Chapter 5

Compensation, Wage, Salary Administration and Benefits

Objectives:

1. Familiarize the basic principle of Compensation

2. Design a pay structure that will ensure that the firm is competitive with other
similar firms
3. Implement and administer a compensation system according to the firm’s policies
and the legal requirements.
4. Identify the factors that illustrates the pay system

Introduction: Brief history of Compensation

“If you pick the right people and give them the opportunity to spread their wings -
and put compensation and rewards as a carrier behind it - you almost don’t have to
manage them.”

— Jack Welch

Some people see pay as a measure of Justice. Compensation in the Philippines

measures individual performance. Employees are paid based on how they perform their
tasks. Employees are becoming more motivated once they received something good
including salary, benefits, incentives, rewards and other monetary and non monetary
value. 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.

Introduction

Compensation administration is a segment of management or human resource

management focusing on planning, organizing, and controlling the direct and indirect
payments employees receive for the work they perform. Compensation includes direct
forms such as base, merit, and incentive pay and indirect forms such as vacation pay,
deferred payment, and health insurance. Compensation does not refer, however, to
other kinds of employee rewards such as recognition ceremonies and achievement
parties. The ultimate objectives of compensation administration are: efficient
maintenance of a productive workforce, equitable pay, and compliance with federal,
state, and local regulations based on what companies can afford.

The basic concept of compensation administration or the compensation

management is rather simple: employees perform tasks for employers and so
companies pay employees wages for the jobs they do. Consequently, compensation is
an exchange or a transaction, from which both parties employers and employees
benefit: both parties receive something for giving something. Compensation, however,
involves much more than this simple transaction. From the employer's perspective,
compensation is an issue of both affordability and employee motivation. Companies
must consider what they can reasonably afford to pay their employees and the
ramifications of their decisions: will they affect employee turnover and productivity? In
addition, some employers and managers believe pay can influence employee work ethic
and behavior and hence link compensation to performance. Moreover social, economic,
legal, and political forces also exert influence on compensation management, making it
a complicated yet important part of managing a business.

Compensation package is one of the most significant decisions of the modern

Human Resource Management, since it is carrying great influence as a maintenance
factor as well as a means for employee’s motivation also. Therefore organization needs
to pay attention on Wage and Salary Administration in order to maintain organizational
efficiency for maintaining and motivating employees. There are some of the major
considerations based on which it can go for compensation determination like demand
and supply of skill, organizational ability to pay, prevailing market rate, employees
productivity, cost of living, trade union’s bargaining power, job requirements
management attitude, productivity, psychological and social factors and legislative
considerations.

Organization can adopt either ‘Time Rate’ or ‘Piece Rate’ method for wage
payments, both are having their own merits and demerits and suitability. Organization
can go for combination of the both also. There may be s standard scientific process also
for wage determination, which consists of steps like job analysis and job evaluation,
determination of performance standards and wage surveys and deciding wage structure
and rules and policy for effective wage administration.

Employees’ compensation is one of the major determinants of employee

satisfaction in an organization. The employee views the compensation policy and the
reward system of an organization as an indicators of the management’s attitude and
concern for them. It is not just the compensation in tote, but its fairness as perceived by
the employees that determines the success of a wage and salary administration system.

Hence, it very important for the management to design and implement its
compensation system with utmost care and tact. A good wage and salary administration
should be able to attract and retain employees, give them fair deal, keep the
organization competitive and motivate employees to perform their best. Wage and
salary determination and its administration has always remains sensitive issue for an
organizational management, since employees moral, motivation, productivity and their
relationship with the management more or less associated with the compensation
management system. Furthermore compensation has always remained as a major
yardstick for the success or failure or concern for the employees by an organization.
Traditionally, pay scales in companies reflected the importance of the work and
the responsibility level. Today organization tries more to assess the worth of an
individual in terms of his performance and contribution to the organization. With the
growing demands of the workforce and the constant challenges in the business
environment, organizations have to evolve an accurate system for evaluating jobs and
assessing their worth. Job evaluation helps to determine the relative worth of job in an
organization in a systematic, consistent and accurate manner. It also helps in estimating
the basic pay for each job in accordance with the importance of the job in the
organizational hierarchy. Once basic pay is determined, the rewards, incentives and
benefits attached with the pay, position and performance are also determined. The
basic wage, incentives and rewards and benefits, together from compensation package
of an employee.

