievement of goals. ‘There are two types; a. Gain-sharing , This is based on a bonus plan wherein employees are allowed to share in the financial gains of the company, This is related specifically to the productivity and performance improvements of employees. For example, a bonus may be given if sales revenues surpass the company’s sales targets. b. Profit-sharing It is given to employees either in the form of cash or shares of stock, the value of which depends on the management's discretion. Usually, the management decides which portion of the profits will be shared with employees, COMPENSATION FOR SPECIAL GROUPS Special work groups are paid differently as compared to the other types of Personnel. These groups include the following: directors or executives, sales Personnel, and laborers or manual workers, 1. Directors/Executives Pay commonly paid as a © shares of stock given to directors and executives Most companies hav Scanned with CamScanner— g, sales Staff Pay There are four hag salary plus cony ic acheme m1 dalary o {comm On, ang a. Salary only It is given to Sales company and are Personne eC; Who Not really. involved in dirent Tepresent the b. Salary plus commission ect sell This is Person exceed, Some other sales objectives, d. Commission onty This is given to a saleg i : Hehe When immediate sales results are achieved and he/she is not directly involved in non-selling activities, : €. Other non-cash rewards Some companies prov transportation, and meal al 3, Manual Workers or Laborers Pay Payments are made through time Tates si ‘ide car Plans, gasoline and/or llowances, ving Of Work days, Flat rates are usually siven depending on the service rendered (e.g. flat rate fs plumbing service). Payments can also be made in terms of piece work number of output produced. COMMON MODES OF PAYMENT i f payment for employees’ services. ing are the common modes of ploy reso cancers of employees as members of the organization. 1, Payment for time worked i is of tis . Wages a eae nS i who are paid on an hot , while sate used tor of eects who are paid on a monthly cae used to re ae salary are terms which denote compete Dace wrkers are classified as monthly om dll ei. font teaiplepeed those who are paid each day a a paid employees are st days, special days, an rey actualy worl anon unwed ein Slr Sanaa "Monetary Benefits, DOLE, Scanned with CamScannerfor time worked are ndjuated based On HAY Of thy, ante for Payne its fo following: . : sree eros: the board incred in rare provided! 10 all CMPIOVEEH Wit jp aa of rank, a Pay adjuatinent same rate regard p, Merit increases ‘They are given to employees on the basis of performance, ©. Cost-of-Living Allowance (COLA) / COLA is given to employees to help them cope with the rising standard of living, inflation rate, and other prevailing economic conditions. d. Seniority Pay , : ‘This is given to employces on the basis of their length on number of years of service in the company. 2. Flat Rates or Collective Bargaining Agreement (CBA)-negotiated Rates These are very common to unionized firms with negotiated rates based on Collective Bargaining Agreements (CBAs will be di ed further in the next chapter). Firms with flat rates do not consider skills and seniority as factors for giving compensation. Aside from CBA increases, firms may opt to pay employees occupying the same position with flat rates. Additional incentives are given instead to those who reach and exceed their sales targets. 3. Compensation through Incentives ___ These are payments based on output. The most popular forms of incentive pay are the following: a. Merit Pay It is given for outstanding performance usually after the results of performance evaluation are released, To differentiate it from the merit increase under payment for tine worked, merit pay as an incentive is a one-time payment ne an Outstanding performance, say 50% of basic salary addline ee Paes: Meanwhile, a merit increase is an asic salar ce _s succeeding payroll period. Y and is adjusted with each b. Piece Rate Pay Scanned with CamScanner5. 6. VA payments based on Skitig mode of payment is not mber o Mp such a kind of conneee in ion. and acquire it, then he A job, skill. e/she is given a par tane payments based on Knowledge or attend seminars and confe: ‘, 204 the increasi R de automati ‘increasing sophisticati : One srertment to contribute ayes eetinistrative Bhistication of this softea zi level (Kristine pene © the attainment ns nich enables the ery, David Grant aden of organizational goa* i ‘ana Weblen, 2006). Scanned with CamScannerards management is designed wed t wgies to reward employees fairly mate seateution to the organization, ind contribu : od effect of the mecomore veal a prplewed en ble and intangib estes ee 1 impact of ele Mapect of moriteria of an effective compensation peg ane mevee i. NPE plan are ment, objective, motivatings pra ow Re Policie, oa uitably math tmnplement ccording to their lescribed as follows: Productivity-providing, inating, susta & Sustaining, cor 8, conforms to adequate le ate legal ea pliance, time-bound, loyalty-indueing, abligate | compensation i influenced by the external ee wailing economic conditions, and eee Fradget, employee motivation, and employee producti fe ‘he following are the compensation strategies used by y Ser TMerage level, above average, competitive, and comparable pay state rategies, ‘The four methods of job evaluation include: ranki point system, and factor system. ‘ade: ranking, grading system, yet data analysis can’ b i ; : we lished area online ecas eeeaT ee 's sources: general fnd special surveys. pational databases, «Grade and pay structures give an organizati eee ae ee cane paced in a hierarchy and pay levels, as ividual pay includes tl ing: : ser etiution, Ueiicaleeri aad a + Group pay includes team-based and organization-wide pay. + Organization-wide pay includes gain-sharing and profit-sharing, + Compensation for special work groups includes those given to the following: directors ot executives, sales staff, and manual workers or laborers, © The common modes of payment are the following: payment for time worked, flat rates or CBA-negotiated rates, compensation through incentives, payments based on skills, payments based on knowledge or credentials, and special payments. * Employee benefits have t highly skilled employees; to promote ¢ the organization; and to fulfill some of + Employee benefits are divided into gover” benefits. i jectives: t and retain he following objectives: to attrac! = ployee commitment and loyalty to the needs of employees. ment-mal Scanned with CamScanner