Republic of the Philippines

PALAWAN STATE UNIVERSITY

College of Business and Accountancy

Department of Human Resource Management, FM &
Bus. Eco.
Puerto Princesa City, Palawan, 5300, Philippines

MODULE 1:
Introducing the PAY Model and PAY
strategy

P2103: COMPENSATION ADMINISTRATION

1st Semester | SY: 2023-2024
BSBA
Human Resource Management

Modification of course contents, teaching-learning activities, and assessment tasks to

ensure alignment with the most essential learning outcomes in the context of teaching
and learning amid COVID-19
Pandemic
 Republic of the Philippines
PALAWAN STATE UNIVERSITY
Puerto Princesa City

APPROVAL SHEET

This module in P2103 – COMPENSATION ADMINISTRATION covering lessons for the 1st SEMESTER
S.Y.2023-2024, prepared by CARINA L. DICAR has been reviewed and evaluated and is hereby recommended
for utilization.

INSTRUCTIONAL MATERIALS DEVELOPMENT REVIEW COMMITTEE

NOEL B. CORPUZ, MAM

Program Coordinator

YVETTE J. DAQUIOAG, MPA

Chairperson
Dept. of Human Resource Management, Financial Management & Business Economics

Recommending Approval

NIOR M. SANTILLAN, MBA

Curriculum and Instructional Materials Development Coordinator

This module in P2103 – COMPENSATION ADMINISTRATION is approved for utilization for the
First Semester of SY 2023-2024.

EVELYN B. TOMAS, DBA

Dean, College of Business and Accountancy
Date: _______________________

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________________________________________________
TABLE OF CONTENTS

Title Page of Module 1

Approval Sheet 2
Table of Contents 3
Overview 4
Course Outcome 4
Learning Outcomes 4
Summary of Topics 4

Content
Introduction 5
Topic 1: The Pay Model - Compensation: Importance 5
Topic 2: Compensation: Definition 6-8
Self-Check Test 1 8
Topic 3: Forms of Pay 8-10
Topic 4: A pay Model 10-12
Self-Check Test 2 12
Topic 5: Strategy: The Totality of Decisions - Similarities
and Differences in Strategies 12-14
Topic 6: Strategic Choice 14
Self-Check Test 3 14
Topic 7: The Pay Model Guides Strategic Pay decisions 15
Topic 8: Developing a Total Compensation Strategy Four Steps 15-18
Self-Check Test 4 19

Module Activity No. 1 19-20

Module Activity No. 2 20-21
References 21

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 MODULE 1 |
Introducing the PAY Model and PAY strategy
Our Dear PSU Students,
You deserve to be CONGRATULATED for facing our current condition with strength,
hard work and utmost dedication. Please know that we completely understand
what you are going through. Rest assured that you will have the best mode of
learning according to your current circumstances. We will help you get through
this.

If you have any questions or concerns, or even if you would like to express your
feelings, please feel free to reach out to us, your instructors/professors. Let us all
welcome this academic year with a blast as we embrace the New Normal.

Overview
Hello! How are you? I am sure that you are ready to learn new concepts in
management this semester. Compensation Administration one of the major
subjects in Human Resource Management, a specialized field in Bachelor of
Science in Business Administration. Compensation Administration is one of the key
functions of Human Resource management. It pertains to the effective
management of the compensation and benefits of all employees in an
organization. This module intends to give & help you to understand the topics and
enable you to answer the activities at the end of the discussion. Happy studying!

Course Outcome:
CO1 Examine the strategic use of compensation system by management to
attract, motivate, retain, and sustain.
CO2 Conduct a market survey to determine appropriate pay level.

Intended Learning Outcomes:

After studying this module, you are expected to:

 Describe the PAY Model and Pay Strategy

 Identify the forms of Pay
 Illustrate the different Pay Model
 Categorize how to craft a total compensation strategy
 Evaluate how to analyze strategies used by competitors
 Formulate a Total Compensation Strategy.

