Rewards and Remuneration

Human resources (HR) covers a wide range of different roles and opportunities whether it
be in small or large businesses, public or private sector. HR roles can be broken down into
generalist, specialist or external roles.

REWARDS MANAGEMENT
•Involves the process of rewarding people
•Concerned with the design, implementation, and maintenance of a rewards system
containing compensation and benefits with the indentation of improving organizational and
individual performance.
•Includes financial and non-financial rewards which should be fair and equitable.

Total Rewards Model

•Indicates the:
•Tangible Aspects: salary, variable pay, benefits, that is easily copied by
competitors.
•Intangible Aspects: responsibility, career opportunities, learning, development, and
workenvironment that may be hard for the competitors to
copy.
Three R’s
•Rewards: all types of compensation and benefits that employees receive in exchange for
all forms of work performance.
•Retention: ability to translate it into something that will increase an employee’s
satisfaction and loyalty to the organization.
•Remuneration: the compensation and benefits plan made by the firm

REMUNERATION
Remuneration is generally understood to mean payment of wages or salary to an
employee for work performed by that employee.It includes whatever base salary an
employee receives, along with other forms of payment that accrue during the course of
their work, which includes expense account funds, bonuses, and stock options.

Remuneration leads to employee motivation. Salaries constitutes an important source of

income for employees and determine their standard of living. Salaries affect the
employees productivity and work performance. Thus the amount and method of
remuneration are very important for both management and employees.

Methods of Employee Remuneration

1. Time Rate Method:

Under time rate system, remuneration is directly linked with the time spent or devoted by
an employee on the job. The employees are paid a fixed pre-decided amount hourly, daily,
weekly or monthly irrespective of their output. It is a very simple method of remuneration.
It leads to minimum wastage of resources and lesser chances of accidents. Time Rate
method leads to quality output and this method is very beneficial to new employees as
they can learn their work without any reduction in their salaries. This method encourages
employees unity as employees of a particular group/cadre get equal salaries.
There are some drawbacks of Time Rate Method, such as, it leads to tight supervision,
indefinite employee cost, lesser efficiency of employees as there is no distinction made
between efficient and inefficient employees, and lesser morale of employees.
Time rate system is more suitable where the work is non-repetitive in nature and
emphasis is more on quality output rather than quantity output.

2. Piece Rate Method:

It is a method of compensation in which remuneration is paid on the basis of units or

pieces produced by an employee. In this system emphasis is more on quantity output
rather than quality output. Under this system the determination of employee cost per unit
is not difficult because salaries differ with output. There is less supervision required under
this method and hence the per unit cost of production is low. This system improves the
morale of the employees as the salaries are directly related with their work efforts. There
is greater work-efficiency in this method.

There are some drawbacks of this method, such as, it is not easily computable, leads to
deterioration in work quality, wastage of resources, lesser unity of employees, higher cost
of production and insecurity among the employees.

Piece rate system is more suitable where the nature of work is repetitive and quantity is
emphasized more than quality.
Wages: Generally paid on an hourly basis. Can change depending on the number of
hours worked and whether overtime or penalty rates are included.

Salary: An annual amount commonly paid either fort nightly or monthly. In most
instances, the rate of pay does not change even if hours worked in a particular week vary.

The Amounts and Types of Remuneration

The amount of remuneration an individual receives – and what form it takes – depends on
several factors. First, it’s important to note that remuneration values and types will differ
depending on an employee’s value to the company. Taking into consideration things like
the individual’s employment status (full time vs. part time) and whether they are in an
executive-level position or are an entry-level member of a company make a significant
difference in calculating the final amount.

Also, remuneration can vary depending on how an individual is typically paid, meaning,
whether they are a salaried worker, if they get paid based on commission, and if they
regularly receive tips as a part of the work they do.

It’s also important to note that a lot of companies may try to attract or hire desirable
employees off of another company by offering them better remuneration, meaning, higher
pay, more benefits, and better perks. This business tactic is known as a “golden hello.”

Minimum Wage
Minimum wage is one type of remuneration. It is the lowest amount that can legally be
offered for a specific position or to do a certain job. It is maintained by the federal
government, and, while minimum wage can vary from state to state or region to region,
the lowest amount offered can’t fall below the minimum wage set by the federal
government. Historically, the minimum wage tends to rise with inflation, though this isn’t
always the case.
Deferred Compensation
Another type of remuneration is known as deferred compensation. It means that an
employee has part of their earnings withheld in order to receive them at a future date. The
best example of this is a retirement fund. When an employee signs up for a retirement
fund, a portion of their pay is taken and stored in order to allow them to have funds to rely
on once they retire.

Compensation

•The tangible equivalent of any work or task performed in the organization. Maybe direct
or indirect.
⮚ Direct Compensation: monetary rewards such as salaries, wages, commissions,
bonuses, allowance, and other forms of monetary payment.

⮚ Indirect Compensation: benefits offered by companies to employees such as

hospitalization, insurance, days-off, summer outings, sports fests, etc.

