Week 5 Flashcards
Why is reward management important?
As it influences whether people are attracted, motivated, and stay (retention)
What are rewards?
Financial and non-financial elements used to compensate employees for their effort, time, and commitment
What are the 4 major elements in a basic pay package?
- Base Salary
- Short-term incentives
- Long-term incentives
- Benefits
What is base pay?
Salary, premiums, overtime pay, merit pay
How can base pay be set?
- External-based wage setting - Wage that reflects what the market demands. Looks at the market and sets the base pay somewhere in that range. This is most helpful for firm-general jobs, meaning the skills are common across organisations. However, the issue is that the longer employees stay, the more they acquire firm-specific skills. This makes it harder to value employees. This can be overcome using job ladders, a sequence of jobs.
- Internal-base wage setting - job evaluation and point-factor job evaluation
What are short-term incentives
Individual and group bonuses, and non-monetary rewards
What are long-term incentives
Profit sharing plans, stock optoins, employee stock ownership plans
What are benefits?
- Statutory benefits – mandatory legally required benefits
- Organisational benefits – voluntary organisational benefits that act as a way of competitive advantage
What are 3 primary HR-related goals that reward management satisfies?
- Attraction - rewards are a tool to attract individuals to the organisation
- Retention - rewards influence employee decisions on whether to stay or not
- Motivation - rewards influence employee motivation to put effort into the job
What is pay structure?
A hierarchical organisation of jobs regarding pay
What 2 elements is pay structure divided into?
- Job structure - what is the hierarchy of the jobs in the organisation
- Pay level - average pay range for a specific job in the organisation
Why is pay structure important?
It helps with the perceptions of faireness of pay?
What are 3 approaches to determining pay structure?
- Whole job ranking
- Point-factor method
- Factor comparison method
What is whole job ranking?
It asks the two questions:
1. What does your organisation do?
2. Which jobs are most important for this?
So jobs would rank each job, and assign the pay to each rank. The advantage is it is easy, but the issue is that the ranking can be subjective as employees may not know what the factors are in deciding the importance of a role
What is the point-factor method?
It is creating a pay structure based on job evaluation of positions in the organisation. Job evaluation is done by evaluating each job on compensable factors –factors organisations use to evaluate jobs and choose to pay for. These factors are common to all included jobs. Each factor is allocated points and weight.
The outcome is a point value for each job, and the structure is based on the point value. The higher the points, the more pay.
The distance between points is also important. The bigger the gap, the more the pay gap
What is factor-comparison method?
Pay comparisons of the same position in the market. method can only be used for job that are common and not unique. These can be identified through the same industries, type of organisation, geographic locations.
It is essentially using benchmarks.
Issue is that these are tied to the market. New employees have higher and higher salaries. Thus the wage compression can reduce moral, productivity, and increase turnover.
give simple steps to a point-factor method combines with the factor-comparison method
Simplified steps with job evaluation:
Step 1: Differentially weight dimensions to reflect strategic goals using a point system;
Step 2: Group firm-specific jobs into firm-general jobs or benchmark jobs;
Step 3: Use the benchmark jobs to find a market price as an external wage setting;
Step 4: Use the market price of the benchmark jobs to assign wages to firm-specific jobs.
What are 2 groups of performance related pay?
- Consolidated pay
2.Non consolidated pay
What is consolidated pay?
- a permanent increase in base salary which is based on performance. Example is a merit pay increase. However, for a merit pay increase to be effective, it must be atleast 7%
What is non-consolidated pay?
A one-time payment, an addition to base pay. It is a bonus.
Based on 2 things:
Individual performance - recognises individual contributions through piecework pay, comission, and bonuses
Group performance- goal is to increase group performance and encourage co-operation through team-based pay, profit sharing, etc
What are 2 effects that explain how performance pay influences retention, attraction, and motivation?
- Sorting effect - the fact that people are more attracted and more likely to remain in an organisation which has performance related pay if it matches their preference.
Effect on attraction is that people who want their pay differentiated by performance will be more attracted.
Effect on retention is that low performers receive lower pay and likely to leave while high performers stay - Incentive effect - process where PRP influences motivation by signaling that effort is valued and provides direction in what they should focus on
What are 3 characteristics of motivation?
- Intensity - how much effort is put in
- Persistence - how long will the keep effort up
- Direction - what they are motivated for
How does short-term incentives affect intentisty and persistence
Short-term incentives increase intensity but does not encourage persistence.
What are the 2 directions of motivation?
- Intrinsic motivation - when effort is put in as they inherently feel it is exciting or interesitng
- Extrinsic motivation - when individuals are motivated to get an external reward
What are influences on organisaitonal benefits?
- Socio-political economic factors in different geographics - influences which benefits are prized depending on region
- strategic value/goals of benefits - providing different benefits may fulfill different strategic goals
- Workforce demographics - preference for benefits are likely to be influenced both by generations and life stages.
- External influences - shift in traditional roles, increased rights for certain groups
What are flexible benefits?
A method to meet multiple benefit needs. Employees may choose among a variety of benefits
What is pay secrecy?
A pay communication policy that limits employees’ access to pay-related information and discourages discussion among employees about pay issues
What are the benefits of transparency in pay?
- Removes uncertainty informatino as a basis for perceptions of unfairness
- Promotes trust and faireness in the organisation
- Promotes motivation and performance
What are the benefits of secrecy?
- Organisational control - avoids conflicts while using pay dispersion.
- Protection of prviacy
What are the 3 types of pay secrecy?
- Distributive pay non-disclosure - restricting the amount of information the organisation shares about employee pay levels. how much each employee earns is kept a secret
- Pay communication restriction - stopping employees from talking about their pay.
- Procedural pay non-disclosure - restricting the amount of information the organisation shares about employee pay decisions
How do individuals generally feel about pay secrecy?
Pay secrecy is often seen as malevolent or negative intents. They think they are hiding or manipulating.
What are specific short-term incentives?
- Bonuses - performance based bonuses
- Group bonuses - encourages collaboration
- Gain sharing - a type of group bonus system where the financial gains a company achieves from improved productivity are shared with employees
What are issues with short-term incentives?
- Employees can be too focused on goal achievement they neglect other parts of work
- Employees may fixate on reaching the goal at all costs
Why do issues with short-term incentives occur?
Due to non-discretionary bonsues - bonuses were the organisation sets specific criteria that must be met for employees to earn a bonus
what are discretionary bonuses
bonuses that are not promised in advance and organisation determines that exceptional performances deserve a bonus. Example is spot bonuses.
what are examples of long term incentives?
Long-term incentives have a long-term focus on retention.
1. Profit sharing plan - employees are promised a payment based on company profits alongside base pay.
2. Stock options - opportunities for employees to purchase a number of shares of ocmpany stock
3. Employee stock ownership plan - when company contributes shares of its stock to a trust, tax free
what is the key element of pay?
Pay does not matter unless employees understand the employer’s pay system. It is a 2 step process:
Employee understanding of a well-designed pay system leads to perceptions of pay fairness, and pay fairness affects employee performance and their intention to stay with their employer.