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Topics:
1. The Pay Model: Compensation: Importance
2. Compensation: Definition
3. Forms of Pay
4. A pay Model
5. Strategy: The Totality of Decisions - Similarities and Differences in Strategies
6. Strategic Choice
7. The Pay Model Guides Strategic Pay decisions
8. Developing a Total Compensation Strategy Four Steps

Topic #1: The Pay Model: Compensation: Importance

Introduction
Compensation administration of Human Resource Management is considered as the heart of
the Human Resource Function because of its complexity in developing pay structures, implementing
compensation system, and controlling its implementation and administration, Issues arise from the
employees and dissatisfaction is imminent if this function is not given its due care and attention. It
cannot be neglected and the controversies behind its implementation and administration should not be
ignored.
In this modules we learn more about the importance of compensation and different perspective
from the member. To pay people can designed in a wide variety of ways.
Compensation: It’s Importance
Why should you care about compensation?
Maybe because you find that life goes more smoothly when there is at least as much money coming in
as going out.
Maybe you would like to solve the mystery of why you or someone you know gets paid the way they
do.
Maybe you are curious, too, about people in the news and their pay.
More important, does it matter how much and how these people get paid? We’ll certainly talk about
employee and executive pay in this topic.
Let’s take a brief look at a few examples where pay does seem to have mattered.
Would greater expertise in the design and execution of compensation plans have helped?
Congress and the President seem to think so, because they have put into place new legislation, which
includes restrictions on executive pay that are designed to discourage executives from taking
“unnecessary and excessive risks” another commentator agrees.

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 In an opinion piece in the Wall Street Journal, entitled “How Business Schools Have Failed Business,”
the former Director of Corporate Finance Policy at the United State Treasury wrote that “misaligned
incentive programs are at the core of what brought our financial system to its knees.” He says that we
“should ask how many of the business schools attended by America’s CEOs and directors educate
their students about the best way to design managerial compensation system.” His answer: not many.
(This compensation subject, we hope, can play a role in helping to better educate, about the design of
compensation system, both for manager and for workers.
How people are paid affects their behaviour at work, which affect an organization’s success. For most
employers, compensation is a major part of Total cost, and often it is the single largest part of operating
cost.
These two facts together mean that well-designed compensation system can help an organization
achieve and sustain competitive advantage.
On the other hand, as we have recently seen, poorly designed compensation systems can likewise
play a major role in undermining organization success. Total cost, and often, it is the single largest part
of operating cost.

Topic #2: Compensation: Definition

How people view compensation affects how they behave? It does not mean the same thing to
everyone.
View probably differs, depending on whether you look at compensation from the perspective of s
member of:
a. Society
b. a stockholder
c. a manager
d. an employee

Society – some people see pay as a measure of justice.

Example, a comparison of earnings between men and women highlights what many consider inequities
in pay decisions.
Society has taken an interest in such earnings differentials.
One indicator of this interest is the introduction of laws and regulation aimed at eliminating the role of
discrimination in causing them.
Benefits given as part of a total compensation package may also be seen as a reflection of equity or
justice in society.
Stockholders – are also interested in how employees are paid.
Some believe that using stock to pay employees creates a sense of ownership that will improve
Performance which will, in turn, increase stockholder wealth.
But others argue that granting employees too much ownership dilutes stockholder wealth.
Stockholders have a particular interest in executive pay.

