II.

INTRODUCTION:
Most companies want to hire the most qualified employees and keep those
employees loyal and
productive. To attract and keep their best employees, companies provide a
“package” that includes
compensation (money), incentives (special perks or rewards for good work), and
benefits (valuable
options such as health insurance and paid vacation).
Because each employee is unique, larger corporations offer a wide range of mix-
and-match options
to suit individual needs and preferences. As a manager, you may have the option of
offering your
team members specific incentives based on their type of work and particular areas
of interest and
need.
Smart employers know that keeping quality employees requires providing the right
compensation
and benefits package. Compensation includes wages, salaries, bonuses and
commission structures.
Employers shouldn't ignore the benefits portion of employee compensation and
benefits, because
the benefits sweeten employment contracts with the priorities that most employees
need.

III. CONTENT:
DEFINITION AND MEANING
SALARY
∙ Regular money received by an employee from an employer on a weekly, biweekly
or monthly
basis.
∙ It includes employee benefits such as health and life insurance, saving plans and
Social
Security.
WAGES
∙ Payment for a labor or a worker, especially remuneration on an hourly, daily or
weekly basis
or by the piece rate

e likely to stay with the company. Proper

compensation is one factor why employees remain with employers. Loyalty means
that business
owners don't need to continue to spend time, money and energy on recruiting new
candidates.
Employee retention and low-turnover rates are great for employers who cultivate a
team that knows
what to do. That team is also motivated to be part of the team, and they get the job
done well.
Increased Productivity and Profitability
Happy employees are productive employees. Productivity in relation to
compensation starts with
employees feeling valued which increases motivation and loyalty. Not only are
employees more
motivated to do a good job, but also, the longer people are with the company, the
more they know
and the more efficient they become. All of this leads to increased productivity.
Job Satisfaction So People Stay/Retain Current Employees
Creating the right compensation plan leads to stronger job satisfaction. The right
compensation plan
includes benefits, along with all the other bonuses available. Employees often boast
about holiday
bonuses or they keenly watch how the company stock performs because they have
stock options.
The right compensation program invests employees into the work being done,
which gives them a
stronger sense of satisfaction when the company succeeds. They know they will be
rewarded for
their efforts; everyone likes to be appreciated.
Employees may quit when compensation levels are not competitive, resulting in
higher turnover.
Employees serve organizations in exchange for a reward. If pay levels are not
competitive, some
employees quit the firm. To retain these employees, pay levels must be competitive
with that of
other employers.
Ensure equity
To retain and motivate employees, employee compensation must be fair. Fairness
requires wage
and salary administration to be directed to achieving equity. Compensation
management strives for
internal and external equity.
Internal equity requires that pay be related to the relative worth of a job so that
similar jobs get
similar pay.
External equity means paying workers what comparable workers are paid by other
firms in the labor
market.

Further administrative efficiency

Wage and salary programs should be designed to be managed efficiently, making
optimal use of
the HRIS, although this objective should be a secondary consideration with other
objectives.
Control costs
A rational compensation system helps the organization obtain and retain workers’
reasonable costs.
Without effective compensation management, workers could be overpaid or
underpaid. Comply
with legal regulations
A sound wage and salary system considers the legal challenges imposed by the
government and
ensures employers comply.
Reward desired behavior
Pay should reinforce desired behaviors and act as an incentive for those behaviors
to occur in the
future. Effective compensation plans reward performance, loyalty, experience,
responsibility, and
other behaviors.
Good performance, experience, loyalty, new responsibilities, and other behaviors
can be rewarded
through an effective compensation plan.

Consistency in Compensation
Compensation management tries to achieve consistency-both internal and external
in compensating
employees. Internal consistency involves payment on the basis of the criticality of
jobs and
employees’ performance on jobs.
Thus, higher compensation is attached to higher-level jobs. Similarly, higher
compensation is
attached to higher performers in the same job.

