Reward Management Flashcards
What is reward management?
- Rewarding employees for their contribution to organisational effectiveness, and in particular, to attract, retain and motivate high performers at the lowest cost
What is a reward?
- A reward may be anything tangible or intangible than an organisations offers to its employees in exchange for their potential or actual work contribution
What is remuneration?
- Remuneration refers to tangible rewards
What are the components of remuneration?
- Base Pay
- Performance based pay
- Benefits
Overall what is base pay?
- Fixed, time based
- Pay for position
- Relative job ‘size’
- Market rates
- Pay for personal ‘capacity’
- Expereince/seniroity
- Competencies (KSAs)
What are benefits?
- Superannuation
- Health care & other personal insurance
- Leave & career benefits
- Other financial/fringe benefits
- Other non-financial benefits
What are relevant motivational theories in reward management?
- Equity theory
- Expectancy theory
- Organisational Justice
What is equity theory?
- Making assessments about whether inputs are matched with the outputs
What are the outcomes of equity theory?
- My outcomes/My inputs Others outcomes/Others inputs = Feeling of over-reward inequity
What do feeling of under-reward inequality lead to in equity theory?
- Diminished motivation/performance/membership/commitment
What are perceived inputs and outcomes in equity theory?
- Perceived inputs
- Knowledge, skills, ability, qualifications, experience, age, seniority, loyalty, effort, time, performance, responsibility
- Perceived outcomes
- Pay, benefits, recognition, status, achievement, satisfaction, security
What is expectancy theory?
- Tells us why/when performance pay schemes can demotivate
- Multiplicative! Need all three
What are the elements of expectancy theory?
- Reward Valence
- Is it worth it?
- Value in the reward
- Reward Instrumentality
- Will they deliver
- Reward Expectancy
- Can I do it?
What is organisational justice theory?
- aka Felt-Fairness
- Perceptions
- Procedural Justice
- Interactional Justice
- Distributive Justice
What are procedural justice perceptions in organisational justice theory?
- Perceived fairness of employment decision making processes (e.g. job evaluation)
- How am i treated by the decision makers?
What are the basic requirements for procedural justice in organisational justice theory?
- Same standards consistently applied
- Judgement based on evidence
- Fair hearing/voice
- Adequate notice
What are interactional justice perceptions in organisational justice theory?
- Perceived fairness of interpersonal/emotional relationships
- Am I treated with dignity and respect in my daily work relationships
What are distributive justice perceptions in organisational justice theory?
- Equity Theory
- Perceived fairness of employment outcomes (including rewards/pay received)
- Am I adequately rewarded for what I contribute?
- How do I compare with those I like to compare myself with?
What are the guiding principles from motivational theory in regard to reward management?
- Manage perceptions of work inputs, reward outcomes and comparisons (equity theory)
- Reward valency: Limited budget means payouts are often too small to adequately differentiate between high and low performer (expectancy theory)
- Employees respond well to fairness (organisational justice, psychological contract)
- Performance needs to be measured validly and reliability in order for perforamcen based rewards to be felt fair (organisational justice, psychological contract)
- Expectancy - ensure employees have the self efficacy to meet performance target (expectancy theory)
- Deliver on the rewards promised (Expectancy theory - instrumentality)
What is internal and external equity important for?
- Critical for attraction and retention
What is internal equity in reward management?
- Concerned with the equitable distribution of pay within organisations
- Processes and techniques to determine the relative value/worth of jobs within the organisation are fair, equitable and without gender bias=
What is external equity in reward management?
- Concerned with paying ‘competitive’ labour market rates
- Wage efficiency theory suggests retention and attraction are outmodes of paying above the market rate
What is base pay?
- The foundational and generally largest component of total renumeration
- ‘Fixed’ or ‘guaranteed’ portion of pay
- Time based wage or salary
- Often used as a basis to determine other components
What are the variants of base pay?
- Job based or position-based pay
- Person based
- Skill based
- Competency based
What are base pay structures?
- Represent the architecture of the base pay system
What are the main functions of base pay structures?
- Specify categories or classifications to which particular jobs are assigned
- Specify a pay range for each category or classification
- Establish the criteria and mechanisms for progression within the pay range
- Service (tenure)
- Performance
- Promotion
- Establish the criteria and mechanisms for progression within the pay range
What is the structure of job based/position based pay?
