Assignment 83

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8: Managing Rewards

Dr. Mirna Safi

Image Source/Alexander Porter C

Introduction

The concept of a fair day’s work for a fair day’s pay was a guiding principle on how employees were rewarded for the efforts they expended while at work and commitment at work.

Reward management is now significantly more complex.

The reward system is used to attract the quality of applicants required to drive organisational performance and to retain those employees who are contributing to that objective.

The objectives of reward management are to:

Support the organization by designing policies aligned with organizational strategies and goals.

Attract and retain employees who add value to the organization by offering an attractive reward package.

Motivate employees to perform effectively to achieve valued outcomes.

Integrate with other HR policies including career development and work-life balance.

Comply with legislation.

Reward system objectives

The reward package

The reward package refers to the financial and non-financial elements offered to employees in return for their labour.

Labour costs are a significant part of total costs for most organizations, reward systems are coming under greater scrutiny to ensure that they match employee expectations while also suiting the changing needs of the business.

Forms of performance-related pay

Merit pay rewards higher performing employees with additional pay and is normally linked to a performance appraisal conducted by a supervisor or line manager.

Piecework is a payment given for each unit of production or 'piece' produced. It is based on a standard developed to reflect the units of output a worker can complete per period of time.

Commission is where a percentage of sales are generally paid in addition to the base wage.

Bonuses can be paid to individuals, teams or divisions in return for the achievement of predetermined performance targets.

Indirect pay (benefits)

Benefits are sometimes called indirect pay because they are received by employees in forms other than cash, such as:

Health insurance

Child care

Provision of a company car.

They have a financial value but this is not always transparent to employees who use them when and if they are needed.

Small companies may not provide any benefits beyond those required by law.

Non-financial rewards

A total rewards perspective means that an organizations’ reward system includes non-financial rewards in addition to direct and indirect pay.

Job security and career development are especially valued by employees.

Recognition policies and practices can be formal or informal:

Informal recognition involves a word of thanks or acknowledgement for work well done.

Formal recognition programmes vary from individual awards for outstanding behaviour to division events celebrating an important achievement.

Work-life balance policies are particularly valued during parts of employees’ lives when they face intense family responsibilities.

Pay secrecy

In many private sector organizations, there are pay secrecy policies in place to prevent workers from discussing wages and salaries.

A recent study by Rosenfeld (2017) in the US found that pay secrecy policies are commonplace despite being illegal.

Even where there is not a formal pay secrecy policy in place, the culture dictates that discussions of wages and salaries is strongly discouraged in many organizations.

Pay secrecy is a factor leading to gender and ethnic pay gaps and can inhibit dealing with pay discrimination.

Pay secrecy can also lead to employees questioning the fairness of wage and salary decisions.

Gender and ethnicity pay gaps

Despite legislation in many countries to prevent pay differences on the grounds of gender, there is a persistent gap that remains between men’s and women’s wages and salaries.

In the European Union, Eurostat (2017) reports that in 2015, women’s gross hourly earnings were on average 16.3 % below those of men in the European Union (EU-28).

Reasons for the gap include consequences of breaks in career or part-time work due to childbearing, decisions female workers make in favour of family life, and gender differences in ability to negotiate pay.

A number of policies are being introduced at national government level which include the requirement for organizations to report pay for men versus women.

Gender and ethnicity pay gaps

Recent research draws attention to the prevalence of ethic pay gaps where ethnic groups receive less wages comparative to white employees.

Brynin and Güveli (2012) found that the pay gap can result from discrimination that occurs at two points:

At entry to the job where non-whites find it difficult to work in well-paid occupations .

Within-job gaps where ethnic employees obtain the same types of jobs as whites but receive less pay.

Internal alignment

Job evaluation refers to the techniques used to establish the internal alignment of jobs within an organization.

Three reasons why organizations decide to implement a job evaluation system:

To provide a strong defence against legal challenges to pay practices through a well-conceived and consistently applied job evaluation system.

To ensure that they make consistent decisions on rates of pay that are related to the value added by the position.

To establish an equitable hierarchy or structure of jobs that is ‘felt-fair’.

Environmental factors

Organizations make decisions about their reward system in a complex external environment where many factors are outside of their control, they need to be managed for an organization to remain competitive.

Globalisation impacts on businesses in the traded sector, this competition places pressure on organizations to keep labour costs as low as possible.

All of the environmental factors associated with globalisation encourage organizations to keep their labour costs low, however trade union places upward pressure on wages.

External comparisons

All organizations make choices about how much to pay employees and the composition of that pay.

There are competing objectives at play:

Organizations want their reward system to attract and retain competent employees.

Organizations need to manage their labour costs.

Both objectives are achieved by gathering information about the pay packages of competitors.

Determining competitive markets

The first task is to determine the organization’s competitors for employees:

A large business with several classes of employees may compete with organizations in several industries or geographic locations for their employees.

Organizations often hire graduates from degree courses at third-level institutes. However, a graduate may be qualified to enter many different industries.

For senior or specialised positions, organizations often look for candidates with experience in their own product or service market.

Depending on the position within the organization, the relevant geographic market may differ.

The size of an organization is also important.

Pay as a motivator

One of the key debates in the human resource management field and in the reward management area especially is the link between pay and motivation.

Rynes et al. (2004) found that pay is an important motivator if:

There is some form of performance-related pay

PRP is paid to people on low wages because a small change can make a significant difference

Employees assess that they are being fairly paid in comparison to their colleagues.

Thank you for listening!