This document provides an overview of compensation administration. It discusses the importance of compensation and how it relates to productivity and job worth. It outlines different types of rewards including intrinsic, extrinsic, direct compensation, indirect compensation, and non-financial compensation. The document also discusses factors that affect compensation administration including institutional, environmental, and personal factors. It provides steps to develop a compensation administration plan and outlines goals of such plans according to Philippine manuals. Finally, it discusses labor laws and codes in the Philippines relating to compensation.

1. Compensation Administration
By: Jimmelyn Grace P. Hila-os
The maintenance function that is most sensitive to conceptualize and operationalize is compensation asdministration. The
pay and benefits a worker receives are a yardstick of how adequately his needs, even including some non-material ones, are
met either directly or indirectly. To a great extent, his purchasing power sourced from his job emoluments determines the
type, level and extent of physical amenities, safety, security, affiliation, status he can procure and enjoy for himself, his
family and those he is responsible for. Compensation is a denominator of productivity and job worth. The question that
strikes a many worker when asked to engage himself in any work activity and a para-work assignments, “What's in it for
me?” usually baffles, if nor piques, a management that can not understand the ultimate meaning that the actual take home
pay carries for the worker. The life's accoutrements that he needs in the midst of high cost of living make the reward system
a matter for serious consideration. Its implications also to the orgnization and to the nation should moreover be recognized
by a rational management.
Compensation is the equivalent in any form that is given to individual for his work. This recompense is also called
job reward.
Types of Reward and Rewards Structure
1.) Intrinsic Rewards are those related to the job itself like motivators of Herzberg. This rewards also include worker's
involvement in decision making, greater job freedom and discretion, more responsibility, interesting and
challenging work, opprtunities for personal growth and diversity of activities.
2.) Extrinsic Rewards refer to the components outside the job like pay. Robbins classifies extrinsic rewards as direct,
indirect and non-financial compensation. Under this rewards, “the most obvious form and the one that is probably
responsible for more gossip and disgruntlement than any other is direct compensation”.
Direct compensation includes:
1.)
2.)
3.)
4.)
5.)
Basic salary or wage
Overtime and holiday pay
Performance bonuses
Profit sharing
Stock options
Indirect compensation includes:
1.) Protection program
2.) Pay for tme not worked
3.) Services and perquisites
Non-fiancial compensation includes:
1.)
2.)
3.)
4.)
5.)
6.)
7.)
Preferred office furnishings
Preferred lunch
Assigned parking
Preferred work assignments
Business cards
Own Secretary
Impressive titles
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2. Factors Affecting Compensation Administration Program
1.) Institutional Factors. The financial condition of the organization , size of the organization's work population,
management labor relations, internal politics, union demands and collective bargaining agreement in unionized
firms either facilitate or stymie program.
2.) Environmental Factors. The external environment may either be conducive or frustrating to the program.
Variables like standard and cost of living, labor supply and demand, reward structure of other organizations,
political and economic conditions in the country, national policies, laws, statutes and government regulations
affecting wages and salaries should be considered in determining the content packages of the program.
3.) Personal Factors. The values of the owners and managers influence their decision on the type, number and amount
of the compensation packages that are given to the employees. By the same token, the packages that the employees
want to receive are affected by their needs and values.
Compensation Administration Plan
A plan has to be evolved in order to put the compensation administration program on a secure and stable footing. The
following steps may be followed in its formulation:
1.)
2.)
3.)
4.)
5.)
6.)
Determine a clear-cut philosophy for the program.
Make a study and analysis of each job including job description and job specification.
Detrmine the money worth of each job by doing job evaluation.
Conduct a local, national and, if possible, an international survey of pay policies.
Determine supply and demand of labor.
Formulate overall compensation policies.
The Philippine manuals on the compensation administration program indicate the folllowing:
1.)
2.)
3.)
4.)
To establish a just and equitable rewards system.
To attract capable employees to apply to and work for the organization.
To maintain them by meeting their basic needs through adequate compensation.
To retain them in the organization as long as possible utilizing rewards as motivation and/or incentives for greater
productivity.
5.) To control costs since personnel emoluments take a big slice for the organization's budget.
6.) To ensure consistent administration of the program.
7.) To maintain the competitive position of the company at a reasonable manner.
8.) To help establish and maintain good employee relations.
9.) To provide a yardstick for measuring worker's past performance and present effectiveness considering that his
income serves as a reward for past performance.
10.) To comply with the requirements of minimum wage laws.
Compensation policies that are to be determined are:
1.)
2.)
3.)
4.)
5.)
6.)
What an organization is willing to pay, is able to pay and is compelled to pay?
Types of benefit and manner of administration
Determinants of rewards
Pay information secrecy vs. openness
Work Technology
Individual or group benefits
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3. Labor Code in the Philippines
Management-labor relations is and should be seen and taken in the context of the legal basis of the behavior of both the
management and labor in industry and government. This is the reason of the adoption by many countries of a labor code for
the passing of labor laws by their legislators. These provide the rules and provisions on how management-labor relations
shall be carried out.
The Labor Code of the Philippines contains seven (7) parts:
Book I Book II Book IIIBook IVBook VBook VIBook VII-
Pre-Employment
Human Resources Development Program
Conditions of Employment
Health, Safety and Social Welfare Benefits
Labor Relations
Post Employment
Penal Provisions, Preoccupations, Transitory and final Provisions
Rights of Workers
1.)
