Republic of the Philippines

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Office of the Vice President for Academic Affairs
College of Business Administration

INSTRUCTIONAL MATERIALS FOR

HRMA 30033: COMPENSATION
ADMINISTRATION

COMPILED BY:

Prof. Jennifer DG. Munsayac

Prof. Joy Guevarra

PUP A. Mabini Campus, Anonas Street, Sta. Mesa, Manila 1016

Direct Line: 335-1730 | Trunk Line: 335-1787 or 335-1777 local 000
Website: www.pup.edu.ph | Email: inquire@pup.edu.ph

THE COUNTRY’S 1st POLYTECHNIC

 TABLE OF CONTENTS

TOPIC 1 – SIGNIFICANCE OF REMUNERATION

Overview 1
Learning Outcomes 1
Course Materials 1
Definition of Remuneration 1
Types of Remuneration 2
Other Kinds of Remuneration 2
Economic Basis of Remuneration in the Philippines 3
Minimum Wage 3
Regular Pay 5
Impact of Government Influence in Remuneration 7
Common Mistakes in Compensation Administration - Safeguards to
7
Minimize It
Activities/ Assessments 9

TOPIC 2 – FINANCIAL COMPENSATION

Overview 10
Learning Outcomes 10
Course Materials 10
Financial Compensation 10
Government Statutes Effects on Financial Compensation 10
Collective Bargaining 11
How the Collective Bargaining Process Works 11
Job Evaluation 13
Non-Financial Compensation 14
ACTIVITIES/ ASSESSMENTS 15

TOPIC 3 – TYPES OF FINANCIAL AND NON-FINANCIAL COMPENSATION

Overview 16
Learning Outcomes 16
Course Materials 16
 Recreational Activities 16
Company Newsletter 17
Suggestion Award System 17
Medical Services 21
ACTIVITIES/ ASSESSMENTS 21

TOPIC 4 – INTERNAL AND EXTERNAL FACTORS AFFECTING COMPENSATION

Overview 22
Learning Outcomes 22
Course Materials 22
Internal Factors Affecting Compensation 22
External Factors Affecting Compensation 23
Compensation Administration Program 25
Job Analysis 25
Job Evaluation 28
Reasons for Job Evaluation 28
When Does Job Evaluation and Classification Occur? 29
Job Pricing 30
ACTIVITIES/ ASSESSMENTS 30
 Course Outcomes

After completing this course, the students are expected to:

➢ Know and understand the origin, nature definition and classification of labor laws
relative to the study.
➢ Learn the importance of equitable payment of salary and wages pertinent to the
difficulty and importance of the jobs they perform
➢ Inculcate the implication of hiring, merit increases, promotions, transfers, rewards
for superior job performance and seniority.
➢ Analyze the factors influencing compensation
➢ Apply the salary computations to daily wage earners
➢ Evaluate an effective compensation administration strategy
➢ Create an effective and efficient compensation administration program
TOPIC 1 – SIGNIFICANCE OF REMUNERATION
OVERVIEW
Remuneration is the money and other types of compensation an employee or
executive of a company receives for their work. It typically includes base salary or wages,
bonuses, and commissions and sometimes excludes tips and reimbursement for
expenses.

States differ on their exact components of remuneration when it comes to

calculating taxes and workers' compensation insurance premiums. Small business
owners should consult their state's revenue and labor departments for guidance.

LEARNING OUTCOMES

At the end of this lesson, you will be able to:

• Define Remuneration
• Explain economic basis of remuneration
• Illustrate the impact of Government influence
• Explain the safeguards to minimize mistakes in compensation
administration

COURSE MATERIALS

DEFINITION OF REMUNERATION

Remuneration consists of the monetary and non-financial forms of compensation

provided by an employer. In addition to the regular pay—in hourly wages or annual
salary—it consists of commissions, bonuses (including those paid in stock), and overtime,
holiday, vacation, and sick pay.

In some states, remuneration does not include the premium portion of overtime
pay—for example, the "half" an hourly employee receives when working at a time-and-a-
half pay rate.

Many states use the National Council on Compensation Insurance's (NCCI's) rules
for determining what is and is not remuneration in regard to workers' compensation
insurance.
HRMA 30033 | 1
Types of Remuneration

The type of remuneration or compensation an employee receives depends on the

type of worker they are and/or the type of work they're responsible for.

1. Salaries - Executive, administrative, professional, computer, and outside sales

employees who are exempt from overtime pay under the Fair Labor Standards Act
are paid a salary for the work they do.
A salary is usually expressed in annual terms, but is generally paid out
weekly, monthly, semimonthly (24 times a year), or every other week, which works
out to 26 times a year. Salaries are paid even during vacations, holidays, and paid
leaves of absence but not during unpaid leaves.
2. Wages - Some employees are paid at an hourly rate and only for hours that they
actually work. Their employers are required to pay them overtime for any hours
worked beyond their standard workweek, and they are classified as non-exempt
employees.
3. Commissions - Salespeople are usually paid on a commission basis. They're
compensated based on their sales over a period of time, usually as a percentage
of sales.
4. Bonuses and Incentives - Employees might be paid bonuses at various times and
for various reasons. Some bonuses are performance-related while others are
given to all employees in the company or to a workgroup at the end of a big project
or a particularly good year. End-of-year holiday bonuses are also common.
Incentive programs are a common method used to motivate salespeople,
and they can include non-cash gifts such as trips or wellness programs. Many
companies offer both cash and non-cash incentives to executives, including stock
options.

