SYSTEM YULVI ZAIKA Definition of Reward Management This management discipline is concerned with the formulation and implementation of strategies and policies the purposes of which are to reward employees ID: 557891
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Slide1
REWARDSYSTEM
YULVI ZAIKASlide2
Definition of Reward Management
This management discipline is concerned with the formulation and implementation of strategies and policies, the purposes of which are to reward employees
fairly, equitably and consistently
in accordance with their
value
to the
organization
.
It deals with design, implementation and maintenance of reward
systems (processes, practices, procedures
) that aim to meet the needs of both the
organization
and its stakeholders. Slide3
The Role of the Human Resource Manager in the Reward System
Role of human resource manager in overall organizational reward system is to assist in its design and to administer the system
Administering the system – Carries responsibility of ensuring that system is fair to all employees and that it is clearly communicated to all employees
Ensuring that the system is fair places burden of minimizing reward inequities and employee’s perceptions of reward inequities squarely on the human resources manager
Little doubt exists that organizations need to do a better job of explaining and communicating their compensation system to employees
Many tools and techniques are available to assist human resource managers in designing and administering compensation systems
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3Slide4
Philosophy of Reward Management
Strategic sense
: long-term focus & it must be derived from the business strategy
Total Reward approach
: considering all approaches of reward (financial or not) as a coherent whole; integration with other HRM strategies
Differential reward according to the contribution Fairness, equity, consistency, transparencySlide5
Impact of Comparable Worth
Theory holds that while true worth of jobs to employer may be similar, some jobs (especially those held by women) are often paid a lower rate than other jobs (often held by men)
Drawback
Determining worth of the jobs in question is difficult
How should job worth be established?
U.S. courts have generally rejected cases based on comparable worth claimsAlthough comparable worth has generally floundered in court, it has received considerable attention
At the collective bargaining table
In the political arena
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The Importance of Fair Pay
Little doubt exists that inadequate pay can have a very negative impact on an organization
Pay dissatisfaction can influence employees’ feelings about their jobs in two ways:
Can increase desire for more money
Can lower attractiveness of the job
An employee who desires more money is likely to engage in actions that can increase payThese actions might includeJoining a union
Looking for another job
Performing better
Filing a grievance
Going on strike
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The Importance of Fair Pay
All of the consequences (except performing better) are generally undesirable by management
Better performance results only in those cases where pay is perceived as being directly related to performance
When job decreases in attractiveness, the employee is more likely
To be absent or tardy
To quitTo become dissatisfied with the job itself
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7Slide8
Model of the Consequences of Pay Dissatisfaction
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8Slide9
Pay Equity
Equity theory of motivation holds that
Employees have a strong need to maintain a balance between what they perceive as their inputs to their jobs and what they receive from their jobs in the form of rewards
Employees who perceive inequities will take action to eliminate or reduce them
Pay equity concerns whether employees believe they are being fairly paid
For example, if an employee believes he or she is underpaid, that employee will likely reduce expended effort by working more slowly, taking off early, or being absentSimilarly, if an employee believes she or he is being overpaid, that employee is likely to work harder or for longer hours
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Pay Equity
Several dimensions of equity to be considered when looking at pay equity
Internal equity – Addresses what an employee is being paid for doing a job compared to what other employees in the same organization are being paid to do their jobs
External equity – Addresses what employees in other organizations are being paid for performing similar jobs
Individual equity – Addresses issue of rewarding individual contributions; is very closely related to the pay-for-performance question
Organizational equity – Addresses how profits are divided up within the organizations
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Pay Equity
Employee interpretations of pay equity are based on their perceptions
Organizations should make these perceptions as accurate as possible
An employee can also feel good about one or more equity dimensions and feel bad about others
For example, an employee may feel good about his or her pay in comparison to what friends working in other organizations are making
She or he may also believe the company profits are fairly distributed within the companyHowever, this same person may be very unhappy about his or her pay relative to several other people in the same organization
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Pay Satisfaction Model
An employee’s perception of what pay should be depends on several other factors, including
Job inputs
Includes all the experience, skills, and abilities an employee brings to the job in addition to the effort the employee puts into it
The perceived inputs and outcomes of friends and peers
Refer to the individual’s perception of what friends and peers put into their jobs and what kind of pay they get in returnNonmonetary outcomes
Refer to the fact that certain nonmonetary rewards can sometimes substitute for pay, at least up to a point
It makes allowances for employees who believe their pay exceeds what they think it should be
Research has shown that in such cases, people often experience feelings of guilt, inequity, and discomfort
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Model of the Determinants of Pay Satisfaction
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13Slide14
Total Reward
(Armstrong 2009)
All types of reward:
Non-financial as well as financial,
Indirect as well as direct,
Extrinsic as well as intrinsic.