Basic Components of Compensation Program

A pay program may include the following four components: base pay, wage and salary
add-ons, incentive payments, and benefits and services. Base pay refers to the cash
that an employer pays for the work performed. This base pay can be further delineated
as either a wage or a salary. Wages are hourly rates of pay regulated by the Labor
Standards of the Department of Labor and Employment together with the National
Wages and Productivity Committee (NWPC). In the US, the federal legislation formed
the foundation of minimum wage, overtime pay, child labor, gender equality, and record
keeping requirements for U.S. businesses. Employees who are subject to the Fair Labor
Standards Act are known in compensation management as "nonexempt." Salaries,
which are usually paid to managers and professionals, are annual or monthly
calculations of pay that usually have less relation to hours worked.

Wage and salary add-ons include cost-of-living adjustments (or COLAs), overtime,
holiday and other premium wages, travel and apparel/clothing allowances, and a host of
related forms of premiums and reimbursements. Wage and salary add-ons are used to
compensate employees for work above and beyond their normal work schedules or to
reimburse them for expenses related to their jobs. COLAs are usually across-the-board
contractual increases tied to an economic indicator, such as the consumer price index,
that reports an increase in the cost of living.

Incentive payments refer to funds employees receive for meeting performance or

output goals as well as to seniority and merit pay. Companies provide these forms of
compensation to influence employee behavior, improve productivity, and reward
employees for their years of service or their strong job performance.

Finally, benefits and services include paid time off, health insurance, deferred income
such as pension and profit sharing programs, company cars, fitness club memberships,
child care services, and tuition reimbursement. Social Security, workers' compensation,
and unemployment compensation are three legally required benefits. Benefits may also
come in the form of protection programs, such as life and health insurance and
pensions and retirement plans. Group life insurance is one of the most widely offered
benefits because of its cost-effectiveness. Most employers shoulder the premiums for
employees (and sometimes retirees), but end coverage at employee termination. Group
health insurance has also become an expected component of benefits plans. Pension
and retirement plans include defined-benefit plans and defined-contribution plans. As
many as 80 percent of pension plan participants are the beneficiaries of defined-benefit
plans. In such a program, the employer promises a fixed pension level, either in terms
of a dollar amount or a percentage of earnings scaled to seniority. Defined-contribution
plans specify the amount an employer will set aside in an investment fund for the benefit
of each employee.

8 components of an effective employee compensation plan

1. Statement of overall objectives. This should explain how the rewards program
supports the needs of the business, employees, shareholders and/or customers. Each
reward element should have a defined role.

2. Relative importance of compensation. The compensation plan should explain how

the rewards compare with other company identifiers. In other words, is your company
known for something such as technology, culture, size, or leadership? Is your company
known for its pay programs? Do you want it to be? Do you consider your compensation
plan to be an important part of your company’s reputation?

3. Performance measures. The compensation plan should identify the performance

criteria to be rewarded and should define the measurement levels. It should outline the
degree that rewards are expected to drive employee actions.

4. Competitive reference points. The plan should describe the comparative group for
your rewards package. This might be your industry and/or geographic competitors, for
example. The key is to define the program benchmarks.

5. Competitive positioning. Describe your desired position vs. the market described in
the last point. For example, do you want to provide salaries consistent with the industry
average? Or do you want to establish yourself as a company who provides premium
pay over the competition? No matter your position, be transparent and state the intent. If
your intended positioning is below the industry average, be sure to explain why. Lack of
information will only allow rumors to circulate.

6. Internal equity and consistency. Will your strategy be consistent? Will it apply to all
employee groups? Employees will look for fair and uniform treatment without favoritism
between groups. You also need to decide whether you will choose between internal and
external consistency or try to balance the two.

7. Communication and involvement of employees. How much program information

will be disclosed? "While the devil may be in the details, you shouldn’t worry about
getting into the weeds over point-by-point program specifics when laying out your
rewards strategy statements.
8. Governance. The program should be reviewed and refreshed; the frequency and
responsibility for review needs to be established before proceeding to the next level.

The Pay Model

Pay Models are used to device new methods in the payment structure within the
organization. Technique is basically formalized and ties with the four major policies to
pay objectives. Though the sequence of the pay model is used to analysis various kinds
of techniques with proper sequence first technique is of internal alignment which is
based upon and give detail analysis about amount of work accomplished and amount of
work need to be accomplished. On the other hand the information about the employee
and the job profile is collected, organized and evaluated and based upon these
evaluations, a work structure is designed. With the tremendous growth and
complexities in organization regarding pay structures the specific pay model devised by
HR practitioner Milkovich.

Reasons to follow this model are;

1. The pay structure determines relation among job and skills and competency within an
organization.

2. Pay model is based upon work’s importance in achieving the organization’s motives.

3. The clarity and equality in the pay model devise the employee attitude towards the
organization and its rules and regulations.

4. The pay techniques in the pay model help to define the relevant labor markets in
which the employer competes, and use that information with the organization’s policy to
derive a pay structure.

