Chapter Five

MODULE NO. 5 :
COMPENSATION AND BENEFITS

1. To understand the concept of Compensation and Benefits;

2. To distinguish the difference between Compensation and
Benefits;
3. To identify the components, characteristics and other
features of Compensation and Benefits
4. To recognize the different Compensation and Benefits
being received by the employees in the Philippines
 OVERVIEW

Compensation and Benefits refers to the

compensation/salary and other monetary and
non-monetary benefits passed on by a firm to
its employees. Compensation and benefits is
an important aspect of HRM as it helps to
keep the workforce motivated. It helps give
benefits to employees based on their
performance and actions and brings the best
out the employees at workplace.
 Importance of compensation and
benefits
- One of the biggest factors why people join
companies are the compensation and benefits,
salaries, perks, incentives etc. which are given to
them.
- The more the compensation and benefits offered to
employees, the more is their loyalty, motivation to
work and to perform their job well.
- Salaries of employees are defined by several
parameters like experience, education background
etc. In senior management, skills like team
management, communication
management, leadership, time management etc. are
also considered while finalizing the pay package.
Compensation and benefits
components
 Compensation and benefits
components
1. Fixed pay: This is the basic salary paid to the
employee irrespective of any other factor. This is stated
clearly in the employment contract. This is the
compensation or salary or wage which an employee or
a worker will definitely get as long as he or she is an
employee of the company.

2. Variable Pay: This is the additional compensation

paid to employee based on employee’s performance,
company performance etc. Since variable pay is based
on the performance of an individual, it motivates the
employees to perform even better.
 Compensation and benefits
components
3. Equity Pay: Employees are awarded shares of the
company, often at a discounted price. Employees are
expected to make money out of them by the
appreciation of the stock price and the growth of the
company. This is mostly given to the senior
management who have served the company for a long
time.

4. Other benefits: Benefits such as medical facilities,

insurance policies, company owned car of flat etc.
all play an important role in motivating employees.
These benefits are given by the company as a part of
recognizing the services of an employee.
Difference between Compensation and
Benefits
Compensation refers to pay or
the exchange in monetary terms of
the work performed by the
employee and is paid by the
employer

Benefits refer to the exchange in

value to the employees as part of
their packages for the work that
has been performed
 Key Characteristics of Compensation

Compensation refers to all forms of pay to

employees arising from their work and this is offered
in monetary value. There are various key features
that differentiate compensation from benefits. Some
of these features determine the level of
compensation one gets for his services rendered to
the organization.
 Types of compensation depending on the nature of
work

There are different types of

compensation packages for different
employees depending on their nature of
work. These include the following:

1. Basic compensation
2. Performance related
compensation
3. Piece-rate compensation plan
 Compensation Schedule
Some companies prefer to pay their employees on
monthly basis while others can choose either weekly
or fortnight payment days. Some companies
calculate the pay for their employees on an hourly
basis. Aspects such as experience as well as levels
of qualifications are mainly used to determine the
compensation rate for each employee within the
organization.
 Components of Compensation

Compensation can be divided into the following components:

1. Completely fixed (per month or year)

2. Some fixed component, along with a variable

component (which is decided based on the rating of the
employee and his meeting of the targets)

3. Total variable component, where the total salary depends

on the rating received during evaluation

4. Bonus is a component given monthly or yearly based on

company's performance
 Components of Compensation
The compensation system followed by a company should be
regularly evaluated and updated as per its evolving strategies
and also based on the moves of its competitors. Mostly
compensation is paid at regular intervals like a monthly
payment. However, in certain cases the payment of wages and
salaries is delayed, which is known as deferred
compensation.

Sometimes instead of giving money, companies do payments

on behalf of employees, which is also referred as indirect
compensation.
 Compensation Committee
Set of individuals or employees from the HR
department who decide the salaries, wages,
perks, incentives, etc. which are to be given to
the employees. The compensation committee
is also responsible for determining alternate
methods of compensation such as shares,
incentives & other benefits. Mostly the salaries
and benefits of the senior management are
prepared by the compensation committee.
 Key features of Benefits

During the current period, it can be noted

that employees expect to earn extra apart
from cash alone. This is known as benefits
and some people prefer to call them fringe
benefits and they are non-monetary form of
compensation. Benefits are offered on top
of the cash pay to the employees in a bid
to improve the welfare of the employees
as well as to motivate them.
 Types of Benefits Packages
There are different types of benefit packages
and employees have the opportunity to choose
benefit packages that suit their needs. Some
benefits are required by law and these include
sick and holiday pay as well as unemployment
compensation. On the other hand, it can be
observed that employees can choose their desired
benefit packages from the following: vacation,
health insurance, company housing,
subsidized meals as well as educational
funding for children. In some cases, benefits
depend on one’s level within the company.
 Performance
Workers receive benefits regardless of their performances.
In other words, benefits are not performance based but
membership based. The other notable aspect about employee
benefits is that they usually do not affect the performance of
the employees though in some case they can lead to low
satisfaction and lead to absenteeism and ultimately turnover if
they are insufficient.

Care should be taken when designing the benefit package

since this can impact the employees if the benefits are not
satisfactory. It is also important to consider associated costs.
Goals of Benefits
 Employee Choice on Compensation and
Benefits
Employees cannot determine their own salaries. Factors such
as level of qualification and experience are often taken into
account when determining the level of compensation awarded
to a specific individual within the company.

