Pay Structure, Performance, and Benefits PDF

HUMAN RESOURCE MANAGEMENT PAY STRUCTURE PERFORMANCE VIA PAY EMPLOYEE BENEFITS TOPICS  PAY PAY SSTTR RUUC CTTU...

HUMAN RESOURCE MANAGEMENT PAY STRUCTURE PERFORMANCE VIA PAY EMPLOYEE BENEFITS TOPICS  PAY PAY SSTTR RUUC CTTU URREE LEARNING OBJECTIVES After reading this chapter, you should be able to: Know the Different Pay Decisions Understand Equity Fairness Know the Different Pay Levels Differentiate Job Structure from Pay Structure Know the different Theories on Effects of Compensation Understand the Programs for Recognizing Employee Contributions Know Managerial and Executive Pay Know the Different Benefit Programs  IIN NTTR ROOD DUUC CTTIIO ONN FROM THE EMPLOYER’S POINT FROM THE EMPLOYEE’S OF VIEW: POINT OF VIEW: Pay is critical in attaining Policies having to do with strategic goals. wages, salaries, and other Pay has a major impact earnings affect their on employee attitudes overall income and thus and behaviors. their standard of living. Employee compensation Both level of pay and is typically a significant fairness compared with organizational cost. others’ pay are important.  PAY DECISIONS Salary level decisions can be broken into two areas: Pay Structure and Individual Pay. Pay Structure is the relative pay of different jobs (job structure) and how much they are paid (pay level). Pay Level is the average pay, including wages, salaries, and bonuses, of jobs in an organization. Job Structure is the relative pay of jobs in an organization.  EQUITY THEORY AND FAIRNESS Equity theory suggest that people evaluate the fairness of their situations by comparing them with those of the other people. Equity is not equality. Equal Pay for two workers with unequal contributions would likely be perceived as unfair if this information is known, especially by the worker making the stronger contributions to the organization. Two types of employee social comparisons of pay are especially relevant in making pay level and job structure decisions. a. External Equity pay comparisons focus on what employees in other organizations are paid for doing the same general job. Such comparisons are likely to influence the decisions of applicants to accept job offers as well as the attitudes and decisions of employees about whether to stay with an organization or take a job elsewhere. b. Internal Equity pay comparisons focus on what employees within the same organization, but in different jobs, are paid. Employees make comparisons with lower-level jobs, jobs at the same level and job at the higher levels. These comparisons may influence general attitudes of employees; their willingness to transfer to other jobs within the organization; their willingness to accept promotions; their inclination to cooperate across jobs, functional areas, or product groups; and their commitment to the organization. DEVELOPING PAY LEVELS - MARKET PRESSURES Two important competitive market challenges in deciding what to pay its employees: Product-market competition – the challenge to sell goods and services at a quantity and price that will bring a return on investment. Labor-market competition – the amount an organization must pay to compete against other organizations that hire similar employees.  EMPLOYEES AS A RESOURCE A philosophy that considers employees to be an investment that will yield valuable returns. Controlling costs through noncompetitive pay can result in low employee productivity and quality. Pay policies and programs are one of the most important human resource tools for encouraging desired employee behaviors and discouraging undesired behaviors.  DECIDING WHAT TO PAY Deciding pay levels is discretionary, and is based on a broad range. The organization has to decide whether to pay at, below, or above the market average. Efficiency wage theory - states that wages influence worker productivity. The benefits of higher wages may outweigh higher costs when the organization's technology or structure depends on highly skilled employees or when the organization has difficulty observing and monitoring employee performance.  MARKET PAY SURVEYS Benchmarking is a procedure by which an organization compares its own practices against those of the competition. The following issues must be determined before pay surveys are used: Which employers should be included in the survey? Which jobs are included in the survey? If multiple surveys are used, how are all the rates of pay weighted and combined?  P R O D U C T M A R K E T V. L A B O R M A R K E T C O M PA R I S O N S PRODUCT-MARKET PRODUCT-MARKET COMPARISONS WILL BE MORE COMPARISONS WILL BE IMPORTANT WHEN: MORE IMPORTANT WHEN: Labor costs represent a Attracting and retaining large share of total costs. employees is difficult. Product demand is The costs of recruiting elastic. The supply of labor is are high. inelastic. Employee skills are specific to the product market.  RATE RANGES Rate ranges refer to different employees in the same job that may have different pay rates. Key jobs are benchmark jobs that have relatively stable content and are common to many organizations so that market-pay survey data can be obtained. Nonkey jobs are unique to organizations and cannot be directly valued or compared through the use of market surveys.  