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Compensation

Pay structure within an organization

Is what employee receive in exchange for their contribution to the organization

Wage and Salary

- rate of pay of an employee
Incentives
- paid in addition to wages and salaries
Fringe benefits
- these include such employee benefits as provident fund, gravity, medical care,
hospitalization, accident relief, health and group insurance, canteen etc.
Perquisites
- offer to retain competent executives
Objectives of Compensation

attract suitable staff

retain qualified personnel

develop reward structures that are equitable with consistent and fair pay relationships
between differently valued jobs

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adjust pay structures to reflect inflationary effects

ensure that rewards and salary costs adjust to changes in market rates or organizational
change

reward performance, responsibility, and loyalty, and provide for progression and
increases

keep compensation levels and differentials under review and control salary/wage costs

REPORTED BY:
Amigo, Jomalyn
Bacolongan, Mark Gelo
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Wage

It is a monetary compensation or remuneration paid by an employer to an employee in

exchange for work done

Payment may be calculated as a fixed amount for each task completed or at an hourly or
daily rate, or based on an easily measured quantity of work done.

Importance of Wage

One of the most important aspects of a job for most workers is the wage it pays. Wages
allow workers to make a living from their labor.

Also provide incentives to be productive and loyal to an employer.

In a broader sense, the wages workers earn fuel of the economy.

Income
For workers, wages are a primary source of income, along with smaller sources
like government aid and investment income. Wages from work pay for essentials. Such
as rent, a mortgage, food and utility bills. Workers who earn high wages can afford more
expensive lifestyles than those who earn lower wage. Minimum wage laws ensure that all
workers earn enough to pay for the basics, and that employer cant take advantage of
workers.

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Retention
To employers, wages are an important tool for retaining workers. Low wages will
save money on payroll, but a more competitive wage will give workers fewer reasons to
leave for job elsewhere. Wages provide a means of reward, such as when an employer
gives a raise based on a performance evaluation, or issues a performance bonus.
Employees who earn a reasonable wage are more likely to fell valued by an employer,
which means that wages also contribute to workplace morale.

Spending Power
Wages play a major role in the economy by giving workers spending powers. This
refers not only to the money workers earn that they spend on necessities, but also the
money they save or use in the short term for consumer goods, recreation, travel, and
investing. Workers wages create jobs elsewhere by supporting manufacturers, retailers,
service providers and financial institutions that help workers manage their wealth.

Taxes
Wages are also a source of tax revenue for government. The more workers earn,
the higher their taxable income and tax rate. Unemployed taxpayers must claim their
unemployment benefits as income, but the limits on unemployment benefits mean that
unemployed individuals pay less in state and federal taxes than those who earn steady
wage. Higher wages, as occur in competitive industries where workers are in high
demand, boost government revenue and provide more funding for services and new
projects.

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Kinds of Wages

1. Nominal Wages
Nominal wages are written down in contracts between the employee and the
organization.
2. Real Wages
Real wages somehow correct nominal wages for prices of good and services
bought by the employee.
In specific institutional settings, nominal wages may be automatically and
frequently adjusted to certain inflation measures, resulting in a more or less constant real
wages.

Types of Wages
1. Subsistence Wage
The wage that can meet only bare physical needs of a worker and his family is called
subsistence wage.
2. Minimum Wage
The wage that is able to provide not only for bare physical needs but also for
preservation of efficiency of worker plus some measure of education health and other things.

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3. Fair Wage
It is an adjustable step that moves up according to capacity of the industry to pay, and
the prevailing rates of wages in the area of industry.
4. Living Wage
Living wage is that which workers can maintain the health and decency, a measure of
comfort and some insurance against the more important misfortune of life.
How to Calculate Wages
Wages are the number of hours worked multiplied by the hourly rate. The term wage is
another word for the terms salary or pay.
Know how the wage is calculated
A persons weekly wage is equal to the number hours worked multiplied by the hourly rate.
Example:
Hourly Rate x Hours = Wages
$6.00

