Reward week 1 bus681

18
Compensation and Benefits/Reward Introduction

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Compensation and Benefits/Reward

Introduction

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Learning outcomes2

To understand and be able to explain the following:

The definition, nature and context of rewardThe content and objectives of the reward

relationshipThe theoretical context to reward

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What is Reward Management?4

Reward management is an umbrella term covering:- design, implementation, maintenance, communication and evolution of reward processes which help organizations to improve performance and achieve their objectives.

(Armstrong and Murlis, 1994)Two questions:-

How much should be paid (rewarded) to each employee?

What form should the payment (reward) take?

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Dimensions of reward5

Reward 3-dimensionalExternal:-Market (labor pools/skills shortages)legal requirements - min wage, equal pay

Internal:-job evaluationnegotiationcorporate performance

Individual:-performancecompetenciesteams

Company’s reward strategygoverned by dimensions:strategy positioned accordingto actual behavior andcorporate values on relativeimportance of dimensions

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The content of reward management6

Direct financial reward in the form of base pay and incentives/allowances.

Indirect financial reward in the form of employee benefits and conditions.

Non-financial reward in the form of job satisfaction, career development and good working environment.

Reward strategy takes a holistic approach to these three areas.

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Types of reward7

Group related

Individual related

Non

-mon

ey r

elat

ed Money related

Security driven Lifetime jobs Corporate prestige

Contribution driven Performance pay Merit bonuses

Tradition driven Cost of living increases Perks

Employability driven Training & development Personal career plans

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Objectives of reward strategy8

Congruence with corporate values and beliefs

Linked to business strategyDrive and support behavior at all levelsFit desired management styleProvide a competitive edge in HR termsReflect market realities (Armstrong

2002)

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Determinants of Reward Strategy9

Corporate CultureBehavioral factors Economic contextLegal contextPolitical contextSocial context

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From backroom to boardroom?10

In the past, pay and benefit administration largely governed by the outcomes of collective bargaining. A backroom function.

Today, the management of reward is increasingly seen as a key HR function linked to the strategic objectives of the employer.

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The context of reward in the 21st century

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Increasing global competitionTrend to lower levels of trade union

membership and less collective bargaining and pay regulation

Increasingly individual employment relationship

Changes in the psychological contract at work - more insecurity and uncertainty

Differing views of what‘Reward’is

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Key trends since the 1990s12

Growing inequality in pay - incomes of higher paid have increased much faster than the lower paid.

Growth in financial participation schemes Growth in regulation of reward - particularly

in Equal Pay and Hours and Holidays, minimum wage, increasing casual and part-time workers protection.

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The New Pay Philosophy13

New Pay ideas originate in USA (Lawler; Schuster and Zingheim; Gomez-Mejia; Mahoney)

Influenced by HRM literature - new pay based on concept that management of people must be strategically focused.

Prescriptive or descriptive?

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The New Pay Philosophy14

Change to pay systems which are contingent on business strategy and circumstances

Trend away from ‘job related’ pay to ‘person related’ pay.

Shift away from stable, seniority based systems to more variable and ‘at risk’ pay.

Move away from fixed benefits to flexible (cafeteria) benefits

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Traditional vs New pay15

Focus

Objectives

Determination

Approach

Basis

Demarcations?

Flexibility?

External constraints Business needsFairnessRecompense for time Enhancement ofgiven up loyalty and commitmentCollective bargaining Management

Evolutionary, ad hoc Rational, strategic

Job based Person basedTime based Performance basedDiff conds for diff groups HarmonisationWage and salary based All salary basedMany grades Few gradesFixed benefits Flexible benefits

Traditonal pay New pay

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Reward systems - the major components

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1. What are the objectives of the reward system?2. What is the corporate strategy that provides

the foundation of the system? 3. What techniques are used to link strategy and

objectives.4. The four main strategy areas are: 1) internal

2) external 3) rewarding employee contribution and 4) administration.

(Milkovitch and Newman 2002)

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Looking at Old Issues in a New Way

Best Practise vs. Best Fit (Schuster and Zingheim, 2002; Brown and Christie, 2005)

All encompassing offerings are seen as Best Practise Focus should be on best fit for the organisation AND its

employees Employer - Understand Yourself

Organisations need to understand what they need to succeed Employer - Understand Your Employees

True performance success is gained through employee involvement and seeking the employee’s direct voice (Walton ,1985; Lawler, 1986)

HR can assist by bridging the gap, by understanding the business AND becoming an employee advocate so as to understand the employees (Legge, 1999)

Rewards can then become that which meets the needs of both Rewards becomes more than Total Rewards, it becomes a

Total Relationship approach (Schuster and Zigheim, 2000)

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Reward Elements Examples

Reward Elements:

Basic SalaryCompany BonusPersonal BonusProfit SharingStock or Share OptionsSales Incentives/CommissionLong Term IncentivesPrivate Medical CoverPrivate Dental CoverPrivate Vision CoverHealth Screens/PhysicalsDefined Benefit PensionDefined Contribution PensionCritical Illness CoverLife InsuranceRecognition SchemeLong Service AwardsCompany Car or AllowancePetrol AllowanceMobile PhoneOn-site CrècheChildcare VouchersOn-site CafeteriaOn-Site Coffee BarLuncheon VouchersOn-Site Life style/ConciergeTube or rail pass benefitsOn-site or discounted parkingWellness ProgrammesOn-site or discounted Gym membershipShopping DiscountsEmployee Assistance ProgrammeSalary sacrifice Bicycle purchase

 

Work Experience Elements:

Opportunities for career advancementJob-orientated trainingOther training availablePerformance appraisalMerit pay increasesOpportunities for job enhancementEmployer is ‘people’-focussedPositive leadershipSupportive managementPositive colleague interactionsGreat workWork/life balanceFlexible working practicesYou feel ‘involved’You trust your employerYour employer trusts youOpen and honest communicationsStakeholdershipCompany is growingCompany is successfulCompany has a positive imageCompany has a positive reputationCompany has a clear visionCompany has a clear set of values(Source: Schuster and Zigheim 2000)

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References20

Perkins, S. & White, G. (2010) Employee Reward: Alternatives, Consequences and Contexts.

CIPD: LondonThorpe, R. & Homan, G. (2009) Strategic Reward Systems.

Prentice Hall: LondonWhite, G. & Druker, J. (2009) Reward Management: a Critical Text.

Routledge: London