MODULE 6: Compensation

1. Differentiate between the three types of compensation.

Direct Compensation Components

Base salary
Premium payments (overtime, shift differentials, longevity pay.)
Contingent programs (incentive plans or achievement award, merit pay)
Indirect Compensation Components

Protection programs (Social Security, Worker's Compensation, Unemployment

Compensation, pension plans, health, dental, vision, life, accidental death and
long term disability insurance.)
Paid Leave (vacations, holidays, jury duty, sick leave, military leave.)
Intangible Compensation

Non-monetary rewards ("thank-you", lunch celebrations, administrative leave for

meritorious job performances)

2. Do you believe in the phrase equal pay for equal work or an employees pay
should commensurate to his efforts? Justify your answer.
Yes. If an employee doesnt get the right salary he feels he should be accorded
to, it will affect his psyche about his work, be less productive and will scout for a
better job outside. Thats why salary management is a very important part in
human resource department. It must be in constant link with other companies
regarding compensation to standardize its own against the prevailing salary
grade in the region.
3. What important factor should be considered regarding compensation? Explain
your answer.
Good offer is the most important factor to be considered regarding
compensation. Job seekers look for best opportunities. They look for greener
pastures to provide for their personal needs, family and their future. It is the
reason they go to far away places seeking for gold. If a company offers
attractive salary and packages, it is likely that they also attract the best
employees around. With good salary packages, the company can command

stricter screening of applicants and requiring its employees to be more efficient

and productive.
4. When do we say that compensation program of an organization is able to realize
its objectives?
When its employees become more productive, efficient and happy about their
working conditions.
5. What are some of the principles of pay salary determination? Are these
applicable to your present job? Why?
Geographic Location
Based on occupational groupings, the data published by the U.S. Bureau of
Labor Statistics provides a framework for determining salary ranges according to
occupation. The National Compensation Survey indicates, "Publication of mean
and median wages for occupations and for occupational groups in an area can
be used by employers to determine how their pay for an occupation compares
with that of the area." Using the Consumer Price Index (CPI), you can determine
your company's standing based on its geographic area in comparison to other
locales. The median CPI is 100, therefore, locales with a lower cost of living will
have cost of living price indices that fall below the 100 mark; locales where the
cost of living is higher than average have a number higher than 100. The CPI
isn't a fool-proof method to determining salary ranges because it's not a pure
cost of living index.
Company Budget
Setting salary ranges depends on payroll budget as well as total compensation
budget, which includes benefits, incentives and perks. For small or start-up
businesses, the ability to adhere to competitive salary ranges may be limited due
to budget constraints. Projections and anticipated growth make it possible to
predict future salary ranges more closely aligned with other companies in the
area.
Occupational Groups and Equitable Pay
The term "comparable worth" comes into consideration when determining salary
ranges. Establishing salary ranges for different occupation groups requires
knowledge of the comparable worth and equitable pay across the board for
different jobs or occupational groups. The U.S. Equal Employment Opportunity
Commission enforces equal pay and provides guidance for employers
establishing wage rates. According to the EEOC: "The jobs to which the equal

pay standard is applicable are jobs requiring equal skill in their performance."
Establishing salary ranges must adhere to fair employment practices, such as
those outlined in The Equal Pay Act. Compensation principles are based, in large
part, on pay equity to provide equal pay to employees and to protect employers
from unnecessary expenses of defending salary ranges and pay practices.
Applicability:
DepEd Philippines has a salary standardization for teachers throughout the
country. Being public, the government dictates the salary through exhaustive
deliberations in the education department and with the aid of congress, the
recommendations by the department will be studied, deliberated and finally
passed into law before being enacted and budgeted.