Other Kinds of Remuneration

Some employees are paid for piecework, such as the number of garments sewn
or the pages of a book proofread, rather than by the hour. Others are paid a share of
profits.

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 Payments to cover amounts that would ordinarily be withheld from employees' pay,
including for Social Security and Medicare, are counted as remuneration.
The rental value of an apartment or home that's provided to an employee is a form
of remuneration, as is the total value of any meals, store certificates, merchandise, or
store credits given to an employee.
Expenses, including relocation expenses that are reimbursed by the employer
even though the employee hasn't provided documentation that they are valid expenses
are considered to be remuneration.

ECONOMIC BASIS OF REMUNERATION IN THE PHILIPPINES

Minimum Wage
Minimum wage rates are set at a regional level by Regional Tripartite Wages and
Productivity Boards. Each Regional Board is composed of the Regional Director of the
Department of Labor and Employment as chairman, the Regional Directors of the
National Economic and Development Authority and the Department of Trade and Industry
as vice chairmen and 2 members each from workers’ and employers’ organizations. The
employee and employer representatives are appointed by the President of the
Philippines, upon the recommendation of the Secretary, Ministry of Labour and
Employment, made on the basis of the list of nominees submitted by the workers’ and
employers’ associations respectively.
Whenever conditions in the region so warrant, the Regional Board investigates and
studies all pertinent facts and, based on prescribed standards and criteria, proceed to
determine whether a Wage Order should be issued. Any such Wage Order takes effect
after 15 days from its complete publication in at least one newspaper of general circulation
in the region. In the performance of its wage determining functions, the Regional Board
can conduct public hearings/consultations, giving notices to employees’ and employers’
groups, provincial, city and municipal officials and other interested parties. A National
Wages and Productivity Commission is charged with prescribing rules and guidelines for
the determination of appropriate minimum wage and productivity measures at the
regional, provincial, or industry levels and reviewing regional wage levels set by the
Regional Tripartite Wages and Productivity Boards to determine if these are in

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accordance with prescribed guidelines and national development plans. The National
Wage and Productivity Commission is not empowered to overturn Wage Orders issued
by the Regional Boards directly. However, the Commission may make a wage
recommendation in relation to a specified industry or branch thereof where it considers
that a substantial number of employees in that industry or branch of industry are receiving
wages which, although in compliance with the minimum wage provided by law, are less
than sufficient to maintain them in health, efficiency and general wellbeing (taking into
account the peculiar circumstances of the industry and its geographical location). Such a
wage recommendation may be either rejected or approved by the Secretary of Labor and
Employment and, if approved, a Wage Order shall be issued by the Secretary subject to
the approval of the President of the Philippines.
The regional minimum wages to be established by the Regional Board are to be
as nearly adequate as is economically feasible to maintain the minimum standards of
living necessary for the health, efficiency and general wellbeing of the employees within
the framework of the national economic and social development program. In determining
the minimum wage rates, the Regional Board considers, among other relevant factors,
the needs of workers and their families, the cost of living and any changes or increases
therein, the prevailing wage levels, the equitable distribution of income and wealth along
the imperatives of economic and social development, the effect on employment
generation, the capacity of employers to pay, the wage adjustment vis-à-vis the consumer
price index and the need to induce industries to invest in the countryside and
improvements in standards of living.
The Regional Boards may set different minimum wage levels for different
industries within the relevant region if the Regional Board considers that conditions make
such differentiation proper and necessary to effectuate the intention of the Labor Code.
A review of current Wage Orders indicates that different rates are usually set for different
sectors, largely divided into nonagricultural sectors, agricultural sectors and retail and
service sectors.
Each of the 16 regions in the Philippines has its own Regional Tripartite Wages
and Productivity Board which sets minimum wage rates for their respective region. The
Regional Boards may set different minimum wage levels for different provinces or

HRMA 30033 | 4
localities within the relevant region if the Regional Board considers that conditions make
such differentiation proper and necessary to effectuate the intention of the Labor Code.
Apprentices, learners and disabled workers cannot be paid no less than 75% of
the applicable minimum wage.
The Regional Tripartite Wages and Productivity Boards may determine and adjust,
from time to time, the minimum wage rates (every 3 years) with a view to improving them.
Lastly, the minimum wage rates set under Chapter V of Title II of Book Three of
the Labor Code, as amended by the Wage Rationalization Act (the generally applicable
minimum wage rates), apply to all workers and employees in the private sector regardless
of their position, designation or status, and irrespective of the method by which their
wages are paid, except
a) Household or domestic helpers, including family drivers and workers in the
personal service of another;
b) Workers and employees in retail/service establishments regularly employing not
more than 10 workers, when exempted from compliance with the Act for a period
fixed by the Commission/Boards;
c) Workers and employees in exempted Barangay Micro Business Enterprises; and
d) Government sector employees.

Regular Pay
The term ’wage’ means the remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or ascertained on a time,
task, piece, or commission basis, or other method of calculating the same, which is
payable by an employer to an employee under a written or oral contract of employment
for work done or to be done, or for services rendered or to be rendered and includes the
fair and reasonable value, as determined by the Secretary of Labour and Employment, of
boarding, lodging, or other facilities customarily furnished by the employer to the
employee. ’Fair and reasonable value’ does not include any profit to the employer, or to
any person affiliated with the employer.