TOTAL COMPENSATION

The term total compensation is used to describe all forms of monetary payments to
an employee.
For existing employees, this can include both base pay as well as incentives. For
newly-hired
employees, the total compensation in the year hired may also include a sign-on
bonus. Calculation
Total Compensation = Base Salary + Incentive Compensation
Explanation
Total compensation can also be used to describe the total value an organization
offers employees.
For example, this might include job perks that have a monetary value, as well as the
benefits
provided by the employer. Vacation time, holiday pay, health insurance, dental
plans, life insurance,
and tuition reimbursement plans are all benefits that can be considered part of an
employee's total
compensation package.
A strict definition of total compensation would include two components:
∙ Base Salary: the minimum annual money received, or the standard salary that an
employee
receives for doing a specific job.
∙ Incentive Compensation: the portion of an employee's salary that is related to
performance, and
not a guaranteed payment. Incentive compensation is additional money, or other
rewards of
value such as stock options, that are supplementary to base salary.
Example
Ann recently accepted a job offer from Company A as an environmental health and
safety officer.
The compensation plan offered to Ann included a base salary of $70,000 plus an
incentive
compensation award of 10%.
The total compensation package offered to Ann would be: = $70,000 + $70,000 x
10%

= $70,000 + $7,000, or $77,000

COMPENSATION STRATEGY
Your compensation strategy must be structured to best meet your unique business
circumstances.
As a startup, you may not be able to compete with large companies on salary.
Therefore, you should
consider a combination of options to attract and retain key employees.
Do not underestimate the value of the advantages or perquisites that your company
has to offer that
may not be readily available in larger companies—opportunities for interesting
work, lack of
hierarchy, flexible environment, and so on.
Some people are motivated by the desire to be on the leading edge of scientific or
technological
advances. They may take less pay to work for a startup if they believe in its future
and the work it
has to offer.
SALARY AND WAGES
A salary (or wage) is a fixed amount paid in exchange for an employee’s services.
Legislation
entitles most employees to receive a “minimum wage” in exchange for the work
they complete for
a company.
For full-time employees, salary is generally described in annual, monthly, bi-weekly
or weekly
amounts. For part-time employees, it is generally described as an hourly amount. To
determine an
appropriate salary and/or salary range that your company is willing to pay for a
position, you must:
∙ Establish the value of the position based on your organizational requirements
∙ Understand what the market is paying for a similar position
INCENTIVES: DRIVERS IN ATTRACTING THE BEST EMPLOYEES Compensation can
be divided into salary, benefits and incentives. While salary and benefits must be
competitive,
incentives are the most likely drivers of attracting and retaining the best employees
in startups.
Base Pay
Employees’ base pay is the most visible part of their compensation. It refers to the
fixed amount
employees receive in each work period (like an hour or week). Every time your
employees get a
pay cheque, they get a reminder of their base pay.
Incentive Pay
Sometimes, employees receive extra payments as rewards for high performance.
Year-end bonuses
or sales commissions could fit into this category. Profit sharing arrangements should
also be
included.
Paid Leave
Employees receive many types of paid leaves. They may not think of time off as
part of their
compensation, but as you know, it costs your company money. Vacation time, sick
leave, personal
leave, and volunteer leave are some examples.
Health and Dental Insurance
Health and dental insurance is a key part of your compensation package. It helps
employees pay for
prescription medications, dental care, vision care, and other services. As a business
owner, you
know how much this insurance costs, but your employees don’t. Employees who
make many
benefits claims may realize the plan is part of their compensation, but others may
not think about
it.
Life Insurance
Life insurance provides security and peace of mind to employees. They know their
families will be
looked after. As you know, peace of mind doesn’t come for free. The cost of the
premiums counts
towards employees’ total compensation.
Short- and Long-Term Disability Insurance
Short- and long term disability insurance helps sick or injured employees replace
their incomes if
they’re unable to work. This type of insurance is something employees may not
think about until
they need it.
Retirement Contributions
Some companies contribute to their employees’ retirement funds. If you make
contributions to a
group registered retirement savings plan (GRRSP), defined profit sharing plan
(DPSP), or another
plan, that’s part of your employees’ compensation.
Wellness Programs
Wellness programs aim to help employees become healthier. While getting healthier
is its own
reward, these programs cost companies money and are part of your employees’
total compensation.
The costs of paid gym memberships, catered lunches, fitness wearables, and
anything else you’re
providing as part of these programs are part of compensation.
Unique Compensation
Do you spend money on employee rewards that aren’t listed above? Any unique
rewards you offer
are also part of total compensation. For example, components like access to a
company car,
company mobile phone, or parking vouchers have value. Employees may not realize
they have
access to these types of rewards, and if they do, they may not know how much
they’re worth.

