ORGANIZATION

&
MANAGEMENT
Quarter 2 – Module 4
Compensation, Performance
Evaluation, and Employee Relations

Jesilo O. Crisostomo
Compiler/Contextualizer
 ORGANIZATION
&
MANAGEMENT

Quarter 2 – Module 4
Compensation, Performance
Evaluation, and Employee Relations

I
 Second Quarter
Week 4 and 5- Module 4
Compensation, Performance Evaluation, and Employee
Relations
Content Standard : The learners have an understanding on the process of
recruiting, selecting, and training employees.
Performance Standard : The learners shall be able to conduct and prepare job
analysis.
Competency/Code : Examine the functions and importance of compensation,
wages and performance evaluation, appraisal, reward
system, employee relations and movement.
: ABM_AOM11-IIa-b-23/ ABM_AOM11-IIa-b-24
: ABM_AOM11-IIa-b-25/ ABM_AOM11-IIa-b-26
_____________________________________________________________________________________

What I Know

Multiple Choice: Choose the letter of the correct answer and write it on a separate
sheet of paper.
1. What do you call a compensation that includes workers’ salaries, incentive pays,
bonuses and commissions?
a. Direct Compensation c. Non-Financial Compensation
b. Indirect Compensation d. Mutual Compensation

2. What do you call a compensation that includes benefits given by employers other
than financial remuneration?
a. Direct Compensation c. Non-Financial Compensation
b. Indirect Compensation d. Mutual Compensation

3. What do you call a compensation that includes recognition program, management

support, ideal work environment and convenient work hours?
a. Direct Compensation c. Non-Financial Compensation
b. Indirect Compensation d. Mutual Compensation

4. What do you call a human resource management function that deals with every type
of reward, that an employee receives in exchange for performing an organizational
task?
a. Evaluation c. Deliberation
b. Compensation d. Selection

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5. What systematic procedure of performance appraisal that helps the supervisors to
frame training policies and programs?
a. Employees Development c. Selection Validation
b. Promotion d. Motivation

6. What Government agency that answers two important needs for Filipino workers by
establishing a National savings program and an affordable house financing system.
a. GSIS c. SSS
b. Pag-ibig d. PhilHealth

7. What do you call the process of evaluating how effectively employees are fulfilling
their job responsibilities and contributing to the accomplishment of organizational
goals.
a. Performance Evaluation c. Job Selection
b. Goal Setting d. Performance Appraisal

8. What employee movement that refers to upward movement of an employee from

current job to another that is higher in pay, responsibility and/or organizational
level?
a. Promotion c. Demotion
b. Transfer d. Separation

9. What employee movement that refers to the downward movement of an employee in

the organizational hierarchy with lower status and pay?
a. Promotion c. Demotion
b. Transfer d. Separation

10. What employee movement that occur when employees cease to be members of an
organization?
a. Promotion c. Demotion
b. Transfer d. Separation

What I Need to Know

This module is about compensation, wages, performance evaluation, appraisal,

reward system, employee relations and movement.

After going through this module, you are expected to be able to examine the
functions and importance of compensation, wages and performance evaluation,
appraisal, reward system, employee relations and movement.

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Lesson
Compensation and Benefits
1
The Labor Code of the Philippines, otherwise known as Presidential Decree
No. 422, governs all employee-employer relations, their rights, and obligations. Among
the fundamental rights of anyone making a living in the Philippines is knowing they
ought to be earning no less than what is mandated by law. Whether you are a fresh
graduate trying to land your first job or an experienced employee looking to move to a
new company, it is always a good rule of thumb to do your due diligence on your
prospective employer, and among the most important aspects to consider are the
compensation and benefits they provide.

What’s In

ACTIVITY: Match and Define

Instructions: As a compensation professional, you are known as the jack of all trades.
Draw a line connecting the icons with the correct description among the boxes.

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 It is a fixed amount of money paid to A Presidential Decree that mandates
an employee by an employer in the employer to give incentives to
return for work performed. the employee of each year not later
1 4 than December 24th.

A Republic Act that answers two It provides insurance coverage to

important needs for Filipino workers government assets and properties
by establishing a National savings that have government insurable
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program and an affordable house interests.
financing system. 2
A Government mandated
A Government mandated benefits that provides health
benefits which cover maternity, insurance program for SSS and
retirement, sickness, disability, 3 6 GSIS members and their
death, and pension benefits. dependents.

What’s New

Work and Pay

The context about pay is all about how it is determined and managed. But pay,
like a coin, has two sides, it represents compensation to employees and cost to
employer. What the employer provides the employee is called a wage or salary. Often,
the term compensation is used to indicate the various forms of pay, it may be in the
form of money, benefits, and non-financial reward. So, pay or compensation
represents an exchange between the employee and the organization where both parties
give something in return for something else.

ACTIVITY: Give and Take Relationship

Instruction: In the previous module, you have learned the process of recruiting and
selecting the right employee for your bakery business. Now, in this activity, you are
going to identify your responsibility being the employer, and the responsibility of your
employee who will be working in your bakeshop. You may select the words found
inside the box and place it to the column whom you think it fit.