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 Wages must be paid at least once a month and can also be paid at least once
every two weeks or twice a month at intervals not exceeding sixteen days. If on account
of force majeure or circumstances beyond the employer’s control, payment of wages on
or within the time prescribed cannot be made, the employer must pay the wages
immediately after such force majeure or circumstances have ceased. The payment of
wages of employees engaged to perform a task which cannot be completed in two weeks
in the absence of a collective bargaining agreement or arbitration award, must be paid at
intervals not exceeding sixteen days, in proportion to the amount of work completed and
final settlement upon completion of the work. As a general rule, wages are required to be
paid at or near the workplace. Payment in a place other than the workplace is permissible
only under certain circumstances. Wages may be paid through banks within one kilometer
radius to entities with 25 or more employees, upon written permission of the majority of
the employees.
Lastly, the law prohibits interference in the disposal of wages, unauthorized wage
deductions, withholding of wages without the worker's consent, deductions to ensure
employment, and retaliation against workers through the reduction of or refusal to pay
wages. However, the employer may deduct from the employee’s wages when: (a) the
deductions are authorized by law, including deductions for insurance premiums advanced
by the employer on behalf of the employee as well as union dues where the right to check-
off has been recognized by the employer or authorized in writing by the employee himself;
or (b) the deductions are authorized by the employee in writing for payment to a third
person, provided that the employer does not directly or indirectly receive any pecuniary
benefit from the transaction.
Employers in the private sector are required to pay a 13th month pay to their rank
and file employees on or before December 24 of every year. All the rank and file
employees of the private sector are entitled to 13th month pay regardless of their position,
designation, employment status or wage payment method provided that they have
worked for at least one month during the calendar year.
While the Decree requires that the payment can’t be made later than 24th of
December, a labour advisory, issued by the Department of Labour, suggests that
employers may give 50% of the 13th month pay before the opening of the regular school

HRMA 30033 | 6
year and the remaining 50% on or before 24 December every year. The amount of 13th
month pay cannot be less than the one-twelfth of the total basic salary earned by a worker
during the year. The due amount is however calculated in view of the monthly absences
from work. Employers are required to report compliance to this by 15th January each
year.

IMPACT OF GOVERNMENT INFLUENCE IN REMUNERATION

The government enacts a wide range of legislation and issues judicial judgements.
Such rules and regulations have an impact on compensation management primarily
because they place a strong emphasis on minimum wage rates, overtime rates, working
hours, equal pay for equal work, and the awarding of bonuses, among other things.

COMMON MISTAKES IN COMPENSATION ADMINISTRATION

- SAFEGUARDS TO MINIMIZE IT
An effective compensation program can help you attract, motivate, and retain top
talent. To achieve these goals, your program should be fair, competitive, and performance
driven. The following are some mistakes to avoid when designing and implementing a
compensation program:

1. Failing to consider total compensation.

Even if your company is unable to offer the highest wages, it can still offer
a competitive total compensation package. Total compensation includes both
direct compensation (wages, salaries, commissions, and bonuses) and indirect
compensation (health insurance, paid time off, retirement plans, etc.). Employers
should decide on a total compensation mix that balances attracting and retaining
top talent with keeping labor costs under control.
2. Nonexistent or inaccurate job descriptions.
Accurate, up-to-date job descriptions help establish the foundation of an
effective compensation program. Job descriptions define the main purpose of a
job, the essential and nonessential responsibilities, necessary qualifications, and
other pertinent information related to the role. You can use job descriptions to help

HRMA 30033 | 7
 value the position and compare jobs within the company and in the external
market.
3. Neglecting the market.
To be competitive, understand how your compensation plan compares with
other companies in the market. Review salary surveys to determine what other
companies similar in size, industry and location are paying their employees. While
salary surveys are available for purchase, the U.S. Bureau of Labor Statistics
makes its wage data available for free.
4. Disregarding internal inequity.
Consider internal equity when making pay decisions. Employees should
feel they are compensated fairly relative to other employees within your company.
If employees believe their jobs pay less than comparable positions, companies
may struggle with lower employee engagement, higher turnover, and potential
legal claims. To help promote internal equity, establish a pay structure that is
based on objective criteria.
5. Weak connection to performance.
Merit raises and bonuses are often tied, at least in part, to individual
performance. Without a strong link between performance and pay, employees may
see raises and bonuses as entitlements or view your payout system as arbitrary.
Set clear performance goals and conduct regular performance reviews to help you
make informed pay decisions.
6. Failing to communicate.
Let employees know how your compensation plan works at the time of hire
and throughout the employment relationship. For example, some employers
provide employees with an annual total compensation statement that lists the
direct and indirect compensation the company provided to the employee over the
year. This can be a powerful motivation and retention tool.
7. Prohibiting pay discussions.
Under Section 7 of the National Labor Relations Act (NLRA), employees
have, among other things, the right to act together, with or without a union, to
improve wages and working conditions. The National Labor Relations Board,

HRMA 30033 | 8
 which enforces the NLRA, has taken the position that workplace rules or policies
that could be construed as prohibiting employees from discussing their wages,
benefits and other terms and conditions of employment could violate Section 7.
Accordingly, employers should not prohibit employees from discussing pay or
mandate the confidentiality of wages, benefits or other terms and conditions of
employment.
8. Violating pay laws.
Review applicable federal, state, and local laws that govern compensation,
including minimum wage, overtime, pay deductions, final pay, and pay equity.
Understanding the laws that apply to your business and taking steps to ensure
compensation plans are compliant can help avoid penalties for violating pay laws.

