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VICTORYTRAINING & DEVELOPMENT

INSTITUTE

KINGDOM OF BAHRAIN

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Instructor Profile

Name : Dr. Shabbir Khan

Email : [email protected]

Mobile : 35519640

Membership Status : AcMCIPD

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mailto:[email protected]:[email protected]


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5RWM

Unit Title : Reward Management

Unit Code : 5RWM

Credit Value : 6

Date : January 6 - 8, 2012

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Learning Outcomes

LO1 - Understand the business context of reward and the use of

reward intelligence.

LO2 - Understand the key perspectives that inform reward

decision making.

LO3 - Understand key reward principles, policies and practices.

LO4 - Understand the role of line managers in promoting a

performance culture, in reward decision making and drivingsustained organisation performance.

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Rewards: Clarifying the concept

Bratton and Gold (2003) define rewards as all the cash, non-cash

and psychological payments provided by an organization in returnof their contribution.

Reward presents all the tangible benefits and provisions an

employee obtain as a part ofemploymentrelationship

(Milkovich and Newman, 2004);

Malhotra et al. (2007) illustrate that work rewards indicate the

benefits, workers receive from their workplace and are considered

the determinants of job commitment and satisfaction.

Stone et al. (2010) found that financial incentives are not always

welcomed by all employees and material incentives generally do not

tend to satisfy the basic psychological needs and discern the

individual variance. 5


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Reward Management Defined

Reward management deals with the strategies, policies and

processes required to ensure that the contribution of people

to the organization is recognized by both financial and non-

financial means.


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Definition of Reward Management

Definition of Reward Management

Reward Management is concerned with the formulation and

implementation of strategies and policies that aim to reward

people fairly, equitably and consistently in accordance withtheir value to the organization

(Armstrong and Murlis 2004)


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Shift in Jobs & Reward Systems

1960s & 70s

manual workers, piece-rates/wage drift, measured day

work, incomes policies

1980 & 90s service/knowledge workers, PRP, shares

2000s

Reward management

PRP 1998 20%, 2004 32%, 36% 2007 Total Reward


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Objectives of Reward Management

Support the organization's strategy

Recruit & retain

Motivate employees

Internal & external equity

Strengthen psychological contract

Financially sustainable

Comply with legislation

Efficiently administered


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Basic Types of Reward

Extrinsic rewards

satisfy basic needs: survival, security

Pay, conditions, treatment

Intrinsic rewards

satisfy higher needs: esteem, development


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Reward Options

Base pay--fixed or minimum wage/salary

Plussage--capability, qualification

Premia/Overtime

Performance related pay Indirect pay--benefits, non-cash, shares

Non-monetary: recognition, advancement

Total Reward Pay, non-pay, flexible hours, cafeteria benefits


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Rewards by Individual, Team, Organisation

Individual: base pay, incentives, benefits

rewards attendance, performance, competence

Team

team bonus, rewards group cooperation Organisation

profit-sharing, shares, gain-sharing


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Motivation theories I

Maslows hierarchy of needs

Physiological, safety, social, esteem, self-actualisation

Herzberg

Hygiene, motivators (e.g.,sense of achievement) McClelland

Learned needs


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Motivation theories II

Vrooms expectancy theory

Valance: attractive outcome

Instrumentality: performance results in desired reward or

achievement

Expectancy: effort will lead to level of performance

Equity theory

fairness judged by comparison--internal, external


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Determining Reward: Job Evaluation

Ranking of jobs by relative worth to the organisation

Non-Analytical

whole jobs, paired jobs (matrix), job classifications

Analytical components, factors, competencies

points rating(e.g.; 1-10)


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Pay & SHRM

Achievable organisational objectives

Clear link between pay and objectives

Contingency model:

Vertical fit--alignment of pay systems & business objectives Horizontal fit--pay and HR practice support one another


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Use of Reward Management (CIPD 2008)

Written Reward Strategy 33%

Total rewards approach 29%

Key factor in salary level

market rates 31%, ability to pay 22%

Key factor in pay review

organisational performance 53%

inflation 44%


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Question and Answer

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Learning Outcome 2

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Learning Outcome

The learners can:

Assessment Criteria

The learners will:

LO2 : Understand the key

perspectives that informreward decision making.

AC2.1 - Explain the key

perspectives that informreward decisions and

evaluate their

appropriateness or

limitations in a given

context.


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Incentive plans (CIPD 2008)

Individual 60%

Business results 51%

Combination 50%

Team-based 27%


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What Is Total Rewards?

Total Rewards: All of the tools available to the employer that

may be used to attract, motivate and retain employees.

Total rewards include everything the employee perceives to

be of value resulting from the employment relationship.

