ORGANIZATION AND MANAGEMENT

Quarter 2-Week 4

The Functions And Importance Of

Compensation, Wages And Performance
Evaluation, Appraisal, Reward System,
Employee Relations And Movement
Learning Competency:

•Examine the functions and importance of

compensation, wages and performance evaluation,
appraisal, reward system, employee relations and
movement.
COMPENSATION/WAGES and PERFORMANCE EVALUATION

Compensation/wages and performance evaluation are related to each other because the
employees’ excellent or poor performance also determines the compensation given to them, after
considering other internal and external factors like the actual worth of the job, compensation
strategy of the organization, conditions of the labor market, cost of living, and area wage rates,
among others.
Compensation may come in different forms. It may be direct, indirect, or nonfinancial.
Types of Compensation
• Direct compensation – includes workers’ salaries, incentive pays, bonuses, and commission
• Indirect compensation – includes benefits given by employers other than financial
remunerations; for example travel, educational and health benefits, and others
• Nonfinancial compensation – includes recognition programs, being assigned to do rewarding
jobs, or enjoying management support, ideal work environment, and convenient work hours
Connecting Compensation to Organizational Objective

Worker compensation/wages had tremendously

changed in the 21st century due to increased market
competition (both local and global), required skills from
workers, and changes in technology, among others. Along The daily minimum wage rate
with these, organizations’ pay philosophies have also differs in relation to factors such
changed. Instead of paying employees based mainly on their as geographical area and industry
job position or titles, they are now given pay according to or sector. The National Wage and
their competencies or according to how much they could Productivity Commission is the
contribute or have contributed to their company’s success. government agency concerned
Wage experts now prepare compensation packages to create with minimum wage
values for both the organization and its employees. determination in the country.
Figure 1. Pay equity is among the important considerations in preparing compensation packages. As illustrated in
this diagram, pay equity is based on the idea that an employee’s pay must be commensurate to his or her effort.
Compensation: A Motivational Factor for Employees
Compensation pay represents a reward that an employee receives for good performance that
contributes to the company’s success. With this, the following must be considered:
Pay Equity – related to fairness; the Equity Theory is a motivation theory focusing on
employees’ response to the pay that they receive and the feeling that they receive less or more
than they deserve.
Employees generally feel that their pay must be commensurate to the effort exerted in the
performance of their job. In other words, pay equity is achieved when the pay given to them by
their employers is equal to the value of the job performed; thus, this motivates them to perform
well and to do their jobs to the best of their abilities.
Expectancy Theory – another theory of motivation which predicts that employees are
motivated to work well because of the attractiveness of the rewards or benefits that they may
receive from a job assignment.
The employee’s perception of the compensation or pay attached to a job position is an
important factor in ascertaining the motivational value of compensation.
Bases for Compensation
Employees may be compensated based on the following:
• Piecework basis – when pay is computed according to the number of units produced
• Hourly basis – when pay is computed according to the number of work hours rendered
• Daily basis – when pay is computed according to the number of workdays rendered
• Weekly basis – when pay is computed according to the number of workweeks rendered
• Monthly basis – when pay is computed according to the number of work months rendered

Compensation rates are influenced by internal and external factors. Among the internal factors are the
organization’s compensation policies, the importance of the job, the employees’ qualifications in meeting
the job requirements, and the employer’s financial stability.
External factors, on the other hand, include local and global market conditions, labor supply,
area/regional wage rates, cost of living, collective bargaining agreements, and national and international
laws, among others

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Purposes of Performance Evaluation: Administrative and Developmental
Improving individual job performance through performance evaluation is just one of the reasons
why employees are subjected to assessments on a continuous basis. There are other purposes behind
employee assessment that are beneficial to the company and employee.
• Administrative Purposes – These are fulfilled through appraisal/ evaluation programs that provide
information that may be used as a basis for compensation decisions, promotions, transfers, and
terminations.
Human resource planning may also make use of it for the recruitment and selection of
potential employees.
• Developmental Purposes – These are fulfilled through appraisal/ evaluation programs that provide
information about employee’s performance and their strengths and weaknesses that may be used as a
basis for identifying their training and developmental needs. Through this approach, the workers
become more receptive to explanations given by the organization’s management regarding the
importance of having evaluations at regular intervals – that these are conducted to improve their
competencies to prepare them for future job assignments.
Different performance appraisal methods are used depending on the information an evaluator
aim to find out.