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To the degree that the interests of executives are aligned with those of shareholders (e.g., by paying
executives on the basis of company performance measures such as shareholder return), the hope is
that company performance will be higher.
There is debate, however, about whether executive pay and company performance are strongly linked
in the typical U.S. Company.
In the absence of such a linkage, concerns arise that executives can somehow use their influence to
obtain high pay without necessarily performing well.
Managers – compensation influences their success in two ways.
1. It is a major expense. Competitive pressures, both global and local, force managers to consider the
affordability of their compensation to the people may become interested in unions or legal action
against their employer based on how they are paid.
2. This potential to influence employees’ behaviour and subsequently the productivity and effectiveness
of the organization, means that the study of compensation is well worth your time, don’t you think?
Employees – the pay individuals receive in return for the work they perform is usually the major source
of their financial security.
Pay plays a vital role in a person’s economic and social well-being.
Employees may see compensation as a return in an exchange
Between their employer and themselves, as an entitlement for being an employee of the company, or
as a reward for a job well done. Compensation can be all of these things.
Employees invest in education and training; they contribute their time and energy at the workplace.
Compensation is their return on those investment and contributions.
Incentive and Sorting Effects of Pay on Employers’ Behaviour’s:
Pay can influence employee motivation and behaviour in two ways
1. Perhaps most obvious, pay can affect the motivational intensity, direction, and persistence of current
employees. Motivation, together with employee ability and work/organizational design (which can help
or hinder employee performance), determines employee behaviour’s such as performance. We will
refer to this effect of pay as an incentive effect, the degree to which pay influences individual and
aggregate motivation among the employees we have at any point in time.
2. Pay can also have an indirect, but important, influence via a sorting effect on the composition of the
workforce.
That is, different types of pay strategies may cause different types of people to apply to and stay with
(e.g., select-select into) an organization.
It is not only how much, but how an organization pays that can result in sorting effects. (Ask yourself)
1. Would people who are highly capable and have a strong work ethic and interest in earning a lot
of money prefer to work in an organization that pays employees doing the same job more or
less the same amount, regardless of their performance?

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2. Would they prefer to work in an organization where their pay can be much higher (or lower)
depending on how they perform?
The question for organizations is simply this: Are you using the pay policy that will attract and retain the
types of employees you want?
3. The pay model that comes later in this chapter includes compensation policies and the objectives
(efficiency, fairness, compliance) these are meant to influence.
GLOBAL VIEWS – VIVE la diffe’rence
English – Compensation means something that counterbalances, offsets, or makes up for
something else.
The origin of the word in different languages, we get a sense of the richness of the meaning, which
combines entitlement, return and reward.
China – the traditional characters for the word “compensation” are based on the symbols for logs and
water; compensation provides the necessities in life.
The state owned all enterprises and compensation was treated as an entitlement.
Today in China compensation takes on a more subtle meaning. A new word, dai yu is used. – It refers
to how you are being treated – your wages, benefits, training opportunities, and so on.
Japanese – is kyuyo which is made up of two separate characters (kyu and yo), both meaning “giving
something.”
Kyu is an honorific used to indicate that the person doing the giving is someone of high rank, such as a
feaudal lord, an emperor, or a samurai leader.

Traditionally, compensation is thought of as something given by one’s superior.

Today, business consultants in Japan try to substitute the word hou-syu, which means “reward” and
has no associations with notions of superiors.
The many allowance that are part of Japanese compensation system translate as teate, which means
“taking care of something.”
Teate is regarded as compensation that takes care of employees’ financial needs.
This concept is consistent with the family, housing, and commuting allowance that are still used in
many Japanese companies.
These contrasting ideas about- compensation – multiple views and multiple meanings (returns,
rewards, entitlement) – add richness to the topic.
But they can also cause confusion unless everyone is taking about the same thing.
What we mean by “compensation” or “pay”?

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 COMPENSATION –refers to all forms of financial returns and tangible services and benefits
employees receive as part of an employment relationship.

Read the questions carefully and answer the following question below. Your
essay should be as well organized and as carefully written as you make it. Each
question has a maximum of 5 points.
1. In your own understanding! Compensation for you Does it Matter? (or “So
what?)
2. What can you say? Filipino employees also believe that their rewards
should be based on their performance and prefer to be rewarded as a team.
3. What particular Filipino trait showcases the desire of employee to be more
satisfied with team – and performance-based pay than individual-based pay?

Topic #3: Forms of Pay

They are categorized as total compensation and relational returns.

The relational returns – are psychological

Total compensation returns – are more transactional

So pay comes in different forms, and programs to pay people can designed in a wide
variety of ways.