Each element
is developed
,
implemented
and treated
as an integrated
and
coherent whole.Slide15
INTRINSIC AND EXTRINSIC
Intrinsic rewards – Internal to individual and are normally derived from involvement in certain activities or tasks
Examples – Job satisfaction and feelings of accomplishment
Extrinsic rewards – Directly controlled and distributed by organization and more tangible than intrinsic rewards
Examples – Pay and hospitalization benefits
Although differing, intrinsic and extrinsic rewards are closely relatedOften an extrinsic reward provides recipient with intrinsic rewardsSlide16
Intrinsic versus Extrinsic Rewards
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Selection of Rewards
Management must recognize what employees perceive as meaningful rewards
Pay is usually the first, and sometimes the only, reward most people think about
However, rewards should be viewed in the larger perspective as anything employees value
May include things such as
Office locationAllocation of certain pieces of equipmentAssignment of preferred work tasks
Informal recognition
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Selection of Rewards
Returns benefiting organization through distribution of awards can be realized only if desires of employees are known
Organizations should learn what employees perceive as meaningful rewards, which is not necessarily what management perceives
Traditionally, managers have assumed they are fully capable of deciding just what rewards employees need and want
Unfortunately, this is often not true
Studies have shown that employees tend to rank lack of recognition as the most probable reason good employees quit their jobs
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Selection of Rewards
Another false assumption is exemplified by fact that most organizations offer same mix of rewards to all employees
Studies show that many variables can influence employee preferences for certain rewards. They include
Age
Sex
Marital statusNumber of dependentsYears of service
For example, older employees are usually much more concerned with pension and retirement benefits than are younger employees
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Selection of Rewards
When selecting types of rewards to offer, intrinsic benefits that might accrue as a result of the rewards need to be considered
Managers and employees alike consider only tangible benefits associated with a reward
External factors that place limitations on an organization’s reward system also exist
These factors (usually beyond the control of the organization) include such things as
Organization’s sizeEnvironmental conditions
Stage in product life cycle
Labor market
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Relating Rewards to Performance
Free enterprise system is based on the premise that rewards should depend on performance
Performance–reward relationship is desirable at
Organizational or corporate level
Individual level
Employees will be motivated when they believe such motivation will lead to desired rewardsMany formal rewards provided by organizations are not related to performanceThese rewards are almost always determined by organizational membership and seniority; they include
Paid vacations
Insurance plans
Paid holidays
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Relating Rewards to Performance
Other rewards, such as promotion, can and should be related to performance
Opportunities for promotion may occur only rarely
When available, higher positions may be filled
On basis of seniority
By someone outside the organizationPrimary organizational variable used to reward employees and reinforce performance is payEven though many U.S. companies have some type of pay-for- performance program, most do a poor job of relating the two
Surveys repeatedly show that employees do not have much confidence about a positive relationship exists between the two
Evidence shows that paying for performance is working at the highest levels in many companies
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Relating Rewards to Performance
Why is the practice not more widespread?
Not easy to do; much easier to give everybody the same thing, as evidenced by the ever-popular across-the-board pay increase
Relating rewards to performance requires that performance be accurately measured, and this is often not easily accomplished
Requires discipline to actually relate rewards to performance
Many union contracts require that certain rewards be based on totally objective variables, such as seniorityNo one successful formula for implementing a pay-for-performance program has yet been developed
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Preconditions for Implementing pay-for-Performance Program
Trust in management
If employees are skeptical of management, it is difficult to make a pay-for-performance program work
Absence of performance constraints
Jobs must be structured so that an employee’s performance is not hampered by factors beyond his or her control
Trained supervisors and managersSupervisors and managers must be trained in setting and measuring performance standardsGood measurement systems
Performance should be based on criteria that are job specific and focus on results achieved
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Preconditions for Implementing Pay-for-Performance Program
Ability to pay
Merit portion of the salary increase budget must be large enough to get the attention of employees
Clear distinction among cost of living, seniority, and merit
In absence of strong evidence to the contrary, employees will naturally assume a pay increase is a cost-of- living or seniority increase
Well-communicated total pay policyEmployees must have a clear understanding of how merit pay fits into the total pay picture
Flexible reward schedule
It is easier to establish a credible pay-for-performance plan if all employees do not receive pay adjustments on the same date
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Job Satisfaction and Rewards
An employee’s general attitude toward the job
Organizational reward system often has a significant impact on level of employee job satisfaction
Manner in which extrinsic rewards are dispersed can affect intrinsic rewards (and satisfaction) of recipients
There are five major components of job satisfaction:
Attitude toward the work groupGeneral working conditions
Attitude toward the company
Monetary benefits
Attitude toward management
Other components include
Employee’s state of mind about the work itself
Life in general
Health, age
Level of aspiration, social status, and political and social activities
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Job Satisfaction and Rewards
Organizational morale – Employee’s feeling of being accepted by and belonging to a group of employees
Through common goals
Confidence in desirability of those goals
Desire to progress toward the goals
Morale is the by-product of a groupJob satisfaction is more an individual state of mindTwo concepts are interrelated in that job satisfaction can contribute to morale and morale can contribute to job satisfaction
