Chapter 9

Compensation and Benefits
Types of Organizational Rewards
 Cash – Cash rewards are rewards provided to
employees in the form of cash.
 Non-Cash – Non-cash rewards are rewards afforded to
employees in any form other than cash
Performance Incentive Plan
 A good performance incentive plan can motivate an employee to
perform well-beyond what is expected of him.
 Seven basic steps to follow when designing an incentive
Identifying goals and pay philosophy.
Doing research
Working backward
Designing a plan
Using financial analysis
Reviewing for improvement
Mastering communication.
Non-Cash Rewards and Recognition
 Common Forms of Non-Cash Rewards
 Employee of the Month - A company should not devote its time to singling
out the poor performers. While it is important to identify the poor performers
in order to come up with plans to improve their performance, recognizing good
employees will go a long way.
 Tenure or Years of Service Awards - A number of companies recognize the
importance and value of tenure and therefore reward employees with an
anniversary gift. Gifts usually get better the longer the tenure.
 Time off - Providing employees some time off is another reward system that is
becoming increasingly popular. It has even been singled-out as the mostvaluable form of non-cash reward since most employees want a rest from work
to spend more time with their families
Other forms of non-cash rewards
rewards for good suggestions to improve company processes
 formal supervisory recognition
 education programs (such as tuition reimbursements)
 discount on products and services
 free food and meals
 letters and plaques, clothing
 group or team activities,
 free benefits (such as discount coupons or company-wide discounts to
major establishments)
 safety awards
 customer nominations (usually done through surveys with customers)
 employee recognition of other employees
 establishment of focus groups.
Compensation Management
 Compensation management is an important aspect in
any good business. Good employees are difficult to
come by and may be even more difficult to maintain.
Hence, companies must keep their employees happy
and this can be done by means of good compensation
Compensation Management
 Key reward components
 Pay - Pay is the basic aspect of compensation management.
Basically, pay includes an employee’s base pay and any additional
compensation either as bonus awards, stock options, or stock
 Benefits - While pay and benefits remain as the core of
compensation management, an HR manager who only looks at
these two aspects may be short-changing the company. Employee
benefit plans have evolved over the years to become flexible and
thus become a more useful reward system.
 Career - Careers are representative of the future value when staying
within an organization. It provides employees a sense of growth and
it is common for employees to give up high salaries and good
benefits for the sake of career advancement.
Job Evaluation and Pay Structure
 What is job evaluation?
Job evaluation is defined as “a systematic process for
defining the relative worth or size of jobs within an
organization in order to establish internal relativities and
provide the basis for designing an equitable grade and pay
structure, grading jobs in the structure and managing
relativities. Job evaluation can be analytical or nonanalytical.” The basic purpose of a job evaluation is to
identify the job so that a proper compensation scheme can
be applied.
The Case for Job Evaluation
 Job evaluation can create the criteria against which jobs are
valued explicitly and present grounds for organizing the
judgment process.
It is also important in providing employees with a fair and
justifiable pay structure.
It serves as the framework to allow for consistent decisions
concerning job grades and rates of pay.
It is an analytical scheme which serves as the basis for ensuring
equal pay for an equal value of work. It is the only acceptable
defense in equal pay cases.
Job evaluation, being a formal process, is more likely to be
considered as fair and reliable compared to informal approaches.
The extent to which it can be accepted can be greatly increased if
the job evaluation process is transparent.
The Case Against Job Evaluation
 Critics stress that the job evaluation process can be bureaucratic,
inflexible, time-consuming and even inappropriate in presentday organizations.
Schemes such as job evaluations can crumble over time through
use or misuse.
It can be manipulated by people to attain higher grade which is
not backed by a reasonable increase in responsibility or task.
Job evaluators may evaluate jobs based on their personal
preconceptions regarding relative worth.