ACTIVITIES/ ASSESSMENTS
1. In your own words, define remuneration.
2. Enumerate and explain the common mistakes in compensation and the
safeguards to minimize it.

HRMA 30033 | 9
TOPIC 2 – FINANCIAL COMPENSATION
OVERVIEW
Financial compensation is the act of paying a person with money or other items.
That is of economic worth in return for their goods, labor, or to cover the cost of the
damage they have sustained.

LEARNING OUTCOMES
At the end of this lesson, you will be able to:
• Explain Government Statutes effects on Financial Compensation
• Illustrate the procedure of Collective Bargaining
• Define Job Evaluation Program

COURSE MATERIALS

FINANCIAL COMPENSATION

The act of compensating someone with money or other valuables is known as

financial compensation. What they are seeking is something of economic value in
exchange for their goods and labor, or to compensate them for the damages they have
sustained.

Government Statutes Effects on Financial Compensation

Government regulation affects the financial compensation industry in many ways,

but the specific impact depends on the nature of the regulation. Increased regulation
typically means a higher workload for people in financial services, because it takes time
and effort to adapt business practices that follow the new regulations correctly.

While the increased time and workload resulting from government regulation can
be detrimental to individual financial or credit services companies in the short term,
government regulations can also benefit the financial services industry as a whole in the
long term.

The government plays the role of moderator between brokerage firms and
consumers. Too much regulation can stifle innovation and drive up costs, while too little

HRMA 30033 | 10
can lead to mismanagement, corruption, and collapse. This makes it difficult to determine
the exact impact government regulation will have in the financial services sector, but that
impact is typically far-reaching and long-lasting.

Collective Bargaining

Have you ever tried to negotiate a job offer? If so, you know that negotiating as an
individual worker can be frustrating. Collective bargaining, in which workers group
together and elect a representative to negotiate on their behalf, is often more effective.

As individuals, workers typically do not hold a lot of power compared to their

employers. Economists attribute this to several factors, including declining union
enrollment, increased outsourcing, and decreasing real wages (the value of workers’ pay
with inflation taken into account).

Even when the unemployment rate is low, workers often need a paycheck more
urgently—or at least, more immediately—than employers need staff. This gives
employers the advantage in one-on-one negotiations with employees.

When employees engage in collective bargaining, however, they have more

power. In fact, research from the Economic Policy Institute shows that when more workers
belong to unions, wages are higher even for non-union workers in the same geographic
area.

Collective bargaining is a negotiation process in which a group of workers, often

represented by a labor union, chooses a representative to advocate for better terms of
employment.

The result of this negotiation is called a collective bargaining agreement, which is

an employment contract that spells out wages, work schedules, employee benefits, and
other terms and conditions of employment.

How the Collective Bargaining Process Works

The process differs slightly from union to union, but it typically looks like this:

HRMA 30033 | 11
1. There is a need for negotiation. This might be a labor dispute or a need to draft
or renew a collective employment contract. Labor and management may also
agree to regular meetings to review issues as they arise.
2. Both sides prepare. Management and labor choose representatives to negotiate
for their interests. Both sides will review the existing employment contract to
identify areas for improvement. Union leadership will often survey its membership
to determine which priorities are most important in the upcoming negotiation.
3. The parties agree to ground rules. Early in the process, management and labor
agree to ground rules, e.g., when and where bargaining sessions will take place
and when all initial proposals should be “on the table.”
The parties also agree on the bargaining style—proposal bargaining or
interest-based bargaining. In proposal bargaining, both sides write proposals for
changes to the contract. In interest-based bargaining, both sides bring issues to
the table and resolve those issues by mutual agreement.
4. Negotiating begins in earnest. The NLRA stipulates which bargaining subjects
are mandatory, permissive, or illegal. For example, employers must agree to
discuss topics like wages and work hours because those subjects are mandatory
under the NLRA. On the other hand, they may or may not choose to bargain on
subjects like company marketing strategies. Finally, both parties are forbidden
from including certain issues, like creating “closed-shop” clauses that would
require employers to hire only workers who are already members of the union.1
5. Management and labor reach a tentative agreement. After several rounds of
give and take, both sides reach a tentative agreement. The union then brings the
agreement back to their members. If management and labor cannot come to terms,
the employer may declare an impasse and implement the last proposal. If the union
disagrees, the NLRB will determine whether a true impasse exists and compel the
employer to return to negotiations. The union may implement a strike, in which
workers refuse to work until an agreement is reached.
6. The union members vote to ratify the agreement. In some unions, the
agreement is tentative until the members ratify it. Members often vote by secret
ballot, which may be required by the union’s rules.

HRMA 30033 | 12
Job Evaluation

Job evaluation is the process of analyzing and assessing various jobs

systematically to ascertain their relative worth in an organization. Job evaluation is an
assessment of the relative worth of various jobs on the basis of a consistent set of job
and personal factors, such as qualifications and skills required. There are five commonly
used approaches, says consultant Diana Neelman.

Here are Neelman’s five common methods and the characteristics of each:

1. Ranking Method

This method ranks jobs in order based on each job’s perceived value in
relation to the others, says Neelman.

• Does not consider market compensation rates.

• May work well for smaller companies. In a larger organization, it is more
complex to use, but sometimes it can still work if jobs are grouped by job
families—professional level, etc.

2. Classification/Grading Method

With this approach, generic job characteristics are grouped to reflect levels
of skill/responsibility at a number of predetermined grade classifications, says
Neelman. This is another straightforward method that is not too time-consuming.

