IN THE NAME OF ALLAHALMIGHTY,

THE COMPASSIONATE,THE MERCIFUL

Part FourCompensatingHuman Resources

12. The Organizational Reward System13. Base Wage and Salary System14. Incentive pay System

Chapter Twelve The Organizational Reward System

Group Members

26 Hafiza kainat31 Summiyya Akram18 Faiza Baloch27 Shaheen Kousar

Chapter OverviewDefine Organizational RewardsSelection of RewardsRelating Rewards to PerformanceJob Satisfaction & RewardsEmployee CompensationThe Role of the Human Resource Manager in

the Reward systemSummary of Learning Objectives

Defining The SystemOrganizational Reward SystemOrganizational reward system concerned with the selection of the types of rewards to be to used by the organization.Organizational RewardsRewards that result from employment with the organization; includes all types of rewards, both intrinsic and extrinsic.

Types Of RewardsIntrinsic Rewards

Rewards internal to the individual and normally derived from involvement

in certain activities or task.Extrinsic Rewards

Rewards that are controlled and distributed directly by the organization and are of a tangible nature.

Selection Of RewardsPay is usually the first, and sometimes the

only, reward most people think aboutOrganizations should learn what employees

perceive as meaningful rewards, which is not necessarily what management perceives

Studies show that many variables can influence employee preferences for certain rewards. They include Age Sex Marital status Number of dependents Years of service

Relating Rewards to PerformanceFree enterprise system is based on the

premise that rewards should depend on performance

Performance__reward relationship is desirable at

Organizational & corporate level Individual level

Employees will be motivated when they believe such motivation will lead to desired rewards

Many formal rewards provided by organizations are not related to performance

These rewards are almost always determined by organizational membership and seniority; they include

Paid vacations Insurance plans Paid holidays

Other rewards, such as promotion, can and should be related to performance

Opportunities for promotion may occur only rarelyWhen available, higher positions may be

filledon basis of seniorityBy someone outside the organization

Preconditions for implementing pay-for-performance program Trust in managementAbsence of performance constraintsTrained supervisors and managersGood measurement systemsAbility to payClear distinction among cost of living ,

seniority and merit Well communicated total pay policyFlexible reward schedule

Job Satisfaction and RewardsAn employees general attitude towards the

job Organizational reward system often has a

significant impact on level of employee job satisfaction.

There are five major components of job satisfaction: Attitude towards the work group General working condition Attitude towards the company Monetary benefits Attitude towards the management

Other components include: Employees state of mind about the work itself Life in general Health, Age Level of Aspiration, social status & political &

social activities

Organizational MoraleAn employees feeling of being accepted &

belonging to a group of employees Through common goals Confidence in desirability of

those goals Desire to progress toward

the goal

Morale is the product of a group Job satisfaction is more an individual state

of mind Two concepts are interrelated in that

job satisfaction can contribute to morale and morale can contribute to job satisfaction.

The Satisfaction-Performance Controversy“The path of least Resistance”__Attempts to

explain belief that a satisfied employee is necessarily a good employee

Although happiness eventually results from satisfaction .

Two propositions concerning the satisfaction performance RELATIONSHIP

Traditional view is that satisfaction causes performance

Satisfaction is the effect rather than the cause of performance

The Satisfaction-performance controversyPerformance leads to rewards that result in a

certain level of satisfaction.Another positions consider both satisfaction

and performance to be functions of rewards.Research evidence generally rejects the more

popular view that satisfaction leads to performance.

Evidence also strongly indicates that Rewards constitute a more direct cause of

satisfaction than does performance. Rewards based on current performance

enhance subsequent performance.

Lay people often tend to believe strongly that satisfied employees are more productive at work.

It has been clearly established that job satisfaction does have a positive impact on

Turnover Absenteeism Tardiness Accidents Grievances StrikesExperience, gender & performance can have a moderating effect on these relationship.

Other Factors Affecting Job SatisfactionWide range of both external & internal

factors affect an employees level of satisfaction

Surveys have found that the top drivers of employee job satisfaction were

Pay and Benefits Job security and feeling safe in the work

environment Flexibility to work and life

Refers only to the actual dollars employees receive in exchange for their work

All the extrinsic rewards that employees receive in exchange for their workComposed of the base wage or salary, any incentives or bonuses and any benefits

Compensation PoliciesCompensation must deal with following

issues:Minimum and maximum level of payGeneral relationships among levels of payDivision of total compensation dollarORGANIZATION must also make decisions concerningHow much money will go into pay increases for

the next yearsWho will recommend themHow raises will generally be determinedANOTHER IMPORTANT decision concerns whether pay information will be kept secret or made public

PAY SECRECY

Many organization have a policy of not disclosing pay-related information

Information about pay system as well as individual pay received.

Justification for pay secrecy To avoid any discontent that might result from

employees knowing what everybody else is being paid

Many employees, especially high achievers ,feel very strongly that their pay is nobody else’s business

Drawbacks of pay secrecy

Difficult for employees to determine whether pay is related to performance and does not eliminate pay comparisons

Many cause employees to overestimate pay of their peers and underestimate pay of their supervisors

Can create feelings of dissatisfactionEmployees may become suspicious

A compromise on issue of pay secrecy is to disclose pay ranges for various job levels within the organization.