20

= $120.00

Estimate a persons annual wages by multiplying the number of hours worked in a week
by 50 weeks.
It is easier and usually more accurate to use 50 weeks instead of 52 weeks. This will account
for any unpaid vacations and absences. A person who regularly works for 40 hours a week works
2,000 hours in a year.
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Example:
Hours in a week x number of weeks = hours work in a year
40 hours/week x 50 weeks = 2000 hours
To estimate annual wages, use the hours worked in a year and multiply that by the hourly
rate.
Its the last step to finish wages calculation
Example:
Hours worked in a year x Hourly rate = Annual Wages
2000 hours/year x

$6.00

= $12000 Annual Wage

REPORTED BY:
Balentoza, Marie Joy
Balbuena, Alyssa Nicole
PAGE 3-7

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Subsistence Theory by David Ricardo (1772-1823)

was based on the population theory of Thomas Malthus.

Also called as Iron Law of Wages

This theory states that The laborers are paid to enable them to subsist & perpetuate the
race without increase or diminution

Disadvantage or Criticism

No direct relationship between wage level and population

Wages FUND Theory by Adam Smith (1723-1790)

This theory states that wage level is determined by wage fund and the number of
workers employed.

The wage level is given by the ratio of wage fund and number of workers employed.
Mathematically,

Disadvantage or Criticism

Wage paid to workers differs from place to place, time to time, person to person and
organization to organization.

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Surplus Value Theory of Wages by Karl Marks (1818-1883)

This theory states that Labor is the sole source of the economic value and therefore labor
should exercise the prime claim in revenue

Advantage

the income produced by a particular source should be paid to the labor.

Disadvantage or Criticism

Exploitation

Residual Claimant Theory by Francis A. Walker (1840-1897)

This theory states that wages are nothing but the residue of total revenues after
deducting all other legitimate expenses such as rent, taxes, interest and profits.

4 factor of production
land, labor, capital & entrepreneurship
Wages = value of production (rent+ interest+ profit)
Disadvantage or Criticism

Demand & supply factor ignored

Productivity & efficiency ignored.

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Marginal Productivity Theory by Phillips Henry Wicksteed and John Bates Clark

This theory states that Wages are based on entrepreneurs estimate of the value that will
be produced by the last or marginal worker

Advantage

Full EMPLOYMENT of resources

Perfect competition

Perfect mobility of factor of production

Disadvantage or Criticism

No importance to supply of labor

In practice EMPLOYER gives lower wages than marginal productivity of laborer

Unrealistic assumptions

Bargaining Theory of Wages by John Davidson

This theory states that Wages are determined by relative bargaining power of workers or
trade unions and of the EMPLOYERS.

REPORTED BY:
Arizo, Remy
Cabuhat, Mia Raven
PAGE 8-10
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Incentives are rewards relating to certain goals. Perks are benefits on top of basic salary.
Incentives and perks can be financial or non-financial. You can also have individual and group or
team incentives.

The benefits of staff incentive schemes

Incentives - such as performance-related bonuses - can help boost staff performance. The
rewards usually relate to the achievement of certain goals, either personal, team or
organizational, or a combination of all of these.

Perks are benefits given in addition to salary as a means of increasing satisfaction at work.

Pay is often the most important staff motivator and incentives and perks must not be seen as a
substitute for a good pay scheme. Incentives and perks do not have to be expensive for business
and some are even tax free.

Benefits to the business

An effective system of incentives could help:

persuade staff to join your business

retain existing staff

increase staff motivation, morale and loyalty

boost productivity

link individual and business performance

focus employees on achieving targets

build teamwork
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Benefits to staff

Perks and incentives can form an attractive element of an employment package by:

enhancing the quality of working life

rewarding staff efforts

adding value to the employment contract

What makes effective schemes?

Incentives and perks must be affordable, transparent and appropriate to your business and
the jobs they link to It is worth consulting with staff or unions before introducing incentives and
perks. They work best alongside good pay schemes and working conditions and can be most
successful when implemented with other good management practices, such as performance
management, appraisals and appropriate communication and training programs.

Incentive schemes and the options

There is a wide range of incentive schemes, each with different costs. They include financial and
non-financial schemes, individual and group schemes, and short-term and long-term
schemes.