• Individual jobs are compared to groups of job characteristics, then matched

to specific grade classification.
• Can be a challenge because one size does not fit all, so jobs may be forcefit
into a grade.
• The system is subject to grade inflation as jobs get pushed to the next higher
level.

3. Point–Factor Method

This approach identifies job factors that add value and worth to a position.
The job factors are separated into groups (i.e., skill, responsibility, effort) and

HRMA 30033 | 13
 assigned a numerical or weighted point value. The points for individual factors are
added up to get a point value for the whole job.

• May not reflect market values of jobs.

• Generates a hierarchy but does not have an external component.

4. Factor Comparison Method

With this method, job factors are identified under primary groups (i.e., skill,
effort, responsibilities, working conditions) typically up to five groups. Each factor
is assigned a dollar value (as opposed to point value).

• This is a complex system used only by a few organizations.

• It is hard to communicate to employees.
• There is an inherent degree of subjectivity.

5. Competitive Market Analysis Method

This approach looks at external data, says Neelman. Job evaluation forms
the basis for market pricing. You utilize job descriptions to compare jobs to like
positions within the external marketplace. Pay data are collected from published
sources and the value of the position within the competitive market is determined.

• Considers the organization’s compensation philosophy. (Where do we want

to position ourselves vis-à-vis the market?)
• Examines internal value against market data.
• Requires an overlay to see how it fits with the internal hierarchy.

NON-FINANCIAL COMPENSATION

Non-financial compensation is any employee compensation that doesn't involve

cash. Many companies find creative ways to offer employee benefits that make them feel
valued and appreciated. Often, this form of compensation can be a great method for
establishing trust and loyalty between an employer and an employee. Some employees

HRMA 30033 | 14
may find non-financial compensation, such as flexible work scheduling or gym
memberships, to be even more preferable than salary when comparing two positions.

ACTIVITIES/ ASSESSMENTS

1. Define collective bargaining and explain how it works.

2. What are Diana Neelman's five common methods of job evaluation? Kindly elaborate
on each one of them.

HRMA 30033 | 15
TOPIC 3 – TYPES OF FINANCIAL AND NON-FINANCIAL COMPENSATION

OVERVIEW

The act of compensating someone with money or other valuables is known as

financial compensation. What they are seeking is something of economic value in
exchange for their goods and labor, or to compensate them for the damages they have
sustained.

Any form of employee remuneration that isn't monetary is known as non-financial

compensation. This type of pay is frequently used to build trust and loyalty between a
company and an employee. When comparing two jobs, some employees may find non-
monetary benefits, such as flexible work schedules or gym memberships, to be even
more appealing than a higher income.

LEARNING OUTCOMES

At the end of this lesson, you will be able to:

• Define and explain the types of Financial Compensation.

• Enumerate and illustrate the types of Non - Financial Compensation

COURSE MATERIALS

Recreational Activities

There is some consensus on the definition of recreation. Recreation is an activity

that people engage in during their free time, that people enjoy, and that people recognize
as having socially redeeming values. Unlike leisure, recreation has a connotation of being
morally acceptable not just to the individual but also to society as a whole, and thus we
program for those activities within that context. While recreation activities can take many
forms, they must contribute to society in a way that society deems acceptable. This means
that activities deemed socially acceptable for recreation can change over time.

Examples of recreational activities are endless and include sports, music, games,
travel, reading, arts and crafts, and dance. The specific activity performed is less
important than the reason for performing the activity, which is the outcome. For most the

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overarching desired outcome is recreation or restoration. Participants hope that their
recreation pursuits can help them to balance their lives and refresh themselves from their
work as well as other mandated activities such as housecleaning, child rearing, and so
on.

People also see recreation as a social instrument because of its contribution to

society. That is, professionals have long used recreation programs and services to
produce socially desirable outcomes, such as the wise use of free time, physical fitness,
and positive youth development. The organized development of recreation programs to
meet a variety of physical, psychological, and social needs has led to recreation playing
a role as a social instrument for well-being and, in some cases, change.

Company Newsletter

A company newsletter is a type of communication piece that can be delivered

electronically or printed and is used by an organization to communicate both internally
and externally. The company newsletter provides information about the company's
activities, as well as the most recent news and updates. Employees, subscribers,
customers, members of the community, and other target audiences are all received
company newsletters on a regular basis.

Suggestion Award System

Companies implement policies to define the rules of an organization and shape

future decisions with a thought-out framework. They help employees make day-to-day
decisions that lead to overall cohesion and success. These policies guide many aspects
of running a business, from how employees are expected to behave to ways they should
be rewarded.

A successful business thrives on a culture that values workers and treats them
fairly. That’s why companies are choosing to implement rewards and recognition
programs designed to help employees feel valued and make the most of their lives.

HRMA 30033 | 17
Step 1: Assess the Current System in the Workplace

Your company may not have a rewards policy, but you should still have a
general understanding of employee attitude toward recognition in the workplace.
This can be gained through anonymous surveys or focus groups. Sometimes, the
best approach is to be direct and outline what you hope to accomplish.

Ask information-seeking questions, such as:

• What’s your ideal work environment?

• What types of rewards would you like?
• What don’t you like about our current policy?
• What would make your job easier?

These questions get to the root of any problems and gather helpful data.
Using this information, you can identify and outline what you want the rewards and
recognition policy to address. Be sure to get input from all roles and departments,
as mind-set can shift from group to group.

