Pay & Rewards. Benefits Flashcards
What are rewards?
Benefits which employees receive in return for working on behalf of an employing organisation:
- Extrinsic rewards - cash payments and benefits (i.e. pensions, insurance, cars)
- Intrinsic rewards – integral to work (i.e. job satisfaction, challenge, recognition, development, social status)
“What are we paying for?”
“Are we paying for the person or the job?”
“How do we know what people are worth?”
The factors to be taken into account in relation to rate of pay:
- Inputs
- Outputs
- Internal relativities
- Market worth (external relativities)
- Potential
Two types of payment systems :
- INPUT BASED: Earnings linked to the time, experience, skills or competencies which employees bring to work. (Examples: hourly rates of pay, overtime premium, shift work, career grades which link pay increases to qualifications)
- OUTPUT BASED: Base earnings on the product of work measured either in operational terms (i.e. units of output, achievement of goals, customer satisfaction) or financially (i.e. sales profitability, value added) (Examples: piecework, appraisal related pay, gain sharing, employee share ownership)
What are the reward systems?
- Basic Pay
- Incremental pay scheme
- Variable or Contingent pay
- Employee Perks and Benefits
- Non-financial Rewards
What is the basic pay and how is it determined?
Represents the single largest (is not only) component of the financial rewards for employees, and the minimum compensation for carrying out a particular job. It can be determined by several means:
- Collective bargaining - Employee representative negociate rates for groups of employees at a workplace, local or national level (often alongside job evaluation)
- Market Pricing - Setting pay according to the ‘going-rate’ relatively to the location and marketplace. Now the dominant approach to wage setting (more ready access to market data)
- Job Evaluation - Determine the relative value of a job within an organisation. Develop hierarchies of jobs and pay structure. Is determined according to analytical (required knowledge, education, skills, complexity, task difficulty, responsibilities) or non-analytical (more subjective judgement of job’s relative worth/ranking within the organisation) methods
Incremental pay scheme:
Job evaluation is associated with the creation of pay structures and incremental pay schemes. In incremental pay schemes length of service drives pay increases. Annual progression up the pay scale tends to be automatic until a bar or progression point is reached (i.e. progression to a higher salary band) at which point performance is evaluated and, if successful, rewarded with promotion.
It remains prevalent in the public sector but less common in the private sector as unrelated to performance or contribution to organisational objectives.
What is variable or contingent pay and what are its different forms?
Used for forms of remuneration that are conditional upon the achievement of pre-determined objectives, related to individual, group or organisational performance. Incentives encourage future performance and bonuses recognises past performances and achievements.
Commensurate with the managerial trend towards greater individualism, entrepreneurialism and self-interest.
It gives firms a great financial flexibility and allow them to cope with the increased competition by controlling the wage costs and rewarding only high performers.
- Performance-related Pay
- Skill, Knowledge and competency-based pay
- Organisation-wide pay schemes
Performance-related pay:
Additional payment over base pay typically applied to individuals but sometimes covers work groups, team, entire departments.
- Attempt to redistribute fairly the finite resources available for rewarding more the employees that add the most value to the organisation
- Associated with the goal theory of employee motivation. It assumes that extrinsic motivation represents an adequate stimulus for employees to exert the required effort and express the desired behaviours necessary to meet these objectives
Issues with incentive-based rewards (PRP)
- The subjective assessment of performances has the potential for procedural injustice, leading to an unfair distribution of rewards. For this reason, effective PRP requires managers to clearly identify and communicate how the achievement of objectives is to be measured and how this translates into rewards.
- Can constitutes ‘bribes’ only achieving short-term changes in behaviours, or can promote the wrong type of behaviour.
- Not a solution by itself to low-level of employee commitment
- Can have negative repercussions on employees’ organisational commitment and organisational citizenship
- Individual PRP not appropriate for roles where teamwork is essential
- Varying level of job satisfaction. Non-payment of expected reward (especially if perceived as unfair) can be a source of de-motivation and resentment
Skill, Knowledge and Competency-based pay:
- Emphasises on personal development
- Particularly appropriate in firms with High Performance Work Systems and which value skills flexibility among its workforce
- Based on the assumption that more highly skilled employees will be more able and motivated to perform to their potential.
- Some firms employ the broader term ‘contribution-based pay’ that seek to recognise both employee achievements and competencies
Organisation-wide pay scheme:
- Based on the performance of the organisation itself (organisational PRP)
- Includes profit-sharing, employee share ownership and gain-sharing (employee share in productivity gains or savings resulting from improved performance)
- Increases employee commitment to the organisation and promotes a longer-term perspective on performance.
Employee perks and benefits:
Sometimes reffered to as indirect pay.
‘Benefits’ are offered to all employees whereas ‘perks’ are offered to a discrete group of workers or certain individuals.
- Paid leave
- Deferred income plans (retirement, pension plans)
- Occupational sick pay
- Enhanced maternity/paternity leave
- Life insurance
- Company car
- Health club membership
- Childcare provision
- Extra annual leave
- Intended to enhance employee commitment and well-being at work.
- Benefits can be useful for recruiting/attracting, motivating and/or retaining employees (i.e. high-quality pension schemes can engender long-term employee loyalty)
- Can be a tool to match or exceed market practices (UK teachers are less paid in the public sector but have good pension arrangements and longer-than-average holidays, often viewed as making-up for the wage difference)
What are the cafetaria benefits?
A flexible benefits system where individuals can create their own reward package to reflect their own individual needs by choosing from a “menu” of benefits.
Expectancy theories of motivation stress that reward can only motivate if it is valued by the recipient. You could benefit from the bests rewards, if it doesn’t apply to your lifestyle, it doesn’t really matter (i.e. childcare benefits if you don’t plan to have children or they are grown-ups; Samsung gives a ‘flex allowance’ of £50 per month to spend on gym membership, dental insurance…)
Non-financial rewards:
Important part of the reward mix for motivation, commitment and adding to the well-being of employees.
- > According to Herzberg, they address the basic psychological needs (where financial rewards are purely hygiene factors)
- > Increased job satisfaction, motivation, overall meaningfulness and impact of work
- > Focus on: achievement, recognition, responsibility, influence and personal growth
- > Recognition and praise are particularly important
- > Useful when, operating in difficult economic conditions, firms need to motivate and retain employees whilst containing costs.
- Opportunities for personal and career development
- Flexible working (remote or flexitime)
- Employee communication, involvement, participation
- Pleasant working environment and well-considered job design
- Good performance management practices and appraisal
- Recognition of employees’ contribution (i.e. ‘employee of the month’)
What are the 4 levels of the Total Reward Package?
- Salary, incentives, bonuses
- Benefits (i.e. medical insurance, car, holidays, pensions)
- Development opportunities (i.e. training, promotion, career development)
- Work environment (i.e. job challenge, job satisfaction, working climate)
Content theories:
Focus on what motivates people at work
- Maslow’s hierarchy of needs
- Herzberg’s two-factor theory
Process theories :
Focus on how the content of motivation influences behaviour:
- Expectancy theory (assumes that behavior results from conscious choices among alternatives whose purpose it is to maximize pleasure and to minimize pain. Vroom realized that an employee’s performance is based on individual factors such as personality, skills, knowledge, experience and abilities)
- Goal setting theory (Edwin Locke found that individuals who set specific, difficult goals performed better than those who set general, easy goals)
- Equity theory (the idea that individuals are motivated by fairness, and if they identify inequities in the input or output ratios of themselves and their referent group (i.e. co-workers), they will seek to adjust their input to reach their perceived equity)