DEVELOPING A JOB STRUCTURE A job structure refers to the relative worth of various jobs in the organization, based on internal comparisons. Job evaluation is an administrative procedure that measures a job's worth to the organization. The evaluation process is composed of compensable factors, which are the characteristics of jobs that an organization values and chooses to pay for. Job evaluators often apply a weighting scheme to account for the differing importance of the compensable factors to the organization.  DEVELOPING DEVELOPING A A PAY PAY STRUCTURE STRUCTURE Three pay-setting approaches include: Market survey approach - The greatest emphasis is on external comparisons. It bases pay on market surveys that cover as many key jobs as possible. Pay-policy line - A mathematical expression that describes the relationship between a job’s pay and its job evaluation points. Pay grades - Grouping jobs of similar worth or content together for pay administration purposes. The range spread is the distance between the minimum and maximum amounts in a pay grade.  CONFLICTS BETWEEN MARKET PAY SURVEYS AND JOB EVALUATION In resolving the conflict, emphasizing the internal data would drive up labor costs and creates product-market problems. If external market data are emphasized and a job is paid lower internally, the comparisons that employees make internally would result in dissatisfaction. There are no right answers. An organization should consider its strategy and what jobs and/or functions will be critical for success.  MONITORING COMPENSATION COSTS One way to examine the difference between policy and practice is to compute a compa- ratio, which is an index of correspondence for actual and intended pay. GLOBALIZATION, GEOGRAPHIC REGION, AND PAY STRUCTURE Pay structures can differ substantially across countries both in terms of their level and in terms of the relative worth of jobs. Expatriate pay and benefits continue to be linked more closely to the home country. However, this link appears to be slowly weakening and now depends more on the nature and length of the assignment.  T H E I M P O RTA N C E O F P R O C E S S PARTICIPATION COMMUNICATION Participation should involve The effect of communication both those who will manage is likely to be an impact on the process and those who employees' perceptions of will be affected by it. equity. Participation includes Managers must be prepared recommending, designing, to explain to employees why and communicating a pay the pay structure is designed program. the way it is and to judge Typically, pay-level decisions whether changes to the are only made by top structure should be made. management.  CURRENT CHALLENGES Job-based pay structures can create the following problems: They encourage bureaucracy. They reinforce top-down decision making as well as status differentials. The bureaucracy, time, and cost required to generate and update job descriptions can become a barrier to change. The job-based structure may not reward desired behaviors, where the knowledge, skills, and abilities needed yesterday may not be helpful today and tomorrow. The system encourages promotion-seeking behavior, but discourages lateral movement. Executive Pay refers to remuneration packages specifically designed for business leaders, senior management and executive-level employees of a company. Executive pay has been given widespread attention in the press. Executive pay accounts for a small proportion of labor costs Executives have a disproportionate ability to influence organizational performance. Executives help set culture, so if their pay seems unrelated to organizational performance, employees may not understand why their pay should be at risk depending on the organization's performance. Reasons for Executive Pay Criticisms 1. Some executives are very highly paid. 2. Ratio of executive pay to average worker pay creates a “ trust gap ” where workers do not trust executives' intentions and resent their pay. HOW DOES PAY INFLUENCE INDIVIDUAL EMPLOYEES? Three different theories help explain compensation’s effects:  H O W D O E S PAY I N F LU E N C E I N D I V I D U A L E M P LOY E E S ? Reinforcement Theory - A response followed by a reward is more likely to recur in the future. Expectancy Theory - Motivation is a function of valence, instrumentality, and expectancy. Agency Theory -The interests of the principals (owners) and their agents (managers) may not converge. Types of agency costs include: perquisites attitudes towards risk decision-making horizons  AGENCY COSTS Agency costs may be minimized by the principal choosing a contracting scheme that helps align the interests of the agent with the interests of the principals. The type of contract depends partly on the following factors: risk aversion outcome uncertainty job programmability measurable job outcomes ability to pay tradition PROGRAMS FOR RECOGNIZING EMPLOYEE CONTRIBUTIONS Programs differ by payment method, frequency of payout, and ways of measuring performance. Potential consequences of such programs are performance motivation of employees, attraction of employees, organization culture, and costs. Contingencies that may influence whether a pay program fits the situation are management style, and type of work.  