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 Provide Healthy and Safe Environment Coaching/Mentoring

Provide Benefits Showing up regularly on time

Provide Training Carrying out tasks dependably

Cooperate with co-workers Target daily production matrix

Obey company rules Provide Non-Financial Rewards

Employers and Employees Responsibility

Employers Employees

What Is It

Most companies want to hire the most qualified employee and keep those
employees loyal and productive. To attract and keep their best employees. Companies
provide a package that includes compensation (money), incentives (special perks or
rewards for good work), and benefits (valuable option such as health insurance and
paid leaves).

Compensation
Compensation is the human resource management function that deals with
every type of reward, that an employee receives in exchange for performing an
organizational task. Compensation is just another word for wages. It is what
employees receive in exchange for their work. It is also a particular kind of price, that
is the price of labor. According to Cascio (1995), compensation includes direct cash
payment, indirect payment in the form of employee benefits, and incentives to
motivate employees to strive for higher levels of productivity.

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Importance of Compensation
Compensation is one of the most important aspects of running a business that
can make or break a business. Having a good compensation plan can help
organizations to flourish and compete in their respective markets. Some of the benefits
of providing the right compensation package to your employees are:

 Attracts top talent

 Increases employee motivation at the workplace
 Boosts employee loyalty
 Increases productivity and profitability
 Improves job satisfaction and employee engagement
 Helps in retaining top employee

Types of Compensation
1) Direct Compensation – This compensation includes workers’ salaries, incentive
pays, bonuses and commissions.
2) Indirect Compensation – This compensation includes benefits given by
employers other than financial remuneration. For example, health benefits and
international training.
3) Non-Financial – This compensation includes recognition program being
assigned to do rewarding jobs, or enjoying management support, ideal work
environment, and convenient work hours.

Wage
According to the Republic ACT No. 602 otherwise known as AN ACT TO
ESTABLISH A MINIMUM WAGE LAW, AND FOR OTHER PURPOSES (Repealed by
Presidential Decree No. 422) “WAGE” paid to any employee shall mean the
remuneration or earnings, however designated, capable of being expressed in terms of
money, whether fixed or ascertained on a time, task, piece, commission basis, or other
method of calculating the same, which is payable by an employer to an employee
under a written or unwritten contract of employment for work done or to be done, or
for services rendered or to be rendered, and includes the fair and reasonable value as
determined by the Secretary of Labor.

Wage-Related Benefits
1. Minimum Wage – The Wage Rationalization Act, Republic Act No. 6727, sets
the minimum wage rates applicable per region and industry sector. The
industry sectors are non-agricultural, agriculture (plantation and non-
plantation), cottage and handicraft, retail, and service sectors. Minimum wage
may vary depending on the number of employees and gross sales of an
enterprise and its industry sector.
2. Overtime – Minimum wage is based on a work week of 40 hours or 8 hours per
day. The daily 60-minute lunch break is not included in the 8-hour workday
and is not compensated. Overtime pay rates vary depending on when the

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 overtime work takes place. It may be in a regular work holiday, special holiday,
rest day, or night (between the hours of 10pm to 6am)
Overtime Rates:
Overtime pays on regular days
You are also entitled to additional compensation when you render work beyond
your typical eight-hour schedule. On a regular working day, this should be equivalent
to your regular hourly wage plus at least a 25-percent premium:

OT Pay = [(Daily rate/8) x 125%] x Number of OT hours rendered

Overtime pay on special holidays and/or scheduled rest days

In the event that the work you render falls on a special day or on your
scheduled rest day/s, you are entitled to an additional compensation of the premium
pay applicable on holidays plus at least a 30-percent premium:

OT Pay = [(Daily rate/8) x 130% x 130%] x Number of OT hours rendered

If the overtime you render falls on the specific instance that it is both a special
day and your scheduled rest day, you are entitled to an additional pay amounting to
the premium pay applicable on said days plus a 30-percent premium:

OT Pay = [(Daily rate/8) x 150% x 130%] x Number of OT hours rendered

Overtime pay on regular holidays and scheduled rest days

Finally, if you end up having to work on a regular holiday, you are entitled to
the one of the more substantial amounts of overtime pay, which is typically two times
the hourly rate of regular working days plus a premium of at least 30-percent:

OT Pay = [(Daily rate/8) x 200% x 130%] x Number of OT hours rendered

In the rarest event that you render overtime on a holiday that also happens to
be your scheduled rest day, the overtime pay you are entitled to is at its largest value,
which is over two-and-a-half times your regular rate with an additional premium of at
least 30-percent:

OT Pay = (Daily rate/8) x 260% x 130%] x Number of OT hours rendered

3. Premium Pay – This refers to the compensation you are entitled to when you
render for 8-hours on non-workdays such as scheduled rest days or special
days. Unless otherwise modified by law, order, or proclamation. The following
are the three special days officially observe in the country: Nino Aquino Day, All
Saints’ Day, and the last day of the year.