On the other hand employees can choose their benefit

packages as they see fit since they are the ones who know
what they exactly need.
 Employee Choice on Compensation and
Benefits
Compensation is meant to attract as well as to retain
employees within the organization. Skilled employees should
offered lucrative pay in order for them to remain in the
organization.

Benefits on the other hand are meant to improve employee

satisfaction, improving their welfare as well as motivating them
so that they can improve job satisfaction. All these factors are
good for the employees since they stay for long period in the
organization.
 Conclusion
In conclusion, it can be stated that benefits and compensation
are somehow related since they have something to do with
compensating employees in particular for the work performed.
However, as discussed above, these two concepts are
different. The main difference between the two is that
compensation is monetary based while benefits include other
gains that are non-monetary. Compensation itself is
performance based and it is designed to attract as well as to
retain the already existing employees in the organization. In
contrast, benefits are membership based and employees are
entitled to them and employees can choose their desired
benefit package. Benefits are also designed to improve job
satisfaction as well as to motivate the employees within the
organization to improve their performance.
 Compensation and Benefits in the
Philippines
WAGE AND WAGE-RELATED BENEFITS
1. MINIMUM WAGE

The Wage Rationalization Act, Republic Act No. 6727, sets the
minimum wage rates applicable per region, province and
industry sector. The industry sectors are: non-agricultural,
agriculture (plantation and non-plantation), cottage and
handicraft, retail and service sectors. Minimum wage may vary
depending on the number of employees and gross-sales of an
enterprise and its industry sector.
As of April 2015 the minimum wage of non-agricultural workers
in Metro Manila is PHP 481 and PHP 444 for agricultural
workers. Outside of Metro Manila, the minimum daily wage
varies from PHP 279 to PHP 337 for non-agricultural workers,
depending on the region.
 Compensation and Benefits in the
Philippines
2. OVERTIME

Minimum wage is based on a work week of 40 hours or 8

hours per day. The daily 60 minute mandatory lunch break is
not included in the 8 hour work day and is not compensated.
Overtime pay rates vary depending on when the overtime work
takes place: regular work day, holiday, rest day, or night
(between the hours of 10pm to 6am).
Overtime Rates:
– Regular work day: plus 25% of the hourly pay rate.
– Rest day, regular/special holiday: plus 30% of the hourly rate
on said day.
 Compensation and Benefits in the
Philippines
3. PREMIUM PAY
Premium pay is given on non-working days (rest days/special
holidays)
There are 3 special holidays:
– Ninoy Aquino Day
– All Saints Day
– Last Day of the Year

Premium Pay Rates:

– On a rest day or special holiday, an employee is entitled to
an additional 30% of his daily basic rate, or a total of 130%.
– On a rest day which is also a special holiday, an employee is
entitled to an additional 50% of his daily basic rate, or a total of
150%.
 Compensation and Benefits in the
Philippines
4. HOLIDAY PAY
The Labor Code requires the payment of an employee’s daily
basic wage for all non-working regular holidays.
There are 12 regular and 3 special non-working holidays (see
above) in the Philippines.
12 regular holidays are (Republic Act No. 9849):
– New Year’s day
– Maundy Thursday
– Good Friday
– Araw ng Kagitingan
– Labor Day – Bonifacio Day
– Independence Day – Rizal Day
– National Heroes’ Day – Christmas Day
– Eid’l Fitr
– Eid’l Adha
 Compensation and Benefits in the
Philippines
5. NIGHT SHIFT DIFFERENTIAL
For work done between the hours of 10pm to 6am, employees
are entitled to Night Shift Differential (NSD), which represents
an additional 10% to the regular wage for each hour of work
performed.

6. SERVICE INCENTIVE LEAVE

Every employee who has rendered at least one (1) year of
service is entitled to a Service Incentive Leave (SIL) of five (5)
days with pay. SIL may be used for sick and vacation leave
purposes. The unused SIL at the end of the year can be
converted into cash using the salary rate at the date of
conversion. It is the employer’s prerogative to grant additional
vacation leave.
 Compensation and Benefits in the
Philippines
7. PARENTAL LEAVES
A. Maternity Leave
Whether married or not, each pregnant employee is entitled to
a maternity leave benefit of 105 days with full pay regardless if
the delivery was normal or caesarian, for up to four
pregnancies.
B. Paternity Leave
All married male employees are entitled to a 7 day paternity
leave for the delivery or miscarriage of his legitimate spouse
with whom he must live, for up to four pregnancies. The
paternity leave is at the cost of the employer and is not
reimbursed by the SSS. As for fathers, a total of 7 out of the
105 days of leave may be transferred to them. This would
expand fathers' paid paternity leave to 14 days.
 Compensation and Benefits in the
Philippines
C. Solo-Parent Leave
In addition to parental leaves at the time of a child’s birth, the
Filipino labor code drew a special leave for solo-parent
employees as described in the Solo Parents Welfare, Republic
Act No. 8972. Solo working mothers would also get an
additional 15 days, for a total of 120 days of paid maternity
leave.
 Compensation and Benefits in the
Philippines
8. 13th MONTH PAY
Each year, a 13th month pay is given to all rank-and-file
employees. By law, this benefit must be paid before December
24th and is mandatory. Employees who have resigned or have
been severed from the company before the payment of the
13th month pay are still entitled to it in proportion to the length
of time they worked for during that year.
The 13th month pay must be at least 1/12th of the total basic
salary of each employee earned during that calendar year.

9. SEPARATION PAY
10. RETIREMENT PAY
14. GROSS BENEFITS & DE MINIMIS BENEFITS
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