HUMAN RESOURCEHUMAN RESOURCE

What is reward …What is reward …ing?ing?

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003 Theory and Practice, Palgrave, 2003 http://www.palgrave.com/business/brattonandgold/

Edited by Fabio Emanuele Noia, Link Campus University of Malta, 2006Edited by Fabio Emanuele Noia, Link Campus University of Malta, 2006

Chapter 9 Chapter 9

Reward ManagementReward Management

RewardReward________________________

Refers to all of the Refers to all of the monetary, non-monetary, non-monetary and monetary and psychological psychological

payments that an payments that an organization provides organization provides for its employees in for its employees in

exchange exchange for the work for the work they perform.they perform.

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

How does reward How does reward relate to relate to

performance, performance, flexibility, quality flexibility, quality and commitment?and commitment?

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Managers are Managers are required to required to

improve labor improve labor productivity and productivity and

the quality of their the quality of their organization’s organization’s products while products while

controlling labor controlling labor costs.costs.

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Change Change

________________________

•Change in job design Change in job design has been followed by a has been followed by a change in reward change in reward strategies and strategies and practices (less practices (less collective, more collective, more individual negotiation).individual negotiation).

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The taskThe task

________________________

•Every organisation Every organisation has to decide how has to decide how to design a reward to design a reward system.system.

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Likely objectives of the reward Likely objectives of the reward systemsystem

________________________

1.1. support the organization strategysupport the organization strategy2.2. Recruit qualified employeesRecruit qualified employees3.3. Retain capable employees so that Retain capable employees so that

turnover is held to an acceptable turnover is held to an acceptable levellevel

4.4. Ensure internal and external equityEnsure internal and external equity5.5. Be sustainable within the financial Be sustainable within the financial

means of the organizationmeans of the organization6.6. Motivate employees to perform to Motivate employees to perform to

the maximum extent of their the maximum extent of their capabilitiescapabilities

7.7. Streghten the psychological Streghten the psychological contractcontract

8.8. Promote organizational citizenshipPromote organizational citizenship9.9. Comply with legal regulationsComply with legal regulations10.10. Be efficiently administered.Be efficiently administered.

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Wage-effort bargain is central to Wage-effort bargain is central to the capitalistic employment the capitalistic employment

relationshiprelationship

•It entails two elements that are in It entails two elements that are in contradiction with each other:contradiction with each other:

•1. cooperation between worker and 1. cooperation between worker and employer is essential and fostered employer is essential and fostered through the logic of financial gain through the logic of financial gain for the workerfor the worker

•2. tensions and conflict are 2. tensions and conflict are engendered through the logic that engendered through the logic that makes the buying of labor power the makes the buying of labor power the reward for one group and the cost reward for one group and the cost for the other.for the other.

•Which characterises the instability Which characterises the instability and the continuous need for and the continuous need for adjustment of the relationship.adjustment of the relationship.

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A pay modelA pay model

Contains five building Contains five building blocks:blocks:

1.1. Strategic perspective Strategic perspective (linked to organization (linked to organization strategy)strategy)

2.2. Reward objectives Reward objectives 3.3. Reward optionsReward options4.4. Reward techniquesReward techniques5.5. Reward Reward

competitivenesscompetitiveness

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

1.1. Strategic perspective: Strategic perspective: cost leadership, cost leadership, differentiation, focus differentiation, focus

2.2. Reward objectives: Reward objectives: recruit and retain, recruit and retain, performance, performance, commitment commitment

3.3. Reward options: base Reward options: base pay, performance pay, pay, performance pay, indirect payindirect pay

4.4. Reward techniques: job Reward techniques: job analysis, job evaluation, analysis, job evaluation, appraisalappraisal

5.5. Reward competitiveness: Reward competitiveness: labour market, product labour market, product market, organizationalmarket, organizational

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Reward objectivesReward objectives________________________

•3 behavioral objectives:3 behavioral objectives:

– membership behavior to membership behavior to recruit and retain a sufficient recruit and retain a sufficient number of qualified workersnumber of qualified workers–Task behavior to motivate Task behavior to motivate employees to perform to the employees to perform to the

fullest extent of their fullest extent of their capabilitiescapabilities

–Compliance behavior to Compliance behavior to encourage employees to follow encourage employees to follow workplace rules and undertake workplace rules and undertake special behaviors beneficial to special behaviors beneficial to the organization without direct the organization without direct

supervision or instructions.supervision or instructions.

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Reward optionsReward options________________________

•Individual rewards?Individual rewards?•Team rewards?Team rewards?•Organizational Organizational

rewards?rewards?

•All of them?All of them?

