PAY MODEL
1. Forms of Pay
Base Pay
Merit Pay/Cost of Living Adjustments
Incentives
Benefits
2. Pay Model
Policies
Techniques
Objectives
Presented by:
RUBY M. BENASA
LYKA G. ACQUIOT
Compensation includes the basic salary as well as rewards in the form of bonuses,
overtime, leave, insurance, company car, expense account, and other benefits. Not all
compensation models are alike. Some plans put the emphasis on the basic salary, while
others are more focused on using performance incentives. Some organization also offer
profit share schemes to their employees if they help to increase production and lower
costs.
FORMS OF PAY
DIRECT Stock Option
• Base Pay INDIRECT
Salaries
Wages • Benefits
• Variable Pay Medical Insurance
bonuses Paid time Off
incentives Retirement pensions
Health/Medical insurance
BASE PAY / BASIC SALARY
The starting salary that is paid to an employee. This does not yet include any
additional benefits. It’s the remuneration an employee receives for their services
for the company. The basic salary of an employee can be expressed in an hourly
wage, or in a monthly salary.
DAILY PAID EMPLOYEES:
Rate per hour = (Daily rate/total working hours per day)
Example:
daily rate = 400
working hours = 8
rate per hour = 50
MONTHLY RATE EMPLOYEES
Rate per hour = (Monthly rate * 12)/total working days in a year/total working
hours per day
Example:
monthly rate = 15,000
total working days in a year = 313
working hours = 8
rate per hour = 71.88
MERIT PAY/COST OF LIVING ADJUSTMENTS (WAGE AND SALARY
ADD-ONS)
Wage and salary add-ons are used to compensate employees for work above and
beyond their normal work schedules or to reimburse them for expenses related to
their job.
Overtime pay
Holiday pay
Premium Pay
Reimbursement (travel/ Meal/ housing Expense)
• Holiday pay refers to the payment of the regular daily wage for any unworked
regular holiday.
For worked within 8 hours:
Plus 100% or daily rate * 200%
• Premium Pay refers to the additional compensation for work performed within 8
hours on non-work days, such as rest days and special days. Work performed on
special days merits an additional compensation of at least 30% of the basic wage
or a total of 130%.
If Special day falls on rest day, additional compensation of at least 50% or a
total of 150%.
• Overtime pay refers to the additional compensation for work performed beyond
8 hours a day.
1. For work in excess of 8 hours performed on ordinary working days: plus 25% of the
hourly rate.
2. For work in excess of 8 hours performed on a scheduled rest day or special day: plus
30% of the hourly rate on said days
3. For work in excess of 8 hours performed on a special day which falls on rest day: plus
30% of the hourly rate on said days.
4. For work in excess of 8 hours performed on a regular holiday: plus 30% of the hourly
rate on said days.
5. For work in excess of 8 hours performed on a regular holiday which falls on a
scheduled rest day: plus 30% of the hourly rate on said days.
• 13th Month Pay
The 13th month pay shall not be less than 1/12 of the total basic salary earned by
an employee in a calendar year.
The basic salary of an employee for the purpose of computing the 13 th month pay
shall include all remunerations or earnings paid by his or her employer for services
rendered. It does not include allowances and monetary benefits which are not considered
or integrated as part of the basic salary.
INCENTIVES
Incentives are the most likely drivers of attracting and retaining the best employees
Bonuses
Profit sharing
Stock options
Commission
Bonuses
Individuals are rewarded based on attainment of performance-based goals
(individual, team and/or company)
Profit sharing
Payment is ted to company profits. A predetermined percentage of profit is shared
among all employees. Profit-sharing bonuses are generally paid out once a year in the
form od cash or on a deferred basis.
Stock Options
An individual receives the option to buy company shares for a set price during a
specified time frame.
Commissions
Commissions are common way to remunerate employees (salespeople) for
securing the sales of a product or service. The intent is to create a strong incentive for the
individual to invest the maximum effort into their work. commissions are usually
calculated as a percentage of the sale of product or service.
Payment may be either straight commission or a combination of base salary and
commission. In general, commission structure is based on reaching specific targets or
quotas that have been previously agreed upon by the management and the employee.
BENEFITS
Dental insurance
Health insurance
Personal insurance
Medical insurance
Pension schemes
Leave days
Sick leave
Parental Leave
Vacation Leave
Service Incentive Leave
Article 95 of the Labor Code says that an employee who has worked for a year is
entitled to five (5) SILs with full pay. These can be used for vacation leave or sick
leave.
Parental leaves
Maternal – any pregnant woman employee who has worked with the company for
at least six months will be granted a maternity leave of at least two weeks prior to her due
date (expected date of delivery) and four weeks after normal delivery or miscarriage with
full pay based on her regular salary. As of February 21, 2019, the Expanded Maternity
Leave (EML) Bill has been signed into law. This law grants 105 days of paid maternity
leave credits. The law also allows new mothers to extend this leave for an additional 30
days, but this will be unpaid.
Paternal – the R.A No. 8187, or Paternity Leave Act of 1996, grants seven (7)
days of fully paid leave to married fathers. This is effective up to the first four
deliveries of the legitimate spouse. Under the EML, seven days of a woman’s
paid maternity leave credits can be transferred to fathers, extending the allowed
seven-day paternity to be extended to 14.