M E R I T PAY Merit pay programs link performance-appraisal ratings to annual pay increases. A merit increase grid combines an employee’s performance rating with the employee’s position in a pay range to determine the size and frequency of his or her pay increases. Some organizations provide guidelines regarding the percentage of employees who should fall into each performance category.  INDIVIDUAL Individual incentives reward individual performance, but INCENTIVES payments are not rolled into base pay, and performance is usually measured as physical output rather than by subjective ratings. They are relatively rare because: Most jobs have no physical output measure. There are many potential administrative problems. Employees may do what they get paid for and nothing else. They typically do not fit in with the team approach. They may be inconsistent with organizational goals. Some incentive plans reward output at the expense of  PROFIT SHARING Under profit sharing, payments are based on a measure of organization performance (profits), and payments do not become a part of base pay. An advantage is that profit sharing may encourage employees to think more like owners. The drawback is that workers may perceive their performance has little to do with profit but is more related to top management decisions over which they have little control.  OWNERSHIP Ownership encourages employees to focus on the success of the organization as a whole, but, like profit sharing, may not result in motivation for high individual performance. One method to achieve employee ownership is through stock options, which give employees the opportunity to buy company stock at a fixed price. Employee stock ownership plans (ESOPs) are employee ownership plans that give employers certain tax and financial advantages when stock is granted to employees. ESOPs can carry significant risk for employees.  GAINSHARING Gainsharing programs offer a means for sharing productivity gains with employees, and are based on group or plant performance that does not become part of the employee’s base salary. Conditions that should be in place for gainsharing to be effective include: management commitment the need to change or a process of continuous improvement management's acceptance and encouragement of employee input high levels of cooperation and interaction employment security information sharing on productivity and costs goal setting commitment and agreement of all parties standards that are understandable, fair, and related to objectives. GROUP INCENTIVES AND TEAM AWARDS Group incentives tend to measure performace in terms of physical output. Team award plans may use a broader range of performance measures. Drawbacks are that individual competition may be replaced by competition between teams. BALANCED SCORECARD Some companies design plans that combine various elements of the above programs that are appropriate to the situation. The four categories of a balanced scorecard include: financial customer internal learning and growth MATCHING PAY STRATEGY AND ORGANIZATION STRATEGY  LABOR AND EMPLOYMENT LAWS The Labor Code of the Philippines, managed by the Department of Labor and Employment (DOLE), lists the different employment types: Regular employment: Workers who perform necessary, full-time labor important for a business over the course of an indefinite time period. Probationary employment: Refers to the trial period after an employee is hired, when an employer can judge fit in the hopes of bringing the worker on full time barring any setbacks. Probationary periods generally last about six months. Fixed-term employment: When workers contractually agree to finish a task within a finite time period. Seasonal employment: Applies to agricultural workers and others who are temporarily laid off in the off-season, but can expect reinstatement when their services are needed again in the next cycle. Project employment: Workers who work on a one-off task. Their contract ends as soon as the specific project is completed. Casual employment: When an employee engages in a task not considered crucial to the main tenets of the business. Once a casual employee works for a year, they can transition into a regular employee.  WHO IS ENTITLED TO BENEFITS IN THE PHILIPPINES? The labor laws in the Philippines are administered by the Department of Labor and Employment. The Philippines employee benefits all depend on which of the four kinds of employment arrangements is underway: regular, project- based, seasonal, and casual employment. Laws and regulations may differ depending on the nature of the employment arrangement. However, the law recognizes the job security of any employment arrangement. General minimum conditions of employment in respect to working hours, rest periods, overtime age, night shift, holidays, and leave are codified in the Book 3 of the Philippines Labor Code. Exceptions can be made for managerial- ranked employees, field personnel, and some other workers.  