The options

Financial incentives can help improve performance and be self-financing.

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Examples include:

profit-related and share option schemes

bonuses

commission

Non-financial and non-pay incentives include:

formal recognition/awards

vouchers

extra holidays

gifts

company cars

Advantages and disadvantages of incentive schemes

Incentive

Advantages

disadvantages

Can focus employees on hitting

Rewards are sometimes small
Financial

a target
Can demoralise if not earned
Places a value on achievement
Can recognise employee

Nonfinancial

priorities and lifestyles

Can be taken for granted

Can encourage attachment to

May be inappropriate

business

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Incentive

Advantages

disadvantages

Can focus the individual on

Can be divisive
achievement
Individual

Individual earnings can

Links extra pay with extra
fluctuate
output
Can undervalue individual
Can encourage team working
skills

Group

Can correct individual underMay encourage bullying of

performance
under-performers

Promotion and training opportunities are not strictly incentives as they are ways of fulfilling
business needs.

Negative incentives, eg threat of dismissal, may work in the short term but can decrease morale
and loyalty.

Perks and the options

Perks are generally a good method of attracting and retaining employees as they are not related
to productivity. Perks can encourage staff attachment to the business.

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The options

There are a wide range of perks, including:

occupational pensions

more holidays than the statutory minimum - see our guide on how to know how much
holiday to give your staff

gifts, eg on birthdays

health benefits, eg health insurance/assessments

flexible working - see our guide on flexible working - the law and best practice

subsidised staff canteens, tea/coffee-making facilities or goods/services

loans, eg season tickets

social events, eg Christmas parties and work outings

membership of social clubs

extra training, which goes beyond skills needed for the job

Tax

Most perks with an equivalent cash value have tax implications. See our section on expenses
and benefits for employers.

Other considerations

You may want to consider the following points when providing perks:

they must be perceived as worthwhile

they must not cost the employer more to provide than the employee could get them for
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they must be worth more to the employee than any tax they will pay on them

Make sure that the perks you choose are relevant to both your business and staff. Be careful
when removing or changing any of the perks you offer. If they are part of your employees'
contracts you will need to gain their consent. If you do not get consent the employee may be
entitled to sue for breach of contract or resign and claim constructive dismissal. See our guide on
how to change an employee's terms of employment.

Steps to setting up an incentive scheme

Identify the scheme's objectives

Consult with staff and trade unions.

Relate the scheme to the business' remuneration system.

Establish any tax implications for your staff

Ensure that the planned scheme is competitive.

Decide on performance measures for your staff. .

Regularly review your scheme and obtain feedback.

Ensuring the incentive scheme is successful

1. Back your incentive programs with sound strategy
2. Let top performers pull everyone up.
3. Be sure everyone knows what their goals are.
4. Spell out what will be measured
5. Acknowledge discretionary effort
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6. Make sure you're incentivizing the right behaviors.

7. Meet both organizational and individual needs
8. Use a mix of incentives
9. Establish the frequency of incentive distribution.
10. Bottom line, keep incentive programs simple.

REPORTED BY:
Balsamo, Stephanie Rac
Bugnon, Jerisha Iris
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WRITTEN REPORT
Compensation Administration

GROUP 1

Arizo, Remy
Amigo, Jomalyn
Bacolongan, Mark Gelo
Balentoza, Marie Joy
Balbuena, Alyssa Nicole
Balsamo, Stephanie Rac
Bugnon, Jerisha Iris
Cabuhat, Mia Raven

BSBA-HRDM 2-5D

Tuesday and Friday

9:00-10:30 A.M.

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Amigo, Jomalyn
Bacolongan, Mark Gelo
INTRODUCTION OF COMPENSATION ADMINISTRATION

Balentoza, Marie Joy

Balbuena, Alyssa Nicole
WAGES AND THEIR SIGNIFICANCE

Arizo, Remy
Cabuhat, Mia Raven
THEORIES OF WAGES

Balsamo, Stephanie Rac

Bugnon, Jerisha Iris
INCENTIVES SCHEME

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