Understanding the key functions and role of reward management Identifying types of rewards and...

Understanding the key functions and role of reward management

Identifying types of rewards and reward categories

Understanding relevant theories associated with reward

management

Define and evaluate different reward options (including base pay,

performance pay and indirect pay)

Describe and evaluate reward techniques, such as job analysis,

job evaluation and appraisal

Learning Objectives

Dr. Gizem Öksüzoğlu Güven © 2010

Class Discussion Questions

1. What is pay?

2. Is money the prime driver of employee performance?

3. Should organisations;

a) Pay dependant on performance

b) Pay dependant on position (not the individual performance)


Reward: refers to the benefits which employees receive in

return for working on behalf of an employing organisation.

Reward is also a fashionable term for an established aspect of HRM

with a more positive connotation than equivalent labels such as

compensation or remuneration.

Reward Management: aspect of HRM that deals with the

management of remuneration (extrinsic rewards) and

management of intrinsic rewards.

Reward Management


An organisation can provide 2 types of rewards;

Extrinsic

e.g.: Cash payments, employment benefits (staff discounts,

occupational pensions, health insurance, company cars)

Intrinsic

e.g.: job satisfaction, recognition, personal development, social

status which may be attached to particular job roles.

Reward Management


If an organisation provides both intrinsic and extrinsic

rewards, this is termed as reward system.

If only extrinsic (monetary or economic element), then is termed

as pay system.

There is an increasing attention to use intrinsic rewards

o Recognition

o Award Schemes

Reward Management

to celebrate & reinforce high performance.


Reward Categories

Monetary Rewards: basic pay, bonuses, commission

payments, overtime payments.

Benefits: pensions, health care, subsidized meals, loans,

membership of health and fitness clubs, company cars,

flexible working hours.

Extrinsic


Intrinsic

Psychological Rewards: recognition, praise, sense of

achievement, recognizing that work is important and has an

intrinsic value, enjoyment.

Personal Rewards: promotion, advancement and

development, acquisition of new skills, increased

employability.

Reward Categories


Merit Pay: Pay increase added to employees base pay based on

their level of performance.

Bonus: One-time annual financial award based on productivity that

is not added to base pay.

Piecework: Incentive pay plan in which employees are paid for

each unit they produce.

Flextime: Practice of permitting employees to choose their own

working hours, within certain limitations.

Reward Options


Performance Related Pay: A reward feature generally controllable

by employees is their job performance. This performance level is

typically determined through performance appraisal.

Profit Sharing: Reward plans that result in the distribution of a

predetermined percentage of the firm’s profits to employees.

Stock Option Plans: Incentive plan in which individuals can buy a

specified amount of stock in their company in the future at or

below the current market price.

Reward Options


Objectives of the Reward System


• Support the organisation’s strategy

• Recruit qualified employees

• Retain capable employees turnover is held to an acceptable level

• Ensure internal and external equity

• Be sustainable within the financial means of the organisation

• Motivate employees to perform to the maximum extent of their

capabilities

• Strengthen the psychological contract

• Promote “organisational citizenship”

• Comply with legal regulations

• Be efficiently administered.

Old Pay

Base Pay (The fixed amount which traditionally has increased yearly to

reflect inflation and length of service)

• Changes upon promotion to a more responsible job.

• Pay the position not the person

• Assumes Length of Service = Experience & Loyalty.

• Ensures predictability, security and permanence

• Principal Aim: to attract, retain and motivate employees.

Different Approaches to Pay


New Pay

• Emerging Paradigm Pay as an integrating and signalling

mechanism to achieve overarching business objectives.

• Align pay with organisational objective

• Use pay to change employee behaviour

Different Approaches to Pay


VPS attempts to move away from time or seniority based pay to

performance related criteria.

Number of ways to pay for performance and various schemes;

• Incentive pay

• Performance related pay (PRP)

• Variable pay

• Payment by results (PBR)

UK is one of the leading European countries diffusing VPS with

PBR. (Redman & Wilkinson, 2009:149).

Paying for Performance: Variable Pay Systems


ADVANTAGES

• Aids the recruitment, retention and motivation of staff.

• Are means of consolidating moves towards the creation of an

internal labour market in line with other HRM techniques.

• Are fairer way of rewarding people as reward should have a

direct link with effort.

• Are linked to notions of HRM/HPWS/TQM and they are preferred

as VPS provide a strategic and coherent approach to

employees. HPWS: High Performance Work Systems

TQM: Total Quality Management

HRM: Human Resource Management

Variable Pay Schemes


Variable Pay Schemes


DISADVANTAGES

•Are applied as a universal recipe without taking into account

the organisational and sectoral factors.

• “Fairness” is relative, so VPS ignore the possibility of

disagreement on this notion.

•VPS may lead to employee demotivation as it increase work

intensification rather than productivity.