5. Another importance of the pay model is that it controls the efficiency of organization
and helps to retain and motivate its workforce and labor costs.

6. Competition at external level helps in devising a pay level according to the pay
structure paid by competitors for the same level of job. Various forms of pay and
benefits along with annuity funds paid, apart from these funds what are the other
benefits paid like contributions through seniority pay increase, stock options,
performance based approaches, retention moves, attract new people and motivate the
existing ones.

Principles of Wage and Salary Administration

Since the issue of wage and salary determination has always enjoying the major
consideration for any organization, it should be develop and maintain based on sound
principles, some of them are narrated below, attempt should be made to incorporate
them as far as possible while designing the compensation system.

1. There should be a definite plan and system to ensure that differences in pay for
jobs are based upon variations in job requirements, means maintaining equity in
the distribution of wages and salaries in the organization.

2. Maintaining competitiveness in the wage market means the general level of wage
and salary should be reasonably in line with that prevailing in the market.

3. Matching employees’ expectations and it should avoid unjustified discrimination

by providing equal pay for equal work.

4. Reinforcing positive employee behavior and contribution to the organization,

differences in the compensation package should be based on contribution,
productivity, job performance, achievement etc.

5. Devising a system that is the most efficient for the organization, as far as
possible it must eliminate any discrepancies or exploitation of the employees.

6. The compensation system should formulate and define rules and regulations for
determining, changing, adjusting wages in the organization.
7. The compensation package must ensure fairness, should maintain harmonious
relationship between the employee and employer.
8. Compensation system should be flexible enough so that future changes can be
incorporated.
9. The wage and salary administration should take care of and comply all the rules
and regulations laid down by the legislator for protecting the employees’ interest.
10. Optimization of management and employee interests.

Essentials of Sound Wage and Salary Administration

Sound Wage and salary administration demands some essentials to satisfy, so

that one who is shoulder with the responsibility of designing administrative aspects with
this regards, may come out with efficient system for managing the issues related with it.
Some of the pre requisites for the sound compensation system are:

1. Rational Job Analysis: It is an important exercise with regards to each category

of jobs. It reveals detailed aspects of the job, like duties, responsibilities
associated with the performance, performance standards as a fair parameter for
evaluation of the performance. It gives fair idea about job specification i.e.
qualification, experience, skill and other essential requirements that job performer
must satisfy. Thus rational job analysis always put policy decider in a better
condition to lay down appropriate content in policy design.

2. Proper Job Evaluation: Job evaluation is a systematic process of analyzing and

evaluating jobs to determine the relative worth of job in an organization. It forms
the basis for designing the sound compensation system in an organization. Since
wage and salary administration and the perceived fairness of approach adopted
under it have a immense influence on employee morale, motivation and
satisfaction, proper job evaluation exercise demands sensible consideration.
3. In Depth Knowledge About an Organization and Market Factors: Apart from
job evaluation, the various other factors that determine the administrative aspects
for wage and salary administration are the size and structure of the organization
and the industry in which it operates, the strength of employees union, position of
a person and his importance to the organization, demand and supply for
particular skill sets in the industry, organizational ability and capacity to pay and
its economic condition like profitability, and legislative aspects related with wage
determination. Sound system for compensation management demands detail
knowledge about all these factors in order to its sound framework and operation
in the organization.

4. Clarity of Objectives or Purposes of Wage and Salary Administration: Last

but not the least in terms of its significance, in order to have effective and
efficient administration of compensation as an area in the organization, one must
have accurate clarity about the purposes that it may tries to satisfy through policy
decisions. Objectives may be attracting talented resources; retaining and
motivating employees; financial management of an organization; satisfying legal
requirement; and many more. Sometimes these objectives are conflicting in
nature also. So it is very essential that one, who is going to carry out this
responsibility of designing the compensation system in the organization, should
have reasonable clarity for objectives to be satisfied with the design.

Factors affecting Wage and Salary Administration

The term employee’s remuneration includes both wages and salaries. Wages are
commonly considered as the price of labor paid to the workers for the services rendered
to the organization employing them. Where quantum of services rendered is difficult to
measure the payment is called salary. Normally, payment made to workers is referred to
as wages and remuneration paid periodically to persons whose output cannot be
measured such as clerical, supervisory and managerial staff is called salary. Wage and
salary administration is affected by so many factors and most of them are uncontrollable
in nature so probably, this decision is more crucial and critical. Major factors affecting
wage and salary administration are discussed as under:

1. Demand and Supply: Demand for and supply of labor and its availability will
have great influence on the determination of wage rates. If there is a shortage of
labor, the wages demanded will be high. If, on the other hand labor is plentiful,
workers will be too willing to work at low rates of wages. However, wages cannot
be regarded today merely a price for services rendered. In recent years
therefore, both management and labor has been becoming less and less
dependent on this factor as a basic factor. An employee will not hesitate to
accept lower wages if he has opportunities for growth in the organization. Today,
the money, which is paid, as compensation should enable a worker to buy goods
and services which, will enable him and his family to live a better and fuller life
and satisfy his hierarchical needs.

