Employee Reward Strategy

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• From last week…

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Other approaches to motivation

• Job characteristics/job enrichment model (Hackman and Oldham) – Practical implementation of content and expectancy/valence

approaches.

– Influential in design of work teams, counter to Taylorism/Fordism

– Features: • Skill Variety

• Task Identity

• Task Significance

• Autonomy

• Feedback

Process theories (explain cognitive processes by which individuals decide something is worth doing).

• Expectancy theory (Vroom).

• Goal setting theory (Locke and Latham). Motivated when specific, challenging, and important goals

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Other approaches to motivation

• Locke’s (1975) goal setting theory

– ‘goal-setting is more appropriately viewed as a motivational technique rather than a formal theory’ (Locke 1975: 465).

– Key components:

– setting challenging and specific goals

– knowledge of results as feedback

– explanation and acceptance of goals

– participation in goal setting only when anticipated by participants

– support from studies of mainly individually based manual work

Vroom’s (1964) Expectancy Theory “A person will be motivated to put forth a higher level of effort if they believe their efforts will result in higher performance and thus better rewards”

3 Key Components Expectancy: the level of effort an employee is willing to exert in the hope that the increased performance will lead to a better performance Performance: the strength of the relationship between an employee’s behaviours and the rewards that they can receive from those actions. Instrumentality Reward: how valuable the employee finds the reward to be - Valence

If I work hard, can I do this

job?

If I do this job well, will I be

rewarded?

It is worth it?

Expectancy theory

Implications for pay incentives:

E

objectives/targets must be attainable.

I

clear and understandable basis/formula for reward.

V

reward should be significant to the individual.

Expectancy theory

• Motivation force or effort expended:

Effort = E x I x V

• Choose behaviour likely to yield the most attractive outcome

https://www.youtube.com/watch?v=IpnzW06s hsM

Management theories

No clear single theory in Management as such but use of theories from Economics, Psychology, and Sociology

• Tendency to accept that incentives can work but the conditions in which they are used moderates the outcome (‘contingency’)

– Effective where simple, repetitive tasks

– May be less effective where complex and dynamic tasks

• Read Semco’s case and identify the motivational theories observed in the company.

People work mainly for money

• a meta-analysis conducted by Tim Judge and colleagues. The authors reviewed 120 years of research to synthesize the findings from 92 quantitative studies. The combined dataset included over 15,000 individuals and 115 correlation coefficients.

• The results indicate that the association between salary and job satisfaction is very weak. The reported correlation (r = .14) indicates that there is less than 2% overlap between pay and job satisfaction levels.

• Gallup’s engagement research reports no significant difference in employee engagement by pay level. Gallup’s findings are based on 1.4 million employees from 192 organizations across 49 industries and 34 nations.

• a recent study by Yoon Jik Cho and James Perry: The authors analyzed real-world data from a representative sample of over 200,000 U.S. public sector employees. The results showed that employee engagement levels were three times more strongly related to intrinsic than extrinsic motives.

• SEMCO

External and Internal influences on Employee Reward

Professor Roberta Aguzzoli

Agenda

• External influences on rewards

• Internal influences on rewards

© 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.

Contextual Influences

• Globalization of business

• Institutions: – Labour market conditions and trends

– Economic and political trends

– Laws and regulations

– Unions

• Culture

• ‘Soft law’ (e.g. corporate governance)

Employer reward strategies and decisions framed by key contextual influences

Source: Bohlander and Snell, 2014

Factors Affecting the Rewards

External Factors

Regulations

• Set minimum standards:

– Maternity leave

– Minimum wage

– Holidays

– Hours of work

– Overtime pay

– Labour Standards: safety, child labour

Contexts: Legal regulation of reward

• Law regulates equity of reward. Prohibition of discrimination by gender, age, race, sexuality.

• Provision of ‘floor’ of wages. Most countries have minimum wage provision.

• Codes of practice eg. Corporate governance codes on executive pay

• The National Minimum Wage hourly rates are currently:

• £8.91 - Age 23 or over (National Living Wage)

• £8.36 - Age 21 to 22

• £6.56 - Age 18 to 20

• £4.62 - Age under 18

• £4.30 - Apprentice Source: https://www.gov.uk/government/news/hmrc- reveals-absurd-excuses-for-not-paying- national-minimum-wage

HMRC reveals excuses for not paying National Minimum Wage

“In the 2020 to 2021 tax year, HMRC helped more than 155,000 workers across the UK recover more than £16 million in pay which was due to them, and also issued more than £14 million in penalties. Some … excuses for flouting the law included:

1.“She does not deserve the National Minimum Wage because she only makes the teas and sweeps the floors.”

2.“The employee was not a good worker, so I did not think they deserved to be paid the National Minimum Wage.”

3.“My accountant and I speak a different language – he does not understand me, and that is why he does not pay my workers the correct wages.

4.“It is part of UK culture not to pay young workers for the first three months as they have to prove their ‘worth’ first.”

5.“The National Minimum Wage does not apply to my business.”

