ABM Organization and Management

1. COMPENSATIO
N AND
REWARDS

2. COMPENSATION POLICY AND
ITS IMPORTANCE
Compensation Policy – set of general guidelines established by the top
management of a company in paying and rewarding employees for the
work they rendered.
An effective compensation policy or system shows that the top management
highly values the work contribution and participation of its employees in all job
positions.
In general, it motivates employees to perform well in their jobs.
It also increases employee loyalty to the company.
It helps to attract applicants to join the company.

3. MANAGEMENT CONSIDERATION IN
A COMPENSATION POLICY
ECONOMIC – managers must balance employee considerations with the
company’s budgetary limitations, or the cost structures for efficiently and
effectively operating the company to survive amidst a competitive
environment.

4. FAIRNESS – managers must
ensure that the company’s policy
for compensation is perceived as
fair and equitable by the
employees.

5. Equity perceptions among employees pertaining to their
compensation are of three types:
Internal equity – when an employee perceives fairness in pay
differentials among the different jobs within their
organization.
External equity – perceives fairness relative to others holding
the same or comparable jobs outside the organization.
Individual equity – perceives fairness in pay differentials
among co-workers holding identical jobs within the
organization.

6. The Compensation policy may include the following
considerations:
Market competitiveness– company will adopt employee
based on the market rates prevailing in the industry to provide
a compensation package that is attractive to current and
potential employees.
Link with company performance– company that continually
experiences high financial growth for many years is expected
to increase the compensation of its employees.

7. COMPONENTS OF A
COMPENSATION SYSTEM
Direct Compensation – given by the company to employees based on
the extent of work actually rendered by the employee.
Base Pay – consists of salaries (computed on a fixed, monthly basis) and
wages (computed on hourly or daily basis).
Incentives – form of bonuses, commissions, profit sharing and stock
options which are additionally given to employees apart from the base
pay.

8. COMPONENTS OF A
COMPENSATION SYSTEM
Types of Incentives
 Bonus – additional compensation based on the company’s profitability status.
 Commissions – percentage of a quantity of output that they have produced or sold.
 Profit sharing arrangements – based on the outcome of company profitability rates.
 Stock options – stock ownership arrangements as reward for high performance.
 Merit increases – given to individuals who have performed exceptionally well.

9. COMPONENTS OF A
COMPENSATION SYSTEM
Indirect Compensation – refers to the other type compensation
either in compliance with the law or optional benefits.
Legally acquired benefits – company is required to provide regardless of
their job positions or extent of work rendered.
Optional benefits- additional benefits that the company provides,
depending on the company policy or decision of the top management.

10. REWARDS
- employees who perform well are rewarded by companies.
- giving rewards encourages the high performers to keep up with
their good work or to perform even much better.
◦ Extrinsic rewards – monetary or material rewards.
◦ Intrinsic rewards – non-monetary rewards given to employees who
performed well.