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Performance Appraisal Methods
Methods of evaluating workers have undergone development to adapt to new legal employment
requirements and technical changes. Some appraisal methods used today are the following:
1. Trait Methods – performance evaluation method designed to find out if the employee possesses
important work characteristics such as consciousness, creativity, emotional stability, and others
2. Graphic rating scales – performance appraisal method where each characteristic to be evaluated is
represented by a scale on which the evaluator or rater indicates the degree to which an employee
possesses that characteristic
3. Forced-choice method – performance evaluation that requires the rater to choose from two
statements purposely designed to distinguish between positive or negative performance; for
example: works seriously – works fast; shows leadership – has initiative
4. Behaviorally anchored rating scale (BARS) – a behavioral approach to performance appraisal that
includes five to ten vertical scales, one for each important strategy for doing the job and numbered
according to its importance
5. Behavior observation scale (BOS) – a behavioral approach to performance appraisal that measures
the frequency of observed behavior

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Advantages of Performance Appraisal
It is said that performance appraisal is an investment for the company which can be justified by the following
advantages: (Enriquez, 2016)
 Promotion: Performance Appraisal helps the supervisors to chalk out the promotion programs for efficient
employees. In this regard, inefficient workers can be dismissed or demoted in case.
 Compensation: Performance Appraisal helps in chalking out compensation packages for employees. Merit
rating is possible through performance appraisal. Performance appraisal tries to give worth to performance.
Compensation packages which include bonuses, high salary rates, extra benefits, allowances, and pre-requisites
are dependent on performance appraisal. The criteria should be merit rather than seniority.
 Employees Development: The systematic procedure of performance appraisal helps the supervisors to frame
training policies and programs. It contributes to analyzing the strengths and weaknesses of employees so that
new jobs can be designed for efficient employees. It also helps in framing future development programs.
 Selection Validation: Performance Appraisal helps the supervisors to understand the validity and importance of
the selection procedure. The supervisors come to know the validity and thereby the strengths and weaknesses of
the selection procedure. Future changes in selection methods can be made in this regard.
 Motivation: Performance Appraisal serves as a motivation tool. Through evaluating the performance of
employees, a person’s efficiency can be determined if the targets are achieved. This very well motivates a
person for a better job and helps him to improve his performance in the future.

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Why Some Evaluation Programs Fail
Performance appraisals (such as manager/supervisor appraisal, self-appraisal, subordinate appraisal,
customer appraisal, peer appraisal, team appraisal, or 360-degree appraisal) may sometimes fail due to
various reasons including the following:
• the inadequate orientation of the evaluatees regarding the objectives of the program;
• incomplete information of the evaluatees (e.g. proper answering of the evaluation questionnaire);
• bias exhibited by evaluators;
• inadequate time for answering the evaluation forms;
• ambiguous terms used in the evaluation questionnaire;
• employee’s job description is not properly evaluated by the evaluation questionnaire used;
• inflated ratings resulting from the evaluator’s avoidance of giving low scores;
• evaluator’s appraisal is focused on the personality of the evaluatee and not his or her performance;
• the unhealthy personality of the evaluator; and
• the evaluator may be influenced by organizational politics.

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REWARD SYSTEM
Organizations offer competitive rewards systems to attract knowledgeable and skilled people and to keep them
motivated and satisfied once they are employed in their firm. Further, rewards promote personal growth and
development and present fast employee turnover. Management offers different types of rewards:
Monetary rewards – rewards that pertain to money, finance, or currency.
a. Pay/Salary – financial remuneration given in exchange for work performance that will help the
organization attain its goals; examples: weekly, monthly, or hourly pay, piecework compensation, etc.
b. Benefits – indirect forms of compensation given to employees/ workers to improve the quality of their
work and personal lives; health care benefits, retirement benefits, educational benefits, and others are
examples of these
c. Incentives – rewards that are based upon pay-for-performance philosophy; it establishes a baseline
performance level that employees or groups of employees must reach to be given such reward or payment;
examples; bonuses, merit pay, sales incentives, etc.
d. Executive Pay – a compensation package for executives of
organizations which consists of five components: basic salary, bonuses, stock plans, benefits, and perquisites
e. Stock Options – are plans that grant employees the right to buy a specific number of shares of the
organization’s stocks at a guaranteed price during a selected period

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 A research on effective rewards systems by the Center for Effective
Organizations revealed that rewards systems can influence six factors or
areas that impact organization effectiveness. These are:
• attention and knowledge;
• motivation of performance;
• skills and knowledge;
• culture;
• reinforce and define structure; and cost.

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 Nonmonetary Rewards – rewards that do not pertain to money, finance,
or currency; refer to intrinsic rewards that are self-granted and which have a
positive psychological effect on the employee who receives them.
a. Award – a nonmonetary reward that may be given to individual
employees or groups/teams for meritorious service or outstanding
performance; trophies, medals, or certificates of recognition may be
given instead of cash or extrinsic rewards
b. Praise – a form of nonmonetary, intrinsic reward given by superiors to
their subordinates when they express oral or verbal appreciation for
excellent job performance

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EMPLOYEE RELATIONS
Employee relationships apply to all phases of work activities in
organizations, and managers to be effective, must be able to encourage good
employee relations among all human resources under his or her care.
Employees/workers are social beings who need connections or relations with
other beings – other employees/workers – who can give them social support
as they carry out their tasks in the organization where all of them belong.
Talking to a co-worker, perceived to be a friend, or working on a delicate
task with others can be comforting during times of stress, fear, or loneliness.
When these negative feelings are overcome, employees will be able to work
better toward the achievement of their organization’s goal.