CLASSIFICATION OF REWARDS

1. Intrinsic and Extrinsic Rewards:

Intrinsic rewards:
Intrinsic rewards are the satisfactions that an individual obtains from the job itself. It
means, they
are the factors of esteem and self-actualization needs of the employees. These
satisfactions are self
initiated rewards and are fulfilled internally by the employees. These rewards
consists of having a
pride on work, having a feeling of accomplishment, or being a part of team etc.
Extrinsic Rewards
Extrinsic rewards are the benefits provided externally. These rewards are provided in
term of money
and fringe benefits. These rewards are necessary to fulfil physiological and safety
needs of the
employees. Such rewards are the results of management policies and procedures of
the
organization.
2. Financial and Non-financial Rewards:
Financial rewards may be direct-through wages, bonuses, profit sharing etc., or
indirect-through
supportive benefits like pension schemes, leave encashment, purchase discounts
etc. Non-financial
incentives make life on the job as more attractive.
Financial Rewards
Financial rewards means those direct and indirect payments that enhance an
employee's well being.
Financial rewards make employee financially sound so that he/she can fulfill his/her
material desire.
Direct payment consists of salary, wages, commissions, incentives, bonus,
allowances etc. Indirect
payment include pensions, medical insurance, paid leaves, paid sick leaves,
purchases, discounts
etc.
Non-financial Rewards
Non-financial rewards are those employee benefits that do not enhance an
employee's financial
well-being. However, such rewards provide more job satisfaction. Preferred lunch
hours,
preferred office furnishing, parking spaces, impressive job title, desired work
assignments, business
cards, own secretary etc. are some of its example
COMPONENTS OF FINANCIAL COMPENSATION

BASE PAY
The direct financial compensation an individual receives based on the time Worked.
Bases of calculation:
⮚ Hourly/wage: payment for the number of hours worked.
∙ Salaried: receive consistent payments at the end of specific period regardless of
number
of hours worked Nature.
⮚ Generally Market Driven:
∙ (Demand > Supply = Increase in Pay)
⮚ Job Evaluation:
∙ The formal systematic means used to identify the relative worth of jobs within an
organization.

VARIABLE
Variable Pay/ Incentives
∙ Any plan that ties pay to productivity or profitability (i.e.) the standard by which
managers tie
compensation to employee effort and performance.
∙ It is linked to individual, group, or organizational performance and not to time
worked. ∙
Establish a performance “threshold” to qualify for incentive payments. ∙ Emphasize
a
shared focus on organizational objectives.
∙ Create shared commitment in that every individual contributes to organizational
performance
and success.
IMPLEMENTING EFFECTIVE INCENTIVE PLAN
∙ Link the incentive with your strategy.
∙ Make sure effort and rewards are directly related.
∙ Make the plan easy for employees to understand.
∙ Get employees’ support for the plan.

∙ Use good measurement systems.

∙ Emphasize long-term as well as short-term success.
∙ Adopt a comprehensive, commitment-oriented approach.

NON FINANCIAL COMPENSATION

⮚ Are most effective as motivators when the award is combined with a meaningful
employee
recognition program.
∙ Intrinsic motivators are worthwhile as financial package
∙ Organization reward high performing employees
∙ Psychological rewards that employees receive in recognition of their skills and
contributions