Premium Pay Rates:

 On a rest day or special holiday, an employee is entitled to an additional
30% of his daily basic rate or a total of 130%.
Premium Pay = Regular Pay +30%

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  On a rest day which is also a special holiday, an employee is entitled to an
additional 50% of his daily basic rate, or a total of 150%.
Premium Pay = Regular Pay +50%
 On a regular holiday which is also an employee’s rest day, an employee is
entitled to an additional 30% of the regular holiday rate of 200%, or a total
of 260%. Note that, it is only applicable to employees covered by the
holiday-pay rule.
Premium Pay = (Regular Pay x 2) +30% or Regular Pay x 260%

4. Holiday Pay (RA 9849) – The labor code requires the payment of an employee’s
daily basic wage for all non-working regular holidays.

The 12 Regular Holidays in the Philippines

New Year’s Day National Heroes’ Day

Maundy Thursday Eidl Fitr
Good Friday Eidl Adha
Araw ng Kagitingan Bonifacio Day
Labor Day Christmas Day
Independence Day Rizal Day

Rate Example:

 If work is accomplished on a regular holiday up to 8-hours, an employee

is entitled to at least twice or 200% of his basic wage. If the holiday
corresponds to a scheduled rest day, the employee is entitled to an
additional 30% based on his regular holiday rate of 200%, which comes a
total of at least 260%.
5. Night Shift Differential – For work done between the hours of 10pm to 6am,
employees are entitled to Night Shift Differential (NSD), which represents an
additional 10% to the regular wage for each hour of work performed.
6. Service Chargers – Employees of employers collecting service charges are
entitled to an equal share in the 85% of the total of such charges, except
managerial employees. The remaining 15% of the charges may be retained by
the management to answer for losses and breakages and for distribution to
managerial employees, at the discretion of the management in the latter case.
Service charges are collected by most hotels and some restaurants, night clubs,
cocktail lounges and among others.
7. Service Incentive Leave – Every employee who has rendered at least one (1)
year of service is entitled to service incentive leave (SIL) of five (5) days with pay.
SIL may be used for sick and vacation leave purposes. The unused SIL at the
end of the year can be converted into cash using the salary rate at the date of
conversion. It is the employer’s prerogative to grant additional vacation leave.

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8. Parental Leaves – The Labor Code of the Philippines covers three different
types of parental leaves:

 Maternity Leave- Whether married or not, each pregnant employee is

entitled to a maternity leave benefit of 60 days for a normal delivery or
miscarriage, or 78 days for a caesarean delivery, for up to four
pregnancies. For the duration of the maternity leave, the employee
receives a fraction of his regular monthly salary from the company which
is in turn reimbursed by the SSS. It is common for companies to give the
whole regular pay and shoulder what is not covered by the SSS. To
benefit from a maternity leave, it is required for the employee to be
registered with the SSS and be employed at the time of the expected
delivery. Furthermore, the SSS must be notified by the employer and at
least three-monthly contributions must have been made to the SSS for
that employee within the past year. The maternity leave benefit being
given instead of a regular wage, it cannot be included in an employee’s
13th month wage.

 Paternity Leave – All married employees are entitled to a 7-day paternity

leave for the delivery or miscarriage of his legitimate spouse with whom
he must live, for up to four pregnancies. The paternity leave is at the cost
of the employer and is not reimbursed by the SSS.

 Solo-Parent Leave – In addition to parent leaves at the time of a child’s

birth, the Filipino Labor Code draw a special leave for solo-parent
employees as describes in the Solo Parents Welfare, Republic Act No.
8972. The employee must have been working for at least a year to be
entitled to a solo-parent leave, which allows him to 7-work days of leave
in a year.

9. 13th Month Pay – As an employee, you are entitled to 13th month pay, and as
per P.D. 851, should expect to receive this not later than December 24th of each
year. This is provided your position falls in the category of a rank-and-file
employee, and you have worked with your company for at least one month in
the present calendar year. As per DOLE, 13th month pay can be computed by
the formula below.

Total basic salary earned during the year / 12 months = Proportionate 13th
month pay

10. Separation Pay – Following the labor code of the Philippines, articles 283 and
284 state that an employee can claim separation pay if his contract is ended
under authorized causes. According to article 282 an employee terminated for
just cause (neglect of duties, fraud, crime, etc.) is generally not entitled to
separation pay. The computation of separation pay of an employee shall be
based on his/her latest salary rate.
11. Retirement Pay – All employees from the private sector may retire from age
60-65, at which retirement becomes compulsory, and must have served the

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 establishment for at least 5 years. Retirement pay must at least be equivalent to
half of a month’s salary for each year of service and a fraction of at least 6
months is therefore considered as on whole year.

Minimum Retirement pay = Latest daily pay rate x 22.5 days

per month x number of years of service

12. Gross Benefits and De Minimis Benefit – Are benefits of relatively small
values provided by the employers to the employee on top of the basic
compensation intended for the general welfare of the employees given either in
cash or in kind. According to the Philippine regulations, these benefits are
exempt of taxes under certain conditions.