Elements of Reward Management Model


1.Strategic Perspective focuses on reward choices which support strategic goals

2.Reward Objectives emphasize the link between a reward system and human

behaviour (recruitment, performance, compliance, retention, etc)

3.Reward Options for the organization include: base pay, performance pay, and

indirect pay (benefits-life insurance etc).

4.Reward Techniques examined include job analysis, job evaluation and

performance appraisal. These techniques are used to achieve, internal equity

(which refers to the pay relationships among jobs within a single organization)

5.Reward Competitiveness refers to comparisons between the organization’s pay

and that of its strategic competitors. External competitiveness depends upon, in

part, labour market and product markets conditions and management’s strategy.

Class Activity


Find below a selection of job titles and you have to decide how much to pay these staff. You are to consider who you think ought to be paid the most rather than considering what actually happens in reality.

Put the jobs listed below in order of importance, i.e. with number 1 being the job that you judge should be paid the most.

List two factors that will influence how much you will pay these staff.• Waiter or waitress _____• Nurse _____• Sales assistant (clothes shop) _____• Car park attendant _____• Office cleaner _____• Accountant_____• Police officer _____• Receptionist _____• Teller (bank) _____• Warehouse supervisor_____• University lecturer _____• Truck driver _____• Secretary _____• Traffic warden _____• Security guard _____• Safety officer (manufacturing company) _____• Undertaker _____• Professional football player _____

Class Activity (continued)


Compare your order with others and try to reach an agreement about the list of

factors that should be taken into account when you are making these decisions.

Main theories of Work Motivation

Figure 5.4


Money as a Motivator

Rational – Economic Concept

Fredric Taylor (Scientific management) asserted that what workers wanted from employers was high wages.

“If the pay is right the man will do the job”



Abraham Maslow’s Hierarchy of NeedsHuman is a

wanting animal, seeking to satisfy

social and professional

needs.

The needs that are satisfied are no motivator. Individuals are only driven

by needs which remain unattained.

http://www.ict.griffith.edu.au/~davidt/self-actualisation.htm

Applying Maslow’s Hierarchy (contd.)

Source: Steers, R. M. and Porter, L. W., Motivation and Work Behaviour, Fifth Edition, McGraw-Hill (1991), p. 35. Reproduced with permission from The McGraw-Hill Companies Inc.

Herzberg’s Two-Factor Theory

• Psychologist Frederick Herzberg focused on the job & the environment where

work is done.

• In his study, Herzberg asked engineers and accountants to relate what job related

issues made them feel good about their jobs and which ones made them feel bad.

• He identified Maintenance factors and Motivational factors

• Maintenance factors those aspects of a job that relate to the work setting,

including wages, comfortable working conditions, fair company polices, and job

security.

• Motivational factors Those aspects of a job that relate to the content of the work,

including achievement, recognition, the work itself, involvement, responsibility and

advancement.


Herzberg – Two Factor Theory

Figure 5.6

Equity Theory

Developed from the research of J. Stacy Adams.

Extent to which people are willing to contribute to an organisation depends on their assessment of the fairness of the rewards that they will receive in exchange.

In an equitable situation, a person receives rewards proportional to the contribution (s)he makes to the organisation.

Outcome/Input Ratio o inputs -- what employee contributes (e.g. skill)o outcomes -- what employees receive (e.g. pay)

Comparison Othero person/people we compare ratio witho not easily identifiable


Expectancy Theory

o Developed by psychologist Vroom.

o Motivation depends not only on how

much a person wants something but

also on the person’s perception of how

likely (s)he is to get it.

o A person who wants something (a

particular outcome) and has reason to

think (s)he will actually get it by putting

effort towards performance will be

strongly motivated.

• Expectancy - If I tried could I do it? Get away with it? A person’s expectation that efforts will lead to high performance.

• Instrumentality – the probability that valued rewards follow from high performance

• Valence (subjective valuation) - do I really value what's available? The importance of each potential outcome to the individual.


Summary

• This lecture has emphasized that reward management is central to

the effective management of the employment relationship. A reward

system influences at least two important employee behaviours:

- Membership behaviour

- Conflict behaviour (which may derive from employee dissatisfaction

with the reward system.)

• A reward system is a key mechanism that can influence each step of

the strategy process. Current new pay literature stresses that an

‘effective’ pay system is one that is aligned with the organization’s

business strategy.


Further Reading

Banfield, P. and Kay, R. (2008) Introduction to Human Resource Management. USA:

Oxford University Press.

Chapter 12: Managing Rewards pp.294-320.

Redman, T. and Wilkinson, A. (2009) Contemporary Human Resource Management: Text

and Cases. 3rd edition. Italy: FT Prentice Hall.

Chapter 6: Reward Management pp.138-174.

Bratton, J. and Gold, J. (2003) Human Resource Management: Theory and Practice. 3rd

edition. GB: Palgrave MacMillan.

Chapter 9: Reward Management pp.276-315.


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