Forms of Compensation

Reporter's :
Cyril Eunisys Abustan
Daniela Cailing
 Learning Outcomes

At the end of chapter, the students will be able to:

discuss compensation philosophies;
classify the forms of contingent pay;
explain the compensation for executives;
describe the compensation for salespeople; and
discuss the computerized of payroll system
 Compensation
Philosophies

A compensation philosophy is an underlying principle

for setting the organization's position and the reasons
for providing such salaries to employees. It
demonstrates consistency which in employee attraction
and retention.

There are two types of compensation philosophies;

entitlement and performance.
Entitlement
Philosophy

This philosophy enables employees to a receive

salary increase every year regardless of
performance. For as long as employees have another
year, they are given an automatic annual increase
which can be considered as the cost of living
increases although this pay raise is not necessarily
for coping with economic pressures like inflation
rate.
Performance
Philosophy

This philosophy reflects pay increases based on

differences in performance. This has a clear basis for
much increases will be given t deserving employees.
This is given on an individual, group, or team basis.
Some organizations do not solely practice either
entitlement or performance. Their capacity to pay
their employees to adhere to both pose an advantage
to the organizations and their employees.
 Contingent Pay

Is defined as the additional pay to the base pay

which is usually based on past performance. It also
related to individual, team, or organization- wide
performance.
 Individual
Contingent Pay

Associated with individual performance, contribution,

competency, or skill. For employees with performance
evaluation, pay increases are based in the
achievement of agreed targets or outcomes.
Performance is measured vis-a vis existing
performance standards.
 Competency - based pay gives incentives to employees
based on competency on knowledge in accomplishing
their tasks. Employees are paid based on the obtained
competency/ies for a given period.
Skill-based pay is closed related to competency-based
pay. Many organizations use them interchangeably.
Normally, organizations have the discretion on what
particular set of skills they want to pay. For example, a
software developer in an information technology
company has the option whether or not it is willing to pay
the employee for recently acquired skills.
 Contribution- based pay is a holistic approach to
determine pay. It looks at all aspects of performance and
how they contribute to organizational objectives.

Team-based pay is connected to a particular team where

members are paid based on the overall performance of
the team. Many organizations that practice team-based
pay attached a certain part of the employees' salaries to
the achievement of the team's goals with each member
receiving the same amount of pay.
Organizational Performance-based pay scheme is given
by organizations with the belief that employees should
be rewarded not only as individual performers or team
players, but also as stakeholders.
There are two types of organizational performance-
based pay: gainsharing and profit sharing.

 Two types of organizational

performance-based pay

Gainsharing Profit Sharing

Is an organization-wide
pay scheme which gives
credit to its people on the
achievement of the
organization's high level
of performance.
Is a pay scheme wherein
employees are given special
amounts or bonuses based
on the profits of the
organization.
 Compensation for
Executives

Compensation for executives includes their basic

salary, incentives, bonuses, and other bonuses that
are attached to their position in the organization.
The basic salary of executives depends on the
market worth of the individual.
Long-term incentives for executives are usually
given in the form of stocks or shares of stock.
 Compensation for
Salespeople

The sales industry has a unique way of rewarding

its people. Most payment varies depending on the
industry, organization, size, and type of product or
service. There are nine most common types of sales
plans: Straight salary or no commission, salary plus
commission, commission only, draw against
commission, profit margin, territory volume, capped
commission, performance gate, and set rate
 Straight Salary or no commission

Sales personnel are given only a basic salary but do

not receive a commission for every unit sold. This is
common for shops that sell shoes or clothes.

Salary plus commission

Most common type of payment for salespeople. There

is a guaranteed basic salary and a given for every
sale.

Commission only
Sales personnel do not receive a basic salary and they
are paid only when they make sale. Since there is no
basic salary, income is not guaranteed.
 Draw against commission

The allotted commission is already given in advance

for a given period. Each time a sale is made, the
commission is deducted from the advance.

Profit margin

Commissions are based on the performance of the

organization. This means that there is no definite rate
or amount which salespeople can rely on.

Territory volume
This is usually done in teams. Whatever total sales are
achieved on a particular territory or area for a given
period, commissions are paid equally for each sales
representatives.
 Capped Commission

There is a basic salary and a commission as well.

However, the commission has a limit or cap.

Performance gate

This particular scheme has many opportunities for

aggressive and hardworking sales representatives.

Set rate

This pay scheme has a specific amount for each sale of

a particular product or service made.
 Computerization of
payroll system

One of the most tedious tasks in

compensation administration s payroll
processing. The computerization of payroll is
a welcome respite for the often time-
consuming manual system.
Automated teller machines (ATM) are widely
used by many organizations for payroll
purposes.
Thank you!