2. Organization’s Ability to Pay: This is a major affecting factor in determining

wage and salary structure of an organization. Financial position and soundness
of an organization can put it in a position to offer attractive compensation
package. Some of the reputed economically sound organizations are offering
good compensation package and thereby successful in obtaining and
maintaining talented workforce. Good compensation package helps in attracting
and retaining quality talent in an organization. Generally wages in most of the
organization decide through collective bargaining and, organization’s ability and
capacity to pay attractive wages depends upon over all financial soundness and
economic condition of an organization.

3. Prevailing Market Rate or “Going Wage Rate”: This is practically the major
factor that induces any organization to take it as a base while determining wage
and salary structure for it. Prevailing market rate is also known as ‘most
comparable rate of wage’, and most popular method for wage rate determination,
especially for lower cadre positions. There are many reasons for an organization
to pay wages at a market rate like competition and a practice of ‘Brain Drain’
prevails in the market. Further more certain laws framed laid down principal of’
minimum wages’, ‘equal wage for equal work’. In addition to this trade unions are
also prefer to bargain upon and in accordance with market rate of wages.

4. Productivity: Productivity is measured in terms of output per man hour. It a

result of several factors such as technology, labor efforts, method of doing work,
management contribution and support and so on. However, productivity has
always remained as base for wage differences since it a base which is
apparently justifiable and acceptable to all in the organization. Many a time this
as base is not acceptable to many trade unions as it is very difficult to have
accurate measurement and is has always remain at a discretion of management
policies.

5. Cost of Living: It is always expected that there has to be adjustment in pay

rates in accordance with prevailing cost of living. The changes in the cost of
leaving affect purchasing power of the person. Trade union also considers this as
a base for collective bargaining on wage issues.

6. Trade Union’s Bargaining Power: Generally the mechanism for fixing of wages
for majority of workers is collective bargaining or negotiation, and collective
bargaining and negotiations depends upon the trade union’s strength. If there is a
strong union operates in the organization, it may dictate its terms on wage
fixation and revision over a period of time and vice versa. The strength and
power of the trade union depends upon its membership, financial strength and
leadership it may have, for its functioning.

7. Job Requirements: From the organizational perspective appropriate job

analysis and job evaluation exercise is a base for the wage determination and
revision. It is quite obvious also that wages to be paid to the workers should be in
accordance with the duties, responsibilities and the efforts likely to be put for job
performance. Wage or compensation package very in accordance with job
description and job specification.

8. Management Attitude: Attitude of employer or management towers the working

community of the organization does influence in wage determination and revision
at an appropriate time. Some reputed and professional organization does prefer
to pay wage in accordance with their reputation or prestige of an organization in
the market. They may give participation to workers in sharing profits. On the
other hand conservative organizations do not prefer to go for such profit sharing.
9. Psychological and Social Factors: Psychologically person perceives wages
and compensation package as sole parameter for success or failure in the life.
Compensation package plays significant role in the employees pride, moral,
motivation and psychological engagement and involvement in the work.
Therefore such variable should not be overlooked by the organization while
determining wage and salary structure. Socially and ethically also people feel
that “equal work should carry equal pay “i.e. wage should be in accordance with
efforts and workers should not be felt like being cheated. Compensation policy
should not make any discrimination on the basis of caste, color, Sex or region,
and must try to satisfy condition for fairness equity and justice.

10. Legislative Considerations: Legislative provisions do provide protection to the

working community by fixing bottom line for wage payments. Many a time it was
found that the bargaining power of the workers was not strong enough to ensure
fair wages. Consequently, the state legislative frame work stepped in to regulate
wages and provide for certain benefits to the workers. Legislation like Minimum
Wages Act, 1936, provides for statutory minimum wages to be prevails in the
industrial organization so that workers can satisfy their bare requirements and
maintain their minimum living standard. These aspects are also considered while
deciding compensation policy for an organization.

Methods of Wage Payments

Wage plans are mainly micro plans and each company may devise any of the
wage plans. Basically there are two methods for wage payments, viz.

1. Time rate wage system; and

2. Piece rate wage system.

The wage paid to labor has to perform important functions in the economic
system. It should be such as to make the worker capable and willing to be efficient and
involved in the job. There should be link, wherever feasible between emoluments and
productivity; and fair parity between wage differentials and skill differential. The plan
should act as an incentive to improve the efficiency, and it should attract the worker
wherever demanded or needed.

