Employee Reward Strategy

Employee Reward Strategy Elective Module

BUSI49Z15

Professor Roberta Aguzzoli [email protected]

Agenda 1st Class

• Course’s Presentation

• Introduction to Employee Rewards Strategy

LG1) An advanced understanding of design and

implementation of employee rewards policies in pursuit

of organisational objectives;

LG2) An advanced understanding of the key recent

debates and developments in the management of

employee reward;

LG3) Further developed understanding of the

contribution of HRM policy and practice to the strategic

management of organizations, and to addressing the

internationalisation of business.

Learning goals

The Module Introduction

• Lecturers Mondays from 11:00 am to 1:00 pm

• Seminars • Fortnightly

• Material is in Ultra

Topics

• Introduction to Rewards Management – chapter 1

• Theories of Rewards and incentives – chapter 2

• External and Internal influences on ER – chapter 3

• Base pay structures and pay-setting – chapters 4 & 5

• Employees Benefits and Pension – chapters 7 & 8

• Rewarding employee performance – chapter 6

• Non financial rewards – chapters 6 & 9

• International Rewards – chapter 11

• Executives rewards & Evaluating Employee Reward Strategy– chapter 10 & 12

Perkins, S., White, G., Jones, S. Reward Management: alternatives, consequences and contexts, CIPD

Book

Seminars

• Seminar 1 – Case Study – Richer Sounds

• Seminar 2 – Grand Challenges

• Seminar 3 – Formative

• Seminar 4 – Rewarding in the International environment.

Guest Speaker

• Two Guest Speakers working with Rewards are planned to join us in class in February, but those are tentative dates.

Encore

The Module Introduction

• Assignment

– Formative (Seminar 3) - group presentation that will help with the summative.

– Summative (2,500 words)

• Office Hours

– Mondays 2 to 3.30 pm

– Office 530 in the Business school.

Introduction to Employee Reward Strategy

Dr Roberta Aguzzoli

Agenda

Objectives

• At the end of the session you should:

– understand the meaning of employee

reward management.

– Understand differences on extrinsic

and intrinsic rewards.

– Understand the importance of rewards

for the business.

– Understand its link to Strategy.

What is reward?

“a bundle of returns offered in exchange for a cluster of employee contributions” (Bloom and Milkovitch 1992).

“all forms of financial returns and tangible services and benefits employees receive.” (Milkovitch and Newman, 2004 )

But before this, what motivates people?

Does money motivate?

Source: https://latamjournalismreview.org/news/cnn-brazil-lays-off- more-than-120-professionals/

Rewards

Extrinsic Reward

Financial Rewards Development Rewards Social Rewards

Intrinsic Reward

- Job challenge

- Responsibility

- Autonomy

- Task variety

Importance of intrinsic and extrinsic motivations

Extrinsic and intrinsic rewards

• Extrinsic rewards are rewards that are provided to

employees as a result of good performance, including

such items as salaries, bonuses, benefits, and job

security. They are largely “administered” by the firm, not

the employee, as a consequence of his or her

performance.

• Intrinsic rewards are rewards that arise from doing one’s

job in a satisfactory way. They are largely “self-

administered;” that is, employees may feel pride or

satisfaction from a job well done or they may enjoy the

holiday time they receive as a consequence of hard work.

https://www.youtube.com/watch?v=gKn_fV6P GGA

https://www.youtube.com/watch?v=dyr7wg9s 7gM

Expectations, rewards, and job attitudes

Employee expectation for

extrinsic rewards

Actual extrinsic rewards received

Employee equity

perceptions and

cognitive dissonance

Positive or negative

job attitudesEmployee

expectation for intrinsic rewards

Actual intrinsic rewards received

‘Total reward’.

Need to consider reward holistically – not just the wage! • Rewards of two types (see Shields et al. 2015)

– Intrinsic – interest, challenge, satisfaction arising from doing the tasks in the job

– Extrinsic – separate from the task itself but arising from it

• Financial

• Developmental (career progression, leaning and development)

• Social (non-cash benefits, wellness programmes, sabbaticals, work group affinity)

• Correspond to intrinsic and extrinsic motivation

Rewards

• From an employee side, rewards is part of the formula people look for when evaluating whether or not to work for an employer.

Total Compensation

Direct Indirect

Bonuses

Gainsharing Security Plans • Pensions

Employee Services • Educational assistance • Recreational programs

Commissions

Wages / Salaries

Insurance Plans • Medical • Dental • Life

Time Not Worked • Vacations • Breaks • Holidays

Source: Snell and Bohlander, 2012

Rewards

• Direct financial compensation: compensation received in the form of salary, wages, commissions, stock options, or bonuses

• Indirect financial compensation: all the tangible and financially valued rewards that are not included in direct compensation, including free meals, vacation time, and health insurance

• Nonfinancial compensation: employee rewards and incentives that are not financial in nature, including flexible work schedules, development opportunities, casual dress codes, and helping employees balance work with the other demands

Direct Financial remuneration

Remuneration can comprise several elements. ‘Reward package’

• Base or fixed pay. Salary or hourly wage as stipulated in contract.

• Performance-based or incentive pay (Input or output based pay).

• Benefits eg. pension, health insurance

Why is it important?

• “At the present, organisations tend to see payroll as an administrative cost, when they should view it as a function that effectively delivers benefits to the business”.

• “Payroll sits between HR and finance and does not usually get a seat at the top table, except in the very largest companies”

• (Payroll errors: mistakes cost money, People Management, CIPD: 38)

I may replace my $2000 week engineers with ones that earn $500, but my costs may skyrocket because the new lower-paid employees are inexperienced, slow, and less capable. In that case I would have increased my costs by cutting my rates (Pfeffer, 1998).