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 EXHIBIT 1.4 TOTAL RETURNS FOR WORK

Source: Compensation Tenth Edition, McGraw – Hill International

1. Cash Compensation: BASE

Base wage – is the cash compensation that an employer pays for the work performed.
Base wage tends to reflect the value of the work or skill and generally ignore differences
attributable to individual employees.
Some pay systems set base wage as a function of the skill or education an employee
possesses; this is common for engineers and school teachers.
A distinction between wage and salary
SALARY referring to pay for employees who are exempt from regulations of the Fair Labor
Standards Act.
Workers who are covered by overtime and reporting provisions of the Fair Labor Standards Act
– nonexempts – have their pay calculated as an hourly WAGE.
2. Cash compensation: Merits Pay/Cost-of-Living Adjustments
Periodic adjustments to base wages may be made on the basis of changes in what other
employers are paying for the same work, changes in the overall cost of living, or changes in experience
or skill.
Merit Increases - are given as increments to the base pay in recognition of past work behaviour.
In contrast to merit pay, cost-of-living adjustments give the same increase to everyone, regardless
of performance.
3. Cash Compensation: Incentive
Incentives tie pay increase directly to performance.

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 Incentives differ from Merit adjustments
First incentives do not increase the base wage, and so must be re-earned each pay period.
Second the potential size of the incentive payment will generally be known beforehand.
Long-Term Incentives – are intended to focus employee efforts on multiyear results.
Benefits: Income Protection
Some income protection programs are legally required in the United State; employers must pay into a
fund that provides income replacement for workers who become disabled or unemployed.
Different countries have different list of mandatory benefits.
Medical insurance, retirement programs, life insurance, and savings plans are common benefits.
They help protect employees from the financial risks inherent in daily life. Total Earnings Opportunities:
Present Value of a Stream of Earnings
Up to this point we have treated compensation as something received at a moment in time.
But a firm’s compensation decisions have a temporal effect.
A present – value perspective shifts the comparison of today’s initial offers to consideration of future
bonuses, merit increases, and promotions.
In effect the company is selling the present value of the future stream of earnings. But few candidates
apply that same analysis to calculate the future increases required to offset the lower initial offers.
Relational Returns from Work
There is no doubt that nonfinancial returns from work have a substantial effect on employees’ behavior.
The Organization as a Network of returns
The challenge is to design this network so that it helps the organizations to succeed.

Topic #4: A pay Model

The Pay Model shown in Exhibit 1.5 serves as both a framework for examining current pay systems
and a guide for most of this

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 EXHIBIT 1.5 THE PAY MODEL (Source: Compensation Tenth Edition, McGraw – Hill
International)

It contains three basic building blocks:

1. the compensation objectives
2. the policies that form the foundation of the compensation system
3. the techniques that make up the compensation system.
Note: Objectives drive the system, we will discuss them first.
Compensation Objectives
Pay system are designed to achieve certain objectives.
The basic objectives, shown at the right side of the model, include efficiency, fairness, ethics, and
compliance with the laws and regulations.
Efficiency – can be stated more specifically:
Improving performance, increasing quality, delighting customers and stockholders
Controlling labor cost
Example of pay objectives
Its first compensation objective is”…..committed to increasing shareholder value,”
Fairness – is a fundamental objective of pay systems.
The fairness objective calls for fair treatment for all employees by recognizing both employee
contributions (e.g. higher pay for greater performance, experience, or training) and employee’s
needs ( e.g. a fair wage as well as fair procedures)

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Procedural fairness- refers to the process used to make pay decisions.
(It suggest that the way a pay decision is made may be equally as important to employees as the
results of the decision.)
Ethics – Asian philosophy gives us the concept of yin and yang-complementary opposites rather than
substitutes or trade-offs. It is not yin or yang; part of yin is in yang, and part of yang is in yin. So it is
with objectives in the pay model. It is not efficiency versus fairness versus compliance. Rather, it is all
three simultaneously.
All three must be achieved. The tension of working toward all objectives at once creates fertile grounds
for ethical dilemmas.
Compliance – as a pay objective means conforming to federal and state compensation law and
regulations.
If laws change, pay systems may need to change, too, to ensure continued compliance.
As companies go global, they must comply with the laws of all the countries in which they operate.
Four Policy Choices: Every employer must address the policy decision shown on the left side
of the pay model.
1. Internal alignment – refers to comparisons among jobs or skill level inside a single organization.
Jobs and people’s skills are compared in terms of their relative contributions to the
organization’s business objectives.
2. External Competitiveness – refers to pay comparisons with competitors.
How much do we wish to pay in comparison to what other employers pay?
“Market driven”
3. Employee Contributions – the emphasis to place on employee’s contributions (or nature of place
mix) is an important policy decision since it directly affect employees’ attitudes and work behaviors.
4. Management – A policy regarding management of the pay system is the last building block in our
model.
Management means ensuring that the right people get the right pay for achieving the right
objectives in the right way.

