HUMAN

RESOURCE
MANAGEMEN
T
(CHAPTER 5)
 REWARDS MANAGEMENT
Involves the process of rewarding people. It is concerned with the
design, implementation, and maintenance of a rewards system containing
compensation and benefits with the intention of improving organizational
and individual performance. Rewards management includes financial
and non-financial rewards.

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The total reward model indicates the tangible aspects, i.e.
compensation and benefits are monetary in nature, and are
usually more enticing than intangible ones if a company seeks
to recruit and retain personnel. However, this aspect cam ne
easily copied by competitors. The intangible aspect of a total
reward (e.g., learning, development, and work environment)
further enhances the tangible aspects and inspires loyalty
among employees of the company. Thus, they become loyal
and devoted to the organization. It also gives satisfaction to
the members of the workforce. The combined effects of the
tangible and intangible aspects of a total reward provides
the real impact and meaning of rewards to employees.

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The three R’s, namely remuneration, rewards, and
retention, are the tangible aspects of total reward or
compensation and benefits that are thoroughly
discussed in this hand-out. Rewards refers to all
types of compensation and benefits that employees
receive in exchange foal l forms of work performance.
Retention is the ability to translate it into something
that will increase an employee’s satisfaction and
loyalty to the organization. Remuneration refers to
the compensation and benefits plan made by the firm.

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TOTAL REWARD
REMUNERATION
“
pertains to the computation of compensation, a task considered to lie at the “heart” of
the HR department’s responsibilities. It is also the most controversial and tedious
function among HRM’s functional areas. It is therefore, necessary to lay a foundation
for fair compensation to make an organization work. Compensation is the tangible
equivalent of any work or task performed in the organization. It can either be direct
or indirect. Direct compensation refers to monetary rewards such as salaries, wages,
commissions, bonuses, allowance, and other forms of monetary payments. Indirect
compensation includes the benefits offered by companies to employees such as
hospitalization, insurance, day-off, summer outings, sports fests, among others.

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 Common terminologies assigned to compensation
and benefits…
1. Base Pay – it is the fixed and usually the largest component of the
total compensation package. Compensation professionals use the
following factors in determining the base pay: (a) Job-based pay; (b)
Skill or competency-based pay; (c) Market-based pay; (d)
Combination of the three.

2. Incentive compensation – incentives or bonuses are given to

employees who achieve certain objectives set by the organization.

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3. Allowances – these are temporary add-ons to the basic pay
such as rice ration, transportation, and meal allowances etc..

4. Overtime Pay – this is provided for work rendered beyond

the normal work hours.

5. Risk Benefits – these are payments for medical, death, or

disability cases that are provided to employees depending on
the risks involved in the type of jobs they perform.

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6. Retirement Benefits – these are benefits provided to
employees who have reached the compulsory retirement age
after serving a company for a certain number of years.

7. Equity Compensation–usually given to senior executives,

this compensation comes in the form of stock options.

8. Perquisites – these are extended to members of the senior

management. Examples include first-class travel, lodgings,
accommodations, lunch/dinner meetings, country club
memberships at company’s expense, etc.

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Compensation is a primary
consideration in an employee’s work
life. It is the primary reason why
employees look for a job. They use
compensation as a means to satisfy
their own needs. To earn a living is
one of the objectives of a person who
seeks employment. In essence, a
person’s work life starts with being
employed and getting paid, and ends
by being paid upon resignation or
retirement.

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1. Cost-containment - compensation should be based on the ability of the company
to pay right compensation package.

2. Objective – compensation should be based on the task being performed by the

employee as well as his/her skills and knowledge about the job.

3. Motivating–compensation should boost the employee’s morale and encourage

him/her to always strive for better, if not the best performance.

3. Productivity-providing – compensation should ensure that employees are happy

and satisfied. These conditions result in greater productivity.

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5. Equitable – compensation is fair to all if the pay is commensurate to the
employee’s contribution to the organization.
6. Non-discriminating – compensation should ensure that no one suffers
discrimination. It is based on performance free from prejudices based on age,
religion, civil status, gender, and other discriminatory factors.

