CHAPTER 8:

COMPENSATING GROUP 3

HUMAN 

RALPH SERNITCHEZ
LOVELY FE MIÑA

RESOURCE 


KRIZIA MAE ESTONIDO
ROMELYN CANTARA
MERIE JOY SIBULO
REPORTER: RALPH SERNITSHEZ

WHAT IS
COMPENSATION?
REPORTER: RALPH SERNITSHEZ

COMPENSATION
 is the set of rewards that organizations
provide to individuals in return for
their willingness to perform various
jobs and tasks within the organization.

 It includes all forms of financial

returns and tangible services and
benefits employees receive as part of
an employment relationship.

 It also includes various elements such

as base salary, incentives, bonuses,
benefits, and other rewards.
REPORTER: RALPH SERNITSHEZ

BASE WAGES AND SALARIES

 are the hourly, weekly, or monthly

pay that employees receive in
exchange for their work.

 make up the largest portion of an

employee's total compensation.

 These form the foundation for most

employees' total perceptions of the
fairness or equity of the pay system.
REPORTER: RALPH SERNITSHEZ

Objectives of the Base Wage and Salary System

PRIMARY OBJECTIVES
• to establish a structure for the equitable
compensation of employees, depending on their
jobs and their level of performance in their jobs.
REPORTER: RALPH SERNITSHEZ

OBJECTIVE OF COMPENSATION

to create a system of rewards that is equitable to the

employer and employee alike.

The DESIRED OUTCOME is an employee that

is attracted to the work und motivated to do a good
job for the employer.
REPORTER: RALPH SERNITSHEZ

TO MAKE THE COMPENSATION POLICY MORE EFFETIVE:

Compensation Should Be:

1 2 3 4

Balanced Cost-
Adequate Equitable
effective

5 6 7 8
Acceptable Compliant
Secure Incentive-
to the with legal
providing
employee regulation
 REPORTER: RALPH SERNITSHEZ

PREMIUM PAY BASE PAY

• refers to the additional
compensation required by law
for work performed within
eight (8) hours on nonworking
days, such as rest days and
special days.
1
• the hourly wage or weekly/monthly
salary earned.
The current daily minimum wage for
employees in the National Capital
2 Region (NCR) is P426.00, per Wage
Order No. NCR-16.

VARIABLE PAY
- incentive or bonus pay that does not 3 BASE PAY
fall into base pay; such earnings may
PROGRESSION
be based on performance against
preset goals (incentives) or pay at the
discretion of the company (bonuses); 4 - movement of base pay
overtime, from year to year.
may be paid at the individual, team,
group, or organizational level
REPORTER: LOVELY FE MIÑA

WAGES SALARY

generally refer to hourly

• is income paid to an individual not on
compensation paid to skilled and the basis of time but on the basis of
unskilled workers or those performance.
performing blue-collar jobs, with • usually given to professional and
time as the basis in the managerial employees or those who
are performing white-collar jobs.
computation.
REPORTER: LOVELY FE MIÑA

Benefits And Perquisites Or Perks

In addition to direct cash, compensation is also paid in the form of indirect cash or
benefits that have monetary value. This will be discussed in details in the next chapter.

Indirect Compensation
Quality of work life. Total rewards also include a broad array of nonmonetary, but
extremely important, rewards that we place under the general umbrella of quality of
work life.
These rewards include:

a. ORGANIZATIONAL CULTURE - the norms and values defining appropriate behavior in

the organization. One of the single, most important cultural expectations we encounter
today is employees' confidence in the business and its leaders. Quality of leadership and
supervision are also defining elements of culture.
REPORTER: LOVELY FE MIÑA

b. INTRINSIC VALUES
rewards inherent in the work itself. These rewards come from the act of performing.
Among such outcomes are how interesting one's work is, the degree of variety
experienced, the degree of autonomy and control over one's work, and the
significance of the work to the business and the customers.

c. CAREER OPPORTUNITIES
the prospects for development and growth. For organizations, careers represent the
most efficient way to grow the talent they will need to compete; while for employees,
careers represent valued opportunities to grow and achieve professional and
occupational goals.
REPORTER: LOVELY FE MIÑA

Determining Pay Rates

Most wage and salary systems establish pay ranges for certain jobs based on the
relative worth of the job to the organization. An employee's performance on the same
job should then determine where that employee's pay falls within the job's range. The
key here is the establishment of different pay ranges for the various job within the
organization. A pay range for a given job establishes a range of Permissible pay, with a
minimum and a maximum.