De Minimis Benefits include:

 Monetized unused vacation leave credits, maximum of 10 days per year
 Medical cash allowance to dependents of employees, maximum of 750
pesos per semester or 125 pesos per month
 Rice subsidy up to 1,500 pesos
 Uniform and clothing allowance, up to 5,000 pesos per year
 Actual medical benefits up to 10,000 pesos per year
 Employee achievement awards in the forms other than cash or gift
certificates with an annual monetary value not exceeding 10,000 pesos
received by the employee under an established written plan which does
not discriminate in favor of highly paid employees.
 Gifts made during Christmas and major anniversary celebrations not
exceeding 5,000 pesos per employee per annum.
 Laundry allowance not exceeding 300 pesos per month.

Government Mandated Benefits

1. Social Security System (RA 1161, as amended by RA 8282)
By law, private sector employees must be covered under the Social Security
System (SSS). Based on each employee’s gross monthly pay, both the employer and
employee remit monthly contributions to the SSS. In turn, the SSS benefits cover
maternity, retirement, sickness, disability, death, and pension benefits.
2. PhilHealth Benefits (RA 7875, as amended by RA 9241)
The National Health Insurance Program (NHIP) formerly known as Medicare,
is a health insurance program for SSS and GSIS members and their dependents
whereby the healthy subsidize the sick who may find themselves in need of financial
assistance when they get hospitalized. Both the employer and employee contribute to
equal monthly amounts to the PhilHealth Insurance.
3. PAG-IBIG Benefits (RA 9679)
The Home Development Mutual Fund (HDMF) otherwise known as Pag-IBIG
(Pagtutulungan sa kinabukasan: Ikaw, Bangko, Industriya at Gobyerno) Fund is a

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mutual provident savings system for private and government employees and other
earning groups, supported by matching mandatory contributions of their respective
employers with housing as the primary investment. Through the Republic Act No.
9679, the HDMF answers two important needs for Filipino workers by establishing a
National savings program and an affordable house financing system.
4. GSIS (RA 8291, GSIS ACT of 1997)
Government Service Insurance System is a social insurance institution that
provides a defined benefit scheme under the law. It insures its members against the
occurrence of certain contingencies in exchange for their monthly premium
contributions.
GSIS members are entitled to an array of social security benefits, such as life
insurance benefits, separation or retirement benefits, and disability benefits.
GSIS is also the administrator of the General Insurance Fund by virtue of RA
656 (Property Insurance Law). It provides insurance coverage to government assets
and properties that have government insurable interests.

What’s More

Activity: Identification
Instruction: Identify whether the statements below is a Direct Compensation, Indirect
Compensation or Non-Financial. Use separate sheet for your answers.

_________1. 13th month pay given to the employee not later than December 24th of each
year.
_________2. Sending an employee for a training abroad due to exemplary performance
contributed for the good of the organization.
_________3. Provide health care benefits to the employee and its dependents.
_________4. Regular payment given to the employee for work rendered whether daily,
monthly, or semi-monthly basis.
_________5. A lifetime service award given to the employee who has served the
organization/company for more than 30 years.

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 What I Have Learned

Activity: Let us Check your Understanding!

Instruction: Answer the questions below. This activity is worth 15 points

Criteria for rating:

Organization of ideas 3 points
Relevance to the topic 2 points
Total 5 points

1. What is the significance of compensation to the life of an employee?

_____________________________________________________________________________________
_____________________________________________________________________________________

2. How does a right compensation affect the performance of an employee working in

an organization?

_____________________________________________________________________________________
_____________________________________________________________________________________

3. How will the company benefit from giving right compensation to their employees?

_____________________________________________________________________________________
_____________________________________________________________________________________

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 What I Can Do

Activity 1: Let us Solve!

Instruction: Read and understand the situation then answer the questions below.
Show your solution.
Case Study
Mr. Bob is working as a Baker in your bakeshop. He is earning a daily
minimum wage of ₱550.00 with a transportation allowance of ₱100.00 per day. Some
other benefits include uniform allowance which is ₱1,500.00 per year, plus monthly
government mandated contributions such as SSS Premium ₱250.00, PhilHealth
₱120.00, and Pag-ibig ₱100.00.
As per sales forecast for the month of December, an increased in product
demand is expected. With this, you let Mr. Bob work on December 25, December 30,
and December 31 to cater the bread and cakes needs of the consumers. Take note also
that the regular working hours of Mr. Bob is from 8:00am up to 5:00pm with an
allocation of 4 hours overtime depending on the product demands.
Guide Questions:
1. How much was Mr. Bob’s daily minimum wage?
_____________________________________________________________________________
2. Mr. Bob was required to work on December 25 and December 30 which is
considered as a regular holiday. How much would he received if he renders 8 hours
duty on December 25 and 4 hours duty on December 30?

__________________________________________________________________________________

3. How much compensation will he received if he would work 8 hours in December

31?

__________________________________________________________________________________

4. How much is the total overtime pay will he received for the work rendered on
December 25, 30, and 31?

_________________________________________________________________________________

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 Performance Evaluation and
Lesson
Appraisal, Reward System,
2 Employee Relation and
Movement
As a young entrepreneur and future business owner, you already
know the importance of recruiting capable staff and providing the employees with the
training and tools necessary to do their jobs. To ensure they are performing to your
expectation, you need to conduct annual reviews of their work product, efficiency, and
attitude over the course of their employment.