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Reward optionsReward options________________________

•Base pay = irreducible wage or Base pay = irreducible wage or fixed salary (weekly, monthly, fixed salary (weekly, monthly,

yearly), computed on time yearly), computed on time worked, rather than on results worked, rather than on results achieved, tends to reflect the achieved, tends to reflect the

value of the job itself as value of the job itself as measured by some form of job measured by some form of job

evaluation. It is simple to evaluation. It is simple to administer and has administer and has

psychological benefits (shows psychological benefits (shows organizational commitment) organizational commitment)

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Reward optionsReward options________________________

•Performance pay = related to work Performance pay = related to work behavior such as performance, behavior such as performance,

learning or experience. Also called learning or experience. Also called variable or contingency pay. Main variable or contingency pay. Main types are: performance related pay types are: performance related pay

(post), incentive pay (pre), merit (post), incentive pay (pre), merit (outstanding past performance) (outstanding past performance)

commission, knowledge contingent commission, knowledge contingent pay (or skill-based), team based pay pay (or skill-based), team based pay (based on contribution to the work (based on contribution to the work

team, such as the Scanlon team, such as the Scanlon programmes aiming at lowering programmes aiming at lowering

labor costs and distribute benefits labor costs and distribute benefits to workers), organization to workers), organization

performance pay (based on performance pay (based on profitability).profitability).

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Reward optionsReward options________________________

•Indirect pay = or employee Indirect pay = or employee benefits such asbenefits such as

–health and life insurancehealth and life insurance–Deferred income plans Deferred income plans

(retirement or pension plans)(retirement or pension plans)–Miscellaneous benefits Miscellaneous benefits

(from company car to club (from company car to club membership)membership)

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Reward techniquesReward techniques

•Internal equity refers Internal equity refers to the comparison to the comparison

between jobs or skills between jobs or skills levels inside the levels inside the

organization.organization.

•It is established It is established through 3 techniques: through 3 techniques:

job analysis, job job analysis, job evaluation, and evaluation, and

appraisalappraisal

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Reward techniquesReward techniques

•Job analysis: the Job analysis: the systematic process of systematic process of

collecting and evaluating collecting and evaluating information about the information about the

tasks, responsibilites and tasks, responsibilites and the context of a specific the context of a specific

job.job.•Process: job analysis-job Process: job analysis-job

descriptions (with descriptions (with specifications and specifications and

standards)-job evaluations-standards)-job evaluations-job structurejob structure

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Reward techniquesReward techniques

•A job description is a written A job description is a written statement that explains the statement that explains the purpose, scope, duties, and purpose, scope, duties, and responsibilites of a specified responsibilites of a specified

job.job.•A job specification is a detailed A job specification is a detailed

statement of the human statement of the human characteristics involved in the characteristics involved in the job, including aptitudes, skills, job, including aptitudes, skills, knowledge, physical demands, knowledge, physical demands,

mental demands and the mental demands and the experience required to perform experience required to perform

the job.the job.•A job performance standard is a A job performance standard is a

minimum acceptable level of minimum acceptable level of performance.performance.

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Reward techniquesReward techniques

•Job evaluation is systematic Job evaluation is systematic process designed to determine process designed to determine the relative worth of jobs within the relative worth of jobs within

a single work organization.a single work organization.

•Process: gather job analysis Process: gather job analysis data-select compensable data-select compensable

factors-evaluate the job (ranking factors-evaluate the job (ranking - hierarchy, job-grading – grades - hierarchy, job-grading – grades

presented as steps, factor presented as steps, factor comparison – a set of comparison – a set of

comparable factors, and point comparable factors, and point method – points are used method – points are used

instead of monetary value).instead of monetary value).

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Reward Reward techniquestechniques

•Appraisal = is the Appraisal = is the process of process of evaluating evaluating

individuals in terms individuals in terms of their job of their job

performance.performance.

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Reward competitivenessReward competitiveness________________________

•Reward relationships Reward relationships external to the organization external to the organization (comparison with (comparison with competitors)competitors)

•How should an How should an organization position its organization position its pay relative to what pay relative to what competitors are paying?competitors are paying?

•3 options: pay leader, 3 options: pay leader, match, or lag behind.match, or lag behind.

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Reward competitivenessReward competitiveness________________________

•Constraints in defining Constraints in defining pay level policypay level policy are: are:

•Labor markets (demand Labor markets (demand and supply)and supply)•Product market Product market (competition and product (competition and product demand)demand)•Organization (strategy and Organization (strategy and profitability)profitability)

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Establish pay levelsEstablish pay levels

________________________________

Combining the results Combining the results of the job analysis (job of the job analysis (job

structure based on structure based on internal equity criteria) internal equity criteria)

and market pay data and market pay data (external (external

competitiveness competitiveness criteria)(criteria)(

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

Establish pay levelsEstablish pay levels

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003

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Job structureJob structure

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OUR OUR Pay Pay trend trend lineline

Main Competitor Main Competitor Pay trend linePay trend line

Legal framework and payLegal framework and pay________________________

•Employment laws Employment laws (equal pay, minimum (equal pay, minimum

wage, min hours wage, min hours laws)laws)

•Manpower policies Manpower policies (education, training)(education, training)

•Fiscal/monetary Fiscal/monetary policies (government policies (government

employment)employment)

Freely Inspired from Bratton J., Gold J., Human Resource Management, Freely Inspired from Bratton J., Gold J., Human Resource Management, Theory and Practice, Palgrave, 2003Theory and Practice, Palgrave, 2003