7. Sustaining – compensation should provide for the employee’s needs and is

concerned with his/her welfare. It should also sustain the organization’s goals and
objectives by guaranteeing exemplary employee performance.
8. Adequate Legal Compliance – compensation should adhere to the law. It
should not be lower than the minimum wage. Government-mandated benefits
should be provided as well.

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9. Time-bound – compensation should be given on time. There should be no cause
for delay in the payment of salaries and wages.
10. Inducing loyalty – compensation should induce employees to stay in the
company. Generally, employees who are happy and satisfied in terms of
compensation, benefits, and work environment will not think of leaving their jobs.

11. Obligatory – companies have the obligation to pay their employees well. The
employment contract duly signed by the company representatives and the
employees indicates this particular responsibility.
12. No insecurity – the pay package should make the employee feel secure. He/she
must believe that what he/she will receive can satisfy his/her basic needs.

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 External Factors that influence compensation plans
1. Demand and Supply of Labor. If a particular position is highly specialized,
the pay should be higher. Jobs that require fewer skills provide lower salaries.
If there is a demand for highly skilled workers, compensation for such jobs is
high

2. Prevailing Economic Conditions. If a particular organization is highly

productive, it can pay higher salaries. If the general economic condition is
good, many organizations can pay satisfying and competitive wages.

3. Government Intervention in Compensation. The government imposes

certain regulation such as the minimum wage law. It establishes a price floor
especially for jobs that pay minimum wages.

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 Internal Factors which influence compensation
decisions
1. Budget. The first consideration is budget. As mentioned in the chapter on
HRP, computing the rate of compensation is a key decision that an organization
makes, especially with regard to the salary given to each employee.

2. Employee Motivation. Another internal factor is the influence of

compensation on employee motivation. A fair and just compensation may
motivate an employee to perform well in the attainment of the organizational
goals.

3. Employee Productivity. Because of increased competition in many

industries, firms have searched for ways to improve productivity. An effective
means of increasing productivity is to provide a good compensation package to
its employees.

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Three (3) Compensation Strategies used by Firms
1. Minimum or Average Level Strategy – this strategy is best for small or
medium-sized firms that can only afford the minimum wage for
employees.

2. Above Average Pay Strategy – many firms which can afford salaries
above the minimum wage believe that money is a good motivator. If
organizations pay more, employees are motivated to increase their
productivity.

3. Competitive and Comparable Pay Strategy – this involves the use of

salary surveys and studies. Companies using this strategy assigns
employees with salary grades that are common to most companies within
the industry.
 “
REWARDS
Rewards entail deciding on compensations and methods of payments. To
resolve the problem or issue of compensation, many companies establish
their own pay structures. A good pay structure makes use of job evaluation.

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JOB EVALUATION
is the process by which the worth or value of a job is assessed. The purpose
of a job evaluation is to compare and contrast the demands of every job.
The “worth” or “value” of a job is oftentimes misconstrued. There are
subjective judgements regarding this factor because it considers what a job
contributes to the achievement of organizational goals. For example, it
analyzes the importance of a sales representative, a sales manager, and a
sales supervisor. To determine objectively the worth or value of a job, these
factors are considered: the skills required to do the job, the responsibilities
that go with it, working conditions, and the critical decision-making
functions of the job. Once the job evaluation is done, a pay structure or a
hierarchy of pay levels is established.

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The Four (4) Methods of Job Evaluation
1. Ranking. HR specialists who are tasked to perform a job evaluation rank the jobs from the simplest to
the most difficult. In this way, a hierarchy of pay levels is set. This method is simple and relatively easy
to use. However, there are really no standards of judging the results and the differences between jobs are
not measured.
2. Grading System. To eliminate the biases caused by ranking, some companies use the grading system.
The classify or grade employees according to the level of job difficulty. This method is also simple and
easy to use because concrete standards have been set. However, the grades may be too generalized;
therefore, there may be instances where jobs are too complex to define in terms of functions.
3. Point System. Job evaluators who use this method trust it more than ranking and classification. The
elements of a job such as the skills, degree or responsibility, working conditions, and amount of physical
effort required, among others, are given specific points based on the job and how much of each factor is
required per job.
4. Factor System. Similar to the point system, this method is based of five factors: skills, degree of
responsibility, physical effort, mental effort, and working conditions. It is rather simple to operate
because of the common criteria that have been set beforehand.

