Compensation/wages – all forms of pay given by employers to their employees for the performance of

their jobs.
Performance evaluation – a process undertaken by the organization, usually done once a year,
designed to measure employees’ work performance.

Types of Compensation
Direct compensation – includes workers’ salaries, incentives pays, bonuses, and commissions.
Indirect compensation – includes benefits given by employers other than financial remunerations; for
example: travel, educational and health benefits, and others.
Nonfinancial compensation – includes recognition programs, being assigned to do rewarding jobs, or
enjoying management support, ideal work environment, and convenient work hours.

Compensation pay represents a reward that an employee receives for good performance that
contributes to
the company’s success; in relation to this, the following must be considered:
Pay Equity – related to fairness; the Equity Theory is a motivation theory focusing on employees’
response to the pay that they receive less or more than they deserve.
Expectancy Theory – another theory of motivation which predicts that employees are motivated to
work well because of the attractiveness of the rewards or benefits that they may possibly receive from a
job assignment.

Bases of Compensation
Employees may be compensated on the following bases:
Piecework basis – when pay is computed according to the number of units produced.
Hourly basis – when pay is computed according to the number of work hours rendered.
Daily basis – when pay is computed according to the number of work days rendered.
Weekly basis – when pay is computed to the number of weeks rendered.

Monthly basis – when pay is computed according to the number of work months rendered.
Administrative Purposes – these are fulfilled through appraisal/evaluation programs that provide
information that may be used as basis for compensation decision, promotions, transfers, and
terminations.

Developmental Purposes – these are fulfilled through appraisal/evaluation programs that provide
information about employees’ performance and their strengths and weaknesses that may be used as
basis for identifying their training and developmental needs.

Employee relations – the connection created among employees/workers as they go about their
assigned task for the organization to which they belong.
Employee movements – series of action initiated by employee groups tending toward an end or
specific goal.

a. Financial needs – complaints regarding wages/salaries and benefits given to them by the management
are the usual reasons why employees join labor unions.
b. Unfair management practices – perceptions of employees regarding unfair or biased managerial
actions are also reasons why they join mass movement.
c. Social and leadership concerns – some join unions for the satisfaction of their need for affiliation with
a group and for the prestige associated with coworkers’ recognition of one’s leadership qualities.

Management offers different types of rewards:

Monetary Rewards – rewards which pertain to money, finance, or currency.
a. Pay/salary – financial remuneration given in exchange for work performance that will help the
organization attain its goals.
b. Benefits – in direct forms of compensation given to employees/workers for the purpose of improving
the quality of their work and personal lives.
c. Incentives – rewards that are based upon a pay-for-performance philosophy; it establishes a base line
performance level that employees or groups of employees must reach in order to be given such reward
or payment.
d. Executive pay – a compensation package for executives of organization which consists of five
components: basic salary, bonuses, stock plans, benefits, and perquisites.
e. Stock options – are plans that grant employees the right to buy a specific number of shares of the
organization’s stocks at a guaranteed price during a selected period of time.

Nonmonetary Rewards – rewards which do not pertain to money, finance or currency; refer to intrinsic
rewards that are self-granted and which have a positive psychological effect on the employee who
receives
them.
a. Award – nonmonetary reward that may be given to individual employees or groups/teams for
meritorious service or outstanding performance.
b. Praise – a form of nonmonetary, intrinsic reward given by superiors to their subordinates when they
express oral or verbal appreciation for excellent job performance.

Leading – a management function that involves inspiring and influencing people in the organization to
achieve a common goal.
Managing – the process of working with and through others to achieve organizational objectives
efficiently and ethically amid constant change; deals with planning, organizing, staffing, leading, and
controlling.
Organizational Citizenship Behavior – employee behavior that exceeds work role requirements;
behaviors that go beyond the call of duty.
Big Five Personality Model – features personality traits/dimension that influence job performance.

The five personality traits in the Big Five Model are:

Extraversion – the degree to which someone is sociable, talkative, and assertive.
Agreeableness – the degree to which someone is good natured, cooperative and trusting.
Conscientiousness – the degree to which someone is responsible, dependable, and persistent, and
achievement-oriented.
Emotional Stability – the degree to which someone is calm, enthusiastic, and secure (positive), or
tense, nervous, depressed, and insecure (negative).
Openness to experience – the degree to which someone is imaginative, artistically sensitive, and
Intellectual.

Motivation – refers to psychological processes that arouse and direct goal-oriented behavior.

“Maslow’s Hierarchy of Needs Theory”

a. Physiological Needs – refers to the human need for food, water, shelter, and other physical
necessities.
b. Safety Needs – refers to human needs for security and protection from physical and psychological
harm.
c. Social Needs – pertain to the human desire to be loved and to love, as well as the need for affection
and belongingness.
d. Esteem Needs – include the human need for self-respect, self-fulfillment, and to become the best
according to one’s capability.
e. Self-actualization Needs – are the final needs in Maslow’s hierarchy.

McGregor’s Theory X and Theory Y – was proposed by Douglas McGregor

Theory X is a negative view of workers which assumes that workers have little ambition, dislike work,
and avoid responsibilities; they need to be closely monitored or controlled in order for them to work
effectively.
Theory Y is a positive view of workers which assumes that employees enjoy work, seek out and accept
responsibility, and are self-directed.