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The Satisfaction–Performance Controversy
“The path of least resistance” – Attempts to explain belief that a satisfied employee is necessarily a good employee
If a performance problem exists, increasing an employee’s happiness is far more pleasant than discussing with the employee his or her failure to meet standards
Although happiness eventually results from satisfaction, the latter goes much deeper and is far less tenuous than happiness
Two propositions concerning the satisfaction-performance theory exist
Traditional view is that satisfaction causes performanceSatisfaction is the effect rather than the cause of performance
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The Satisfaction–Performance Controversy
Performance leads to rewards that result in a certain level of satisfaction
Rewards constitute a necessary intervening variable in the relationship
Another position considers both satisfaction and performance to be functions of rewards
Satisfaction results from rewards, but current performance also affects subsequent performance if rewards are based on current performance
Research evidence generally rejects the more popular view that satisfaction leads to performanceIt does provide moderate support for the view that performance leads to satisfaction
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The Satisfaction–Performance Controversy
Evidence also strongly indicates that
Rewards constitute a more direct cause of satisfaction than does performance
Rewards based on current performance enhance subsequent performance
Reviews of studies in the area stating that job satisfaction and job performance are related do not support a strong relationship
Found that “the best estimate of the true population correlation between satisfaction and performance is relatively low”Lay people often tend to believe strongly that satisfied employees are more productive at work
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The Satisfaction–Performance Controversy
It has been clearly established that job satisfaction does have a positive impact on
Turnover
Absenteeism
Tardiness
AccidentsGrievancesStrikesExperience, gender, and performance can have a moderating effect on these relationships
Organizations prefer satisfied employees simply because they make the work environment more pleasant
Although a satisfied employee is not necessarily a high performer, there are numerous reasons for cultivating employee satisfaction
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Other Factors Affecting Job Satisfaction
Wide range of both internal and external factors affect an employee’s level of satisfaction
Surveys have found that the top drivers of employee job satisfaction were
Pay, and benefits
Job security, and feeling safe in the work environment
Flexibility to balance work and lifeJob satisfaction and motivation are not synonymousMotivation is a drive to perform
Organizational reward systems can influence both job satisfaction and employee motivation
It affects job satisfaction by making the employee more or less comfortable as a result of the rewards received
It influences motivation primarily through the perceived value of the rewards and their contingency on performance
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Determinants of Employee Satisfaction and Dissatisfaction
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33Slide34
Transactional
(tangible)
rewards
Relational
(intangible)
rewards
Base pay
Contingent pay
Employee benefits
Learning and development
The work experience
Total
remuneration
Non-financial
rewards
Recognition, achievement, growth
Total reward
Components of Total Reward
(Armstrong 2009)Slide35
The 4Ps of Reward
Pay :Salary
, bonus, shares, etc.
Praise
Positive feedback, commendation, staff-of-the-year award, etc.
PromotionStatus, career elevation, secondment, etc.PunishmentDisciplinary action, withholding pay, or criticism, etcSlide36
Business &
HR strategy
Reward
strategy
Total Reward
Total
Remuneration
Job evaluation
Grade &
pay structure
Market rate
analysis
Contingent pay
Employee
benefits
Non-financial
rewards
Allowances
Performance
management
Derivation of Total
RewardSlide37
Strategic Reward Management
Where do we want our reward practices to be in a few years time? (vision)
How do we intend to get there? (means)Slide38
Reward Strategy
A declaration of intent that defines what the
organization
wants to do in the
longer term to develop and implement reward policies, practices and processes that will further the achievement of its business goals and meet the needs of the stakeholders. It gives a framework to other elements of reward management. Slide39
The structure & content of a
Reward strategy
Environment analysis:
Macro-level: social, economical, demographic
Industrial level
Micro-level: competitorsAnalysis of the „inner environment”: strategy, job evaluation, financial conditions…Gap-analysis
Guiding principles
Broad-brush reward strategy
Specific reward initiativesSlide40
Job-evaluation
A systematic process
For defining the relative worth/ size of jobs/roles within an organisation
For establishing internal relativities
For designing an equitable grade structure
and grading jobs in the structure
To
give an input for reward considerationsSlide41
Dimensions of job evaluation
Relative or measured to an absolute scale
Relative
: compares jobs to one another within the company
Absolute
: compares to an „independent”, external measureAnalytical or non-analytical (global)Analytical: measures factors or elements of the jobsNon-analytical
: measures the job as a wholeSlide42
Market pricing
– jobs are placed in pay structures entirely on the basis of external relativities, ie market rates (a method of pricing jobs but not job evaluation as usually defined)
Analytical job evaluation (point-factor rating or analytical matching)
–
decisions on the relative value or size of jobs are based on an analysis of the degree to which various defined elements or factors are present in the form of
demands on the job holder
Non-analytical job evaluation (job classification or ranking)
– whole jobs are described and compared to slot them into a defined grade or place them in a rank order or without analysing them into their elements
Types of Job Evaluation
(Armstrong 2009)Slide43
Types of Job Evaluation
Non-analytical Evaluation
Analytical Evaluation
Whole job ranking
Points rating
Paired comparisons
Proprietary schemes
Job classification
Slide44
Factor
Level 1
Level 2
Level 3
Level 4
Level 5
Level 6
Expertise
20
40
80
100
120
Decisions
20
40
60
100
120
Autonomy
20
40
80
100
120
Responsibility
20
40
80
100
120
Interpersonal
skills
20
40
60
80
120
60
80
60
60
100
Total score =
360
Job Evaluation: Scoring
(Armstrong
2009)Slide45
Hay proprietary scheme
A
group of role analysts, working as a panel assess the role (from an agreed job description and information) against a number of factors, which are known as the Hay Guide Chart Profile.