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 “
MARKET RATE ANALYSIS
The market rate analysis method is popularly used in determining job rates. The validity
and reliability of the market rate data of some organizations are sometimes
questionable. Thus, it is important that the sample organizations from which the data
have been collected should be truly representative of the industry, sector, or type of
business where the jobs are existent or needed. In other words, the jobs being
compared should be similar to the jobs used in the market data. It is important that
the latest or most recent market rate data are used.

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Five (5) Sources of Market Rate Data
1. General published surveys – these are readily accessible and available data. They are subdivided
into international, national, local, or regional data. The cost of each survey depends on the extent of
data which organizations need. Published surveys have a wide coverage.
2. Online data – these data are easy to access and purchase. However, they are limited.
3. Industrial occupational surveys – these are surveys done by job organizations and trade
associations in an industry.
4. Consultant databases – market data is available on consultant databases upon purchase. These
data are well-researched and tailored to specific industries and segments. Nonetheless, they are very
expensive to obtain.
5. Special surveys – special surveys are conducted by and are focused on a particular organization.

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 PAY & GRADE STRUCTURES “
Pay and grade structures enable an organization to devise a concrete framework that determines
the levels of compensation the positions of jobs in the corporate hierarchy. They enable
employees to have a better picture of career and pay opportunities.
A grade structure determines the grade hierarchy and job levels for depending on
difficulty. A pay structure defines the different pay levels for jobs or groups of jobs. This
is determined by job evaluation and market rate data. In some cases, it is negotiated during
the final interview, before the job acceptance. A grade structure becomes a pay structure
when pay ranges are attached to each grade or level.

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DEVELOPING PAY & GRADE STRUCTURES “
A job evaluation process, with the help of market rate data, will produce a rank order of jobs
which is then translated into a grading and pay structure. The key issues that need to be
addressed are the number of grades, the incremental points of progress, and the grade
boundaries.
Another important consideration is the determination of whether the grades will be based
on fixed pay, wherein each grade is associated with a single pay rate; or salary scales,
which consist of incremental pay points with incremental pay progression.

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 “
JOBS TO GRADE
The job evaluation points are translated into
job grades. There is no specific rule on how
to construct a table as long as the progression
of points and the corresponding job grades
are reasonable. As example is as follows:

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 Job Grades
Most compensation schemes start with grade
structures. Below is an example of one:

Notes:
1. The minimum and maximum salary ranges are from +/-15%-25% of the
salary midpoint.
2. The salary midpoint is usually 20%-30% higher than the previous grade
midpoint.

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BROADBANDING
Broadbanding uses very wide grade ranges such as +/-30%-
60% of the salary midpoint. It is only a matter of combining,
for example, grades 1 and 2 into band A and grades 3 and 4
into band B, etc. However, bands that are too wide create
problems. To avoid this, companies create sub-bands by
splitting a big broadband (e.g. bands C to C1 and C2).
A company may also compress several grades for its
employees from 10 to four bands such as:

1. Professional
2. Management
3. Technical
4. Clerical and Staff
Meanwhile, incremental progression within the band or
grade is determined through any of the following options:

5. Experience
6. Skills and competencies
7. Contribution
8. Performance
 CONTINGENT PAY
“
is a pay scheme on top of the base rate linked to any of the
following: performance, competency, contribution, or skills
of employees. Contingent pay can be applied to individuals
or groups.