Establishing pay ranges involves two basic phases:

1. Determining the relative worth of the different jobs to the organization (thereby
ensuring internal equity)

2. Pricing the different jobs (thereby ensuring external equity)

REPORTER: LOVELY FE MIÑA

I
III II
IV
REPORTER: LOVELY FE MIÑA
I EXTERNAL FACTORS
A. MARKET FACTORS
1. Supply and demand for labor
2. Economic conditions and
unemployment
B. EXISTING PAY LEVEL IN
THE COMMUNITY
C. GOVERNMENT
REGULATIONS AND LAWS,
I.C., MINIMUM WAGE LAW
II ORGANIZATIONAL FACTORS
A. Type Of Industry
B. Profitability And Company's
Ability To Pay
C. Unionized Or Nonunionized
D. Size Of The Company
E. Capital Or Labor Intensive
F. Value Of The Job-
contribution To The Company
REPORTER: LOVELY FE MIÑA

III JOB FACTORS

A. SKILL 4. Quality of work

1. Mental requirements 5.Materials,equipment,property
2. Complexity of duties 6.Confidential information
3. Personal qualifications needed C. EFFORT
4. Ability to make decisions, judgments 1. Physical and mental effort
5. Preparation for the job-education, required
training, and knowledge 2. Attention to details
B. RESPONSIBILITY 3. Pressure of work
1. Money, commitments D. WORKING CONDITIONS
2. Decision making 1. Job conditions
3. Supervision - work of others 2. Physical hazards
REPORTER: LOVELY FE MIÑA

IV INDIVIDUAL FACTORS

A.PERFORMANCE,PRODUCTIVITY

B. EXPERIENCE

C. SENIORITY,LENGTH OF SERVICE

D.POTENTIAL,PROMOTABILITY
 REPORTER: RALPH SERNITSHEZ

ESTABLISHING PAY RATES

1.Conduct the salary survey ( aimed at determining prevailing wage
rates)for the following reasons:

a. Price benchmark jobs

b. Majority of the positions found in the company are usually
priced directly in the marketplace.
c. To collect data on benefits so as to provide a basis on which
to make decisions regarding employee benefits

2. Determining the worth of each job through job evaluation

REPORTER: RALPH SERNITSHEZ

EVALUATION
• is the primary method used to determine the relative
worth of jobs to the organization.
• refers to a systematic comparison done in order
to determine the worth of one job relative to another.

The basic procedure is to compare the content of jobs in

relation to one another, like in terms of their effort, responsibility, and
skills. This process is used for designing a pay structure, not for appraising
the performance of employees holding the job. The general idea is to
enumerate the requirements of a job and the job's contribution to the
organization and then classify it according to its importance. For
instance, web designer's job would involve more complex requirements
and with a potentially greater contribution to an organization than that of
a person who simply weighs raw materials.
REPORTER: KRIZIA MAE ESTONIDO

4 JOB EVALUATION METHODS

A C
RANKING
POINT SYSTEM
METHOD

B D
JOB
CLASSIFICATION FACTOR
OR JOB GRADING COMPARISON
EVALUATION METHOD
METHOD
REPORTER: KRIZIA MAE ESTONIDO

JOB EVALUATION METHODS

A. RANKING METHOD ADVANTAGES

• Simplest and easiest to explain
• Takes less time to accomplish than
• This is the simplest and oldest method and the
other methods
least often used job evaluation technique.

• It involves ranking each job relative to all other

jobs, usually based on overall difficulty rather DISADVANTAGES
than on a number of compensable factors.
• Provides no yardstick for measuring
Often, the evaluator prepares cards with basic
the value of one job relative to
information about the jobs and then arranges the
another
cards in the order of importance of the positions.
• It is limited to smaller organizations
where employees are very
• The job ranking method produces only an
familiar with various jobs.
ordering of jobs and does not indicate the relative
• The method is highly subjective.
degree of difference among them.
 REPORTER: KRIZIA MAE ESTONIDO

JOB EVALUATION METHODS

B. JOB CLASSIFICATION OR JOB GRADING EVALUATION METHOD
• This is a simple widely used method in which jobs are categorized into groups.
• The groups are called classes if they contain similar jobs, or grades it they contain jobs
that are similar in difficulty but other wise different. These sets of jobs are ranked on
levels of difficulty or sophistication, Certain classes or grades of jobs are defined on the
basis of differences in duties, responsibilities, skills, working conditions, and other job-
related factors.