The greatest system design in the world is useless without competent management.

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 Determine whether the following basic compensation objective:
1. _______________ calls for fair treatment for all employees by recognizing
both employee contributions.
2. _______________ Improving performance, increasing quality, delighting
customers and stockholders.
3. _______________ means conforming to federal and state compensation law
and regulations.
4. ________________ Asian philosophy gives us the concept of yin and yang-
complementary opposites rather than substitutes or trade-offs.
5 – 8 Every employer must address the policy decision shown on the left side
of the pay model. What are the Four Policy Choices?

Topic #5: Strategy: The Totality of Decisions -

Similarities and Differences in Strategies
In Exhibit 2.1 we compare compensation strategies at Google, Medtronic and Merrill Lynch.
Compensation strategies of three companies (Google, Medtronic, Merrill Lynch,) are compared and
contrasted. Each company approaches the five dimensions (objectives, internal alignment, externally
competitive, employee contribution, and management) of compensation strategy in different ways.
Google – is a popular internet search engine company.
It offers all its employees such generous stock options that many of them have
become millionaires.
Down plays cash compensation (base plus bonus), but it does match its
competitors on these pay forms.
Medtronic – is a pioneer in implantable medical devices such as pacemakers and stents.
Office holiday party includes invited guests whose lines have been prolonged
thanks to Medtronic medical devices.
Yearly gathering brings alive to employees.
Pay strategy seeks employees “Total Well Being”

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 There is a strong emphasis on performance – based pay that is based on individual,
Team and Organization accomplishments.
Merrill Lynch – now part of Bank of America, a financial service organization that has had
an eventful few years, advises companies and clients worldwide.
Pay objectives are straightforward: to attract, motive, and retain the best talent.
Focuses on total compensation, which includes competitive base pay, very
aggressive bonuses, and equally aggressive stock awards based on each
individual’s accomplishments.
Pay for performance is the key.
Differences in total pay for top versus poor performers are significant.
In good years at ML total compensation for top performers is hard to beat.
In lean years, the bonuses and stock awards significantly decrease, with greater
reductions for poor performers than for top performers.
The aggressive pay – for- performance approach at ML was traditionally seen as a
key factor in generating substantial wealth both for shareholders and for many of
its employees over the years.
Three Compensation Strategies
Different strategies within the same industry; example Compensation strategy of SAS Institute, world’s
largest privately owned software company:
1. Emphasizes work/life programs over cash compensation
2. Provides limited bonuses and no stock awards
3. Offers free onsite child care centers, subsidized private schools for children of employees, two
doctors on site for free medical care
4. Provides recreation facilities
5. Discourages working more than 35 hours per week
Different strategies within the same industry or corporation will have very different competitive
conditions, adopt different business strategies, and thus fit different compensation strategies.
A simple “let the market decide our compensation” strategy does not work, either in the U.S. or
internationally. Emerging labor markets in some developing countries and highly regulated labor
markets in some developed countries are responsible for lesser movement of people than is common
in the U.S., Canada, or even Korea, and Singapore.
Strategic perspective on compensation is more complex than it first appears. So, we suggest that you
continue to read this chapter.

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Topic #6: Strategic Choice
Strategy – refers to the fundamental directions that an organization chooses.
-An organization defines its strategy through the trade-offs it makes in choosing what (and what not) to
do.

