THIS LESSON IS ALL ABOUT THE MAIN COMPONENTS OF COMPENSATION AND DETERMINING PAY RATES

1. Main components of
Compensation
Randy M. Baquiran, MaEd-Science

2. In human resource management, the main components of
compensation can be broadly grouped into four categories:
Base
Pay
Incentive
Pay
Benefits
Wage and
Salary
Add-
Ons:

3. Main component of Compensation
Base
Pay
 This is the fixed, guaranteed financial reward an
employee receives for their work, typically paid in
salary, wages, or both.
• Examples include salaried monthly pay, hourly wages,
and annual bonuses.
• Base pay often forms the foundation of an employee's
total compensation package and is a key factor in
attracting and retaining talent.

5. Main component of Compensation
Base
Pay
Incentive
Pay
Benefits
Wage and
Salary
Add-
Ons:

6. Main component of Compensation
These are additional financial
rewards tied to the base pay but may
vary depending on factors like
location, experience, or specific job
duties.
Examples include, overtime pay, shift
differentials, and vacation pay.
These add-ons can help make
compensation more competitive
and flexible while providing
additional financial security for
employees.
Wage and Salary Add-Ons:

7. Main component of Compensation
Base
Pay
Incentive
Pay
Benefits
Wage and
Salary
Add-
Ons:

8. Main component of Compensation
 This component is performance-based and rewards employees for
exceeding expectations or achieving specific goals.
 Examples include bonuses, commissions, profit-sharing plans, and
stock options.
 Incentive pay can motivate employees to perform at their best,
align their goals with the company's success, and attract top
performers.
Incentive Pay

10. Main component of Compensation
Base
Pay
Incentive
Pay
Benefits
Wage and
Salary
Add-
Ons:

11. Main component of Compensation
Benefits
• These are non-financial rewards offered by the employer that provide
additional value to employees beyond their base pay.
• Examples include health insurance, retirement plans, paid time off,
childcare assistance, and wellness programs.
• Benefits can play a significant role in attracting and retaining talent,
boosting employee morale and satisfaction, and creating a positive work-
life balance.

13. Determining Pay
Rates

14. Internal Factors:
• Job evaluation: This systematic process analyzes
and compares the relative worth of different jobs
within the organization to ensure internal equity in
pay.
• Employee performance: Strong performance can
lead to salary increases, bonuses, or other forms of
recognition, influencing their overall pay rate.
• Internal pay structure: Existing salary ranges and
salary bands within the organization often set the
framework for new position pay determination

15. Cont…
•Employee skills and experience: The level of
expertise, qualifications, and relevant experience an
employee brings to the role can positively impact their pay
rate.
•Seniority: In some organizations, longer tenure with the
company might be recognized through seniority-based pay
increases.

16. External Factors:
• Market rates: Salary surveys and market data on comparable positions in the same
industry and geographical area help HR professionals gauge competitive pay rates.
• Cost of living: Pay rates often adjust to consider the varying living costs in different
locations.
• Supply and demand: The availability of qualified candidates for a specific role in the
labor market can influence the offered pay rate.
• Company financial performance: A company's profitability and financial health can
affect its ability to offer competitive pay rates.
• Government regulations: Minimum wage laws and other regulations sometimes set
floor levels for pay rates.

17. Overall Considerations:
Balance and fairness: HR professionals strive to find a balance between
internal equity (fairness within the organization) and external competitiveness
(attracting and retaining talent).
Transparency and communication: Clear communication about the factors
influencing pay rates and the pay determination process can help build trust
and employee satisfaction.
Legal compliance: All pay decisions must comply with
relevant laws and regulations.

18. Yatun ngana
Adde Na.
Mabbalo Nikamu 