ADVANTAGES
• Provides specific standards for
compensation and accommodates
any changes in the value of individual jobs
• Can be constructed simply, quickly, and
cheaply.
• Easy to understand and explain to
employees.
DISADVANTAGES
• Jobs are forced to fit into categories that are not
entirely appropriate and feelings of inequity can
result.
• Problems may arise in deciding how many
classifications there should be because too few
classes will make it difficult to differentiate job
value while too many classes make writing
definitions almost impossible.
REPORTER: KRIZIA MAE ESTONIDO

Table 4.
Clerical Worker Classification System

Class II Single work, no supervisory, with public contact

Class III Work of medium complexity with no supervisory

responsibility and with public contact

Class IV Work of medium complexity with supervisory responsibility

and with public contact

Class V Complex work, with supervisory responsibility and with

public contact.
REPORTER: KRIZIA MAE ESTONIDO

JOB EVALUATION METHODS

C. Point System
• Point system requires evaluators to quantify the value of the elements of a job.
• On the basis of the job description or interviews with job occupants, point are
assigned to the degree of various compensable factors to do the job.

Steps:
1.Selection of key jobs. This represents jobs that are common throughout
the industry. The goal here is to select enough key jobs to represent each
major internal variable in the pay structure for all the jobs being evaluated. A full and
detailed job description is necessary for each job.

2. Selecting compensable factors. Compensable factors are factors or characteristics

of jobs that are deemed important by the organization to the extent that it is willing
to pay for them. The degree to which a specific job possesses these compensable
factors determines its relative worth.
REPORTER: KRIZIA MAE ESTONIDO

Table 5.
Possible Sub factors And Degrees For Knowledge As Compensable Factor
st ND RD TH
SUBFACTORS 1 DEGREE 2 DEGREE 3 DEGREE 4 DEGREE
Education College level College Graduate With MA/MS With Ph. D
Experience Less than 1 year 1 year or more 2 years or more 3 years or more
Job Complexity Diversified work of Difficult or involves Difficult or involves Unusual work of
a routine nature work not necessary work comprising complex nature
requiring new requiring new problems requiring the use of
considerable care considerable care requiring the use of judgement.
new requiring and and attention judgment.
attention

Manual Skills Able to operate able to operate of Able to set up, Able to manipulate
simple office apply various kinds operation, drive, and tend office
equipment like of management and and handle office machinery
telephone, fax systems in the machinery needed (including tools,
machine, typewriter, effective in performing job company vehicles,
calculator, and performance of job and whenever and laboratory
computer necessary. equipment) needed
in performing job
requiring the use of
judgement.
REPORTER: ROMELYN CANTARA

Assigning Weights to Factors

TABLE 6
SAMPLE POINT VALUES
Compensable Maximum Points Subfactors Assigned Points Per Degree
Factors
th
1st 2nd 3rd 4

• are assigned to each Skills 260 Job knowledge 35 70 105 140

Experience 20 40 60 80
of the factors, sub Job Complexity 10 20 30 40
factors, and degrees Responsibility 360 For Company

to reflect their Policy 20 40 60 80

relative importance. Work of Others 40 80 120 160
Naturally, the External Contact 20 40 60 80
Money Matters
weight assigned
varies from job to Equipment 10 20 30 40

job. Effort 240 Mental Exertion 40 80 120 160

Physical Demand 20 40 60 80

Working Conditions 140 Working Condition 20 40 60 80

Hazards 15 30 45 60

Total Possible Points 1000

REPORTER: ROMELYN CANTARA

Assigning Points to Specific Jobs

After the point scale has been agreed on, point values are derived
for key jobs using the following step:

1. Examine the job descriptions

2.Determine the degree statement that best describes each sub factors for
each compatible factor
3 Add the total number of points.