EXHIBIT 2.2 STRATEGIC CHOICES Source: Compensation Tenth Edition, McGraw – Hill International

Self- Check Test 3

Answer the following question 5 points each.
At the business unit level, the choice shifts to:
1. How do we gain and sustain competitive advantage in this business?
At the function level the strategic choice is:

2. How should total compensation help this business gain and sustain competitive advantage?

Topic #7: The Pay Model Guides Strategic Pay

decisions
Example Compensation system of Whole Foods.
1. Objectives: How should compensation support the business strategy and be adaptive to the cultural
and regulatory pressures in a global environment?
2. Internal Alignment: How differently should the different types and levels of skills and work be paid
within the organization?
3. External Competitiveness: How should total compensation be positioned against competitors?

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4. Employee Contributions: Should pay increases be based on individual and/or team performance,
on experience and/or continuous learning, on improved skills, on changes in cost of living, on personal
needs, and/or on each business unit's performance?
5. Management: How open and transparent should the pay decisions be to all employees? Who
should be involved in designing and managing the system?
Stated vs. unstated strategies all organizations that pay people have a compensation strategy.
1. Some organizations have a written compensation strategy that is shared with all employees.
2. The compensation strategy of other organizations emerges from the pay decisions they make.
Unstated compensation strategy is inferred from compensation practices.
3. Managers in all organizations make the five strategic decisions discussed earlier.
Some do it in a rational, deliberate way, while others do it more chaotically.

Topic #8: Developing a Total Compensation Strategy

Four Steps
Step 1: Assess Total Compensation Implications
1. Competitive Dynamics Understanding the Business
a. An organization needs to understand the specific industry in which it operates and how
it plans to compete, e.g. its strategy.
b. Key factors to analyze include changes in customer needs, competitors ’actions,
changing labor market conditions, changing laws, and globalization.
c. Assess both the current status of the key factors as well as potential future changes in
the factors.
d. After analyzing the impact of changes to the organization’s strategy, determine if the
compensation system should change to support the strategy.
e. Analysis of the global environment is complex, especially when comparing pay systems;
this is due to different pay practices and priorities. Organizations must be knowledgeable
about competitive conditions even locally.
Step 2: Map a Total Compensation Strategy
1. A compensation strategy is formulated based on the five decisions outlined in the pay model:
objectives, alignment, competitiveness, contributions, and management.
2. Mapping is often used in marketing to clarify and communicate a product's identity.
3. Strategic maps offer a picture of company’s compensation strategy and can be used to clarify the
message a company is trying to deliver with its compensation system.
Steps 3 and 4: Implement and Reassess
1. Step 3 involves implementing the strategy through the design and execution of the compensation
system.

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2. Step 4 focuses on reassessing and realigning as conditions and strategy changes; it closes the loop.
Thus, periodic reassessment is needed to continuously learn, adapt, and improve.

Source: Compensation Tenth Edition, McGraw – Hill International

SOURCE OF COMPETITIVE ADVANTAGE: THREE TESTS

 A Three tests determine whether a pay strategy is a source of competitive advantage.

1. Is it aligned?
a. Alignment of the pay strategy includes three aspects: (1) alignment with the business
strategy; (2) aligned externally with the economic and sociopolitical conditions; and (3) aligned
internally with the overall HR system.
b. Alignment is probably the easiest test to pass. Milkovich, Compensation, Ninth Edition 19

2. Does it differentiate?
a. Advocates of the strategic approach propose that sustained advantage comes from how the
pay system is managed.
b. While it may be easy to imitate any single pay practice of a competitor, the strategic
perspective implies it is the way pay practices fit together and fit the organization’s strategy that
is hard to copy.

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3. Does it add value?
a. Since compensation is often a company’s largest controllable expense, the challenge is
determining how to calculate the return on investment (ROI) of different forms of pay.
b. Trying to measure ROI for a compensation strategy implies that people are “human capital,”
a view that some people find dehumanizing. Viewing pay as an investment with measurable
returns diminishes the importance of treating employees fairly.
c. Of all three tests, this one is the most difficult to “pass.”

 B. It is possible to align and differentiate and yet fail to add value.

 C. Are there advantages to an innovative compensation strategy?

1. In products and services, first movers (innovators) have well-recognized advantages that can
offset the risks involved—high margins, market share, and mindshare.
2. It is however, not known, whether such advantages accrue to innovators in total
compensation.

