Chapter 5: Staffing

Types of Compensation

Direct compensation – includes workers’ salaries, incentive pays, bonuses, and commissions

Indirect compensation – includes benefits given by employers other than financial remunerations; for example: travel, educational and health benefits, and others

Non-financial compensation – includes recognition programs, being assigned to do rewarding jobs, or enjoying management support, ideal work environment, and convenient work hours

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. In relation to 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.

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 possibly receive from a job assignment.

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 work days rendered

Weekly basis – when pay is computed according to the number of work weeks rendered

Monthly basis – when pay is computed according to the number of work months rendered

Purposes of Performance Evaluation: Administrative and Developmental

Administrative Purposes – These are fulfilled through appraisal/evaluation programs that provide information that may be used as basis for compensation decisions, promotions, transfers, and terminations. Human resource planning may also make use of it for recruitment and selection of potential employees.

Developmental Purposes – These are fulfilled through appraisal/evaluation programs that provide information about employees’ performance and their strengths and weaknesses that may be used as basis for identifying their training and development needs

Definition of Terms

Compensation/wages – all forms of pay given by employers to their employees for the performance of their jobs

Performance evaluation – a process undertaken by the organization, usually done once a year, designed to measure employees’ work performance