Step 2: Have a Predetermined Goal Before You Start

Now that you know the problem, you can address it with a well-constructed
policy. The most effective ones use SMART goals, objectives that are specific,
measurable, attainable, relevant, and time-bound.

Vague or unrealistic goals are unhelpful because they don’t provide your
team with direction. Check out some of the examples of SMART and unsmart goals
below.

• An unsmart goal: Make employees happier, and reduce the number of days
they call out.
• A SMART goal: Implement an incentive program for reliable employees,
and reduce callout days by 5%.
• An unsmart goal: Help employees feel more comfortable by giving them
perks.

HRMA 30033 | 18
 • A SMART goal: Increase employee satisfaction and comfort in the
workplace through the implementation of a food and beverage station.
• An unsmart goal: Reduce the number of sick days employees take by telling
them to stay healthy.
• A SMART goal: Keep employees healthy, and decrease the number of sick
days by one per employee annually with a high-quality healthcare plan.

Step 3: Research Types of Rewards and Recognition for Employees

Your current situation will determine the type of rewards policy you
implement. It’s up to you to decide which program will best meet the needs of your
employees.

Some of the most popular types of rewards and recognition programs

include:

• Optional remote work: Many businesses are now allowing employees to

work remotely. This doesn’t have to mean working from home—it can also
mean working in a coworking space, in the library, or even at a favorite
Starbucks. About 54% of workers worldwide say their ideal work
environment would include flexible arrangements, such as remote options.
• Paid family leave: Some countries offer generous paid leave for new
parents, but the United States is slow to jump on the bandwagon. Most
employees consider paid family leave a perk that shows an employer values
their time and well-being outside the office. One leader in this field is Netflix,
which currently offers employees 12 months of paid parental leave.
• Free office snacks: It may seem like a no-brainer, but free office snacks are
a great way to make employees feel comfortable, encourage collaboration,
and foster a healthy work environment that values achievements. Research
shows that companies that provide free food have happier workers than
those that don’t.

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Step 4: Implement and Optimize the Companywide Policy

Once you’ve talked to employees, pinpointed the problem, developed a

goal, and researched the best rewards and recognition practices, it’s time to draft
and implement your policy companywide. Make information clear and concise,
outlining what the plan is and what it means for employees. If the incentive is
exciting enough, workers will want to know right away how they can become
eligible or get involved. Don’t hold out on them.

Success is determined by your SMART goal. For example, say your aim is
to increase employee satisfaction through the implementation of a food and
beverage station, leading to a decline in callouts by 5%. Give yourself a designated
time period, whether it be 3 months, 6 months, or a year, and then compare callout
rates. If they have not decreased after implementing free food, perhaps a bigger
issue is at play. If rates have dropped, you know the policy has worked.

Remember: An effective policy is all about optimization. Very few get it

perfect on the first try. After making changes and implementing a new plan, gain
feedback from employees, and study the numbers. Pinpoint areas that are strong
and those that need to improve. Keep lines of communication open, and let
workers know the road to success is an ongoing one.

Creating an Employee Rewards and Recognition Program

Unhappy employees can be the bane of any business. In fact, 66% of

employees say they would quit their current positions if they didn’t feel appreciated
enough. If you don’t already have a rewards and recognition policy in place, now
is the time to create one. Luckily, the process is easy—start by opening a dialogue
with employees on their thoughts and feelings. Don’t be afraid to be direct, asking
employees what they’d like to see in terms of perks and rewards.

Once you know how employees feel and what they want, you can develop
SMART goals and research the types of rewards programs that will offer your
company the most value. From perks like free food and beverages to the ability to
work remotely, the benefits happy employees are looking for don’t always include

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 the highest pay. They simply want to feel valued and appreciated by the people
above them.

Medical Services

Today's occupational health care professional is not only responsible for the health
of the employee but also may be involved with company medical policies and benefits,
disability and workers' compensation evaluations, health promotion, wellness and fitness
programs, industrial safety, and compliance with state and federal regulations. Employee
health services vary widely from company to company. Employers may provide any or all
of the programs outlined below to their employees.

ACTIVITIES/ ASSESSMENTS

1. Differentiate between financial compensation and non-financial compensation.

2. What are the most popular types of rewards and recognition programs?

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TOPIC 4 - INTERNAL AND EXTERNAL FACTORS AFFECTING COMPENSATION
OVERVIEW
Compensation is a very important issue in Human Resource Management (HRM)
and affects the relations between management and workers.

Compensation is also one of the biggest reasons of dispute between employers

and employees. Employees provide their services to the business; they devote their time,
energy, skills, knowledge to the organization. In consideration of this devotion, employer
gives compensation to employees.

The compensation awarded to the employee is dependent on the volume of effort

exerted, the nature of job and his skill. Besides, there are several other internal and
external factors affecting the compensation.

LEARNING OUTCOMES

At the end of this lesson, you will be able to:

• Explain the internal factors affecting Compensation.

• Identify the external factors affecting compensation.
• Discuss an effective and efficient compensation administration program

COURSE MATERIALS

INTERNAL FACTORS AFFECTING COMPENSATION

1. Compensation Policy of the Organization:

Firm’s policy regarding pay i.e., attitude to be an industry leader in pay or desire to
pay the market rate determines its pay structure. The former can attract better talent and
achieve lower cost per unit of labour than the ones that pay competitive pay.