The case against job evaluation focuses mostly on the way it is
practiced instead of the concept itself. Similar to other
management techniques, job evaluation can be misconceived
and misused
International Compensation
 The International Compensation Manager
 The international compensational manager must be well
aware of employment and taxation laws, customs,
environment, and specific employment practices.
 The manager must be familiar with current fluctuations
and the possible effects inflation might have on
 The manager must also know the right situation when to
provide special allowances and what kind of allowances
are necessary.
The Company’s Perspective on
International Compensation
 International compensation should be in line with the
company’s strategy, structure, and business needs.
 It must function to attract and retain employees in
critical locations.
 Employees must be transferred using cost-effective
measures while still being fair to the employee
The Employee’s Perspective on
International Compensation
 International compensation policy should provide
financial security, financial advancement, as well as
housing and education of the employee’s children.
 For the transfer of work locations, the employee or
employees involved should be afforded with additional
pay as transfer incentive.
Basic Components of International
Compensation Policy
 Base salary. Base salary is representative of the amount of
cash compensation which is also the basis of other
compensation elements. In an international compensation
policy, it can either be paid in local or foreign currency.
 Foreign service inducement/hardship premium.
Employees assigned to foreign subsidiaries should receive a
salary premium for the hardships brought about by the
transfer of job designation. These are commonly given to
parent country nationals (PCN). As for foreign service
inducements, these are usually given as a percentage of
salary. The usual rate is 5% to 40% of the base pay.
Basic Components of International
Compensation Policy
 Allowances. Allowances encourage employees to accept
international assignments. Allowances for international
compensation may come in many forms. The most
common form comes from cost-of-living allowance,
otherwise known as COLA.
 COLA aims to compensate for the difference in cost-of-living
expenditures between home country and new country of
designation such as housing, utilities, income tax, etc.
 Other forms of allowances include home leave allowances,
education allowances, relocation allowances, and spouse
Employee Benefits
 Over the last two decades, the field of employee benefits
has experiences drastic changes. Companies now spend a
huge chunk of its funds on improving its benefit plans.
Undoubtedly, legislation also paved way for the
improvement of the benefits that employees receive.
 Legally required benefits include :
 social security
 Medicare
 unemployment compensation insurance,
 worker’s compensation insurance, and
 temporary disability insurance.
Employee Benefits
 Definition
 The broadest definition of employee benefits “includes all
benefits and services, other than wages for time worked, that
are provided to employees in whole or in part by their
 Growth of Employee Benefits
 The considerable growth in employee benefits can be
attributed to a number of factors including industrialization,
the influence of organized labor, wage controls, cost
advantages, tax advantages, inflation, and legislation. Hence,
providing employee benefits now involves making complex
decisions which paved way for employee benefit planning.
Planning for Employee Benefits
 Planning for employee benefits should consider six
issues namely:
 the employer’s objective
 types of benefits
 funding for the benefits,
 provisions for controlling costs
 communicating the benefit plan
 if administrative functions should be outsourced
Total Compensation Management
 What is total compensation management?
 Total compensation involves all awards and rewards that each
employee receives such as merit raises, bonuses, on-the-spot
rewards, tuition reimbursements, training perks and benefits,
gift certificates or vouchers, stock programs, etc.
 Characteristics of Total Compensation Management
 A total compensation management program must have three
characteristics. It must be fair, competitive, and resultoriented. The major benefit of adopting such a program
includes its capacity to affect an organization’s bottom line
Total Compensation Management
 Instead of rewarding employees for their hard work, total
compensation management recognizes the required behavior to
reach the organizational goals and ensures that the employee
adopts these behaviors. The program establishes which
employees get benefits and who gets more benefits for their
identified accomplishments.
 An effective total compensation management program tracks all
elements involving performance, retention, and budget metrics
to come up with the right compensation scheme for the right
people and the right reasons.
 An ideal total compensation program allows the managers to
realize varying compensation scenarios and study compensation
data for the purpose of effective budgeting and scheduling.