The concept of total rewards has advanced considerably. The

power of total rewards is in leveraging the concept as a whole

and the individual elements to attract, motivate and retain

talent


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Total Rewards Defined

There are five elements of total rewards, each of which includes

programs, practices, elements and dimensions that collectivelydefine an organizations strategy to attract, motivate and retain

employees. Roll your mouse over the image on the left to learn

more.


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There are five elements of total rewards, each of which includes

programs, practices, elements and dimensions that collectively

define an organization's strategy to attract, motivate and retain

employees. These elements are:

- compensation

- benefits

- work - life

- performance and recognition

- development and career opportunities

Elements of Total Rewards


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Learning Outcome 3

Learning Outcome

The learners can:

Assessment Criteria

The learners will:

Understand key:3LO

reward principles and the

implementation of policies

and practices.

AC3.1 - Evaluate the principle of

total rewards and its importance

to reward strategy

AC3.2 - Evaluate the significance of

equity, fairness, consistency and

transparency as they affect reward

policies and practices.AC3.3 - Evaluate how policy

initiatives and practices are

implemented

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The Factors behind Performance

Management in Companies

Armstrong (2006), as an organized process for improving

organizational performance by developing the performance of

individuals and teams. Also Performance Management is aprocess which contributes to the effective management of

individuals and teams in order to achieve high levels of

organisational performance.


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The Factors behind Performance

Management in Companies (cont..) It establishes share understanding about what is to be achieved

and an approach to leading and developing people which will

ensure that it is achieved. (Armstrong and Baron, 2004, Cited

Pilbeam and Corbride, 2006).

In other words, by Bones (1996), cited Pilbeam and Corbride

(2006) that Performance does not need managing; it needs

encouraging, developing, supporting and sustaining.


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1230

Equity Considerations in

CompensationF igure 12

7 External Labour Markets


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1231

Fair Labor Standards Act 1938

Provisions of the Act

Minimum wage requirement sets wage floor

Child labor (under 14 years old) is prohibited

Requires overtime payments for non-exempt employees

Exempts highly-paid computer workers

Requires overtime (1) pay for hours over 40 hours

Requires compensatory time at overtime (1) pay rates


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Wage/Hour Status Under Fair Labor

Standards ActF igure 12

8c


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1233

Pay and Gender

Equal Pay Act of 1963

Requires that men and women be paid the same for

performing substantially similar jobs with limited non-

gender exceptions (e.g., merit and seniority).

Issue of Pay Equity

Similarity in pay for all jobs requiring comparable level of

knowledge, skills, and abilities, even if actual duties and

market rates differ significantly.


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Job Analysis


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1235

Job Evaluation

FactorComparison

Ranking Classification

PointMethod

JobEvaluationMethods


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1236

Legal Issues and Job Evaluation

Americans with Disabilities ActJob evaluations may not identify job functions related to physical

demands as essential

Gender IssuesTraditional job evaluations place less weight on knowledge, skills, and

working conditions for female-dominated jobs

Job Evaluation


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12

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Developing Pay Surveys

Select Employers with Comparable Jobs

Determine Jobs to be Surveyed

Decide What Information Is Needed

Conduct Survey


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12

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Pay Structures

Market Line The line on a graph showing the relationship between the

job value, as determined by job evaluation points, and pay

survey rates.

Common Pay Structures Hourly and salaried

Office, plant, technical, professional, managerial

Clerical, information technology, professional, supervisory,

management, and executive


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12

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F igure 1212

Establishing Pay Structures


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Pay Structures (contd)

Pay Grades A grouping of individual jobs having approximately the

same job worth.

Broadbanding

The practice of using fewer pay grades having broader payranges that in traditional systems.

Benefits

Encourages horizontal movement of employees

Is consistent with trend towards flatter organizations

Creates a more flexible organization

Encourages competency development

Emphasizes career development


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Issues Involving Pay Increases

Seniority

Time spent in an organization or on a particular job.

Used to determine eligibility for organizational rewards

and benefits.

Maturity Curve

A curve that depicts the relationship between experience

and pay rates.

Assumption is that as experience increases, proficiencyand performance increase.


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Performance-based

Our research shows that most private sector employers have

now linked an element of pay to performance. However, there

are a wide range of practices, including:

consolidated pay rises

non-consolidated pay rises

bonus awards

recognition and non-cash incentives.


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And there is a wide variation in the factors used to define

what is meant by performance, including:

- individual performance- individual performance and competency

- individual and organisational performance

- individual performance and length of service- competency and organisational performance

Performance-based (Cont.)


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Strategic

Employers are increasingly asking themselves whether their

current reward practices have validity in the present and

future business context. They are examining what they are

rewarding and whether it adds value to the organisation.

Having an articulated reward strategy helps in working out

what the organisation needs to do to be a success, what

values, behaviours and performances they need from their

employees to be a success, and how they will communicate

these expectations and reward those individuals who exhibit

the values, behaviours and performances required.


