Chapter 9: Compensation and Benefits - Proper amount of wage or salary given - How do they compare?

to employee based on the law; what is a. Pay surveys: surveys of

The Meaning of Compensation and Benefits prescribed compensation paid to
Compensation - Equitable means fair or impartial; employees by other employers
- Set of rewards that organizations provide to employee wants to feel valued in a particular geographic area,
individuals for their willingness to perform - Salary should be reflective of the industry, or occupational group
tasks employee’s performance b. Wage surveys: surveys for
Benefits 2. Help employees focus on activities that the organizations so they have a
- Various items of value beyond wages that organization considers important basis for wage; business
employees receive from the organization - If they can finish a task earlier than publications; Businessweek,
a. Rewards expected, companies often give Fortune; National Business
b. Incentives benefits. Wage versus Salary
Total Compensation - Employees may work extra if they Wages
- Refers to the overall value of financial receive extra benefits - Hourly compensation paid to operating
compensation plus the value of additional 3. Can serve as a motivational purpose. employees
benefits that the organization provides. Increase employee efforts along desired - Time acts as the basis for determining wages
● In any organization, the amount of value create lines ➢ Lower level of operational jobs (40
for an organization and what the organization - Can be both a motivator and hours)
gives them as compensation are important demotivator; ➢ For specific blocks of their hours; one
determinants of organizational competitiveness - If what they receive is fair, then they or two weeks; employees rendering
Compensation and Benefits are likely to be inspired to work harder. service per hour or day
- Various types of incentives employees receive Vice versa. ➢ Laborers, sales lady, milktea,
for their time at work snackbars, fast food chains
- It could never be the result of just random Two Types of Equity Salary
decisions 1. Internal Equity - Income paid to an individual on the basis of
- It is a result of careful and systematic strategy - Comparisons made by employees to performance, not on the basis of time
and understanding of the basic purposes other employees within the same - Usually every 15th or end of month
- Pay service organization - These are for professionals or managerial
2. External Equity employees
The Basic Purposes of Compensation - Comparisons made by employees to - Product managers in areas of finance or
1. Provide appropriate and equitable rewards others employed by different accounting
to employees organizations performing similar jobs - Annual long basis for their salaries
 Job Evaluation
Determinants of Compensation Strategy - Determining the relative value or worth of a job
Aside from looking at the market to the organization to compensate an
1. Overall organizational strategy individual adequately and appropriately
- How can the organization accomplish
its goal through its strategy Job-Evaluation Methods
- Vision, mission, weaknesses, 1. Classification system
strengths, opportunities, and threats - Attempts to group sets of jobs together
- What is going on in the global market into clusters
- On what it will give to employees as a. Grades
Benefits of paying above-market rate
salary based on its existing funds or b. Ranked at level of importance
1. Attracting better employee
financial resources in terms of difficult,
2. Minimizing voluntary turnover
2. Ability to pay sophistication, or required skills
- Knowing the strategies, will result in and abilities
Disadvantage of paying above-market rate
profit that will also determine the c. Determine how many
1. Additional cost to employer
reserves and resources of its ability to classifications or categories to
2. Employees may have sense of entitlement
pay use
When is it possible for organizations to pay
3. Ability to bargain with the unions 2. Point system
below-market rate
- Some companies have their unions, it - Requires managers to quantify value of
- When there is an existing high unemployment
is important that the union’s demands various elements of specific jobs in
rate
are met. objective terms
- What would you choose? Employed but low
4. Ability to attract and retain employees a. Point manual: Carefully and
salary or no job at all
- Whether located in attractive specifically defines the degrees
Benefits of paying below-market rate
employees of points from first to fifth
1. Lower labor cost
- Whether organization offers different - What is the Basis:
Disadvantage Of paying below-market rate
perks Responsibilities, skills,
1. Employes will not be satisfied
● Once you know which strategy to use, you physical effort, mental
2. Less motivated
have to consider also what is the basis of effort, and working
3. Low-morale because they are not being paid
giving this rate - evaluation of job or conditions.
properly
performance of employees b. Factor-comparison method:
4. Employees feel that they are paid and there
Assesses jobs on a
might be resentment
The Meaning of Job Evaluation factor-by-factor basis using a