REGULATORY FRAMEWORK FOR EMPLOYEE COMPENSATION Equal Employment Opportunity ( EEO) REPUBLIC ACT NO. 10524 SEC. 5. Equal Opportunity for Employment. – No person with disability shall be denied access to opportunities for suitable employment. A qualified employee with disability shall be subject to the same terms and conditions of employment and the same compensation, privileges, benefits, fringe benefits, incentives or allowances as a qualified able-bodied person. BOOK III – CONDITIONS OF EMPLOYMENT Art. 83. Normal hours of work. The normal hours of work of any employee shall not exceed eight (8) hours a day Art. 87. Overtime work. Work may be performed beyond eight (8) hours a day provided that the employee is paid for the overtime work, an additional compensation equivalent to his regular wage plus at least twenty-five percent (25%) thereof. Work performed beyond eight hours on a holiday or rest day shall be paid an additional compensation equivalent to the rate of the first eight hours on a holiday or rest day plus at least thirty percent (30%) thereof. Art. 99. Regional minimum wages. The minimum wage rates for agricultural and non-agricultural employees and workers in each and every region of the country shall be those prescribed by the Regional Tripartite Wages and Productivity Boards. (As amended by Section 3, Republic Act No. 6727, June 9, 1989).  SOCIAL SECURITY SYSTEM (SSS) This state-run insurance program offers benefits under the Social Security and Employees' Compensation (EC) Programs. The Social Security Commission administers the program. It is a body made of representatives from the government, employers, and employees. Social insurance covers private-sector employees, self-employed workers, as well as household workers. A spouse of the insured person is also entitled to receive social benefits under this scheme. The benefits include: maternity pay sickness pay pensions disability benefits salary loans life insurance funeral grants The contribution depends on the salary bracket of the employee. In general, the employer (ER) is responsible for contributing 7.37% of the total contribution, and the employee is responsible for 3.36%.  HEALTH INSURANCE PhilHealth is the name of the health insurance plan in place for private employees in the Philippines. As of 2021, the monthly contribution rate for the health insurance program is 3.5% of the employee's basic salary. The monthly contribution is equally divided between employee and employer. PHP 10,000 is the salary minimum and PHP 70,000 is the salary ceiling. PhilHealth covers inpatient benefits, outpatient benefits, Z benefits, and SDG benefits (explained below): Z benefits are offered to the patients who need prolonged hospitalization and more expensive treatment SDG benefits include treatment packages for malaria, HIV-AIDS, tuberculosis, animal bites, and others diseases Employers are not obligated to provide any specific insurance benefits since PhilHealth offers the above entitlements.  HOME DEVELOPMENT MUTUAL FUND (HDMF) The HDMF, also known as Pag-IBIG fund, provides housing loans. It also offers financial assistance to Filipinos to enable them to afford decent housing. Workers who earn less than PHP 1,500 a month contribute 1% of their salary to the Pag-IBIG fund. Workers who earn more contribute 2% of their monthly salary. Employers have to contribute 2% regardless of the salary bracket of the employee. The highest contribution to HDMF fund should not exceed PHP 200 in total (PHP 100 for employees and PHP 100 for employers).  SICK LEAVE Insured employees are entitled to receive at least 90% of their average daily wage if they get hospitalized or incapacitated at home for at least three days. The three-day waiting period does not apply to the cases of injuries and acute diseases. Employees who are ill are eligible to receive 90% of their average daily salary for up to 120 days in a year. However, the employee cannot claim this benefit for more than 240 days for the same illness. To be eligible, the employee must have contributed to the Social Security System for at least three months in the prior 12 months. Employers are responsible for paying sickness benefits to their employees which can then be reimbursed from the SSS.  BEREAVEMENT LEAVE Employees can take up to three days of unpaid leave on the occasion of a death in the family. RETIREMENT BENEFIT The pension scheme in the Philippines is regulated under Social Security System. Retired employees who have paid their contribution to SSS for at least 10 years before their retirement are eligible to receive a monthly pension. Workers who have paid their contribution for less than 10 years get a lump sum equal to the contribution made by them and their employers, including interest earned.  MATERNITY AND PATERNITY LEAVE Both married and unmarried female workers are entitled to 60 days of paid maternity leave for their first four pregnancies, including miscarriages. This is dependent on them contributing to Social Security for at least three months during the prior 12-month period. If a C-section is needed or there is an ectopic pregnancy requiring surgery, they are eligible for 78 days of paid leave. Married male workers can have seven days of paternity leave for the first four pregnancies of their wives. Male workers can apply for paternal leave only when they are living with their spouse at the time of delivery or miscarriage. They need to apply for leave within a reasonable period. SOLO PARENT LEAVE Solo parents can take up to seven days’ leave to fulfill their parental duties, especially where physical presence is necessary. To be eligible for solo parent leave, one must work for at least one year, including holidays and authorized absence. This one-year period of service can be continuous or broken.