2. Employer’s Affordability:

Those organizations which earn high profit and have a larger market share, a large
business conglomerate and multinational companies can afford to pay higher pay than
others. Besides, company’s ability to pay higher pay is impaired by sector- specific
economic recession and acute competition.

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3. Worth of a Job:

Organizations base their pay level on the worth of a job. The wages and salaries
tend to be higher for jobs involving exercise of brain power, responsibility laden jobs,
creativity-oriented jobs, technical jobs.

4. Employee’s Worth:

In some organizations, time rates are granted to all employees irrespective of

performance. In such cases, employees are rewarded for their mere physical presence
on the job rather than for their performance. However many private sector organizations
follow performance-linked pay system. They conduct performance appraisal more often
than not which provides input for determining pay levels. It distinguishes the high-
performer from the low-performer and the non-performer.

EXTERNAL FACTORS AFFECTING COMPENSATION

1. Labour Market Conditions:

The forces of demand and supply of human resources, no doubt, play a role in
compensation decision. Employees with rare skill sets and expertise gained through
experience command higher wage and salary than the ones with ordinary skills
abundantly available in the job market. But the higher supply of human resources for
certain jobs may not lead to reduction of wages beyond a floor level due to Government’s
prescription of minimum wage levels and employee union’s bargaining strength.

Similarly, this factor by itself does not result in lower pay if the vast majority of
available resources are unemployable due to poor skill and low talent. Thus, it is clear
that law of demand and supply applies to labour market only to a limited extent.

2. Economic Conditions:

Organizations having state-of-the-art technology in place, excellent productivity

records, higher operational efficiency, a pool of skilled manpower, etc., can be better pay
masters. Thus, compensation is the consequence of the level of competitiveness
.prevailing in a given industry.

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3. Prevailing Wage Level:

Most of the organizations fix their pay in keeping with the level for similar jobs in
the industry. They frequently conduct wage survey and accordingly seek to keep their
wage level for different jobs. If a particular firm keeps its pay level higher than those of
others in the industry, its employee cost becomes heavier which may escalate the end
cost of the products. This will affect the competitiveness of the firm. On the other hand, if
a firm keeps its pay level lower than the prevailing rates, it may not recruit the skilled and
competent manpower.

4. Government Control:

The Compensation Plan (CP) under RA No. 6758 is an orderly scheme for
determining rates of compensation of government personnel. It was crafted to attract,
motivate and retain good and qualified people to accomplish the Philippine Government’s
mission and mandates, to encourage personal and career growth, and to reward good
performance and length of service. To achieve these goals, the CP has a mix of
compensation components, namely; basic pay or salaries, fringe benefits, incentives and
non-financial rewards which provide reasonable levels of compensation packages within
existing government resources, and are administered equitably and fairly. Therefore,
firms have to decide on salaries and wages in the light of the relevant Acts.

5. Cost of Living:

Increase in the cost of living, raise the cost of goods and services. It varies from
area to area within a country and from country to country. The changes in compensation
are based on consumer price index which measures the average change in the price of
basic necessities like food, clothing, fuel, medical service, etc., over a period of time.
Allowances like Dearness Allowance. City compensatory allowances are paid to meet the
increasing cost of living and parity among employees posted at different geographies.

6. Union’s Influence:

The collective bargaining strength of the trade unions also influence the wage
levels. Trade unions enjoy an upper hand in certain industries like banking, insurance,

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transport and other public utilities. Therefore, wage structure in such industries and in
such Union-active regions, salary and wage need to be fixed and revised in consultation
with the unions for ensuring smooth industrial relation.

7. Globalization:

It has ushered in an era of higher compensation level in many sectors of the

economy. The entry of multinational corporations and big corporates have triggered a
massive change in the compensation structure of companies across sectors. There is a
salary boom in sectors like information technology, hospitality, biotechnology, electronics,
and financial services and so on.

8. Cross Sector Mobility:

Contemporary companies find it difficult to benchmark the salaries of their staff

with others in the industry thanks to mobility of talent across the sectors. For example,
hospitality sector employees are hired by airlines, BPOs, healthcare companies and
telecom companies.

COMPENSATION ADMINISTRATION PROGRAM

A formal compensation administration program is the basic management tool for

ensuring that employees are satisfied with their pay and benefits that both internal and
external equity are adequately addressed, and that control is maintained over
compensation costs. Such a program will help attract top talent, retain core employees,
and encourage longevity while efficiently using financial resources. Establishing an
effective compensation administration program requires job analysis, job evaluation, and
job pricing. Once established, it is important to maintain and update the compensation
philosophy/strategy, including the following aspects of the program: job grades/ranges,
employee classification, salary increases, performance appraisals, and incentives.

Job Analysis

A job analysis is a process used to collect information about the duties,

responsibilities, necessary skills, outcomes, and work environment of a particular job. You

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need as much data as possible to put together a job description, which is the frequent
output result of the job analysis.

The job analysis pares the responsibilities of a job down to the core functions
necessary to successfully perform the job. The job analysis is useful in providing an
overview of the fundamental requirements of any position.

Additional outcomes of a job analysis include:

• Making employee recruiting and hiring plans,

• Position postings and advertisements, and
• Performance development planning within your performance management
system.

The job analysis is a handy tool that you can use to populate any of these
processes for employment success.