 factor-comparison scale as a - Some organizations have an avail of maternity, sickness, disability,
benchmark open-system retirement, funeral and death benefits.
- Jobs are evaluated 2. Pay compression 2. Government Service Insurance System
against standard - Equal pay granted to employees with (GSIS)
key-points different levels of experience, or - serves as the counterpart social
- Detailed and meticulous performance abilities, or both insurance program for those who work
method for evaluation ➢ Pay inversion: New in government.
jobs employees are paid more than 3. Worker’s/ Employees' Compensation (EC)
- Extremely complex, experienced employees - program aims to assist workers who
time-consuming, and Nature of Benefits Programs suffer work-connected sickness or
expensive Most organizations provide their employees with an injury resulting in disability or death.
array of benefits. Some companies actually spend The benefits under the EC program
Pay for Knowledge and Skill-Based Pay more with benefits than the actual salary to attract may be enjoyed simultaneously with
Pay for knowledge employees benefits under the Social Security
- Involves compensating employees for learning - Cost of benefits programs program effective June 1984. 1.
specific information ➢ Organizations spend huge amounts on 4. Retirement Benefit (% under Labor Laws)
- Example: Programmers, specialists benefits - For retired employees
Skill-based pay ➢ Employees are asked to bear costs of
- Rewards employees for acquiring new skills benefits 5. Philippine Health Insurance Corporation
- Example Laborers, mananahi, construction (PhilHealth)
workers - Purposes of benefits programs - is a government corporation attached
➢ Attracts better-qualified people to the Department of Health. It
Wage and Salary Administration ➢ Affects job satisfaction and subsequent administers the National Health
- Ongoing process of managing a wage and turnover Insurance Program, which was
salary structure; can never be permanent Mandated Benefits established to provide health insurance
because of laws or revisions in labor code 1. Social Security System coverage and ensure affordable and
- Designed to provide limited income to accessible health care services for all
Issues Related to Compensation retired individuals Filipinos.
1. Pay secrecy - is a social insurance program that aims 6. Home Development Mutual Fund (HDMF)
- Extent to which the compensation of to provide protection to its members - more popularly known as the Pag-IBIG
any individual in an organization is and beneficiaries. SSS members can Fund, is a Philippine
secret government-owned and controlled
 corporation under the Department of 2. Company Retirement Incentives - Efficiency of benefit programs depend on
Human Settlements and Urban 3. Perquisite or Perk effective communication with employees
Development (DHSUD) responsible for
4. Paid Time Off
the administration of the national Legal Issues in Compensation and Benefits
savings program and affordable shelter 5. Wellness Programs ● Fair Labor Standards Act
. - A special program that helps ● Employee Retirement Income Security Act
7. 13th Month Pay (ERISA) of 1974\\
prevent employee sickness
- a mandatory compensation that is
provided to rank-and-file employees by 6. Life cycle benefits (child/elderly care) Contemporary Issues in Compensation and
the end of the calendar year 7. Employee Assistance Plans and Benefits
8. Minimum Wage ● Executive compensation
Perquisites
- lowest remuneration that employers ● Growing legal issues
can legally pay their employees 8. Cafeteria-Style Benefits Plans (Plans that ● Finding the best ways to evaluate
employees can choose/free will) compensation and benefits programs
Employee Retirement Income Security Act of 1974
(ERISA) Executive Compensation Unemployment insurance
- is a federal United States tax and labor law Provided in two forms - Mandated Benefits
that establishes minimum standards for 1. Base salary - Provides a basic subsistence payment to
pension plans in private industry. It contains - Monthly salary employees who are between jobs
rules on the federal income tax effects of 2. Some form of incentive pay
transactions associated with employee benefit - Bonus
plans. - Stock-option plan
- Passed to protect employees who contributed Fair Labor Standards Act of 1938
to their pensions but were unable to collect Evaluating Compensation and Benefit - Includes provisions for the minimum wage,
those benefits later Programs overtime, and child labor
- Vesting rights become operational after 6 - Organizations that do not offer competitive pay - •Comp time: Time off that is offered to
years at the most, and employees with less and benefit packages find it difficult to attract nonexempt workers in exchange for working
service are still usually eligible to receive some employees more than 40 hours with no overtime pay
portion of their retirement benefits. ➢ Also leads to high rates of voluntary
turnover Private Pension Plans
Non-Mandated Benefits - Provide income to employees at their
1. Health Plan retirement
 - Non-mandated benefit

Employee Assistance Plan

- A special program that helps employees with
drug or alcohol problems