LESSON 5

Compensation or Wages and Performance Evaluation

Compensation/Wages – All forms of pay given by employers to their employees for the performance of
their job.

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 worker's salaries, incentive pays, bonuses and commissions.

Indirect Compensation – Includes benefits given by employers other than financial renumerations; for
example: travel, educational and health benefit, and others.

Non-financial Conpensation – includes recognition programs,being assigned to do rewarding jobs, or

enjoying management support, ideal work environment, and convenient work hours.

Connecting Compensation to Organizational Objectives

Worker Compensation/Wages had tremendously changed in the 21st century due to increased market
competitions ( both local and global ) , required skills from workers and changes in technology, among
others.

Compensation: A Motivational Factor for Employees

Pay Equity – It is achieved when the pay given to them by their employers is equal to the value of the
job performed.

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 for Compensation

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 according to the number of work weeks rendered.

Monthly Basis – when pay is computed according to the number of work months rendered.

Purposes of Performance Evaluation: Administrative and Developmental

Administrative Purposes – These are fulfilled through appraisal/evaluation programs that provide
information that may be used as basis for compensation desicions, promotions, transfers and
terminations. Human resource planning may also make use of it for recruitment and selection of
potential employees.

Developmental Purpose – 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. Through this approach, the workers
become more receptive to the explanations given by the organization's management regarding the
importance of having evaluations at regular intervals—that these are conducted to improve their
competencies in order to prepare them for future job assignments.

Why Some Evaluation Programs Fail

 inadequate orientation of the evaluatees regarding the objectives of the program;

 incomplete cooperation of the evaluatees ( e.g. proper answering of evaluation questionnaire);
 bias exhibited by the evaluators;
 inadequate time for answering the evaluation forms;
 ambiguous language used in the evaluation questionnaire;
 employee's job description is not properly evaluated by the evaluation questionnaire used;
 inflated ratings resulting from evaluator's avoidance of giving low scores;
 evaluator's appraisal is focused on the poersonality of the evaluatee and not his or her
performance;
 unhealthy personality of the evaluator; and
  evaluator may be influenced by organizational politics.

Submitted by: Shaina Mae Marasigan