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Effective Employer Relations and Social Support
Social support is the sum of perceived assistance or benefits that may result from effective social employee
relationships. The quantity and quality of an employee’s relationship with others determine social support (esteem
support, informational support, or financial support). In short, social support and effective employee relations
must always go together “a horse and a carriage,” where one would be useless without the other. Therefore,
without social support, effective employee relations are not possible; and without effective social employee
relationships, social support, likewise, is not possible.

Below are some barriers to good employee relations:

• Anti-social personality: refusal to share more about oneself to coemployees; being a loner
• Lack of trust in others
• Selfish attitude; too many self-serving motives
• Lack of good self-esteem
• Not a team player
• Being conceited
• Cultural/subcultural differences
• Lack of cooperation
• Communication problems: refusal to listen to what others seek to communicate
• Lack of concern for others’ welfare

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Here are some ways to overcome barriers to good employee relations:

• Develop a healthy personality to overcome negative attitudes and behavior.

• Find time to socialize with coworkers.
• Overcome tendencies of being too dependent on electronic gadgets.
• Develop good communication skills and be open to others’ opinions.
• Minimize cultural/subcultural tension.

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The Benefits of Strong Employment Relations
Having a strong employer and employee relations reaps a lot of benefits for your business. The most advantages are listed
below: (Enriquez, 2016)
1.Productivity
Strong employment relations create a pleasant atmosphere within the work environment; it increases employee
motivation and can also be increased through improved employee morale. Companies that have invested in employee
relations programs have experienced an increase in productivity, and therefore, the increased productivity leads to
increases in profits for the business.
2.Employee Loyalty
Creating a productive and pleasant work environment has a drastic effect on an employee’s commitment to the firm, it
encourages a loyal workforce. Having such a labor force improves employee retention, in doing so the cost of
recruitment, hiring, and training are cut drastically. For most businesses, the high cost of employee turnover outweighs
the cost of the employee relations program that they have in place. Another benefit is that when the employee turnover is
low, it ensures that the employer has a trained and skilled set of employees.
3.Conflict Reduction
When a work environment is efficient and friendly, the extent of conflict within the workplace is reduced. Fewer conflict
results in the employees being to concentrate on the tasks at hand and they are therefore more productive. All the research
and statistics lead to one conclusion, ‘A happy workforce is a productive workforce.’ Creating a sound and efficient work
environment with excellent management and a strong employer-employee relation can be the vital key to any business
success or failure.

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 Three Types of Employees
Engaged • employees who work with passion and feel
a deep connection with their company
• they drive innovation and move the
organization forward
Not Engaged • employees who are essentially “checked
out”
Actively • they put time, but not energy or passion,
Disengaged into their work
• employees who are not only unhappy at
work but also act out their unhappiness
• they undermine what their engaged
coworkers accomplish

According to a study on employee engagement published by www.gallup.com, there are three types of
employees, as shown in this table. Employee engagement may be influenced by the kind of relationships
employees have in their workplace.

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EMPLOYEE MOVEMENTS
A labor union is a formal union of employees/workers that deals with employers, representing
workers in their pursuit of justice and fairness and in their fight for their collective or common
interests.
Employees or workers unionize because of financial needs, unfair management practices, or
social and leadership concerns.
a. Financial needs – complaints regarding wages or salaries and benefits given to them by
the management are the usual reasons why employees join labor unions
b. Unfair management practices – perceptions of employees regarding unfair or biased
managerial actions are also the reason why they join mass movements; examples of lack of
fairness in management are favoritism related to promotion and giving of training
opportunities and exemption from disciplinary action
c. Social and leadership concerns – some join unions for the satisfaction of their needs for
affiliation with a group and for the prestige associated with coworkers’ recognition of one’s
leadership qualities

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Figure 2. Company owners have to make sure that they make their employees
satisfied in order to prevent a labor strike.
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Steps in Union Organizing
Terry Moser, an expert union organizer was credited by Snell and Bohlander (2011) for
the following union-organizing steps:
Step 1. Employee/Union Contact – to explore unionization possibilities, employees
weigh the advantages and disadvantages of seeking labor representation while the union
officers gather more data about the employee’s complaints, as well as data about the
employer’s management styles, financial stability, policies, etc. these actions by
employees and union officers are necessary to build a case against the employer and
defense for the employees’ decision to unionize.
Step 2. Initial organizational meeting – This is conducted to attract more supporters and
select potential leaders among the employees who can help the union organizers.
Information or data obtained in Step 1 will be used by the organizers to meet the
employees’ need to explain the means to accomplish their goals.