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Financial Rewards:

Indirect CompensationProtection Programs

Examples: pensions, health coverage, life insurance, social

welfare programs

Public

Private

Mandatory versus Voluntary

Contributory versus Non-contributory


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Financial Rewards:

Indirect Compensation

Pay for Time Not Worked (at work and off work)

Examples: breaks, meal time, transit time, medical leave, militaryleave, education leave, vacation

Services and Perquisites

General (e.g. financial services, counseling, dining discounts)

Limited (e.g. automobile, cellular phone, clothing allowance,

gym membership)


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Financial Rewards:

Direct Compensation

Base Pay

Incentives

Cost-of-Living Adjustments (COLAs)

Merit Pay


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Compensation System

Objectives External Competitiveness

Internal Equity

Legal Compliance

Motivational Soundness

Linkages to Performance

Cost Effectiveness

Culture Creating


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Total Comp Policy Planning:

Key Issues

Degree of income protection and replacement to be provided

for employees, for dependents and for retirees.

Provisions (if any) to be made for income supplementation

benefits. Relation of benefits to job level.

Recognition for seniority.

Recognition for performance or productivity.

Employers responsibility for costs of Employee benefits, dependent benefits, and retiree benefits.


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Total Comp Policy Planning:

Key Issues (cont..) Basis and use of external comparisons.

Effect of union settlements on benefits for non-represented

employees.

Application of plans to employees of acquired orgs.

Coverage for part-time employees.

Employee choice and plan flexibility.

Responsibility for planning and managing the plans/programs.


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Compensation Laws & Regs

Wages Wage Controls

Payment Schedules Pay Increases

Overtime Incentive Pay

Wage Adjustments (longevity, education, etc.)

Bonuses Contracts

Work Agreements Child Labor

Benefits


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Basic Compensation Markets

Blue CollarLabour

Professional

Supervisory and Managerial

Entertainers and Athletes


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External Influences on Compensation

Supply of Labor

Demand for Labor

Org Location

Economic State Competition

Union Influence Product/Service Demand


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Internal Influences on Compensation

Organization Size Willingness to Pay

Ability to Pay

Tradition

Unionization

Job Itself

Employer Prestige

Work Force Character

Desired Employee Quality

Ratio of Labor Costs to Total Costs


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Performance Appraisal: Major Goals

Improve performance

Increase motivation

identify training/development needs

manage careers set levels of reward

Control


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Appraisal Methods

OUT

Rank & Yank

Critical Incident

IN

Psychometric Scales

360 Appraisal

Frequent Review

Role of line manager


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Who does Appraisal?

owned and driven by line-manager (Armstrong, 2006)

360 Appraisal

Managers (alone 180)

HRM personnel

Peers

Subordinates

Self

Customers (540)


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Organizational Compensation System

Requirements

Maximize ability to attract and retain qualified employees

Be within ability to pay

Allow organization to remain competitive


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Compensation Terminology

Wage versus Salary

Exempt versus Non exempt


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Assigning Pay to Jobs

Job Pricing = placing a monetary value on the worth of a job to theorganization

RULE: Each job is worth only so much to the organization

OPTIONS:

1. Flat Rates

2. Pay Ranges


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Pay Considerations

Prevailing wages and salaries

Collective bargaining

Economic realities

Worth of position/job

Worth of employee

Difficulty in filling job

Priority of work in organization


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Basic Compensation Decisions

Wage level decisions

compared to other organizations

Wage structure decisions

comparing job to job Individual wage decisions

comparing individuals in same jobs


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Wage Level Decisions

Lead Competition

Match Competition

Lag Competition


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Wage Structure Decisions

System for assigning value to jobs within an organization:

Ranking

Classification

Point/Factor


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Wage Structures

Rankings - Each job in relation to other from most important toleast important

Classification - Jobs sorted by requirements, responsibilities

Point/Factor - Jobs evaluated and sorted by objectivefactors


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Ranking System

Job A - President

Job B Vice President

Job C1 Treasurer/CFO

Job C2 Manager of Operations/COO

Job D Sales Manager

Job E Salesperson

Job F Order Entry Clerk

Job G Cleaning Crew Member


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Classification System

Grade Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7

1 15,625 16,146 16,666 17,183 18,009 19,039 19,543

2 17,568 17,985 18,567 19,060 19,841 20,408 20,975

3 19,168 19,807 20,446 21,085 21,724 22,363 23,002

4 22,235 23,057 23,669 24,386 25,430 26,110 26,833

5 24,878 25,681 26,484 27,287 28,090 28,982 29,876

6 27,731 28,626 29,521 31,011 32,206 33,104 34,891


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Point/Factor Systems

Job A = 100Job B = 110 points

Job C = 160 points

Job D = 180 points

Job E = 200 pointsJob F = 220 points

Job P = 430 points


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Pay Adjustments

Fixed Rate Increases

step increases, flat dollar increases

Percentage Increases

across the board, competitive percent

Incentives


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Levels of Incentives

Individual

Group

Company-wide

Executive


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Individual Incentive Plans

Piecework Payment (Straight and Differential)