1. Know – How
The level of knowledge, skill and experience required
to perform the job successfully. 2. Problem SolvingThe complexity of thinking required
, both in the type of problems come across and the extent to which the jobholder has precedent and/or assistance in solving them (applying their Know – How).
3. Accountability
The impact
the job has on the organization (i.e. the end result) and the extent to which the jobholder acts
autonomously in achieving
this.Slide46
Wage gaps
Wage gaps can occur in companies using international benchmarking in job evaluation. The cause is simple:
The market of top managers is usually international: they earn international wages, or they leave the firm
The market of workers with little or no qualification is local in (nearly) every case: they earn local wages.
In less developed countries this can lead to
enermous wage gaps between the „top” and „bottom” employees.Slide47
Components of Total Remuneration
Base pay
: Base pay is the fixed compensation paid to an employee for performing specific job responsibilities. It is typically paid as a salary, hourly (or in some situations piece rate). There is a tendency towards market orientation and the increasing role of qualifications.
Contingent pay
: Individual contingent pay relates financial rewards to the
individual performance, organisation or team performance,competence,
service,
contribution or
skill of individual employees.
Consolidated pay
: built into the base pay
Variable pay
: provided in the form of cash bonuses (increasing role nowadays).
Employee benefits
: Elements of remuneration given in addition to the various forms of cash pay.Slide48
Contingent pay
Individual contingent pay is a good motivator (but to what extent?) for those who receive it.
It attracts and retains better workers.
It makes labour related expenditures more flexible.
It can demotivate those who don’t receive it (depends on performance measurement)
Can act against quality and teamwork.Slide49
Types of individual contingency pays
Performance
-related: increases basic pay or bonuses related to assessment of performance
Competence
-related: Pay increases related to the level of competence
Contribution-related: pay is related both to inputs and outputsSkill-based: pay is related to acquisition of skillsService
-related: pay is related to service-timeSlide50
Team based pay
Pay is related to team performance
It can encourages teamwork, loyalty and co-operation
It can be demotivating on individual level (encourages social loafing)Slide51
Organisaton-wide schemes
Profit-Sharing
Plans – organization-wide programs that distribute compensation based on an established formula designed around profitability
Gain Sharing
– compensation based on sharing of gains from improved productivity
Employee Stock Ownership Plans (ESOPs) – plans in which employees acquire stock, often at below-market pricesSlide52
Employee benefits
Attractive and competitive total remuneration
Provide for the personal needs
Increase commitment toward the organisation
Tax-efficientSlide53
Main types of Employee benefits
Pension schemes
Personal (and family) security: different types of insurances
Financial assistance: loans, house purchase schemes, discount on company services…
Personal needs: holidays, child care, recreation facilities, career breaks…
Company cars and petrolIntangible benfits: quality of working life…Other benefits: mobile phones, notebooks…
Cafeteria systemsSlide54
Definition of the psychological contract
“The perceptions of both parties to the employment relationship, organization and individual, of the reciprocal promises and obligations implied in that relationship”
The
state
of the psychological contract is concerned with whether the promises and obligations have been met, whether they are fair and their implications for trust.Slide55
The Psychological Contract Framework
(David Guest)
The Good
Employer
&
The High
Quality
Workplace
The
Deal
Satisfied
And
Productive
WorkersSlide56
Total remuneration in recession
It
is
a good chance to rethink and renew the remuneration system
Share of contingency payment should increase
Employer benefits, that do not need short term expenditure will increase:Company carSaturday-year or sabbatical (free
time)
Share-options