Solo Parent – Solo or single mothers and fathers have seven days leave with pay
for every year of service, on top of other leave privileges, e.g. Maternity or
Paternity Leave. Solo mothers are covered by the EML, so they also get 105 days
of paid maternity leave credits. However, solo mothers can extend their leave for
15 days and these should be paid leaves.
Special Leave Benefits for Women
Magna Carta for Women – this entitles women who underwent surgery due to
gynecological disorders to two months’ leave with full pay, as stipulated in R.A. 9710 or
the Magna Carta of Women. This applies to employees who have rendered at least six
months of service with the company.
Leave for women and their children who are victims of violence – victims of violence
against women, as stipulated in R.A. 9262 or the Anti-Violence Against Women and
Their Children Act of 2004, are entitled to 10 days leave with full pay.
Bereavement Leave
This is a 3 days additional time off from work to mourn for the death of immediate
family members such as mother, father, siblings, and children. It must be noted that this
is not a paid leave.
Separation pay
Separation pay is also part of the Labor Code and is given to employees
terminated from the company. The only exception are those terminated because of
misconduct or crime involvement.
There are two types:
1/2 Month Pay per Year of Service – an employee is eligible for separation pay
with the value of one-half (1/2) month pay for every year of service if the
separation from the service is because of retrenchment to save the company from
pitfalls, closure or termination of the operations due to bankruptcy and other bad
instances, and grave illness incurable within 6 months or harmful for co-workers.
One-Month Pay per Year of Service – an employee is eligible for a separation
pay worth of one month per year of service if the termination of the contract is
because of: installation of devices or machines that reduce the number of labors,
redundancy, or when there is excessive manpower, impossible reinstatement to
the former position because of significant reasons.
Retirement pay
Upon the age of 60 years or more (not more than 65 years old), an employee who
has served at the establishment for at least five years may be granted a retirement pay
equivalent to at least one-half month of salary for every year of service. A fraction of at
least six months is considered as one whole year.
PAY MODEL
The Pay model of Compensation was developed by G. T. Milkovich and J. M Newman
in 2002. They define compensation as forms of financial gain and tangible services and
benefits that employees receive as part of their employment.
The pay model of Compensation and benefits helps managers to structurally design and
understand the compensation system for their employees.
The model consist of three (3) main components :
Objective of the remuneration model;
The Policy that is the foundation of the structure;
The techniques that link the policy to the objectives
Pay model of compensation objectives
Efficiency
effective remuneration systems contribute to efficiency in the form of improves
performance, better quality, satisfied customers, or lower costs.
Fairness
fairness refers to designing and introducing a reward system that rewards
performance and meets the needs of the employees. Fairness is the foundation for healthy
work relationships, which means it’s important that employees are treated fairly and get a
salary that matches the work they do
Conformity
Compensation models have to conform to the requirements of various central and
national salary legislation and regulations. Conforming with regulations is an integral part
of any organization that wants to act in accordance with the law. When laws change, the
compensation system has to be changed as well.
Compensation System Policies
According to the Pay Model of Compensation, the compensation system has to relate to
internal consistency, competitive performance, and the contribution of employees. These
are the four pillars on which the policy of a compensation structure is based.
1. Alignment
Internal alignment refers to aligning the salaries for similar types of jobs, as well
as the rewarding of different kinds of work. Positions are assessed on their relative
contribution to the organization's objectives. If the compensation structure is seen as fair
by the employees, it will help motivate employees to improve themselves and accept
training.
2. External Competitiveness
Competitiveness is about the remuneration plan being competitive enough
compared to what competitors are offering. The plan has to offer sufficient benefits for
the potential employee to get them interested and keep them. The salaries can’t be too
high either, as that would negatively impact competitiveness of the products and services.
3. Contributions
Employee contribution is about how important the performance of the employees
is regarding the remuneration model. Strong employee contribution means that incentives
and rewards are based on what the employees add.
4. Management
The final component of the four policy methods of the Pay Model Compensation
is administration; managing the compensation structure. Efficiency is the goal here as
well. The system has to work well enough to achieve the objectives, and it also needs to
be adaptable to react to new requirements. New requirements can be the result of new
regulations or new salary objectives for the organization.
Pay Model of Compensation techniques
In order to comply with internal alignment, as the model shows, the techniques are skills
and work analysis. In order to meet the competition policy, surveys can be held and
market definitions can be created. The employee contribution is assessed based on
performance guidelines. When managing these remuneration plans, communication and
change are important factors.
Compensation Models and Corporate Culture
Milkovich’s Pay Model Compensation and the way in which an organization has set up
its remuneration structure says a lot about its culture. If the rewards is related to what
employees add, the culture is performance-driven. The culture is knowledge-driven when
the salaries are linked to employee skills, stimulating employees to always develop in
order to get a better salary.
• References:
[Link]
Employee benefits in the Philippines ([Link]
Workers’ Statutory Monetary Benefits 2019 Edition, Department of Labor and
Employment Bureau of Working Conditions