Standard Hour

Commissions

Bonuses

Skills-based Pay

Non-financial Awards


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Group Incentive Plans

Piece-rate Systems

Standard Hour Plans

Group Bonuses Profit Sharing


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Company-wide Incentives

Profit Sharing (Cash Plan or Deferred Plan)

Gain sharing

Stock Ownership Plans (ESOP)


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Executive Incentives

Salaries

Stock Options

Long-term Incentive Plan Payouts

Directors Fees

Perquisites


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Executive Compensation

Organization

Salary

& Bonus

Long-term

Comp

Company

Performance

Boeing 2,684,000 1,245,000 -128%

Tenet Healthcare 116,400,000 72,000,000 +63%

Dell Computer 82,300,000 37,500,000 -13.2%

Disney 14,500,000 48,000,000 -60%

Household Intl 5,000,000 41,300,000 -50%

GE 6,900,000 43,000,000 -39%


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Directors Fees

Board Member Compensation

Fees

Insurance

Travel

Stocks

Retirement contributions


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Board Fees

Bear Sterns Investments $150,000 PM Industries $ 85,000

Pepsico $ 78,000

American Express $ 67,500

Coca-cola $ 61,000

Georgia Pacific $ 53,000

Microsoft $ 42,000


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Perquisites

Memberships

Company car/limo

Corporate Travel

Corporate Jet/Yacht

Clothing Allowance

Free Parking

Dining Privileges

No/low Cost Loans

Memberships:


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Perquisites(cont..)

Gym, Golf & Social Clubs

Entertainment Expenses

Season Tickets to Sporting Events

Financial and Legal Counseling

Education/seminar Funding

Funding for Family Education


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Perquisites (Perks) (Cont..)

Kidnapping & Ransom Insurance & Services

Housing Allowance or Accommodations

Living Accommodations Away from Home

Company Credit Cards Special Relocation Allowances

Spouse/family Travel

Golden Parachute/Severance Package

G ld P h t


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Golden Parachute

In effect if acquisition or forced to leave

Typical severance package:

2-3 x annual salary and bonus

accelerated vesting of options

Example: Mattel CorporationPackage=5 years salary and bonuses = $26.4 mil

Purchase office furniture & equipment for $1.00

Forgiveness of $4.2mil personal loan

Forgiveness of $3mil home loan

Cash of $3.31mil to cover taxes on loans

Received $47mil, plus options


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HRM Crises of Finances:

HRM Implications Bankruptcies

Acquisitions and Mergers

Scandals with officers/managers

Private & Corporate Lawsuits

Government investigations and charges

Arrests and convictions

Tragedies

workplace accidents & illnesses , travel accidents

work-related accidents

EXAMPLE: Air France Concorde/SST crash

Union Carbide Bophol, India, chemical spill

Merrill Lynch 9/11 Twin Towers crashes


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Evaluation of Incentives

Attention getter?

Understandable?

Establishes culture through values?

Improves communication?

Pays when it should? (achievements versus failures)

Improves individual performance?

Improves organizational performance?


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Rewards and incentives for knowledge

management Tangible rewards

Economic

Reciprocal access gained to information and knowledge

Intangible rewards

Employees will enjoy seeing the positive results of their

knowledge sharing

Enhanced reputation and personal satisfaction

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Rewards and Incentives for Knowledge

Management According to John Campbell, Regional Director of Rewards and

Recognition: CITI Bank

The key role of the reward function is to examine the various

ways that individual and collective contribution is rewarded.

Bonus schemes are a powerful way of telling our employees:

this is what we need from you and this is how we will reward

you. However, you have to invest time in ensuring that

bonuses that are awarded support what the business needsand do not encourage the wrong values and behaviours.


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Learning Outcome -4

Learning OutcomeThe learners can: Assessment CriteriaThe learners will:

Know how to support:4LO

line managers in making

reward decisions.

AC4.1 - Explain the various ways in

which line managers contribute to

reward decision making.

AC4.2- Evaluate the contention thatpay can improve employee

performance.

AC4.3 - Assess the contribution of

intrinsic rewards to improving

employee contribution andsustained organisation performance

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Organizational Compensation System

Requirements

Maximize ability to attract and retain qualified employees

Be within ability to pay

Allow organization to remain competitive

Line Managers Impact on Reward


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Line Manager s Impact on Reward

Program


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Question and Answer

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