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INDIVIDUAL PAY
1. Pay-for-performance scheme. On top of the basic pay is a bonus given based on performance. It
motivates employees to perform well. It also sends the message that good performance is always
rewarded. It is also linked to attaining organizational objectives.
2. Pay-for-competency scheme. This is given depending on the level of competency gained on the job. It
encourages enhancement of competence among the workforce. However, it is quite hard to assess or gauge
competence levels
3. Pay-for-contribution scheme. It focuses on the contribution of competence and output levels. It provides
employees the opportunity to develop their competency levels and increase their output levels at the same
time.
4. Pay-for-skills scheme. This payment scheme depends on acquired skills. Advantageously, it encourages
employees to learn more skills. This scheme may be expensive because a company may have to pay for a
skill which is not really necessary or is not being used by the employee.
5. Pay for service. This is usually paid yearly on the basis of an employee’s continued service. On the other
hand, people perceive it as fair since all are treated equally regardless of performance, skills acquired, or
competence level.
GROUP PAY
1. Team-based pay
Advantages Disadvantages
• Is given to groups of employees who perform• This pay scheme is only effective for highly
similar and related jobs. cohesive groups.
• Is usually measured in terms of achievement • It may spark conflicts as those employees
of certain quota or service delivery standards. who perceive themselves to be contributing
• Members are paid a bonus which is given more to the team are more likely to be
proportionately according to their basic rate, disappointed if bonuses are divided equally.
which bonus in some companies are divided • There can also be pressure because some
equally. employees may not conform to group
• Working with teams also require flexibility. norms.

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Organization-wide Pay
This is given to employees on the basis of the achievement of organizational
performance or achievement of goals. There are two types:

a) Gain-sharing. This is based on a bonus plan wherein employees are allowed to share in
the financial gains of the company. This is related specifically to the productivity and
performance improvements of employees. For example, a bonus may be given if sales
revenues surpass the company’s sales targets.

b) Profit-sharing. It is given to employees either in the form of cash or shares of stock,

the value of which depends on the management’s discretion. Usually, the management
decides which portion of the profits will be shared with employees.

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 “
COMPENSATION FOR SPECIAL GROUPS
Special work groups are paid differently as compared to the
other types of personnel. These groups include the following:
directors or executives, sales personnel, and laborers or manual
workers.

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 1. Directors/Executives Pay–the members of top management usually receive the following: basic salary,
incentives, stock options, and bonuses. Basic salary is usually negotiated. It also depends on company
performance. Bonuses and incentives are commonly paid as a percentage of basic salary. Most companies
have shares of stock given to directors and executives.

2. Sales Staff Pay – there are four basic schemes: salary only, basic salary plus bonus, basic salary plus
commission, and commission only.
a) Salary only. it is given to sales personnel who just represent the company and are not really involved on direct selling.
b) Salary plus commission. This is a combination of basic salary and commission computed as a percentage of the sales volume.
c) Salary plus bonus. This is a combination of basic salary and bonus which is given when a salesperson exceeds a particular
sales quota or some other sales objectives.
d) Commission only. this is given to a salesperson when immediate sales results are achieved and he/she is not directly involved
in non-selling activities.
e) Other non-cash rewards. Some companies provide car plans, gasoline and/or transportation, and meal allowances.

3. Manual Workers or Laborers Pay – Payments are made through time rates such as hourly rates, day
rates, or flat rates. Hourly or day rates are payments made on the basis of the number of hours or work
days. Flat rates are usually given depending on the service rendered (e.g., flat rate for a plumbing service).
Payments can also be made in terms of piece work or number of outputs produced.
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COMMON MODES OF PAYMENT
The following are the common modes of payment for
employees’ services. These are entitlements of
employees as members of the organization.

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 1. Payment for time worked. Majority of employees are paid on the basis of time
worked. Wages are given to those who are paid on an hourly rate, while salary is
a term used to refer to those who are paid on a monthly basis.

Payments for time worked are adjusted based on any of the following:

A. Across-the-board increase – pay adjustments are provided to all employees with the same rate
regardless of rank.
B. Merit increases – they are given to employees on the basis of performance.
C. Cost-of-Living Allowance (COLA) – COLA is given to employees to help them cope with the
rising standard of living, inflation rate, and other prevailing economic conditions.
D. Seniority Pay – this is given to employees on the basis of their length on number of years of
service in the company.
2. Flat Rates or Collective Bargaining Agreement (CBA)-negotiated Rates. These are very
common to unionized firms with negotiated rates based on Collective Bargaining
Agreements. Firms with flat rates do not consider skills and seniority as factors for giving
compensation. Aside from CBA increases, firms may opt to pay employees occupying the
same position with flat rates. Additional incentives are given instead to those who reach and
exceed their sales targets.
3. Compensation through Incentives. These are payments based on output. The most
popular forms of incentive pay are the following:
a.) Merit Pay – it is given for outstanding performance usually after the results of performance
evaluation are released. To differentiate it from the merit increase under payment for time worked,
merit pay as an incentive is a one-time payment for an outstanding performance. Meanwhile, a merit
increase is an additional to one’s basic salary and is adjusted with each succeeding payroll period.
b.) Piece Rate Pay – it is given to employees who are paid per piece (e.g., a seamstress in a
garments factory). Wages are given based on the number of pieces multiplied by the rate per dress.
c. Commission – it is based on the achieved sales quota. Companies usually pay their sales
associates on a commission basis. Direct selling companies usually pay their sales dealers
on a commission basis.
d. Group Incentives – it is given to a team that serves a particular company and meets a
particular sales target. The group receives a commission for a job well done. This is based
on group efforts and all the members of the team are rewarded.

4. Payments based on Skills. This is based on the number of skills the employees
have. This mode of payment is not popular in the Philippines which is not
exposed to such a kind of compensation. A particular skill is added to a job, and
if an employee can master and acquire it, then he/she is given a pay increase
based on the new skill.
5. Payments based on Knowledge or Credentials. Continuous learning
is one of the motivations for an employee to attend seminars and
conferences related to his/her field of expertise. Additional knowledge
based on his/her attendance to these conferences improves his/her
ranking. Attending conferences may aid in the accumulation of points
for higher ranking and eventual pay increase. On the basis of
credentials, lawyers and doctors usually need to pass licensure
examinations.
6. Executive Payments. These are payments given to chief executive officers, the chairperson
of the Board of Directors, etc. Executive payments are high since these key people are
responsible for the success of their respective organizations.
7. Special Payments. These are additional compensations earmarked for special cases.

a) Overtime Pay
b) Holiday Pay
c) Premium Pay
d) Night Differential Payments
e) Service Charges
f) Severance or Separation Pay
g) Retirement Pay
h) Thirteenth (13th) Month Pay
 RETENTION
“
The third R is Retention. Employees are given non-financial
benefits to motivate and make them loyal to the firm. These
benefits are elements of rewards management in addition to
various forms of cash incentives for employees.

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The objectives of employee benefit
provisions are the following:

1. To attract and retain highly-skilled or high-performing

employees.
2. To promote employee commitment and loyalty to the
organization
3. To fulfil some of the needs of employees
 “
Employee benefits are divided into two main groups: government-
mandated benefits and voluntary benefits. Government-
mandated benefits are those that firms are obliged to provide
their employees. Voluntary benefits are those borne out of the
firm’s generosity.

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1. Government-mandated Benefits
a.) Social Security System (SSS)/Government Service
Insurance System (GSIS) Benefits
b.) Employees’ Compensation (EC) Program
c.) Pag-IBIG (Home Development Mutual Fund)
Benefits
d.) PhilHealth (Philippine Health Insurance
Corporation) Program
e.) Service Incentive Leave
f.) Maternity Leave
g.) Paternity Leave
h.) Special Leave for Women

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2. Voluntary Benefits
The following benefits depend on the ability of companies to
provide them and are subject to certain conditions and policies
of the organizations.

a) Vacation Leaves k) Bonuses

b) Sick Leaves l) Profit-sharing scheme
c) Emergency Leaves m) Stock Options
d) Summer Outings n) Christmas Part and
e) Sports Fest Christmas package
f) Rice Subsidy o) Cash Bonuses
g) Meal Subsidy p) Emergency Loan
h) Shuttle Service q) Free Uniform or Clothing
i) Hospitalization Allowance
j) Group Life Insurance r) Executive Perquisites
Program

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 MANAGING REWARDS “
Rewards in the form of compensation and benefits should be managed well.
It is necessary to forecast future payroll costs and budget the total rewards to
be given to all employees. The HR department should review and adjust the
pay structure when necessary. Managers should also observe transparency
by communicating the reward policies to employees.

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ANY QUESTIONS?

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THANK YOU FOR LISTENING.

GODBLESS US ALL!