The point total should present the same general relationships that the
actual pay scales show for the key jobs That is, a rank ordering of the key
jobs according to point totals should be approximately equivalent to a
rank ordering of key jobs according to pay.
REPORTER: ROMELYN CANTARA

ADVANTAGES:
• Can be easily interpreted and explained to employees because of its
mathematical nature
• Detailed and specific - Jobs are evaluated on a component basis and
compared against a predetermined scale.
• The system is easy to keep current as jobs change
• Because of its quantitative nature, it is easy to assign monetary values to
jobs.
DISADVANTAGES:
• Time consuming and costly to develop
• Requires significant interaction and decision-making by the different parties
involved in conducting job evaluation
REPORTER: ROMELYN CANTARA

TABLE 7.
POINTS ASSIGNMENT FOR FOUR (4) COMPENSABLE FACTORS
Compensable Weighted Degree/points
factor
% 1 2 3 4 5

Skill 40% 20 32 48 72 100

Responsibility 30% 15 24 36 54 75
Effort 20% 10 16 24 36 50
Working Condition 10% 5 8 12 18 25
Example Compensable Factor Degree Points
Machine Operator Skill 3 45
Responsibility 2 24
Effort 4 36
Working Condition 4 18
Total Points 126
REPORTER: ROMELYN CANTARA

JOB EVALUATION METHODS

FACTOR COMPARISON METHOD

This method is similar to the point method but slightly more complex, and it
involves a monetary scale instead of a point scale, thus, not as popular as the point
method. It is absolutely essential that the rates of pay of key jobs be Viewed as reasonable
and fair to all those making evaluations. Compensable factors are then identified.
Typically, the number of compensable factors is Small (4 or 5).

Examples of compensable factors are:

1. Skills
2. Responsibilities
3. effort
4. Working conditions
REPORTER: ROMELYN CANTARA
The Process that establishes the rate of pay for
each factor of each benchmark job.
Price each pay grade. The jobs are then priced
7 and the total pay for each job is divided into pay
for each factor. See example matrix below.
Group similar jobs into pay grades. A pay grade is comprised of
6 jobs of approximately equal difficulty or importance as

Steps: determined by job evaluation

5 Compare unique jobs with key jobs. This should be done factor by
factor, to determine how much each unique job should be paid.

4 Assign monetary amounts to each job on each factor.

3 Rank jobs with respect to each of the factors independently.

2 Identify job factors.

1 Identify key (benchmarks) jobs.

REPORTER: ROMELYN CANTARA

TABLE 8.
EXAMPLE OF JOB EVALUATION USING FACTOR COMPARISON METHOD

Job Hourly Pay for Pay for Pay for Pay for
Rate skills Effort Responsibilities working
Conditions
Secretary P 52.00 P 26.00 P 12.00 P 12.00 P 2.00
Admin Asst 62.50 30.00 15.00 15.00 2.50
Supervisor 105.00 50.00 25.00 25.00 5.00
manager 200.00 100.00 45.00 45.00 10.00
REPORTER: ROMELYN CANTARA
Advantage and Disadvantage of factor Comparison Method
Advantage
• Relatively detailed and specific - jobs
are evaluated on a component basis
and compared against other jobs.
• Usually easier to develop than the
point method
• Value of the job is expressed in
monetary terms.
• Can be applied to a wide range of jobs
• Can be applied to newly created jobs
Disadvantage
• Relatively difficult to explain to
employees since the pay for each factor
is based on judgments that are
subjective
• The standards used to determine the
pay for each factor may have built in
biases that would affect certain groups
of employees like females or
minorities.
REPORTER: ROMELYN CANTARA

In conducting job evaluation, the following must be taken into consideration:

This is to establish reliability. It

is achieved when two people
CONSISTENCY evaluating the same jobs
provide similar ratings made by All employees affected by
one person on two different REPRESENT the process should have
occasions.
A-TIVENESS their concerns represented.