“BEST PRACTICES” VERSUS “BEST FIT”

A. Premise of strategic perspective (best fit) – If the design of the pay system reflects the
organization’s strategy and values, is responsive to employees and union relations, and is
globally competitive, the organization is more likely to achieve competitive advantage.
The better the fit, the greater the competitive advantage.

B. Assumptions of best practices – (1) a set of best-pay practices exists and (2) these practices
can be applied universally across all situations. Based on these assumptions, several potential
outcomes exist.
1. Using best practices results in better performance with almost any business strategy.
2. Adopting best-pay practices allows an employer to gain preferential access to superior
employees.

GUIDANCE FROM THE EVIDENCE

A. There is consistent research evidence that the following practices do matter to the
organization’s objectives.

1. Internal alignment
a. Smaller internal pay differences and larger internal pay differences can both be a “best”
practice.
2. External competitiveness
a. Paying higher than the average paid by competitors can affect results.
3. Employee contributions
a. Performance-based pay can affect results. 20 Milkovich, Compensation, Ninth Edition
b. Answering associated question such as “are performance incentives a “best” practice?” is
contextual in nature.
4. Managing compensation
a. Rather than focusing on only one dimension of the pay strategy such as pay for performance
or internal pay differences, all dimensions need to be considered together.
5. Compensation strategy
a. Embedding compensation strategy within the broader HR strategy affects results.
b. Compensation does not operate alone; it is part of the overall HR perspective.

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EXHIBIT 2.9 VIRTUOUS AND VICIOUS CIRCLES

Source: Compensation Tenth Edition, McGraw – Hill International

A. Studies have reported that while pay levels (external competitiveness) differed among these
companies, they were not related to the companies' subsequent financial performance.
B. Performance-based pay works best when there is success to share.
C. Performance-based pay that shares success with employees does improve employee attitudes,
behaviors, performance (coupled with the other “high-performance” practices).
D. While in cases where organization performance declines, performance-based pay plans do not pay
off; with potentially negative effects on organization performance.
E. Unless the increased risks are offset by larger returns, the risk-return imbalance will reinforce
declining employee attitudes and speed the downward spiral.
F. These studies do seem to indicate that performance-based pay may be a best practice, under the
right circumstances.

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Self- Check Test 4
1. What are the Four Steps of a Total Compensation Strategy?
2. What are the “Three” test source of competitive advantage?
3. Different between the “Best Practices” vs “Best Fit?

MODULE ACTIVITIES|

Appreciation:

The issue about compensation showed a top concern for a company. It must
take into account how it wish to remunerate its employees, how salaries and
wages are determined to make a productive workforce. Are you working now? Did
you experience in your life work even if part time.
Ask:
a. Please answer only with Yes or No.
Were you satisfied with your performance in the company? ______.
b. On a scale of 1 to 10, How would you rate your performance in the company
base on your salary? ______.
c. What can you says the right of worker according to the Labor Code with regards
to wages?

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Instructions: Select any company with which you are familiar. Or, analyse the approach your
college uses to pay teaching assistants and/or faculty. Infer its compensation strategy using
the five issues (objectives, alignment, competitiveness, employee contributions, and
management). How does your company or school compare to Microsoft? To Merrill Lynch?
What business strategy does it seem to “fit” (i.e., cost cutter, customer centered, innovator, or
something else)?
Student answers may vary.

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The best way to organize the answer to this question is to construct a table
Company:
Objectives:
Internal Alignment:
External Competitiveness:
Employee Contributions:
Management:
How does the company
compare to Microsoft? To
Merrill Lynch?

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 REFERENCES|

Textbooks:
 Milkovich, George T. et.al. Tenth Edition Compensation By McGraw-Hill
 Zarate, A. Cynthia. Compensation Administration, First Edition Philippine
Copyright 2021 by Rex Book Store, Inc.
 De Cenzo, David A and Robbins, Stephen P. 10th Ed. Human Resource
Management ,2010

Accessible Online References for additional reading materials: Link

http://www.philippinesaroundtheworld.com/philippines-top-10-largest-
companies/

Nothing Follows

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