Common Terminologies in Compensation

•Base Pay: fixed and usually the largest component of the total compensation package
.Determinants:
•Job-based pay
•Skill or competency-based pay
•Market-based pay
•Combination of the three

Common Terminologies in Compensation

•Incentive Compensation: Incentives or bonuses are given to employees who achieve

certain objectives set by the organization.
•Allowances: temporary add-ons to the basic pay such as rice ration, transportation, and
meal allowances
•Overtime Pay: provided for work rendered beyond normal work hours.
•Risk Benefits: payment for medical, death, or disability cases that are provided to
employees depending on the risks involved in the type of jobs they perform.
•Retirement Benefit: benefits provided to employees who have reached the compulsory
retirement age after serving a company for a certain number of years.
•Equity Compensation: given to senior executives that comes in a form of stock options.
•Prerequisites: extended to members of the senior management including travel,
accommodations, lodgings, lunch/dinner meetings, country club membership at the
company’s expense.

Criteria of an Effective Compensation Plan

•Cost-Containment: should be based on the ability of the company to pay right
compensation package
•Objective: based on the task being performed by the employee as well as his/her
skills and knowledge about the job.
•Motivating: should boost the employees’ morale and encourage them to strive for
the better or best performance.
•Productivity Providing: should ensure that employees are happy and satisfied
resulting to greater productivity.
•Equitable: fair to all if the pay is commensurate to the employee’s contribution to
the organization.
 •Non-Discriminating: based on performance free from prejudices.
•Sustaining: provides for employees’ needs and is concerned with their welfare.
Should sustain the organizational goals and objectives.
•Adequate Legal Compliance: adherence to the law and not lower than the
minimum requirements and government mandated
benefits.
•Time-bound: given on time and no cause for delay.
•Inducing Loyalty: results to employees staying with the company.
•Obligatory: it is the responsibility of the company to pay their employees well.
•No Insecurity: make employees feel secured and will satisfy the basic needs.

External Influences to Compensation Plan

•Demand and Supply of Labor
•Prevailing Economic Conditions
•Government Intervention in Compensation
•Budget
•Employee Motivation
•Employee Productivity

Compensation Strategies
•Minimum or Average Level Strategy: best for small or medium-sized firms that can
only afford minimum wage.
•Above-Average Pay Strategy: used by firms who believes that money is a good
motivator to increase their productivity.
•Competitive and Comparable Pay Strategy: involves the use of salary surveys and
studies, assigning salary grades that
are common to most companies within
the industry.

REWARDS
•Entails deciding on compensations and methods of payments.

Job Evaluation
•The process by which the worth or value of a job is assessed.
•Purpose is to compare and contrast the demands of every job

Methods of Job Evaluation

•Ranking: HR specialists creates a level of jobs from simplest to most difficult.
•Grading System: classifies employees according to the level of job difficulties.
•Point System: elements of the job such as skills, degree of responsibility, working
conditions, aregiven points based on the job and how much of each factor is required per
job.
•Factor System: based on five factors developed by Eugene Benge: skills, degree of
responsibility, physical effort, mental effort, and working conditions.

Market Rate Analysis

Method popularly used in determining job rates
.•General published surveys
•Online data
•Industrial occupational surveys
•Consultant databases•Special survey
Pay and Grade Structure
•Enables an organization to devise a concrete framework that determines the levels
of compensation the positions of jobs in the corporate hierarchy
.•Grade Structure: determines the grade hierarchy and job levels depending on
difficulty.
•Pay Structure: defines the different pay levels for jobs or groups of jobs.
•Fixed Pay: simple and offers transparency and are potentially unbiased.
•Salary Scales: more capable of recognizing additional skills and competencies
gained through experience.

Jobs to Grade
•The job evaluation points are translated into job grades.
•Provides a grade structure

Broadbanding
Uses very wide grade ranges such as +/-30% to +/-60% of the salary midpoint.
A company may compress several grades to four bands:
•Professional
•Management
•Technical
•Clerical and Staff
Incremental progression within the band or grade is determined through
•Experience
•Skills and competencies
•Contribution
•Performance

Contingent Pay
- A pay scheme on top of the base rate and linked to any of the following:
performance, competency, contribution, or skills of employees.
- This can be applied to either individual or group.

Individual Pay
•Pay-for-Performance Scheme: bonus is given on top of basic pay depending on the work
output
•Pay-for-Competency Scheme: given on the level of effectiveness and efficiency gained
on the job
•Pay-for-Contribution Scheme: focuses on the combination of competence and output
levels.
•Individual Pay
•Pay-for-Skills Scheme: depends on the abilities of the employee.
•Pay-for-Service Scheme: basis on the number of years of service to the company