- Narrow job grades (range overlap)
What are the evaluation techniques of job based/position based pay?
- Market surveys and/or job evaluation
- Market surveys
- Finding out what other companies are paying similar positions
- Job evalution
- Focus on internal equity
What are the modes of pay progression in job based/position based pay?
Seniority and/or ‘merit’ based increments & promotion
What are the pros of position based reward systems?
- Allows direct comparison with external labour market
- Provides a formula for fair pay based on an equality norm
- Tend to be supported by unions more than person based
- Allows maintenance of common pay standards
What are the cons of position based reward systems?
- No direct incentive to improve individual contrition of performance
- Purses promotion rather than skill enhancement
- Narrow grades tend to reinforce hirearchy
- Can be incompatible with task interdepence and teamwork
- Often too inflexible to accommodate rapid changes in tech, work processes, market conditions
What is the structure of skill based pay?
Broad grades/job families
What are the evaluation techniques of skill based pay?
Skill assessment
What are the modes of pay progression in skill based pay?
Skill sets
What kinds of person based pay systems are there?
- Skill-based pay
* Competency-based/related pay
What is the structure of Competency-based/related pay?
Broadbands
What are the evaluation techniques of Competency-based/related pay?
Competency assessment
What are the modes of pay progression in Competency-based/related pay?
Competency zones/levels
What are the pros of person based reward systems?
- Facilitate systematic organisational learning + continuous improvement
- Encourages employees to develop skills in line with organsitons changing needs
- Facilitates functional flexibility
- i.e. more appropriate for highly dynamic organisations
- Conducive for multiskilling and teamwork
What are the cons of person based reward systems?
- Administratively complex
- Often associated with increased training costs
When should performance based reward be used?
- Only when performance can be validly and reliably measured/when performance is desired to be improved
- Incentives
What was Alfir Kohn’s critique?
- Incentives only motivate employees to get the reward (e.g. corporate fraud)
- Because of content validity problem in performance assessment?
- Incentives undermine interest in the job
- Incentives punish: Withholding of a reward is tantamount to punishment
- Incentives rupture co-operative work relationships
- Incentives ignore underlying reasons for work problems
- Incentives discourage risk taking
What is a performance related reward?
- A performance related reward plan is one where part or all of employee reward/pay is based directly and explicitly on employees’ assessed work behaviour and/or measured results
What is true of performance related rewards?
- Reward can be Cash or Equity based:
- Short term incentives
- Long term incentives
- Individual incentives
- Group incentives
- Broad-based/organisational incentives
What is the process of applying individual performance related rewards?
- Use performance grades or performance scores, or goal achievements to determine:
- Merit increments
- Merit bonuses
What are merit increments?
- Award consolidated into base pay, a permanent pay rise
- BUT this is likely to result in the Annuity Problem
- No Guarantee than increased base pay will result in increased performance in subsequent periods
What are merit bonuses?
One time award and lump sum
How is the size of an individual performance related reward determined?
- Straight increments
* Merit Matrix
What are the issues with a straight increments system?
- Penalises those employees who are outstanding performers but have lower base pay
- Privileges seniority over merit
- Inflates fixed labour costs
- Can demotivate people below salary range midpoint
What are the issues with a merit matrix system?
May demotivate exceptional performers
What are the critical issues and challenges of individual performance related rewards?
- Inconsistent empirical support for performance improvements
- Providing cost effective rewards that optimise employee motiations
- The size of the reward can be often too small to have motivational effects on performance
- It is easier to reward results than to reward behaviours
- Result based incentives can encourage gaming the system
- Can conflict with the objectives of other HR processes, especially L&D which can often be overshadowed by the reward system
What are the options for cash based group based pay for performance?
- Team incentives
- Profit sharing
- Gain sharing
What are team incentives?
- Cash rewards based on the achievement of team-based performance targets
- e.g. meeting project specifications, deadlines, budget
What is profit sharing?
- Typically involves a formal arrangement under which bonus payments additions to base pay are made to some or all employees on a regular basis, based on a formula which links the size of the total bonus pool to some measure of organisational profitability
- e.g. a % of profits is distributed at regular intervals
- Improve commitment, but how much can a low level employee really affect profitability?
What is gain sharing?
- Reward employees for improvements in business divisions or organisational productivity
- e.g. improvements in payroll expenses as a % of revenue