Whatever may be the method of wage payment but the wage plan should contain
following ingredients:

1. It should be simple and understandable

2. It should be capable of easy computation

3. It should be capable of motivating the employees

4. It should be attractive enough for new talent in the organization.

5. It should be fair, just and stable to all the employees.

The fundamental plans of wage payment are:

1. Time Rate Wage System: It is the oldest and the simplest form of wage fixing.
Under this system, workers are paid according to the work done during a certain
period of time at a rate of per hour, per day, per week, per fortnight, or per month
or any other fixed period of time. According to the section4 of the Payments of
Wages Act,1936, not more than one month must elapse between two wage
period. Time wage system adopts time as the basis of worker remuneration
without taking in to account the units produced. The worker is guaranteed a
specified sum of money for a fixed period of his time taking no account of the
quality or quantity of the work done. Evaluation on the basis benefits and
weaknesses is as under:

 Merits: It is simple and understandable and easy for calculation of wages, since
wages under this system is equal towage per hour* numbers of hours worked by
an employee. There is no time limit for completion of job, workman is not in hurry
to finish it and this may mean that they may pay p enough attention to the quality
of work, effective handling of machinery and utilization of resources in an
optimum manner. All workers are given same treatment in terms of equal wage
payment, so grievances, ill will; jealousy can be avoided among them. Time rate
system provides regular and stable income to workers, so they can adjust and
manage their budget accordingly. It requires less administrative attention as this
system provides good faith and mutual understanding and trust between
employer and employee.

 Demerits: It does not take in to account the ability and capacity of the workers so
the skilful and more capable workers who have higher production efficiency will
demoralize. Time rate system is unrelated to the productivity and does not
provide extra motivation for extra efforts by the workers. The labor charges for a
particular job do not remain constant. This put the management in a difficult
position in the matter of quoting rates for a particular piece of work. There is a
possibility of systematic evasion of work by the workers, since there is no specific
target or demand for specific quantity of work by the management. Time rate
system does not ask for maintaining individual workers record, it becomes
difficult for the employer to determine his relative efficiency for the purpose of
performance evaluation for future promotion or rewards. Thus it does injustice to
the outstanding employees.

 Suitability: Time rate system is suitable when the output contributed by the
worker is difficult to measure and cannot be recorded in an individual basis. It is
also suitable when by cultivating mutual trust and confidence and by giving fair
and equal treatment to all the employees, management can get the work done in
an appropriate manner

2. Piece Rate Wage System: Under this system, workers are paid according to the
amount of work done or numbers of units produced or completed, the rate of
each unit being settled in advance, irrespective of the time taken to do the work.
This does not mean that the workers can take any time to complete a job
because of his performance far exceeds the time which his employer expects he
would take, the overhead charges for each unit of article will increase. There is
an indirect implication that a worker should not take more than average time.

 Merits: The main advantage of this system is recognition of merit, as efficient is

rewarded; It is therefore more equitable then time rate system. It pays workers as
per their efficiencies, ability, capacity or performance, so it gives direct stimulus
and motivation to the employees for extra efforts, which may result into more
productivity. It requires less managerial supervision as total remuneration
depends upon units produced, and not on time spent in an organization. Being
interested in continuity of his work, a workman is likely to take greater care to
prevent breakdown in the machinery or in the workshop. It is a gain to the
management since it reduces maintenance expenditure in an organization. As
the direct labor cost per unit of production remains fixed and constant, calculation
of cost while filling tenders and estimates becomes easier. It results in to not only
increase in the output and wages, but the methods of production too are also
improved, as workers demand material and tools free from defects and
machinery in perfect operating condition.

 Demerits: If rates of wages are not scientifically fixed and acceptable to the
workers, would result into workers exploitation and may prove counterproductive
as workers are interested in completion of the job with a greatest speed, may
damage the machinery, quality of output or may increase rate of hazards in an
organization. Trade unions generally do not like this system of wage payment;
they may not have full support and acceptance. It may be the major issue for
industrial dispute.

 Suitability: It can be introduced generally in jobs of a repetitive nature, when

task can be easily measured, inspected and counted. It is practically suitable for
standardized processes, and it appeals to skilled and efficient workers who can
increase their earnings by working to their best capacity.