What’s In

ACTIVITY: Factors Affecting Employee Performance

Instructions: Below are statements pointing out areas that need improvement which
affect the employees work performance. Choose from the box and write your answers
on a separate sheet of paper.

Attendance Interpersonal Skills Time Management

Problem-Solving Work Ethic Collaboration and teamwork

___________1. Employee have repeatedly arrived late in reporting to work with 5

consecutive absences.

___________2. Lack of sense of urgency resulting to fail in meeting deadlines on time.

___________3. Lack of problem-solving skills and often disrupt team members.

___________4. Inability to work well with others.

___________5. Employee is often defensive and have had arguments with co-workers.

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 What’s New

ACTIVITY: Picture Analysis

Instruction: Below is a picture of an employer and an employee. Take a closer look at
the picture then analyze. A guide question is provided for your answers. This activity
is worth 15 points.

Criteria for rating:

Organization of ideas 3 points
Relevance to the topic 2 points
Total 5 points

Employer Employee

1. Describe the illustration above.

___________________________________________________________________________________

2. If you were the employee in the illustration, what would be the impact to your work
performance?

___________________________________________________________________________________

3. Based on the illustration above, what do you think is the effect to the business
organization in terms of employer-employee relationship?

_____________________________________________________________________________________

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 What Is It

Overview
Employee Relations
Maintaining good relationship with your employee
Performance will motivate them in fulfilling their job
Evaluation and responsibilities to accomplish organizational goals.
Appraisal Thus, a good employee relationship will result good
performance during evaluation and will compensate
higher appraisal. With higher appraisal, a better
Rewards
reward awaits the performing employee. An employee
movement through “PROMOTION” will be one its
Employee Movement package.

I. Employee Relations
An organization cannot perform only with the help of chairs, tables, fans, or
other non-living entities. It needs human beings who work together and perform to
achieve the goals and objectives of the organization. The human beings working
together towards a common goal at a common place (organization) are called
employees. In fact, the employees are the major assets of an organization.

Importance of Employee Relations

The importance of a strong employer relation within an organization is
highly essential and it is also the key to ultimate success within an organization. It
has been proven that if a proper and a strong relationship is in place and that too in a
workplace, employees will generally tend to be more productive and more efficient.
The employees must share a good rapport with each other and strive hard
to realize the goal of the organization. They should complement each other and work
together as a single unit. For the employees, the organization must come first, and all
their personal interests should take a back seat. So, what are the actual benefits of
having a strong employee relation in an organization? Well, the importance of
employee relations within an organization are the following:
1. Increased Productivity – Strong employment relations go a long way in
increasing the productivity of an organization. The stronger employee relations, the
better it is for the organization. This is because when relations between employer and
employee are great, employees tend to be more satisfied and thus end up being more
productive at work.
2. Increased loyalty among employees – The next importance of employee
relations in an organization is the aspect that it boosts loyalty among employees to a
great extent. Creating a pleasant and productive work employment can have a drastic

16
effect on an employee’s loyalty. And when loyalty increases, the chances of employee
retention also increase manifold and thus benefits the organization in the long run.

II. Performance Evaluation and Appraisal

Performance evaluation is the process of evaluating how effectively
employees are fulfilling their job responsibilities and contributing to the
accomplishment of organizational goals. Performance evaluation means many things
to many people. It is a measurement process; it is an exercise in observation and
judgment; it is a feedback process. It is a control device, which is used by the
organization to accomplish its predetermined goals. It is a developmental tool used for
all-round development of the employee and organization. The performance is
measured against such factor as job knowledge, quality and quantity of output,
initiative, leadership abilities, supervision, dependability, co-operation, judgment,
versatility, and health. Here are some of the key reasons why performance evaluation
is important for every company.
1. It let the real performers stand out
2. It sets learning examples
3. It keeps your employees happy
4. It maintains equality between all the employees.
5. It brings out the start performers of the organization in open
6. It motivates the underperforming employees

Performance Appraisal is the systematic evaluation of the performance of

employees and to understand the abilities of a person for further growth and
development. Performance appraisal is generally done in systematic ways which are as
follows:

1. The supervisors measure the pay of employees and compare it with targets and
plans.
2. The supervisor analyses the factors behind work performances of employees.
3. The employers are in position to guide the employees for a better performance.

Objectives of Performance Appraisal

Performance Appraisal can be done with following objectives:

1. To maintain records and determine compensation packages, wage structure,

salaries raises, etc.
2. To identify the strengths and weaknesses of employees to place right men on
right job.
3. To maintain and assess the potential present in a person for further growth and
development.
4. To provide a feedback to employees regarding their performance and related
status.
5. It serves as a basis for influencing working habits of the employees.
6. To review and retain the promotional and other training programs.