6.“I thought it was okay to pay young workers below the National Minimum Wage as they are not British and therefore do not have the right to be paid it.”

From: https://www.gov.uk/government/news/hmrc-reveals- absurd-excuses-for-not-paying-national-minimum-wage

https://fairygodboss.com/maternity-leave- resource-center/international-perspective

Minimum Wage

Source: https://www.statista.com/cha rt/3501/the-countries-with- the-best-minimum-wages/

Labour Markets

Health Issues

Immigrants Global Labor

Market Factors

Competition for

Employees

Skill Shortage

Labor Cost

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

5

Source: Werner et al., 2012 – Human Resource Management

• Labour Market Conditions

– Pay Level • How an organisation’s overall monetary pay compares to that of

other organisations.

– Low unemployment low supply drives labor prices up.

– Higher pay attracts more entrants to the market.

– A firm’s formal wage structure of rates is influenced by those being paid by other area employers for comparable jobs.

Source: https://www.theguardian.co m/world/2023/jan/22/anti- immigration-protesters- march-dublin-ireland- refugees

Source: https://www.themayor.eu/en/a/view/which-are-the- most-highly-educated-countries-in-the-eu-10514

Education

• Hay Salary Survey for HR

• Check on it Ultra

© 2010 South-Western, a part of

Cengage Learning. All rights

reserved.

• Cost of Living

– Local housing and environmental conditions can cause wide variations in the cost of living for employees.

– Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power.

Trade Unions

• Unionised organizations tend to pay more, have less performance-based pay, and offer better benefits.

• Depend on how strong unions are and how much impact they have over business.

Source https://www.forbes.com/sites/niallmccarthy/2017/06/20/which- countries-have-the-highest-levels-of-labor-union-membership- infographic/

Country Cultures

• Cultural Differences

– How companies are managed.

– Hierarchical differences.

– Traditions on rewards.

– How employees expect to be treated.

– How managers manage (styles).

• https://www.youtube.com/watch?v=v1vvLQd 53Ps

• https://www.youtube.com/watch?v=nI2VmTR R4-E

Hofstede Dimensions of Culture

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

THE DIMENSION APPROACH

power distance – the extent to which less powerful members within a country expect and accept that power is distributed unequally

individualism – the idea that an individual’s identity is fundamentally his or her own

collectivism – the idea that an individual’s identity is fundamentally tied to the identity of his or her collective group

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

THE DIMENSION APPROACH (cont’d)

masculinity – a relatively strong form of societal- level sex role differentiation whereby men tend to have occupations that reward assertiveness and women tend to work in caring professions

femininity – a relatively weak form of societal- level sex role differentiation whereby more women occupy positions that reward assertiveness and more men work in caring professions

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

THE DIMENSION APPROACH (cont’d)

uncertainty avoidance – the extent to which members in a culture accept or avoid ambiguous situations and uncertainty

long-term orientation – dimension of how much emphasis is placed on perseverance and savings for future betterment

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Hofstede on Motivation

• Strong individualism – expectancy theory (Vroom), the outcomes are mostly consciously.

• Masculinity and low uncertain avoidance – linked to McClelland needs for achievement.

Hofstede on Rewards

• Highly individualistic - Herzberg intrinsic motivators.

• Masculine societies - extrinsic rewarded and need to perform.

• High power distance – large salary differences between top and lower managers and shopfloor.

Hofstede on Rewards

• Individualism is linked to pay for performance and stock options.

• Masculinity is linked to commission and negatively related to flexible benefits (childcare and maternity leave).

© 2012 Cengage Learning. All Rights Reserved. May no be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Country Cultures

• Consequences of Country Cultures

– The need for Reward practices to be congruent with the country culture to enable global success

• Use of incentives

• Attitudes towards work

Source: Werner et al., 2012 – Human Resource Management

The Organizational Environment

Corporate

Culture

Strategy Size

Approach to

Compensation

Internal Factors

• Size

– Small organisations typically offer less monetary compensation than larger ones do

• Employer’s Compensation Strategy

– Establishes the internal wage relationship among jobs and skill levels

– Sets organisation compensation policy

– Rewards employee performance

© 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.

Source: Werner et al., 2012 – Human Resource Management

EXHIBIT 9.6 Employer Costs per Hour Worked by Organization Size

Source: Werner et al., 2012 – Human Resource Management

Average Hourly Compensation Costs in Several Industries

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: 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

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

© 2010 South-Western, a part of

Cengage Learning. All rights

reserved.

Internal Factors (cont’d)

• Worth of a Job

– Establishing the internal wage relationship among jobs and skill levels.

• Employee’s Relative Worth

– Rewarding individual employee performance

• Employer’s Ability-to-Pay

– Having the resources and profits to pay employees.

Corporate Culture

• Easy to understand and access the rewards;

• Be consistent and fair;

• Respect what employees’ values

• Employee’s worth.

• Payment in New Zealand

Summary

• There are two forces influencing rewards: external and internal.

• External forces relate to institutions, the role of regulations, education, labour market, culture.

• Internal forces relate to strategy, organisational culture, size, industry.