TYPES of NON FINANCIAL COMPENSATION

Awards
∙ Often used to recognize productivity gains, special contributions or achievements,
and service
to the organization.
∙ Employees feel appreciated when employers tie awards to performance and
deliver awards in
a timely, sincere and specific way.
Recognition awards
∙ Recognition has a positive impact on performance, either alone or in conjunction
with
financial rewards.
∙ Combining financial rewards with nonfinancial ones produces performance
improvement in
service firms almost twice the effect of using each reward alone.
∙ Day-to-day recognition from supervisors, peers, and team members is important.
∙
Best performer of the month awards in Blue Dart, ALACTEL,XANSA etc.,
Service awards
∙ Award for the length of service and exactly not on performance
∙ IBM: thanks award
∙ IDEA: appreciation card
EQUITY AND MOTIVATION OF EMPLOYEES
Pay Equity (also Distributive Fairness)
∙ An employee’s perception that compensation received is equal to the value of the
work
performed.
∙ A motivation theory that explains how people respond to situations in which they
feel they
have received less (or more) than they deserve.

10

∙ Individuals form a ratio of their inputs to outcomes in their job and then compare
the value of
that ratio with the value of the ratio for other individuals in similar jobs.

RELATIONSHIP BETWEEN EQUITY AND MOTIVATION

EQUITY THEORY OF MOTIVATION

In the equity theory of motivation, employee’s motivation depends on their
perception of how fair
is the compensation and treatment for their work input. Equity Theory states that
the employees
perceive what they get from a job situation (outcomes) about what they put into it
(inputs) and then
compare their inputs- outcomes ratio with the inputs- outcomes ratios of others. The
equity theory
of motivation describes the relationship between the employees’ perception of how
fairly is he
being treated and how hard he is motivated to work. J. Stacy Adams developed
equity theory.
This theory show:
▪Inputs: Inputs include all the rich and diverse elements that employees believe
they bring or
contribute to the job – their education, experience, effort, loyalty, commitment. ▪
Outcomes:
Outcomes are rewards they perceive they get from their jobs and employers’
outcomes
include- direct pay and bonuses, fringe benefit, job security, social rewards and
psychological.
▪ Over rewarded: if employees fell over-rewarded equity theory predicts then they
will feel
an imbalance in their relationship with their employee and seek to restore that
balance. ▪
Equity: if employees perceive equity then they will be motivated to continue to
contribute act
about the same level.
▪ Unrewarded: unrewarded who feel they have been unrewarded and seek to
reduce their
feeling inequity through the same types of strategies but the same of this specific
action is
now reverse.
This theory is based on the following two assumptions about human behavior:
1. Individuals make contributions (inputs) for which they expect certain outcomes
(rewards).
Inputs include such things as the person’s past training and experience, special
knowledge,
personal characteristics, etc. Outcomes include pay, recognition, promotion,
prestige,
fringe benefits, etc.
2. Individuals decide whether or not a particular exchange is satisfactory, by
comparing their
inputs and outcomes to those of others, in the form of a ratio. Equity exists when an
individual concludes that his/her own outcome/input ratio is equal to that of other
people.

The essential aspects of the equity theory may be shown by an equation;

There should be a balance of the outcomes/inputs relationship for one person in
comparison with
that for another person. If the person thinks that the rewards are greater than what
is considered,
he/she may work harder.
If the person perceives the rewards as equitable, he/she probably will continue at
the same level of
output.

If the person feels that he/she is inequitably rewarded, he/she may be dissatisfied,
reduce the
quantity or quality of output, or even leave the organization.
DETERMINANTS OF COMPENSATION

The factors affecting employee compensation can be categorized into:-

1. Internal Factors and
2. External Factors.
EXTERNAL AND INTERNAL FACTORS AFFECTING EMPLOYEE COMPENSATION
The compensation awarded to the employee is dependent on the volume of effort
exerted, the nature
of job and his skill. Besides, there are several other internal and external factors
affecting the
compensation.
Internal Determinants of Compensation:
1. Compensation Policy of the Organization:
Firm’s policy regarding pay i.e., attitude to be an industry leader in pay or desire to
pay the
market rate determines its pay structure. The former can attract better talent and
achieve lower
cost per unit of labour than the ones that pay competitive pay.
2. Employer’s Affordability:
Those organizations which earn high profit and have a larger market share, a large
business
conglomerate and multinational companies can afford to pay higher pay than
others. Besides,
company’s ability to pay higher pay is impaired by sector- specific economic
recession and
acute competition.