.Group Pay
•Team-based Pay: given to group of employees who perform similar and related jobs and
usually measured in terms of the achievement of certain quota or service delivery
standards.
•Organization-wide Pay: given to the employees on the basis of the achievement of
organizational performance or achievement of goals.
•Gain-Sharing: bonus given based on the financial gains of the company.
•Profit-Sharing: given in form of cash or shares of stocks.
Compensation for Special Groups
⮚ Directors/Executive Pay
•Basic salary
•Incentives
•Stock options
•Bonuses
⮚ Sales Staff Pay
•Salary only
•Salary plus commission
•Salary plus bonus
•Commission only
•Other non-cash rewards
⮚ Manual Workers or Laborers Pay
•Payments are made through time rates such as hourly, day, or flat rates

Common Modes of Payment

•Payment for time worked

Adjusted based on:
1. Across-the-Board Increase: provided to all employees
2. Merit Increases: based on performance
3. Cost-of-Living Allowance (COLA): given to help cope up with the rising
standard of living, inflation rate and other prevailing economic conditions.
4. Seniority Pay: based on the length of service

•Flat Rates or Collective Bargaining Agreement (BBA)-Negotiated Rates

-Given the same rate for the same position
-Common to unionized firms with negotiated rates based on CBA

•Compensation through Incentives

- Payments based on output•Merit Pay: given after result of performance
evaluation.
- Piece Rate Pay: given based on the number of items finished.
- Commission: based on achieved sales quota
- Group Incentive: given to a team that meets a particular sales target

•Payments based on Skills

- Pay or increase is given once an employee has gained and mastered a skill
needed for a job

•Payments based on Knowledge or Credentials

- Pay or increase is given once employees have completed certain number of
seminars or conferences and/or acquiring licenses or other credentials.

•Executive Payments
- Given to CEOs or Key Positions within the company

•Special Payments
- Additional compensation earmarked for special cases

Types of Special Payments

1. Overtime Pay
 •For work in excess of 8 hours on ordinary day: Plus 25% of the hourly rate.
•For work in excess of 8 hours on a scheduled rest day or special day or Holiday :
Plus 30% of the hourly rate
2. Holiday Pay
•Employee is paid 100% even if they do not report for work provided they are
present or is on leave on a work day preceding the holiday.
•If employee reports for work, he/she is entitled to 200% of the daily rate,

3. Premium Pay
•Given to employees who work during rest days or special holidays.•Additional of
30% more than the basic pay.
•If special holiday falls on the rest day and work is performed, employee is entitled
to additional 50% of the basic pay

4. Night Differential
•Additional of 10% of basic rate for each hour of work performed between 10:00 PM
to 6:00 AM

5. Service Charge
•Rank-and-file employees who collect service charges are entitled to 85% of the
total service charge. Remaining 15% is distributed to managerial employees and to cover
losses or breakages.

6. Severance or Separation Pay:

•Given to employees who are terminated with authorized cause equivalent to ½
month’s worth of salary (including COLA) for every year of service due to:
•Retrenchment to prevent further losses or closure of the firm
•Illness
•Given to employees who are terminated with authorized cause equivalent to 1
month salary (including COLA) for every year of service due to:
•Imposition of labor-saving devices
•Redundancy
•Abolition of departments

7. Retirement Pay:
•Given to employees who are 60-65 years old equivalent to ½ month’s worth of
salary for every year of service provided that the employee has served at least 5 years of
continuous service to the company.
:•Includes:
•15 days of basic salary based on recent rate
•5 days service incentive leave
•1/12 of the 13th month pay (2.5 days)
•Overall it is equivalent to 22.5 days for every year of service
•COLA is not included

8. Thirteenth Pay:
•All employees are entitled to 13th month pay provided that they have worked for at
least one month in a particular calendar day given no later than December 24 of the year.

RETENTION
•Employees are given non-financial benefits to motivate and make them loyal to the
firm
 Objectives:
•To attract and retain highly-skilled or high-performing employees
•Promote employee commitment and loyalty
•Fulfill some needs of the employee

Government Mandated Benefits

•Social Security System (SSS) / Government Service Insurance System (GSIS)

•Offers benefits such as retirement, sickness, maternity, death and funeral,
disability, housing and salary loans

.•Employee’s Compensation (EC) Program

•Given to employees in case of work-related injury, disability, sickness, or death

.•Pag-IBIG (Home Development Mutual Fund)

•Offers benefits such as housing, salary loans, provident fund based on
accumulated contributions during retirement, and total disability benefits.

•PhilHealth (Philippine Health Insurance Corporation) Program

•Formerly known as Medicare which covers financial assistance during
hospitalization whether in-patient or out-patient

•Service Incentive Leave

•Except for government employees, managerial employees, and house helpers,
employees are entitled to five days service incentive leave provided they have
rendered at least 1 year of service. Any unused leave credits can be converted to
cash at the end of the year using the latest rate of the employee

•Maternity Leave
•This is given to all SSS female members whether married or unmarried.
•For normal delivery = 60 days•For caesarean delivery = 78 days

•Paternity Leave
•Given to all male married employees who are working in private firms.
•Granted to first 4 deliveries of lawful wife
•Seven days after wife’s delivery

•Special Leave for Women

•Granted to female employees with gynecological disorders that involve surgical
procedures.
•Entitled to two months leave with pay