How to Perform a Job Analysis

Certain activities will help you create a successful job analysis. The job
analysis may include the following activities:

1. Reviewing the job responsibilities of current employees.

It is critical that you ask the actual employees who are doing the job what
they do every day on the job. Frequently, HR and management (especially senior
management) have no idea what encompasses the day to day functions of any
particular job. They may see the output but they have no idea what work actions
and behaviors go into the employee producing it.

Make certain that you have described your daily duties in sufficient detail so
that your organization is able to hire a qualified new employee who has the
capacity to do the job correctly.

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2. Doing internet research and viewing sample job descriptions online or
offline highlighting similar jobs.

While you never want to copy another company's job description, looking at
several is helpful in writing your own job descriptions.

You can find sample job descriptions by searching for “[Job Title] Sample
Description” or you can look at job postings for positions companies are currently
hiring. You can also look at LinkedIn to see how people describe their
accomplishments in a job.

You can also see the job descriptions that are listed on such sites as
Salary.com or Payscale.com. All of this searching can help you figure out how to
word the job analysis and help remind you of the tasks and responsibilities that
you may have forgotten.

3. Analyzing the work duties, tasks, and responsibilities that the employee
filling the position needs to accomplish.

Not every job within a company is optimized. You may find duties that are undone
or important projects that you should move from one department to another. You
may discover tasks that another job would more successfully and easily
accomplish.

4. Researching and sharing with other companies that have similar jobs.

Sometimes companies will happily share information about their job descriptions.
There are also salary survey companies, where you can match up your jobs to
their descriptions and share salary information. But, they can also help you figure
out what to include in your own job descriptions.

5. Articulate the most important outcomes or contributions needed from the

position.

Sometimes you get so caught up in the tasks that you forgot to look at the
needed outcomes. For instance, if it's the report that is needed, all the gathering
and auditing of data is worthless without the final analysis and report.
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 Sometimes, you can identify holes in your organization and figure out a way
to fill them by doing job analyses. Tasks are not assigned to any employee that
needs to be done, for example. Or, one job has more tasks than any one person
could accomplish.

The more information you can gather, the easier you will find the actual
writing of the job description. You don't need to worry about pretty language. You
want a functional job description more than anything else. Make sure it is clear and
concise. Ask yourself, “If somebody else read this, would they know what the
person in this position actually does?”

Job Evaluation

Job evaluations can help you create an equitable compensation system through
appropriate job classification.

Reasons for Job Evaluation

Job evaluations are performed for these reasons.

• To determine what positions and job responsibilities are similar for purposes of
pay, promotions, lateral moves, transfers, assignments and assigned work, and
other internal parity issues. It is important that employees perceive your workplace
as fair, equitable, and the provider of equal opportunities for employees. Your
process for determining pay and promotional opportunities should be transparent
for employees to see and understand.
• To determine appropriate pay or salary grades and decide other compensation
issues. This is a significant factor in employee satisfaction in the workplace.
Employees do talk about their pay and it's legal for them to talk about their pay.
Public employee pay is posted to the world. Employees will identify any
compensation inequities in your company pay system.
• To help with the development of job descriptions, job specifications, performance
standards, competencies, and the performance appraisal system. These vehicles,
particularly in large companies, need to be equitable, and not dependant on the
boss, individual managers, and departmental whims. Employees always compare

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 notes - and employers who keep this in mind as they develop their employee
systems - win employee loyalty and commitment.
• To assist with employee career paths, career planning or career pathing, and
succession planning. Having a career path that provides opportunities for
employees is important to all employees, but it's especially important to your
millennial employees. Listen to the language they use when they move on to
another company. Most often they leave you for a better opportunity, a promotion,
or a position where they perceive they have more career potential.
• To assist the employee recruiting process by having in place job responsibilities
that help with the development of job postings, the assessment of applicant
qualifications, suitable compensation, and salary negotiation, and other factors
related to recruiting employees.

When Does Job Evaluation and Classification Occur?

Especially in larger organizations, job evaluation and classification is a moving

target. Adopting new technology, employees taking on additional responsibilities,
downsizing and layoffs, new programs, new procedures, increased authority, and the
team leader or supervisory responsibilities can cause the job classification of an
employee to change.

In fact, the role of some Human Resources staff consists primarily of job evaluation
and job classification.

In job classification, job analysis and evaluation occur when a new position is
created. The job classification is evaluated each time a significant change occurs in a job.
The job classification re-evaluation is generally requested by an employee through his or
her supervisor.

In a job evaluation that results in decisions about a job classification, factors such
as decision-making authority, the scope, and range of the responsibilities performed, the
level of the duties performed, and the relationship of the position to other jobs in the
organization are considered and compared.

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 The most common request for job classification re-evaluation that I have
experienced occurs when an employee has taken on new responsibilities or more work.
The employee is often disappointed to learn that more work does not equate to a change
in scope, range, decision-making authority, or higher-level responsibilities. Thus, the job
evaluation results in a job classification that remains the same.

Job Pricing

Retaining and attracting employees is of primary concern for any company. The
foundation of developing a compensation strategy is Job Pricing — the practice of
analyzing pay practices, focused on internal strategy and on a specific market
environment.

The Job Pricing component allows you to analyze, evaluate and determine the
compensation level for specific jobs, based on the current market rate. This enables you
to offer competitive compensation packages that attract the best possible pool of
applicants, thereby enabling you to hire the best possible employees for your
organization.

ACTIVITIES/ ASSESSMENTS

1. List and describe the internal factors that influence compensation.

2. Enumerate and explain the external factors affecting compensation

3. Define and discuss an effective and efficient compensation administration

program.

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