Strategic

Compensation
 Learning Objectives

01 To define terms related

to compensation 03 To be familiar with various
types of strategic
compensation systems

02 To understand the
difference between 04 To identify the role of
Corporate HR in
traditional Compensation and
compensation and Benefits
strategic compensation
 Definition of Terms
Salary — refers to the compensation covering
weekly, monthly or yearly periods of services
rendered.
Wages — the term wages usually refers to
compensation for manual labor-skilled or
unskilled (blue collar workers).
 Definition of Terms
Merit Increase — raise in the salary or wage of an
employee on the basis of performance of merit.
Union Rate — hour or daily rate of pay, usually a
single rate for an occupation or trade set up by an
agreement through collective bargaining.
Across-the-board — increase of wage affecting
all employees within the plant.
 Other Considerations
● Level of pay in the community
● Type of industry
● Minimum wage fixing Labor Code and RA 6727
● Collective Bargaining Agreement
● Company’s ability to pay
● Cost of living
● Labor cost - if the industry use more manpower
than machine
 Reward Management
Reward Management - It is the analysis and
control of employee remuneration, compensation
and all other employee benefits. Reward
structures are designed to provide fair, equitable
and consistent benefits to employees in
accordance with their value to the organization.

.
 Compensation
Compensation - It is any form of payment made to
an individual for services rendered as an employee
for an employer, services performed as an
employee representative or subsistence allowance
paid. It is also a repayment, reimbursement or
remuneration.
.
 Significance of Reward and
Compensation
● Reward management processes, policies and
strategies are created to guarantee the contribution
of the employees to the business.
● Reward systems are used to motivate employees to
work towards achieving the organization’s strategic
goals.
● Rewards are also concerned with non-financial
benefits such as training, development and
increased job responsibilities.
Traditional Compensation System
Traditional compensation systems typically involve the
use of job analysis to determine the knowledge, skills,
and abilities (KSAs) required to perform jobs. Job
analysis information is then used for job evaluation,
which determines the relative standing of each job in
the salary or wage hierarchy of an organization.
Traditional Compensation System
Job classification system - Jobs are classified into a grade
structure or hierarchy. Each level in the grade/category
structure has a description and job titles. Each job is
assigned to grade/category providing the closest match to
the job.
Point system - A variation of the classification system, it
involves assigning points to each job on the basis of
compensable factors, such as position in hierarchy,
accountability, and number of tasks performed.
Traditional Compensation System
Factor comparison system or ranking system - It
involves comparing jobs to determine differences in the
presence of compensable factors. Jobs are compared to
each other based on the overall position of the job to
the organization. The position of a job is usually based
on hierarchy/level, designation, number of hours,
responsibility (supervisory and fiscal), and working
conditions.
 Limitations of Traditional
Compensation System
The biggest drawback of the traditional compensation
systems is that compensation is for jobs, not individuals.
It rewards position, not effort; seniority, not merit.
People just do only things that are part of their job and
spend most of the time on completion of basic tasks.
Traditional compensation, thus, does not leave any
room for creativity, performance, or extra effort.
 Strategic Compensation
One of the most important ways by which
organizations implement their strategies is to
reward employees for behaviours that lead to
fulfillment of strategic goals. Strategically aligned
rewards help reinforce desired behaviours
repeatedly.
 Strategic Compensation
The purpose of strategic compensation is to:
● Align compensation with company strategy
● Attract and retain employees
● Reinforce positive behaviours
● Motivate desirable performance
● Link individual performance to company
performance
 • Pay is based when target
objectives are achieved.
• It is used to evaluate how well an
Performance employee works and has a set
Based Pay salary for a particular position.
• Falls under the belief that money
is the greatest incentive for people
to work.
• Great for physical tasks but so-so
for cognitive tasks.
 • It is a personalized pay system which
pay increases are linked to the number
or depth of skill an employee acquires in
relation to 3 types of skills:
Skill Based 1. Horizontal Skills – broadening the
range of tasks
Pay 2. Vertical Skills – acquiring higher level
skills
3. Depth Skills – high level of skills in
specialized areas
• Rewards multi-skilled individuals as
they are more flexible and able to wear
many hats.
 • Is used when teamwork mission
is critical and is mostly used in
project-based jobs where every
Team Based member of the team is required to
contribute to complete tasks to
Pay advance to the next stage of work.
• Cooperation is critical in
team-based organizations as they
as less hierarchical.
• Foster problem-solving,
participation in decision-making to
achieve goals.
 • It is a term applied to having
extremely wide salary bands. A
typical salary band has a 4o%
Broad difference in pay between its
minimum and maximum while
Banding broad banding would have a 100%
difference.
• Usually done to support a
restructuring by helping combine
and consolidate the number of job
levels or grades.
 • Is a variable pay plan where
company leadership designates a
percentage of annual profits as a
Profit pool of money to share with its
employees.
Sharing • Shares are given in terms of
stocks and bonds or straight cash.
• Generally used by a company if
they have been profitable for the
time period specified or when an
employment contract requires the
compensation.
 • Takes into consideration the
appropriate remuneration package
that should motivate a manager to
Executive do his job in accordance with the
business objectives of the
Compensation organization.
• Combines short-term and
long-term incentives in the total
remuneration package that
includes salary, benefits, annual
bonuses, perks, and stock options.
 • Incentives or bonuses given to
employees whose performance
meets or exceeds company
Variable Pay expectations provided that the
company meets its own goals for
productivity and profitability.
• Employee performance is
measured at the end of 12 months
and incentives or bonuses are
granted depending on the
employee's performance.
 Designing an Effective
Compensation Strategy
Three basic issues need to be addressed while
designing a strategy pay plan:
● What are the organization’s strategic goals?
● What employee behaviours and skills does the
organization need to achieve its strategic goals?
● What compensation policies and practices will help
to produce the desired employee behaviours?
Reference
https://books.google.com.ph/books?id=8qSixAEACAAJ&pg=PA232&source=gbs_toc_r&cad=2#v=
onepage&q&f=false

Martinez, E., (2023). DLSL MBA SHRM Modules.