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Figure 3. The Collective Bargaining Process

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Step 3. Formation of the in-house organizing committee – this starts with the identification of employees
who are ready to act as leaders in campaigning for their goals, in trying to get the interests of the other
employees to join their movement, and in convincing employees to sign an authorization card to show their
willingness to be represented by a labor union in collective bargaining with their employer. The strength of
the union is shown by the number of employees who signed the authorization card. At least 30 employees
must sign the said card before the National Labor Relations Commission (NLRC) approves the holding
representation election.
Step 4. If a sufficient number of employees support the union movement, the organizer requests for a
representation election or certification election – a representation petition is filed with the NLRC asking
for the holding of a secret ballot election to determine the employees’ desire for unionization. Before the
election, leaders’ campaign for employees’ support for the election and encourage them to cast their votes.
Intense emotions are shown by employees, the labor group, and the employers during this period.
Step 5. End of union organizing – when a sufficient number of votes is garnered, the NLRC certifies the
union as the legal bargaining representative of the employees. Contract negotiation or collective bargaining
agreement (CBA) negotiations follow the certification.

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 The CBA process involves the following procedures:
a. Prepare for negotiations – data to support bargaining proposals are collected and arranged in an
orderly manner by both parties – the union and the employer’s groups. This is followed by the
selection of the members of their respective bargaining teams. Usually, each side has four to six
representatives at the bargaining table. The chief negotiator for the union is the union president
while the chief negotiator for management is the organization’s vice president of the labor relations
manager. Supporting data to back up the positions of each group are gathered. Economic data are
very important. Other internal organization data needed include records of promotions, transfer,
overtime work, grievances, disciplinary actions, and arbitration.

b. Develop strategies – management proposals are developed and limits of concessions are
determined, while also considering the union’s goals and their possible strike plans. The union, on
the other hand, tried to develop better strategies to convince the management group to accept its
proposals.

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 The CBA process involves the following procedures:
c. Conduct Negotiations – this consists of bargaining, analyzing proposals, resolving issues related to the proposals,
and remembering to stay within their respective bargaining zone. If no agreement is reached at this point, a
deadlock may result.
The union’s bargaining power may be exercised by holding a strike, picketing, or boycotting the employer’s
products or services. The management’s bargaining power, on the other hand, maybe exercised either by continuing
operations or shutting down operations. Another method is by a lockout of its employees or denying the employees
the opportunity to work.
Unions and employers may try to resolve bargaining deadlocks by mediation or arbitration. Mediation is the use of
a neutral third party to reach a compromise decision in employment disputes. Arbitration also uses a neutral third
party who resolves the labor dispute by issuing a final decision in the disagreement.
d. Formalize agreement – after the negotiation process, the union and the management group have to formalize
their agreement. This agreement is a formal binding document that lists down the terms, conditions, and rules under
which employees and managers agree to operate; the clear language must be used in the contract, which has to be
ratified by the majority of the employees. After ratification, all the members of the union and the management
bargaining teams, as well as the president or chief executive officer of the organization, must sign the document
before its dissemination to all parties concerned.

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 CBA activities, ideally, must be a continuous process (although it is held every five
years in many companies). Right after the formalization of the agreement and its
ratification and signing, preparations for negotiations on the next CBA must begin again.
This will allow negotiations to review weaknesses and mistakes committed during the
previous negotiations while these are still fresh in their minds.

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Grievance Procedure
The grievance procedure is a formal procedure that authorizes the union to represent its
members in processing a grievance or complaint. Such grievance must be expressed orally or in
writing to the employee’s immediate supervisor and the union steward. If the immediate supervisor
shows a willingness to discuss the complaint with the employee and the union steward, the grievance
may be resolved immediately.
This is possible especially if the supervisor has formal training in handling grievances. If not
resolved within ten working days, the employee forwards the grievance to the department manager
and the chief steward of the union. Again, the resolution of the grievance is possible at this point if the
department manager is willing to discuss the matter with the employee and the chief steward.
However, if this remains unresolved, the next step is for the employee to forward the complaint to the
vice president for labor relations and the local union president after 15 workdays. Resolution of the
matter is possible, but if nothing happens within 30 workdays, the employee may now forward the
complaint, with the aid of the local union president, to the NLRC arbitration. The arbitrator is a neutral
third party who resolves the grievance by issuing a final decision which both parties – the employee,
represented by the union president, and the employer – have to follow.

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Figure 4. The Philippine government has implemented a law that requires business establishment to give 13 th
month pay to all employees that have worked for them for at least a month.

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