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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 following advantages:

1. Promotion: Performance Appraisal helps the supervisors to chalk out the

promotion programs for efficient employees. In this regards, inefficient workers
can be dismissed or demoted in case.
2. 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 a performance. Compensation
packages which includes bonus, high salary rates, extra benefits, allowances,
and pre-requisites are dependent on performance appraisal. The criteria should
be merit rather than seniority.
3. Employees Development: The systematic procedure of performance appraisal
helps the supervisors to frame training policies and programs. It helps to
analyze strengths and weaknesses of employees so that new jobs can be
designed for efficient employees. It also helps in framing future development
programs.
4. 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 selection procedure. Future changes in selection methods can be
made in this regard.
5. Communication: For an organization, effective communication between
employees and employers is very important. Through performance appraisal,
communication can be sought for in the following ways:
a. Through performance appraisal, the employers can understand and
accept skills of subordinates.
b. The subordinates can also understand and create a trust and confidence
in superiors.
c. It also helps in maintaining cordial and congenial labor management
relationship.
d. It develops the spirit of work and boosts the morale of employees.

All the above factors ensure effective communication.

6. Motivation: Performance appraisal serves as a motivation tool. Through

evaluating performance of employees, a person’s efficiency can be determined if
the targets are achieved. This very well motivates a person for better job and
helps him to improve his performance in the future.

III. Rewards

In the contemporary world, rewards for better performance and success matter
more than the actual achievement itself. Perhaps, the most important aspect in any
organization is the reward system in place. For the present-day generation, rewards
matter more than the actual performance, and this is reflected in their increasing
demands from the employers for salary hike and bonuses.

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The Importance of Reward Systems

Many employees are motivated by two goals: earning a paycheck and doing
work that makes them proud. The offer of an additional reward gives an employee that
extra motivation to go above and beyond. According to a business website, a policy
that offers incentives in exchange for achievement can motivate all employees to prove
their worth. When worker productivity goes up, the bottom line often increases far
more than the monetary rewards distributed.

An employee who has been rewarded is often more motivated to remain with the
company. It can cost a business quite a bit to deal with the loss of old employees and
the training of new ones. Rewards, given to employees who are considering leaving the
company, may increase employees’ probability of retention and decrease the
company’s long-term training costs.

Types of Reward Policies

1. Monetary Reward Policies - The obvious and natural choice of any reward
system is the provision of monetary incentives. This means that pay hikes,
bonuses, and allowances that are monetary in nature play a key role in
motivating employees. These extrinsic rewards cater to the basic needs of
employees to sustain themselves and their families. An ideal reward system
would provide for graded pay increases and bonuses that are in tune with
industry best practices and are coordinated across the organization without
discriminating against specific departments or divisions. Further, the monetary
incentives should also not discriminate based on gender, ethnicity, or other
aspects of identity. The reward policies must also consider the fit between
the employee and the role that he or she performs. There is no point in
having a wrong person for the right job or a right person for the wrong job.
2. Non-Monetary Reward Policies - Some non-monetary rewards include benefits
like memberships to exclusive clubs, company provided housing and transport,
and advanced training and soft skill upgrading courses that motivate employees
to self-actualize themselves. For instance, Japanese firms who are positioned in
Mactan Economic Processing Zone, to do business in terms of manufacturing
and production of engine parts, they send their employee for a technical
training abroad as a reward to the excellent performance that the employee has
contributed for the betterment of the company.

IV. Employee Movement (Transfer, Promotion, Demotion, Separation)

The most basic employee movement definition encompasses the transfer of

employees from an organization to another. It provides insights about the health of the
company pertaining to employee satisfaction and engagement levels. Mostly, employee
movement is best captured by calculating turnover rates. Employee turnover refers to
the movement of employees from a company, which calls for replacement with new
hires. Next, the retention rate is also used to determine employee movement. This is
defined as the number of employees who remain in the company over a given time.
Another matrix for assessing employee movement is voluntary turnover. This
occurs when employees leave the company voluntarily due to poor work conditions.

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There is also the involuntary turnover, where the employer dismisses the employees
due to misconduct or poor performance. Voluntary and involuntary matrix are crucial
indicators of issues plaguing teams at workplaces. Below are the different Employee
movement:

1. Transfer - Job transfer is the shift of job for employees; the change can be in
terms of place of job, department of job or shift of job. The employees are
replaced or moved lateral to serve the best for the organization. A transfer is a
change in job assignment. It may involve a promotion or demotion or separation.

2. Promotion - Refers to upward movement of an employee from current job to

another that is higher in pay, responsibility and/or organizational level.
Promotion has powerful motivational value as it compels an employee to utilize
his talents fully and remain loyal and committed to his job and the organization.

2.1) Promotion Policy

 To be fair, an organization should institute a promotion policy that gives
due weight age to both seniority and merit.
 Promotion Opportunities must be thrown open to all employees.
 The norms for promotion should be expressed in writing.
 Detailed records must be maintained for this purpose.
 A responsible official should be asked to take final decision regarding
employee promotions.

3. Demotion - Refers to the downward movement of an employee in the

organizational hierarchy with lower status and pay. It is a downgrading process
where the employee suffers considerable emotional and financial loss in the
form of lower rank, power and status, lower pay, and poor working.