3. Worth of a Job:
Organizations base their pay level on the worth of a job. The wages and salaries
tend to be higher
for jobs involving exercise of brain power, responsibility laden jobs, creativity-
oriented jobs,
technical jobs.
4. Employees’ Worth:
In some organizations, time rates are granted to all employees irrespective of
performance. In
such cases, employees are rewarded for their mere physical presence on the job
rather than for
their performance. However many private sector organizations follow performance-
linked pay
system. They conduct performance appraisal more often than not which provides
input for
determining pay levels. It distinguishes the high-performer from the low-performer
and the non
performer.
External Determinants of Compensation:
1. Labor Market Conditions:
The forces of demand and supply of human resources, no doubt, play a role in
compensation
decision. Employees with rare skill sets and expertise gained through experience
command
higher wage and salary than the ones with ordinary skills abundantly available in
the job
market. But the higher supply of human resources for certain jobs may not lead to
reduction of
wages beyond a floor level due to Government’s prescription of minimum wage
levels and
employee union’s bargaining strength.
Similarly, this factor by itself does not result in lower pay if the vast majority of
available
resources are unemployable due to poorskill and low talent. Thus, it is clear that law
of demand
and supply applies to labour market only to a limited extent.
2. Economic Conditions:
Organizations having state-of-the-art technology in place, excellent productivity
records,
higher operational efficiency, a pool of skilled manpower, etc., can be better pay
masters. Thus,
compensation is the consequence of the level of competitiveness .prevailing in a
given industry.
3. Prevailing Wage Level:
Most of the organizations fix their pay in keeping with the level for similar jobs in
the industry.
They frequently conduct wage survey and accordingly seek to keep their wage level
for
different jobs. If a particular firm keeps its pay level higher than those of others in
the industry,
its employee cost becomes heavier which may escalate the end cost of the
products. This will
affect the competitiveness of the firm. On the other hand, if a firm keeps its pay
level lower
than the prevailing rates, it may not recruit the skilled and competent manpower.
4. Government Control:
Government through various legislative enactments such as Minimum Wages Act,
1948,
Payment of Wage Act, 1936, Equal Remuneration Act, 1976, Payment of Bonus Act,
1965,
dealing with Provident Funds, Gratuity, Companies Act, etc., have a bearing on
compensation
decisions. Therefore, firms have to decide on salaries and wages in the light of the
relevant
Acts.
5. Cost of Living:
Increase in the cost of living, raise the cost of goods and services. It varies from
area to area
within a country and from country to country. The changes in compensation are
based on
consumer price index which measures the average change in the price of basic
necessities like

food, clothing, fuel, medical service, etc., over a period of time. Allowances like
Dearness
Allowance. City compensatory allowances are paid to meet the increasing cost of
living and
parity among employees posted at different geographies.
6. Union’s Influence:
The collective bargaining strength of the trade unions also influence the wage
levels. Trade
unions enjoy an upper hand in certain industries like banking, insurance, transport
and other
public utilities. Therefore, wage structure in such industries and in such Union-active
regions,
salary and wage need to be fixed and revised in consultation with the unions for
ensuring
smooth industrial relation.
7. Globalization:
It has ushered in an era of higher compensation level in many sectors of the
economy. The
entry of multinational corporations and big corporates have triggered a massive
change in the
compensation structure of companies across sectors. There is a salary boom in
sectors like
information technology, hospitality, biotechnology, electronics, financial services
and so on.
8. Cross Sector Mobility:
Contemporary companies find it difficult to benchmark the salaries of their staff with
others in
the industry thanks to mobility of talent across the sectors. For example, hospitality
sector
employees are hired by airlines, BPOs, healthcare companies and telecom
companies.