3. Balance and Debt System: This system combines time rate and piece rate.
Under it a minimum weekly wage is guaranteed for a full weeks’ work, with an
alternative piece-rate determined by the rate fixed on the assumption that the
worker would put enough effort to earn his minimum wage. If the wages
calculated on piece bases are in excess of the time rate, the worker earns the
excess. If the piece rate wages are less than the time-rate earnings, he would
still get weekly wage, but on the condition that he shall have to make good the
excess paid to him out of the subsequent wage he would earn. Suppose a
worker is expected to complete at least 10 pieces during the week in order to
earn the minimum wage of rs.60, the piece rate has been fixed at a rate of Rs.6
per unit. If the worker produces 12 units within the week, his earning will be
Rs.72. If on the other hand he produces only 9 units , he will still be paid Rs. 60
his minimum weekly wage but as on the basis of piece rate his earning should
amount to only Rs. 54, the sum of Rs. 6 paid in excess will be debited to him to
be deducted out of his subsequent earnings. Thus under this system workers’
wages are determined, by both the number of hours he works and the pieces he
produces. So it a hybrid system producing the same benefits and limitations of
both the time rate and piece rare system.

Process of Wage Determination

Practically how wages are determined and maintained or administered in an
organization is very organization-to-organization. Ideally speaking it depends upon sole
discretion that what procedure and organization follows for wage and salary
administration. More or less an attempt is made by every organization to follow the
principles suggested for sound compensation management. Organization tries to
inculcate systematic procedure for wage determination and their revision at an
appropriate time. Process of wage determination includes job analysis and job
evaluation, survey of wages in the environment, determining wage structure, and
deciding rules for wage administration. Briefly these steps are discussed as under:

1. Job Analysis and Job Evaluation: This may be the primary exercise that an
organization needs to carefully carry out with an intention to create base for wage
determination. Job analysis reveals information about tasks, duties,
responsibilities and standards with proposed job is to be performed by the
employees. It also guides in terms of job specification i.e. skills, ability.
Qualification and experiences needed to perform the job with requisite
performance standards. Job analysis gives enough information about the job and
the profile of the performer in order to perform that job. Another important
exercise that an organization needs to carry out is ‘Job Evaluation’. It is nothing
but finding out relative worth of a job, in terms its contribution and significance to
the overall organizational objectives.

2. Determining Performance Standard and Wage Surveys: Having understood

the job in considerable detail an attempt is made to determine expected
performance standard to be carried out by the performer. Then, an organization
must survey wage rates prevails in the market for the same job or its similar type,
so that attractive compensation package can be designed to induce good quality
of candidature to apply for the job in an organization. Here care should be taken
that wage structure should be in accordance with the complexity and efforts
needed in the performance.

3. Deciding Wage Structure and Rules for Its Administration: Based on

collection of relevant information and taking in to account some of the influencing
factors, an organization should design wage structure which includes slab for
basic or minimum wages, incentives, and/or increment over a period of time to
gather with other financial and nonfinancial perquisites to be offered to an
employee. Attempt should be made to follow principles of fairness, equity and
justice to gather with transparency while designing wage structure and deciding
rules for its administration. The rules should not provoke un justified
discriminations and exploitation of workers otherwise it may prove
counterproductive and may give rise to grievance, and industrial disputes.

Compensation Structure in the Philippines

Labor and Social Legislation

The Labor Code of the Philippines, otherwise known as Presidential Decree No.
442, governs all employee-employer relations, their rights and obligations. Payroll
Salary Compensation and Benefits in the Philippines as provided under the Labor Code
of the Philippines and other relevant laws.

Payroll Salary Compensation, Benefits, Wage and Wage-Related Benefits Overview

– At least the minimum wage per region and/or sector

– Holiday wage and overtime pay for work during holidays or rest days

– Overtime pay when working in excess of 8 hours

– Service Incentive Leave: 5 days of vacation per year of service

– Parental leaves (Maternity, Paternity and Solo parent leaves)

– Other Leaves

– 13th month

– Separation pay

Total Rewards Strategy

Total rewards strategy encourages organizations to move toward a pay-for-performance

philosophy providing opportunities for top performers to earn higher base salaries
through a well-defined performance evaluation program embracing a meritocracy
culture. In order for continuous improvement to occur, supervisors must provide ongoing
coaching and feedback as part of the performance evaluation process. Benefits
represent one of the largest investments a company makes in its talent. However, our
tendency can be to design, deliver and communicate benefits programs independently,
without fully considering how those pro grams fit within a bigger picture of total rewards.
Benefits make up an important component of the employment relationship, providing
employees with financial protection, access to health care and programs to support
work/life balance. It’s no surprise then that employers carefully manage their benefits
programs. What is surprising is that they often do so independently of other programs
and, as a result, may not get the highest return on overall benefits spending. Thinking
about employee benefits within a total rewards framework and approaching total
rewards, as a differentiator for your organization will have a more positive impact on
attraction, retention and engagement while helping to manage cost and volatility.