The process should be free from

FREEDOM political considerations
or personal biases. Those Ratings must be based on
FROM BIAS
making the evaluations should accurate information,
be objective.
ACCURACY OF that is, those making the
Firms should provide mechanisms INFORMATION evaluations should be quite
to modify inaccurate or out-of- knowledgeable of the
date evaluations, thus, the need jobs being rated.
CORRECTABILITY to periodically review and update
job evaluation results. Employees
should also be allowed to review
the evaluation of their jobs and to
appeal the ratings if dissatisfied.
REPORTER: MERIE JOY SIBULO

Different Forms of PAYMENT

FOR TIME
Compensation WORKED
INCENTIVE
FORMS OF
COMPENSATION
PERFORMANCE-
BASED REWARDS

SPOT MERIT PAY

BONUSES PLANS
SKILL AND
PROFIT SHARING
KNOWLEDGE- Stock
BASED PAY/
COMPETENCY-
Ownership
BASED PAY. Plans
Executive
Compensation
REPORTER: MERIE JOY SIBULO

1. PAYMENT FOR TIME WORKED

 Pay surveys are used to establish competitive pay for the industry and job
evaluation is the principal method for setting time-pay schedules. This
method has no direct relation to the workers' output.

Pay is usually adjusted upward through six types of increases:

General-
across-the- Cost of
board Merit Reclassification Level
living Promotional
increase for increases increase adjustment increase
all
adjustment
employees
REPORTER: MERIE JOY SIBULO

 This is a method of compensating employees on the basis of output

which means, more production, more earnings. The organization first
establishes performance standards to determine the quantity a person
can be expected to produce in a given period of time.

 The firm sets wages based on how well workers perform relative to that
standard; their pay typically equals the market rate for the job, and if
they exceed the standard, they receive higher than market wages.
REPORTER: MERIE JOY SIBULO

2. INCENTIVE FORMS OF COMPENSATION

 CLASSIFICATION
PIECEWORK OR
INDIVIDUAL INCENTIVE PLANS GROUP INCENTIVES
PAYMENT BY RESULTS

This is a system of pay This rewards individual These are given when it
based on the number of performance on a real-time is difficult to measure
items produced or basis for meeting n goal or individual output or
processed by each hitting a target rather when cooperation is
individual worker in than increasing a person's needed to complete a
a unit of time such as task or project.
base salary at the end of the
items per hour or items year. This is used
per day. when performance can be
• This provides a strong quantified in terms of
incentive to the worker number of units of output
to produce more. or similar measures,
REPORTER: MERIE JOY SIBULO

3. PERFORMANCE-BASED REWARDS
Organizations want employees to perform at relatively high levels and need to make it
worth their efforts to do so. It is believed that when rewards are associated with higher levels of
performance, it will presumably motivate the employees to work harder to achieve awards. In this
manner, their ow self-interest coincides with the organization's interests. *i Thus, managers who
truly want to motivate people to perform at their highest level should structure a reward system
that engages in such behavior.
4. SPOT BONUSES
These are spontaneous incentives awarded to individuals for accomplishments not readily
measured by a standard.
• An example is to "recognize exemplary customer service each month to identify employee of the
month awardee."

5. SKILL AND KNOWLEDGE-BASED PAY/COMPETENCY-BASED PAY.

This sets pay levels on the basis of how many skills an employee has or how many jobs
he/she can do. This emphasizes the importance of an employee's ideas, growth, and development.
Rewards are based on acquisition of and proficiency in new skills and knowledge regardless of the
employee's length of service. Thus, this system rewards employees for the acquisition of more skills
or knowledge instead of for increased performance.
REPORTER: MERIE JOY SIBULO

6.MERIT PAY PLANS

• Merit pay is usually awarded to employees on the basis of the relative value of their
contributions to the organization. Employees who make greater contributions are
given higher pay than those who- make lesser contribution.
• Merit pay plans are compensation plans that base compensation on merit, e.g., giving
employees pay raise with the use of valid and reliable measures of what merit entails.

7.PROFIT SHARING
• At the end of the year, some portion of the company's profits is paid into a profit
sharing pool, which is then distributed to all employees. The rationale behind this
scheme is that everyone in the organization can expect to benefit when the company
does well.
REPORTER: MERIE JOY SIBULO

8. Stock Ownership Plans

Employees are gradually given a minor stake in ownership of a corporation.
Employees receive a claim of ownership of some portion of the stock held by the
company based on seniority and perhaps performance. Eventually, even an
individual becomes an owner of the company.

9. Executive Compensation
a. Base pay - guaranteed amount of money that the executive will get from the
company.
b. Incentive pay/executive perquisites or perks, e.g., stock option plan - an incentive
plan established to give company executives the option to buy company stocks in
the future at a predetermined fixed price. This is over and above the other executive
perks solely given to executives.
Thank you 