EMPLOYEE COMMUNICATIONS
Implementing the right communication channels in your organization is the key to
keeping your
employees productive, engaged, and aligned with your business goals.
When you communicate well with your employees, it helps eliminate
misunderstandings and can
encourage a healthy and peaceful work environment.
Communication channels are the means through which people in an organization
communicate
and interact with each other. Without the right communication channels in place, it
becomes
extremely challenging to align employees with the business goals, break down silos,
and drive
innovation in the workplace.
Hereunder are the kinds of communication channels that can be used to inform
employees of
developments about their benefits and others.
1. Open Meeting
The first tip for effective communication in the workplace is having regular open
meetings with
your team. It is easier to communicate any hot topics, passion projects, thoughts,
feelings or
concerns to your team in an open meeting. In this kind of environment, the whole
team will not
only hear what you are saying, they will also see and feel it as well as being able to
voice their
opinion in response.
The whole team can sit down face-to-face and discuss any pressing matters or
projectsthat will
need the whole team’s involvement.
For example, atEmployment Hero, themarketing team have a weekly MondayWIP –
in this
meeting we discuss everything we worked on the week before and all the important
things
planned for that week. That way everyone is aware of what’s going on, what they’re
responsible
for and have a chance to speak out and ask questions.

2. E-mails
For super official matters, communication via email still remains important. It will
enable you
to pass messages to members of your team without pulling them out of their
workstations. It
also leaves a paper trail so communication is important when a big decision has
been made.
If something confidential, it also means there’s less chance that the news will
spread to the
whole team and allows for a private channel of communication between you and
that particular
employee.
3. One on One
Some of your employees will understand things better when you take them aside
and talk to
them on a one-on-one basis. They are also good for;
∙ Strengthening relationships between you as a manager and your team member.
Most
people have a basic human need to feel validated. Face-to-face communication lets
them know that their insights are appreciated and taken into consideration.
∙ They improve productivity, as it provides a high-level overview of current work in
progress.
∙ It allows you and them to give more valuable feedback without any feeling
uncomfortable doing it in front of the entire team.
∙ You can check-in on your employees personal and professional goals
4. Create a Receptive Atmosphere
To effectively communicate with your team, you must create a receptive
atmosphere. Avoid a
tense environment at all costs because when you communicate in an overly intense
manner, the
message you are trying to share might not be well understood or retained.
5. Communication Via Training
Your training should be tailored towards communicating certain information to your
team
members. Most employees take training serious, especially when it’s part of their
appraisal.
6. Use Visuals
Place visuals at strategic positions around the workstations of your team. They
should not just
hear the message, they should also see it. This gives room for better
comprehension.
7. Listen to you Employees
Communication is intended to be a two way street. Don’t just talk because you are
the leader
without listening to anyone else. Encourage them to open up so you can be well
guided when
communicating in the future with them. You have two ears and one mouth –so you
must listen
more than you speak.
8. Act out Your Message
Someone once said, “Tell me what you want me to do and I might forget it, but do it
in front
of me and I will never forget it.” Acting out your message is a very potent way of
communicating with your team. Let them see you do what you want them to do,
and watch their
excuses disappear.
9. Use Power Point Presentation
Some people grasp messages easily when pictures and sounds are involved. Using
presentations
like Microsoft PowerPoint to communicate with your team will give them the
opportunity to
refer back to it if they aren’t clear about certain things.

10. Encourage Feedback

Don’t just talk and walk away. Give room for feedback so that you can measure the
effectiveness of your style of communication. It will also afford you the privilege of
knowing
if your message was well understood.
ENDO (End of Contract)
What is "endo?"
It's Filipino slang, short for end of contract. Others call it 5-5-5. In the Philippines, it
is mandated
by law that after six months of working for a company, an employee automatically
becomes
regularized.
In Article 281 of the Labor Code, it says that: Probationary employment shall not
exceed six (6)
months from the date the employee started working, unless it is covered by an
apprenticeship
agreement stipulating a longer period. The services of an employee who has been
engaged on a
probationary basis may be terminated for a just cause or when he fails to qualify as
a regular
employee in accordance with reasonable standards made known by the employer to
the employee
at the time of his engagement. An employee who is allowed to work after a
probationary period
shall be considered a regular employee.
Regularization means the employee will finally get to enjoy the benefits of a regular
employee like
leaves and 13th month pay, among many other things. Many companies try to
avoid this by the
scheme of endo — only hiring workers for five months, and ending their contracts to
avoid having
to regularize them. Most victims of endo are minimum wage earners and student
workers.