3.1) Causes of Demotion

 Employee unable to meet job requirements.
 Organization forced to demote employees because of adverse business
conditions.
 Demotions happening to check errant employees.
3.2) Demotion Policy
 A clear-cut policy regarding demotions would help employees adjust to
complex organizational demands admirably.
 Punishable offences must be listed in advance. Better to state the
reasons before punishing an employee.
 Any violation must be properly investigated and followed by a consistent
and equitable application of the penalty. There should be enough room
for review.

4. Employee Separations - Employee separations occur when employees cease to

be members of an organization. The service agreement between the employer
and the employee comes to an end and the employee decides to leave the
organization. Separations can take in several forms.

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 4.1) Resignation – A voluntary separation initiated by the employee himself is
called resignation. It is always better to find why the employee has decided
to quit the organization. Properly conducted exit interviews would help
throw light on factors behind the curtain.
4.2) Retirement – Termination of service on reaching the age of superannuation.
4.3) Death – Some employees may die in service. The normal separation of
people from an organization due to resignation, retirement or death is
known as attrition.
4.4) Lay-off – A lay-off entails the separation of the employee from the
organization temporarily for economic or business reasons.
4.5) Retrenchment – A permanent lay-off for reasons other than punishment
but not retirement or termination owing to ill health.
4.6) Discharge and Dismissal – The termination of the services of an employee
as a punitive measure for some misconduct is called dismissal.

What’s More

Activity: True or False

Instruction: Write T if the statement is True and F if the statement is False. Use a
separate sheet.
______1. Demotion refers to upward movement of an employee from current job to
another that is higher in pay, responsibility and/or organizational level.
______2. Promotion refers to the downward movement of an employee in the
organizational hierarchy with lower status and pay.
______3. A lay-off entails the separation of the employee from the organization
temporarily for economic or business reasons.
______4. Retirement is a termination of service on reaching the age of superannuation.
______5. The reward policies must also consider the fit between the employee and the
role that he or she performs.
______6. Performance Evaluation is the systematic evaluation of the performance of
employees and to understand the abilities of a person for further growth and
development.
______7. Performance Appraisal is the process of evaluating how effectively employees
are fulfilling their job responsibilities and contributing to the accomplishment
of organizational goals.
______8. A strong employer relation within an organization is highly essential and it is
also, the key to ultimate success within an organization.
______9. Retrenchment is a permanent lay-off for reasons other than punishment but
not retirement or termination owing to ill health.
_____10. The employee performance is measured against such factor as job knowledge,
quality and quantity of output, initiative, leadership abilities, supervision,
dependability, co-operation, judgment, versatility, and health.

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 What I Have Learned

Activity: Think Positive

Instruction: Now, in this activity, we will try to reverse our approach to correct
the picture and to have a better employer to employee relationship by applying
what we have learned on the above lesson. Questions are provided for you to be
guided. This activity is worth 15 points.

Criteria for rating:

Organization of ideas 3 points
Relevance to the topic 2 points
Total 5 points

Employer Employee

1. Does the illustration above shows appropriate approach of an employer towards

an employee? Explain.
_________________________________________________________________________________

2. What should an employer do to motivate the employee?

________________________________________________________________________________

3. What are the advantages that strong employer-employee relationship would

bring to an organization?
_________________________________________________________________________________

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 What I Can Do
Activity: Let us Interpret Data!
Instruction: Below is a sample performance evaluation of one of your bakers named
Bob. Check the performance statistics of Mr. Bob and evaluate his performance using
the template below.

First Quarter Performance Evaluation

Employment ID No. 1867
Name: Bob Baker Status: Regular Position: Baker
Behavior=20%
Attendance Performance=40% Production Performance=40% No late/offense=100
Month Jan Feb Mar Month Jan Feb Mar Jan Feb Mar
No. of Total 500 500 500
working 26 26 26 Production pcs pcs pcs 100 100 100
days Volume
No Sleeping No
Actual No. Actual hairnet On Uniform
of days 22 20 25 Production 450 420 480 duty
present Output
pcs pcs pcs 90 80 85

Percentage Percentage
rating per 84.61 76.92 96.15% Rating per 90% 84% 96% 90% 80% 85%
Month % % Month

Ave.% 34.36% Ave.% 36% 17%

Over-all
rating
87.36%

Scoring Rating Salary adjustment

Excellent 95.00-100.00 ₱300.00
Outstanding 90.00-94.00 ₱200.00
Very Satisfactory 85.00-89.00 ₱100.00

Satisfactory 80.00-84.00 ₱50.00

Fair 75.00-79.00 ₱25.00
Poor 70.00-74.00 ₱12.50

Guide Questions:

1. For first quarter performance evaluation, how do you find the performance of Mr.
Bob?
__________________________________________________________________________________

2. What are the three-performance indicator that you can see in the performance
evaluation of Mr. Bob?
_______________________________________________________________________________

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3. Based on the three-performance indicator, in what month did Mr. Bob performed
less?
_______________________________________________________________________________

4. In what month did he performed well in terms of productivity and what month did
he performed less?
_________________________________________________________________________________

