HRM01 28MAR Reward Management

HUMAN RESOURCE MANAGEMENTCourse Book 2

Chapter 1

Reward Management

Md. Rifat Amin Ryhan

Assistant Professor, BiMS

[email protected]

(March, 2015)

1Developed by Rifat

mailto:[email protected]

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What is 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 with their value to the organisation.

• Reward management strategies are designed to support the achievement of business objectives, by helping to ensure that the organisation can attract, retain and motivate competent and committed employees.

2Developed by Rifat

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1.1 What is motivation?The word 'motivation' is commonly used in different contexts to mean:(a) The mental process of choosing desired outcomes. This is sometimes called

'intrinsic motivation', as it arises from factors and processes within the individual.

(b) The social process by which the behaviour of an individual is influenced by others. This is sometimes called 'extrinsic motivation', as it arises from actions done to or for the individual by others.

3Developed by Rifat

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1.1 What is motivation?

• Theories of motivation are often categorised as 'content theories' and 'process theories

• Content theories assume that human beings have an innate package of motives (needs or desired outcomes) which they take action to pursue. They ask: 'What motivates people?' Maslow's need theory and Herzberg's two-factor theory are two of the most important approaches of this type.

• Process theories explore the psychological process through which outcomes become desirable and are pursued by individuals. They ask: 'How are people motivated?'Expectancy theory is a key example.

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REWARD MANAGEMENT 1.2 Need theory

Need theories suggest that individuals have certain innate needs. When a need is unsatisfied, the individual experiences tension – and acts in pursuit of goals that will satisfy the need. Abraham Maslow (1954) developed the original and most famous need theory.

Each level of need is dominant until satisfied: only then does the next level of need become a motivating factor.

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1.3 Two factor theory

Frederick Herzberg (1966) interviewed Pittsburgh engineers and accountants about 'critical incidents' which made them feel good or bad about their work. He identified two basic need categories of individuals at work.(a) The need to avoid unpleasantness, associated with fair treatment in compensation, supervision, working conditions and administrative practices. These needs are satisfied by what Herzberg called 'hygiene‘ factors: Hygiene factors are essentially extrinsic rewards, deriving from factors in the environment or context of work, and offering satisfaction of lower-level needs.

6Developed by Rifat

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1.3 Two factor theory

(b) The need to develop in one's occupation, as a source of personal growth, associated with factors such as advancement, recognition, responsibility, challenge and achievement. These needs are satisfied by what Herzberg called 'motivator' factors. Motivator factors are essentially intrinsic rewards

7Developed by Rifat

REWARD MANAGEMENT 1.3 Two factor theory • In particular, the impact of job satisfaction on work performance has proved

difficult to verify and measure: 'A satisfied worker is not necessarily a high producer, and a high producer is not necessarily a satisfied worker.' (Armstrong, 2003)

• Today's 'total reward' concept recognises that a reward system offering a mix of both extrinsic and intrinsic rewards is likely to be the most effective way of motivating employees

• Reward refers to 'all of the monetary, non-monetary and psychological payments that an organisation provides for its employees in exchange for the work they perform.' (Bratton & Gold, 2007)

8Developed by Rifat

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1.4 Expectancy theory• Vroom (1964) suggested a formula by which motivation could be assessed and

measured, on an expectancy theory model. In its simplest form it may be expressed as:

Force or strength of motivation = Valence x Expectancy• Valence is represented as a positive or negative number, or zero – since outcomes

(or rewards) may be desired, avoided or considered with indifference. Expectancy is expressed as a probability (in the perception of the individual): any number between 0 (no chance) and 1 (certainty).

9Developed by Rifat

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1.4 Expectancy theoryVroom model helps to explain why performance incentives and rewards work most

effectively when:(a) The link between effort and reward is clear. (This is a key criterion in designing

performance-based pay schemes – but would also apply to the giving of non-financial rewards such as praise and recognition, for example.)

(b) Intended results and goals are made clear, and especially when individuals share in setting goals (so they can complete the calculation).

(c) The reward is perceived to be worth the effort. (This is part of the rationale for flexible benefit schemes, allowing employees to choose from a menu of incentives and rewards.)

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2. Job evaluation is the process of analysing and assessing the content, worth or size of jobs within an organisation, in order to rank and group them as a basis for an equitable remuneration system.

2.1 The purpose and aims of job evaluation(a) Assess the value of jobs to the organisation in relation to one another(b) Support the development of job gradings and pay structures that are objective, balanced and equitable(c) Ensure that the organisation is able to give (and demonstrate that it gives) equal pay for work of equal value, as required by law.

2.2 Arguments for and against formal job evaluation


REWARD MANAGEMENT 2.3 The process of job evaluationStep 1. Select compensable factorsCompensable factors represent the aspects of jobs for which the organisation is willing to pay.Step 2. Gather data on jobsSome information for evaluation may already be available in the form of job descriptions, or may have to be gathered by job analysisStep 3. Evaluate jobs# Non-analytical schemes make largely subjective judgements# Analytical schemes systematically analyse how far compensable factors are present in each jobStep 4. Assign specific pay values to the jobThe output of a job evaluation scheme is a pay structure: a ranking or hierarchy of jobs in terms of their relative value to the organisation.


REWARD MANAGEMENT 2.4 Job Evaluation schemesFactor comparison involves the selection of key benchmark jobs, for which the rateof pay is considered to be fair (perhaps in comparison with similar jobs in other organisations).


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4.2 Components of the reward system(a) Direct or base pay: a fixed salary or wage that constitutes a standard rate for the

job(b) Performance or variable pay: a method or component of pay directly linked to

work- related behaviour, such as performance or attainments. There are various types of variable pay, including:(i) Payment by results (PBR)

(ii) Performance-related pay (PRP) (iii) Organisation performance pay

(c) Indirect pay or 'benefits :non-cash items or services.


REWARD MANAGEMENT 4.3 The 'total reward' concept

The sum of the components discussed above is known as 'total remuneration'. Theconcept of 'total reward' is based on the premise that monetary payments are not the only, or necessarily the most effective, form of reward and that financial and nonfinancial rewards should be linked together as an integrated reward package


REWARD MANAGEMENT 6.1 Effective performance pay systemsEffective performance (or 'contingent') pay systems should fulfil the following criteria.(a) Targets and standards of performance required to earn the rewards must be made

clear to the people involved.(b) The formulae used to calculate rewards, and any conditions that apply, should be

easily understood.(c) The rewards should be – and perceived to be – significant enough to make the

effort worthwhile (perhaps 10% of basic salary).(d) Rewards should be related to performance indicators over which people have

control or influence, through their own behaviour or decision-making.(e) There should not be a lengthy time lag between performance and reward.


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7 INDIRECT PAY7.1 Benefits(a) Extended holiday entitlement.(b) Company cars(c) Employee assistance(d) Insurance(e) Catering services(f) Recreational facilities(g) Allowances(h) Discounts or preferential terms(i) Educational programmes(j) Family-friendly policies(k) Clothes


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HRM01 28MAR Reward Management

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