Week 5, Reward Management

Question 1

What is a reward system?

Answer 1

Describes a way company uses financial and non-financial elements to compensate employees for their time, effort, and commitment.

Question 2

What is a reward package?

Answer 2

Is the specific set of financial and non-financial benefits offered to employee in return for labour.
Important to meet the expectations of the employee and suit the changing needs of the business.

Question 3

Financial Rewards:

Answer 3

Direct pay:
1) Base pay, overtime, premium pay
2) Performance-related pay - Merit pay, Piecework, Bonuses, Commissions, Team-based bonus, Profit-sharing, Gainsharing, Share options

Indirect pay:
1) Statutory (legally required) - Holiday pay, Maternity leave, Carers leave, Parental leave.
2) Organization specific - Health insurance, Sickness days, Pensions, Employee assistance programmes, Creche.

Question 4

Nonfinancial rewards:

Answer 4

Job security, career development, recognition and awards, work-life balance.

Question 5

Merit pay:

Answer 5

Addition to base pay, permanently, consolidates into base pay.

Question 6

Piecework:

Answer 6

Pay for each piece produced,
Appropriate when: Work is repetitive,
Workers can influence the pace of production without losing quality,
‘Workers are easy to operate and monitor.

Question 7

Commission:

Answer 7

Percentage of their sales added to salary. When employees are mainly motivated by financial rewards and can work with minimal supervision.

Question 8

Bonuses:

Answer 8

Can be paid to individuals or teams when targets are met. Must be re-earned each year.

Question 9

Team-based pay:

Answer 9

Employees are given payment linked to their performance in formally established teams.

Question 10

Profit-sharing schemes:

Answer 10

When a proportion of company’s profits are paid to employees in the form of bonus.

Question 11

Employee share ownership plans (ESOPs):

Answer 11

Allow companies to distribute shares to its employees.

Question 12

Gain Share schemes:

Answer 12

Company attempts to accrue savings by changing work practices. Improvement is then shared by the employees.

Question 13

Internal alignment:

Answer 13

Job evaluation used to establish internal alignment of jobs within organisation.

Used because:
1) Defence against legal claims;
2) Ensuring consistent decisions, employee payed related to the importance of job.
3) Felt-fair pay system, inducing trust and acceptance amongst employees.

Question 14

Job eveluations methods:

Answer 14

Non-analytical methods - compare whole jobs and are simple:
1) ranking - ranks the jobs based on importance;
2) Paired comparison - compares each pair of possible job positions in matrix, then the one with the most wins are ranked higher.

Analytical methods: identify characteristics of the job that are valued by the organization, then the presence of characteristics in the job are evaluated:
1) Classification systems: Set of similar jobs based on characteristics are classified. The characteristics are described in words rather than with numbers.
2) The point method: identifies factors that are relevant to all jobs. Numerically scales these factors to reflect their importance. Equal work gets equal pay (ensures). However, very complex.

Question 15

Advantages and disadvantages of Job evaluation methods:

Answer 15

Ranking and Paired comparison:
Advantages: Quick to implement and easy to understand, also inexpensive.
Disadvantages:Unclear basis of comparison, unwieldy as number of jobs increase, difference between jobs also unclear.

Classification system:
Advantages: Easy to understand and develop, Differences based on set characteristics, expands.
Disadvantages: Unusual jobs not classified, classification is also inflexible. Difference between jobs not clear.

Point method:
Advantages: Accommodates any number of jobs, Orders, and differences based on systematic analysis, Decisions are related to competitiveness, and also defensible against legal challenges.
Disadvantages: Costly, off-the-shelf methods use general not specific factors, time-consuming to implement, and difficult to explain to employees.

Question 16

Environmental factors:

Answer 16

Pressure at a national level:
Recessions, pressure downwards as labour supply is excess.
Labour market legislation (minimum wages)
Taxation policy.

Local pressure:
Labor shortages and surpluses.
Urban areas may have premium on top of wages as living costs are higher.

Question 17

PRP overview:

Answer 17

1)Consolidated (added to base pay) - Merit pay

2) Unconsolidated (one-off payments):
Individual (increase the individual performance) -
Piecework, commissions, bonuses.
Group performance - Team-based pay, profit sharing, share ownership, gainsharing.

Question 18

Sorting effect:

Answer 18

People who want their pay to be differentiated will be attracted to organisations with PRP, low performers will receive lower pay thus be more likely to leave.

Question 19

Incentive effect:

Answer 19

Results in increased motivation, as increased pay signals to the individual that their effort is valued.

Question 20

Motivation characteristics:

Answer 20

1) Intensity - short-term incentives increase intensity but do not encourage persistence
2) Direction - extrinsic vs intrinsic, short-term rewards can undermine intrinsic motivation
3) Persistence - long-term rewards are required.

Question 21

Workforce demographics:

Answer 21

Generational differences - Older workers may have built expectations on career advancement;
Life stages and life choices - parents or prospective parents may focus on work-family and financial benefits
Gender - women put greater emphasis on free day-care services and maternity leave.

Question 22

Pay secrecy:

Answer 22

Transparency - promotes fairness and trust, as well as motivation and performance. Removes the uncertainty and information asymmetry.

Secrecy - helps to avoid conflicts. Pay dispersion, ensures protection of privacy and leads to decreased labor mobility of productive workers.

Types of pay secrecy:
1) Distributive pay non-disclosure - restrictions on sharing info on pay levels;
2) Pay communication restriction - stopping employees from speaking about their pay;
3) Procedural pay non-disclosure - restricting info on how decisions are made.

Pay secrecy is generally negative when: pay is determined relative to others; and when performance is objectively measured.