When properly designed, delivered and communicated, a company’s total rewards

program can provide an incentive for talented people to join a company, to perform at
levels that produce desired business results and to remain with the company as long as
they continue to produce. In short, companies can achieve a higher return on their
investment in benefits and other programs by operating within a total rewards
framework.

In recent years, the phrase “compensation and bene ts” has given way to “total
rewards”—which encompasses not only compensation and bene ts but also personal
and professional growth opportunities and a motivating work environment (for example,
recognition, valued job design, and work/life balance). What explains this broader view
of rewards? First, stiffer competition in business has made it dif cult for cost-conscious
organizations to offer higher wages and more bene ts each year. Employers have had
to nd alternative forms of rewards that cost less to implement but that still motivate
employees to excel. Second, organizations
have become much more strategic in their management of human resources (Barney &
Wright, 1998)—including integrating their various human resource functional areas. For
instance, some companies now treat compensation and training as rewards that must
be managed together rather than separately by different HR teams. The “Total Rewards
Strategies” chart sheds light on the wide range of strategies that can make up a total
rewards program.
To implement total rewards strategies successfully, organizations must follow a
disciplined process (Ledford & Mohrman, 1993), which is depicted in “Implementing a
Total Rewards Program. Clearly, implementing a new total rewards program is akin to
carrying out any large-scale transformation initiative. Research on organizational
change can provide some guidance. One study examined a 12-plant manufacturing
division of a multibillion-dollar food-products rm (Ledford & Mohrman, 1993). The rm
used a learning model to guide the change effort. First, it laid the foundation for change
by educating stakeholders about the intervention, clarifying the rm’s values, and
diagnosing organizational systems relative to the values of the organization. Second,
the rm designed, implemented, and evaluated changes to those systems. The cycle
was continually repeated, as illustrated in the diagram below. This process led to
deeper learning within the organization. To evaluate the results of this learning model,
the researchers collected attitudinal data at two points in time. Findings suggested that
the change initiative had led to increases in job variety, supervisory participation, in
uence over planning and scheduling, and other positive outcomes.

The following sections take a closer look at how you and other HR professionals in your
organization can take a total rewards initiative through each of the four phases in the
implementation process.
Four Phases of Total Rewards Program

The most successful total rewards initiatives are guided by a project team from start to
nish. By assembling the right team, you greatly boost your chances of success. The
following guidelines can help.

The Advantages of Having a Total Reward in Organizations

Simply put, the elements of a total rewards program constitute all the things a business
uses to attract employees, including salary, bonuses, incentive pay, benefits and
employee growth opportunities such as professional development and additional
training. This system provides a number of advantages to companies, particularly small
businesses in which business owners and managers must foster positive personal
relationships with employees. The system works in a cyclical manner consisting of four
total parts.
Employee Retention

Total rewards systems map out ostensible paths for the entire career of an employee
based on a basic template created by a business for its specific program. When a small
business hires an employee on a total rewards program, the business can show that
employee the points at which bonuses, pay raises, increased vacation or paid sick time
and increased benefits occur during the individual's career trajectory. Such a plan
provides immediate incentive for employee retention by giving an employee a series of
long-term projections and goals. This type of transparency also helps foster a healthy
working relationship in small businesses by putting the managers and employees on
equal footing when it comes to knowledge regarding career trajectories.

Employee Performance

Total rewards programs provide direct incentive for employee performance. These
programs present ostensible career trajectories, though employees understand that
certain aspects of these trajectories, including bonuses, only occur if employees meet
certain performance standards. These programs also include aspects such as
professional development, training and performance management that allow employees
to develop new and special skills through education and training, thereby increasing an
employee's knowledge of and ability to perform his job. Total reward systems include
methods of employee performance monitoring for employers that allow employees input
and create dialogue, all of which help foster a relationship of mutual input, which
potentially leads to increased levels of professional respect and understanding.

Controllable Expenses
The long-term and complete scope of total rewards programs allows a small business to
create relatively accurate estimates of how much money it spends on each employee
over the course of a number of years. When a business creates a total rewards plan, it
possesses the ability to create a matrix of expenditure that fits not only the finances of
the program at its outset but also within the parameters of the projected growth of the
company as it builds. The cyclical nature of the program, which includes the four steps
of design, execution, evaluation, assessment and back to design, allows for
adjustments in expenditure in keeping with changes in company budget. As a company
earns more money, it can filter more money to employees through raising pay, giving
employees the perception of worth and thus encouraging employee longevity and
performance.

Program Administration

Total rewards programs provide the advantage of centralized administration in all

employee-related concerns, including benefits, pay and training. For business, and
particularly small businesses, such a system of administration provides the advantage
of a complete system through which to control all of these aspects. In other systems of
compensation and rewards, health care administration occurs separately from pay,
while pay bonuses and raises happen on a different schedule than training and
development. In total rewards, all of these things occur on a single time line and can be
overseen simultaneously.