5. How much is the first quarter salary adjustment of Mr. Bob?

________________________________________________________________________________

Assessment

Multiple Choice: Choose the letter of the correct answer and write it on a separate
sheet of paper.
1. What systematic procedure of performance appraisal that helps the supervisors to
frame training policies and programs?
a. Employees Development c. Selection Validation
b. Promotion d. Motivation

2. What Government agency that answers two important needs for Filipino workers by
establishing a National savings program and an affordable house financing system?
a. GSIS c. SSS
b. Pag-ibig d. PhilHealth

3. What employee movement that occur when employees cease to be members of an

organization?
a. Promotion c. Demotion
b. Transfer d. Separation

4. What employee movement that refers to the downward movement of an employee in

the organizational hierarchy with lower status and pay?
a. Promotion c. Demotion
b. Transfer d. Separation

5. What employee movement that refers to upward movement of an employee from

current job to another that is higher in pay, responsibility and/or organizational
level?
a. Promotion c. Demotion
b. Transfer d. Separation

6. What do you call the process of evaluating how effectively employees are fulfilling
their job responsibilities and contributing to the accomplishment of organizational
goals?
a. Performance Evaluation c. Job Selection
b. Goal Setting d. Performance Appraisal

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7. What do you call a compensation that includes workers’ salaries, incentive pays,
bonuses and commissions?
a. Direct Compensation c. Non-Financial Compensation
b. Indirect Compensation d. Mutual Compensation

8. What do you call a compensation that includes recognition program, management

support, ideal work environment and convenient work hours?
a. Direct Compensation c. Non-Financial Compensation
b. Indirect Compensation d. Mutual Compensation

9. What do you call a compensation that includes benefits given by employers other
than financial remuneration?
a. Direct Compensation c. Non-Financial Compensation
b. Indirect Compensation d. Mutual Compensation

10. What do you call a human resource management function that deals with every
type of reward, that an employee receives in exchange for performing an
organizational task?
a. Evaluation c. Deliberation
b. Compensation d. Selection

11. What employee separation that refers to the permanent lay-off for reasons other
than punishment but not retirement or termination owing to ill health?
a. Lay-off c. Resignation
b. Retrenchment d. Retirement

12. What employee separation that refers to the termination of service on reaching the
age of superannuation?
a. Lay-off c. Resignation
b. Retrenchment d. Retirement

13. What employee separation that is voluntarily initiated by the employee?

a. Lay-off c. Resignation
b. Retrenchment d. Retirement

14. What employee separation which entails separation of the employee from the
organization temporarily for economic or business reasons.
a. Lay-off c. Resignation
b. Retrenchment d. Retirement

15. What employee separation wherein termination of the services of an employee was
due to misconduct.
a. Death c. Resignation
b. Discharge and Dismissal d. Retirement

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Answer Key

26
References:
Illustration sources:
Szwarcberg, M.R. (108577049) Boss arguing with employee, November 6, 2020
https://www.123rf.com/photo_108577049_stock-vector-boss-arguing-with-employee-
concept-illustration.html
Online sources:
Philippine Salary Compensation and Benefits in the Philippines, October 26, 2020
https://www.dayananconsulting.com/payroll-salary-compensation-benefits-
philippines/
September 14, 2018, Employee Wages and Compensation Benefits October 26, 2020
https://www.kalibrr.com/advice/2018/09/employee-wages-and-compensation-
benefits-you-are-entitled-to
Compensation Management: Definition, Objectives, Importance, October 31, 2020
https://www.iedunote.com/compensation-management
https://bwc.dole.gov.ph/images/Handbook/2019-Edition-of-Handbook-on-Workers-
Statutory-Monetary-Benefits.pdf
Importance of Compensation, November 01, 2020 https://blog.checkmark.com/what-
is-compensation/
Republic ACT No. 602 AN ACT TO ESTABLISH A MINIMUM WAGE LAW, AND FOR
OTHER PURPOSES(REPEALED BY PRESIDENTIAL DECREE NO. 442), November 1,
2020 https://lawphil.net/statutes/repacts/ra1951/ra_602_1951.html#
Employee Relations, Management Study Guide, November 2, 2020,
https://www.managementstudyguide.com/what-is-employee-relations.htm
Employee Movement, Definition, Employeepedia, November 2, 2020,
https://www.employeepedia.com/info/general/782-employee-movement-definition-
formula-and-examples
Transfer, Promotion, Demotion, Separation, November 2, 2020
https://www.slideshare.net/100005130728571/24-movements-of-employees
Compensation Professional Tool box, Gov Docs, November 2, 2020
https://www.slideshare.net/marykrystledawnsulleza/organization-and-management-
lesson-5-compensation-or-wages-by-mary-krystle-dawn-d-sulleza
https://astronsolutions.net/employee-compensation/
Majumder, S. (2017) Why Employee Relations are Important in an Organization,
November 11, 2020, https://www.linkedin.com/pulse/why-employee-relations-
important-organization-sampurna-majumder
Gurnani, S. (2016) 6 reasons why performance evaluation is a necessity in start-ups,
November 5, 2020 https://yourstory.com/2016/12/advantages-of-performance-
evaluation?utm_pageloadtype=scroll

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