2.)
3.)
4.)
Right to self-organization
Right to collective bargaining
Right to just and humane conditions of work
Right to security of tenure
Right to Security of Tenure
Tenure is the regular and permanent status given to a worker who has pass satisfactorily the probation period as set by
mangement. The right to security of tenure is a constitutional right which provides two (2) important features:
1.) A worker can be separated from the organization only for a just cause. Insubordination, job negligence,
retrenchment, labor saving devices are reasons for separation.
2.) Due process should be afforded the worker before he is separated from the organization.Information on his
performance should be given to him periodically, particularly that which shows consistent sub-standard
performance. Specific charges with evidence should be communicated in written form. The employees should be
given sufficient time and chance to defend himself.
Note: Workers who are retrenched and/or laid off are entitled to separation pay which is minimally pegged at fifteen (15)
days pay for every year of service with the company. The rate could be higher if covered by the CBA.
Labor Laws
The function of labor laws is to set up minimal standards under which organizations operate for workers. The figure below
pictures the extent to which minimal standards are set up vis-a-vis labor laws and maximum wages on one hand and the area
for collective bargaining and exploitation of labor on the other hand.
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4. AREA FOR COLLECTIVE BARGAINING
LABOR
MINIMAL
STANDARDS
MAXIMUM
EXPLOITATION OF LABOR
Labor laws in the Philippines, so far have covered the following items:
1.) Labor standards : Wages. Hours, health and safety
2.) Labor relations : Management-union relations
3.) Social insurance : SSS, GSIS, Pag-ibig and ECC
The cost of living allowance (COLA) has been a recent addition to the wages to cushion the impact on inflation. The
amount varies from one organization to another depending on its level of affordability.
Cost – of – Living Allowance
DAILY MINIMUM WAGE RATES
REGION VI
1989-1998
AMOUNT
EFFECTIVITY
RA/WO
RA 6727
WO 01
WO 02
WO 03
WO 04
WO 04 A
WO 05
WO 06
WO 07
WO 08
DATE
Jul 1, 1989
Nov 27, 1990
Dec 29, 1990
Jan 31, 1991
Dec 4, 1993
Oct 19, 1995
Dec 18, 1995
Dec 19, 1995
Feb 1, 1996
Mar 15, 1996
Mar 16, 1997
Jun 15, 1997
Dec 11, 1997
Feb 21, 1998
PERA/ERA/
BASIC WAGE
COLA
TELA/ECOLA
TOTAL
89.00
89.00
13.35
89.00
102.35
89.00
102.35
23.35
12.00
112.35
114.35
102.35
12.00
12.28
126.63
102.35
102.35
126.85
126.85
126.85
136.85
12.00
24.50
5.00
10.00
10.00
10.00
12.28
126.63
126.85
131.85
136.85
136.85
146.85
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5. 4 Tips for Negotiating Compensation in the Workplace
There are some things in life that people avoid like the plague. Talking about money at work is one of them. Working in
human resources, it’s part of our jobs everyday but it can still be awkward and uncomfortable. Money is a sensitive topic for
many people and it can bring up emotions that aren’t typically expressed elsewhere at work. Additionally, you’ve likely
been asked questions that are difficult to answer or that you just don’t know how to handle. However, even with the difficult
nuances of compensation negotiation, it doesn’t have to turn into a situation you tell stories about for years to come.
Be prepared
If you’re concerned about being approached by employees with salary questions, you should be. It’s inevitable, so you
should already be prepared when the questions arise. You may not know exactly what the questions will be, but you should
at least have a plan for handling the situation. For instance, will you answer questions or will you need to relay the questions
to someone else? If it’s a new hire, is there any room for negotiation? It helps to do some general research and know what
employees may find when they do their compensation research.
Attitude is half the battle
When an employee asks to speak to you about salary, your automatic reaction might be something like fear or even
defensiveness. If you approach the situation with an open mind and open ears, you’re putting yourself in the best position to
be well received by your employee. Watch for body language and listen to the words they use to get a complete picture of
what they’re really saying. Are they concerned about their own finances? Do they feel they’re being unfairly compensated?
Knowing their motivations can help you provide the right information.
Think outside the box
Often when it comes to negotiating compensation, employees focus on salary only. This is especially true when negotiating
compensation for new employees who may not be familiar with other aspects of your total compensation package. Part of
your job is to help both new and existing employees understand their compensation package. Additionally, there are some
times that you simply may not be able to meet an employee’s salary requirements, or where their request is too far outside of
the market-based pay range for their job. This is where it may help to get creative with your total compensation and offer
other perks to pick up where the salary leaves off.
Take a moment to gather info
It’s sometimes our natural reaction to flex our expertise and provide an answer right then and there when it’s asked.
However, it’s not always in our best interest or our employees’ best interests to provide an answer just for the sake of
providing an answer. When an employee comes to you with questions or wants to discuss compensation, it’s ok to say that
you need to do some research, run an employee report speak with someone else or give their question some thought. This
may help keep you more honest and accurate in your answers. When you do provide answers, a good rule of thumb is to be
comfortable with everyone in the company knowing what you said. That employee may not tell 50 people, but they’ll
probably tell at least one. Keep your answers honest and consistent between employees to keep drama and resentment at
bay.
T H E
E N D!
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