Government Acts

Fair Labor standard ActDavis-Bacon ActWalsh-Healey Public

contracts ActFederal Wage Garnishment

LawEqual pay ActUnion Contracts

Fair Labor Standard Act (FLSA)Commonly called Wage and Hour ActPrimary requirements are that Individuals employed in interstate commerce or in

organizations producing goods for interstate commerce must be paid a certain minimum wage

They be paid time-and-a-half for hours over 40 worked in one week

Possible exemptionsAmendments to law have reduced number of

exemptions, but careful study is necessary to determine an organization’s obligations

Discussions of compensation systems often use the terms exempt and nonexempt personnel

Nonexempt employees are covered by the FLSA; they must be paid overtime and are subject to minimum wage

Exempt employees are not covered by the FLSA and include executive, administrative, and professional employees

Requires that contractors and subcontractors on federal construction contracts in excess of $2,000 pay prevailing wage rates for locality of project

Prevailing wage rate is determined by secretary of labor

Has normally been the same as prevailing union rate for the area

Overtime of time-and-a-half – For more than 40 hours per week

Walsh-Healey Public Contracts Act

Requires that organizations manufacturing materials, supplies, articles, or equipment in excess of $10,000 to the federal government pay at least the minimum wage for the industry as determined by the secretary of labor

Defense Authorization Act of 1986 stipulated overtime as being hours worked over 40 in a week

Federal Wage Garnishment LawGarnishment – A legal procedure by which an

employer is empowered to withhold wages for payment of an employee’s debt to a creditor

Law limits amount of an employee’s disposable earnings that can be garnished in any one week and protects employee from discharge because of garnishment

Equal Pay Act

Illegal to pay different wages to men and women for jobs that require equal skill, effort, and responsibility and are performed under similar conditions

Does not prohibit payment of wage differentials based on seniority systems, merit systems that measure earnings by quantity and quality of production, or systems based on any factor other than sex

Union ContractsIf an organization is unionized, the wage

structure is usually largely determined through collective bargaining process

Because wages are a primary concern of unions, current union contracts must be considered in formulating compensation policies

Impact of Comparable WorthTheory holds that while true worth of jobs to employer

may be similar, some jobs (especially those held by women) are often paid a lower rate than other jobs (often held by men)

Drawback Determining worth of the jobs in question is difficult How should job worth be established?

U.S. courts have generally rejected cases based on comparable worth claims

Although comparable worth has generally floundered in court, it has received considerable attention At the collective bargaining table In the political arena

The Importance of Fair Pay Little doubt exists that inadequate pay can have a very

negative impact on an organization Pay dissatisfaction can influence employees’ feelings about

their jobs in two ways: Can increase desire for more money Can lower attractiveness of the job

An employee who desires more money is likely to engage in actions that can increase pay

These actions might include Joining a union Looking for another job Performing better Filing a grievance Going on strike

The Importance of Fair PayBetter performance results only in those

cases where pay is perceived as being directly related to performance

All of the consequences (except performing better) are generally undesirable by management

When job decreases in attractiveness, the employee is more likely

To be absent or tardy To quit To become dissatisfied with the job itself

PAY EQUITY

Equity theory of motivation holds that Employees have a strong need to maintain

a balance between what they perceive as their inputs to their jobs and what they receive from their jobs in the form of rewards

Employees who perceive inequities will take action to eliminate or reduce them

PAY EQUITYSeveral dimensions of equity to be considered

when looking at pay equity Internal equity – Addresses what an employee is

being paid for doing a job compared to what other employees in the same organization are being paid to do their jobs

External equity – Addresses what employees in other organizations are being paid for performing similar jobs

Individual equity – Addresses issue of rewarding individual contributions; is very closely related to the pay-for-performance question

Organizational equity – Addresses how profits are divided up within the organizations

PAY SATISFACTION

Based on the idea that employees will be satisfied with their pay when their perception of what their pay is and of what they think it should be agree

Present pay is a primary factor influencing an employee’s perception of equity

These factors account for the fact that two people may view the same level of pay in a very different manner

An employee’s perception of what pay should be depends on several other factors, includingJob inputsThe perceived inputs and outcomes of friends

and peersNonmonetary outcomesIt makes allowances for employees who believe

their pay exceeds what they think it should be

The Role of HR Manager in the Reward SystemRole of human resource manager in overall

organizational reward system is to assist in its design and to administer the systemAdministering the system – Carries responsibility

of ensuring that system is fair to all employees and that it is clearly communicated to all employees

Ensuring that the system is fair places burden of minimizing reward inequities and employee’s perceptions of reward inequities squarely on the human resources manager

Summary of Learning ObjectivesDefine organizational rewardsDistinguish between intrinsic and extrinsic rewardsList several desirable preconditions for implementing a

pay-for-performance programDefine job satisfaction and list its five major componentsSummarize the satisfaction–performance relationshipDefine compensation, pay, incentives, and benefitsList several pieces of government legislation that have

had a significant impact on organizational compensationExplain the equity theory of motivationDiscuss internal, external, individual, and organizational

equity