Objectives from the Rewards

Reward objectives

• Attract the right people for the right job

• Retain the best people

• Motivate employees to contribute

• Management of performance

• Align employee interests and behaviour with those of the organisation

• Sustain favourable public image

Rewards should seek to be

• Need-fulfilling: the rewards should be of value to employees satisfying relevant human needs;

• Felt-fair, particularly in terms of offering rewards commensurate with contribution

• Legal: it should comply with relevant legal requirements (mandatory benefits and minimum standards)

Rewards should seek to be

• Affordable: the rewards allocated, an associated on costs, should be within the organisation’s financial means

• Strategically aligned: reward management should support the organisation’s corporate and business objectives.

Carrie Gracie

My name is Carrie Gracie and I

have been a BBC journalist for

three decades. With great regret, I

have left my post as China editor

to speak out publicly on a crisis

of trust at the BBC.

I am not asking for more money.

I believe I am very well paid

already – especially as someone

working for a publicly funded

organisation. I simply want the

BBC to abide by the law and

value men and women equally.

Salary disclosures the BBC was forced

to make six months ago revealed not

only unacceptably high pay for top

presenters and managers but also an

indefensible pay gap between men and

women doing equal work. These

revelations damaged the trust of BBC

staff. For the first time, women saw

hard evidence of what they’d long

suspected, that they are not being

valued equally.

I told my bosses the only acceptable

resolution would be for all the

international editors to be paid the same

amount. The right amount would be for

them to decide, and I made clear I wasn’t

seeking a pay rise, just equal pay. Instead

the BBC offered me a big pay rise which

remained far short of equality. It said

there were differences between roles

which justified the pay gap, but it has

refused to explain these differences.

Source: https://www.theguardian.com/media /2018/jan/08/carrie-gracie-letter-in- full

• https://www.youtube.com/watch?v=wy0IEEw uclc

• https://www.youtube.com/watch?v=1rMoLSL WJ_M

Discuss:

• What are the problems you can identify in this case?

• What are the consequences of a bad pay structure?

• What is she saying when she states “I am not asking for more money”?

• How can Rewards be linked to other HR subsystem as recruitment and retention, training and performance management?

Other HR Practices: Compensation Effects

• Recruitment and Retention

– Number and quality of job applications received during recruitment.

– Employees’ decisions to stay with their employers.

• Training and Development

– Value of tuition reimbursements, management development programs offered by employers

• Performance Management

– Alignment between the pay system and performance measurement affects employees’ motivation

Employee Rewards Strategy

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Strategic Importance of Managing Human Resources

“It’s all about people.

Everybody can buy coffee

beans and open stores. So

when it comes to being

successful, it’s all about how

you manage your people.”

Howard Schultz

Chair and Chief Global Strategist

Starbucks

L E A R N I N G G O A L

1

1-40

What Is Strategy?

• A firm’s strategy refers to the actions that managers take to attain the goals of the firm; … which in most cases means not only profit, but also profit growth.

1-41

Strategies to Increase Value

• Porter’s Strategic Positioning …

1. Differentiation strategy - adding value to a product so that customers are willing to pay more for it … – the higher the value customers place on a firm’s

products, the higher the price the firm can charge for those products

2. Low cost strategy - lowering costs - Assumes that customers are more price sensitive than brand loyal

Market Rate Analisis

Pay progression though

contingency pay

HR Strategy

context

Reward Strategy

Grade and pay structure

Base and pay management

Allowances

Perfomance Management

Job Evaluation

Employee Benefit

Reward Philosophy

Total Remuneration

Total Rewards

Non-financial rewards

Achieve aims: - Performance - Attract and

retain - Motivate

and engage - Add value

Source, Armstrong, 2015

Employee reward strategy

Two possible approaches:

• Strategic fit approach - align pay and benefits policies with needs of the business strategy

• Best practice approach - there is one best way for all to manage pay and benefits

Strategic fit approach

Pay and benefits used to reinforce employee attitudes and behaviours in line with the particular requirements of specific business needs and strategies

Strategic fit: cost leader

Business strategy - to be a low-cost competitor (cost leader):

• HR priority - productivity (short-term performance) and cost reduction

• Reward strategy - just competitive; tied to efficiency.

• Reward policy - pay at the median or lower if possible; limited benefits provision (legal requirements as benchmark); incentive pay tied to output/sales (individual if possible).

Strategic fit: differentiation

Business strategy - to compete on service quality (differentiation):

• HR priority - attract, retain and motivate high quality, customer-oriented employees.

• Reward strategy - more than competitive; reward loyalty and quality

• Reward policy - pay at 75th quartile; extensive benefits provision; link pay to quality service and/or development of customer service skills

Comparison of Compensation at Costco and Wal-Mart

Source: https://money.cnn.com/2013/08/06/news/economy/costco- fast-food-strikes/

Can a company pay its workers well and also make money?

Source: https://www.thedailybeast.com/why-cant-walmart-be- more-like-costco

Discuss:

1) What are the consequences for the companies on having such pay difference?

2) What are the consequences for the employee on those differences?

Best practice approach

A notion of ‘best’ or ‘excellent’ practice:

• Package of “state of the art” reward practices

• Apply universally – in (almost?) all situations

• Allows the organisation to attract, retain, develop & motivate best talent

• Which practices are we referring to?

– Sophisticated HRM practices (Pfeffer, 1998), including high pay linked to performance

– High commitment management (Walton, 1985), including group/team incentives

Summary

We have covered a lot of ground today • Key elements of reward

• An initial consideration of key issues in reward design

• Reward objectives

• Contextual influences on employer reward strategy

• Employer strategic choices

Next week: Theories of rewards and incentives from Economics, Sociology, and Management