The Disadvantages of Total Rewards Program

Lag the Market

A company's total rewards program may lag the market due to budgetary constraints.
For example, a company may pay below-market salaries or provide minimal health and
retirement benefits. Small business total reward programs may reflect especially
pronounced lags due to the lack of size and financial stability to offer large salaries or
significant health benefits. A lagging rewards program could lead to trouble meeting
human resource goals as employees learn about the size of the gaps.

Appropriate Mixture

Companies need to properly blend competitive salaries with benefits and intrinsic value.
Small businesses with limited resources must decide what benefits and what types of
benefits to include. For example, employers must determine if employees prefer
preferred provider organizations over health maintenance organizations for health
benefits or prefer high deductible insurance combined with health spending accounts
over flexible spending accounts. With limited resources, an appropriate mixture that
satisfies employees goes a long way to supporting the company's human resource
goals. The wrong mixture can derail HR objectives.

Self-Focus and Competition

Many companies stress the importance of the team in achieving company goals. The
team focus assumes people perform optimally when they work as a whole, achieving
more as a group than as a collection of individuals. However, employees may focus too
much on earning the individual benefits and rewards contained in a total rewards
program. The more employees’ focus on individual efforts, the more potential their
efforts have to decrease their team’s effectiveness. Some spirit of competition can be
good, but too much can undercut the goals of a reward program.
Conclusion

Successfully implementing a revised or entirely new total rewards program will always
be challenging. To boost your chances of success, you and your pilot team must
carefully shepherd the project through the four phases of implementation: assessment,
design, execution, and evaluation. Each of these phases requires careful thought,
patience, and a willingness to solicit input from a wide range of individuals in your
organization.

But the effort is worthwhile. A well-thought-out and skillfully implemented rewards

program can give your organization a competitive edge. In particular, it can help you
generate the business outcomes that matter most to your strategy—whether those
outcomes take the form of employee retention, productivity, job satisfaction, or service
quality. In an age of stiffening competition and increasing pressure to do more with less,
no organization can afford to ignore the strategic value that a well-designed total
rewards system can provide.
Chapter Activity: Case Analysis

Workers’ Compensation Case Study: Injury at a Company Event by the Flanders Group.
Use the Case Analysis Format

This is an interesting case we can all relate to because it involves a company-

sponsored recreational event. An employee was injured during the special event, not at
the workplace performing work duties. Read on to learn if the courts awarded the
employee workers’ compensation benefits.

The normal workweek for Danny Douglas was Monday through Friday from 8:00 a.m. to
5:00 p.m. Douglas received an email at work on a Friday informing him of an all-
expense paid event scheduled for that afternoon at a recreational facility where patrons
can play games, eat, and race go-carts. The event was intended to thank its employees
and to do “team building.” Even though employees could choose to either go to the
event or stay at work and do their jobs, Douglas felt pressured to attend the event to
demonstrate that he was “part of the team.”

Douglas arrived at the facility and during the meal the employees were assigned to
teams while the company owner gave what Douglas viewed as a pep talk. Activities
included the go-cart track and they were encouraged to race and to go as fast. Douglas
was not inclined to race but did so because he wanted to be part of the team and prizes
were awarded for the fastest time. Douglas testified that the racing “was meant to boost
morale and boost sales to kind of energize the company.” During the race, Douglas had
an accident and was ejected from his go-cart, striking his right side. His pain kept him
from finishing the race but he remained at the event until 5:00 p.m. and received his
normal pay for the day. After several visits for medical treatment over the next two
weeks, he was operated on to remove fluid from a punctured lung due to a rib fracture.
He was off work for a few weeks after the surgery and received his normal pay.
Douglas filed a workers’ compensation claim and an administrative law judge (ALJ)
heard the case. After hearing testimony and depositions from a number of company
principals and others who attended the event, the ALJ found that Douglas’ injury arose
out of and in the course of his employment, that the claim was compensable, and
awarded him benefits for a 15% work disability. The Board determined that Douglas felt
pressured to attend the event, even though it had very good intentions. The Board
modified the ALJ’s award to reflect a functional impairment instead of a work disability
but otherwise affirmed it in all other respects.

The employer appealed and the appellate court found that the Board did not err in
concluding that Douglas’ injury arose out of and in the course of his employment. They
found that there was substantial evidence to support the Board’s finding that the
employee was under some pressure to attend the employer-sponsored event. So, even
if attendance at an employer-sponsored event is not mandatory, it does not necessarily
mean that the employee is under no duty to attend it. The Board’s ruling was upheld
and Douglas received Workers’ Compensation benefits.