Herzberg’s Two Factor Theory – was proposed by Frederick Herzberg

This theory is also known as the Motivation-Hygiene Theory which states that intrinsic factor
(Achievement, recognition, growth, and responsibility) is associated with job satisfaction, while extrinsic
factors (company policy, salary, security, and supervision) are associated with job dissatisfaction.
Intrinsic factors are the motivators while the extrinsic factors are called hygiene factors.

McClelland’s Three Needs Theory – was proposed by David McClelland and states that individuals have
three needs that serve as motivators at work.
The need for achievement (nAch)
The need for power (nPow)
The need for affiliation (nAff)

Trait Theory – a theory based on leader traits or personal characteristics that differentiate leaders from
Followers.
Behavioral Theory – a theory that focuses on the behavior, action, conduct, demeanor, or deportment
of a leader instead of on his or her personality traits. This theory emphasized that since behavior is
learned, leader behaviors can also be learned.

Fiedler Model – a situational leadership theory proposed by Fred Fiedler, an organizational behavior
scholar. This theory is based on the assumption that a leader’s effectiveness is contingent or dependent
on the extent to which a leader’s style is fitted to actual situations in the organization’s internal and
external environment.
Hershey-Blanchard Model – a theory proposed by Paul Hershey and Ken Blanchard. The theory focused
on subordinates’ readiness to accomplish a specific work assignment.
Path-Goal Theory – a theory developed by Robert House which states that the leader’s task is to lead
his followers or subordinates in achieving their goals by providing them direction needed in order to
ensure compatibility of these said goals with the organization’s goal.

Types of Communication
Communication may be verbal (through the use of oral, and written words) or nonverbal (through body
movements, gestures, facial expressions, eye contact, and by touching).

Vertical communication – involves communication flow between people belonging to different

organizational levels.
Upward communication – is the flow of information from an employee who belongs to a lower
hierarchical level to the boss/manager who belongs to a higher hierarchical level.
Downward communication – is the flow of information from the manager to the subordinates.
Horizontal/lateral communication – takes place among employees belonging to the same hierarchical
Level.
Diagonal communication – entails communicating with someone or others who belong to different
departments/units and different hierarchical level.

Barriers to Communication
Filtering – the shaping of information communicated in order to make it look good or advantageous to
the receiver.
Emotions – the interpretation of communications may be influenced by extreme emotions felt by the
receiver.
Information overload – another barrier to good communication since too many pieces of information
received may have a negative effect on a person’s processing capacity.
Defensiveness – the act of self-protection when people are threatened by something or someone.
Language – could also hamper good communications because words used may have different
meanings to different people belonging to different age, educational, or cultural group.
National culture – just like language, the prevailing national culture may also cause problems in
communication among members of an organization, especially, if it is multinational company.

Overcoming Communication Barriers

Using feedback – this is usually done by asking question about a memo sent to subordinates or by
asking them to give their comments or suggestions.
Using simple language – this is done by avoiding uncommon terms and flowery words that may just
cause misinterpretation. Language used must fit the level of understanding of the intended recipients of
the communication.
Active listening – this means listening well in order to grasp the full meaning of the communication.
Controlling emotions – this is another method of overcoming communication misinterpretation. When
the communication receiver is affected by extreme anger, his interpretation of a message received may
not be accurate.
Observing body language – actions of the message receiver, like throwing away a letter delivered to
him, betrays his negative feelings regarding its message, even if he says “yes” or “okay” to what is
requested.
Nonverbal cues must always be watched because, as the saying goes, action speaks louder than words.

Controlling – a management function that involves ensuring that the work performance of the
organization’s members are aligned with the organization’s values and standards through monitoring,
comparing, and correcting their actions.

• Organizational productivity – is the amount of goods and services produced (output) divided by the
inputs needed in order to produce the said output.
• Organizational effectiveness – is a measure of the organizational goals’ suitability to organizational
needs and how well these said goals are being attained.
• Rankings in industry – is a way commonly used by managers to measure organizational performance.

Quantitative Methods – makes use of data and different quantitative tools for monitoring and
controlling production output. Budgets and audits are among the most common quantitative tools.
Budgets. The budget remains the best-known control device. Budget and control are, in fact,
Synonymous.
Audits. Internal auditing involves the independent review and evaluation of the organization’s
nontactical operation such as accounting and finance.

Nonquantitative Methods – refer to the overall control of performance instead of only those specific
organizational process. These methods use tools such as inspections, reports, direct supervision, and on-
the-spot checking and performance evaluation or counseling to accomplish goals.

Liquidity ratio – tests the organization’s ability to meet short term obligations; it may also refer to acid
test done when inventories turn over slowly or are difficult to sell.
current ratio = current assets ÷ current liabilities

Leverage ratio – determines if the organization is technically insolvent, meaning that the organization’s
financing is mainly coming from borrowed money or from the owner’s investments.
debt-to-assets ratio = total debt ÷ total assets

Activity ratio – determines if the organization is carrying more inventory than what it needs; the higher
the ratio, the more efficiently inventory assets are being used.
inventory turnover = cost of goods sold ÷ average inventory

Profitability ratio – determines the profits that are being generated;

net profit after taxes ÷ total sales
or it measures the efficiency of assets to generate profits.
return on investment = net profit after taxes ÷ total assets

In addition to the above ratios, asset management is also practiced to achieve organizational goals.
Asset management is the ability to use resources efficiently and operate at minimum cost.
inventory turnover = sales ÷ average inventory