Employee Reward Strategy

• 1) Identify external influences on the ERS.

• 2) Identify motivational theories and how

they are used by the rewards literature.

In groups of four you are asked to present this on seminar

3. This formative will help you to work on your summative Please remember that the summative is INDIVIDUAL

From last week…

Analytical methods

Analytical methods involve breaking jobs into constituent elements.

• Points rating is the main method

• Each job is rated in term of ‘compensable factors’ and scored accordingly

• Points rating reflects the relative worth of the job

POINTS RATING METHOD

What is a ‘compensable factor’?

‘… those characteristics in the work that the organization values, that help it pursue its strategy and achieve its objectives.’ (Milkovich & Newman, 1996).

For example:

Complexity, Leadership, Responsibility, Contacts.

Decision making, Knowledge, skills etc...

The most common factors determining where jobs should go within pay grades are:

• the knowledge and skills required, • the complexity of the job • the amount of judgement/decision-making

needed.

CIPD, 2019

Point Rating

• Typically the compensable factors include the major categories of: – Skill

– Responsibilities

– Effort

– Working Conditions

Point Rating • These factors can then be further defined.

– Skill • Experience • Education • Ability

– Responsibilities • Fiscal • Supervisory

– Effort • Mental • Physical

– Working Conditions • Location • Hazards • Extremes in Environment

Points rating method - process

Five steps:

1. Determine the critical/compensable factors.

Which? How choose? How many?

2. Define factor degree

3. Allocate weightings to factors

All equal or weighted? How? Committee judgement – subjective; Policy

capturing - statistical

4. Establish the degree of each factor present in each work

5. Calculate job Values:

Use: job descriptions, the points manual

NHS case page 116

https://www.nhsemployers.org/-/media/Employers/Documents/Pay-and- reward/NHS-TCS-2018-Pay-scales-poster-2018-19.pdf

https://www.n hsemployers.o rg/- /media/Emplo yers/Documen ts/Pay-and- reward/NHS- TCS-2018-Pay- scales-poster- 2018-19.pdf

Designing the Pay structure

Pay structure

A pay structure combines job evaluation information and information about market pay rates to establish a policy that specifies the base pay of the employee in each job.

• Pay structure is a collection of wage, grades, levels or bands that link related jobs within a hierarchy. It provides a framework to implement rewards strategies and policies

– Help to ensure fairness

– Bring order in managing pay rise

– Align the reward strategy with the employer’s mission, vision, culture, business strategies

– Encourage behaviour and performance.

CIPD, 2022

Objectives of Pay Structure

• Equity, fairness and consistency

• Internal structure versus external market

• Capacity for individual growth within the

structure

• The clarity of reward and career paths

• Ease of communication.

(Armstrong, 2002)

Types of pay structure

• Rate for the job or “spot rate” – Most used – Fixed pay rate for each job or grade (may use the reference point)

• Graded pay ranges – second most used – Each grade has a minimum and maximum rate, with opportunities for

individual pay progression (by increments or merit)

• Pay spine - third most used – Link grades to an underlying “spine” of pay points – Common in public sector – allows to link to national agreements

• Broadbanding - fourth most used – Like grades, but broader – maybe 4-5 bands for whole organisation – Aim to increase flexibility to reward the individual

Types of pay structure

• Rate for the job or “spot rate” – Fixed pay rate for each job or grade (may use the reference point)

• Graded pay ranges – Each grade has a minimum and maximum rate, with opportunities for

individual pay progression (by increments or merit)

• Pay spine – Link grades to an underlying “spine” of pay points – Common in public sector – allows to link to national agreements

• Broadbanding – Like grades, but broader – maybe 4-5 bands for whole organisation – Aim to increase flexibility to reward the individual

Pay structure – rate for the job

A simple grade structure might look like this:

Grade Salary Minimum Salary Midpoint Salary Maximum

1 $7,500 10,000 12,500

2 9,500 12,000 14,500

3 11,500 14,000 16,500

4 14,000 17,000 20,000

I've used round numbers here. See the accompanying spreadsheet to see an example

using a specific formula.

Points to note:

• The salary range is typically +/- 15 to 25% percent of the nt.

* Grade 1 is for new hires entering grade 2 jobs, and for temporary workers.

GRADE JOB EXAMPLES £ PER ANNUM £ PER HOUR

1* Track assembler* 19,678 10.22

2 Track assembler 22,956 11.93

3 Rectifier, Relief operator 24,021 12.48

4 Craftsman (single skills), Team coordinator 25,008 12.99

5 Multi-skilled craftsman 26,176 13.60

6 Logistics officer, Technician 27,516 14.30

7 Production area manager 28,812 14.97

Types of pay structure

• Graded pay ranges – Each grade has a minimum and maximum rate, with opportunities for

individual pay progression (by increments or merit)

• Rate for the job or “spot rate” – Fixed pay rate for each job or grade (may use the reference point)

• Pay spine – Link grades to an underlying “spine” of pay points – Common in public sector – allows to link to national agreements

• Broadbanding – Like grades, but broader – maybe 4-5 bands for whole organisation – Aim to increase flexibility to reward the individual

Pay structure: graded pay ranges

• Salary range typically +/- 15% to 25% of midpoint

• Maximum may by higher than minimum of higher grade (grade overlap) – but depends on organisation policy

• Provides individual salary progression – Incremental (automatic each year)

– Merit based – depends on appraisal rating or other evaluation

GRADE SALARY MINIMUM SALARY MIDPOINT SALARY MAXIMUM

1 25,500 30,000 34,500

2 30,600 36,000 41,400

3 35,700 42,000 48,300

4 43,350 51,000 58,650

Based on: Werner et al., 2012

Types of pay structure

• Graded pay ranges – Each grade has a minimum and maximum rate, with opportunities for

individual pay progression (by increments or merit)

• Rate for the job or “spot rate” – Fixed pay rate for each job or grade (may use the reference point)

• Pay spine – Link grades to an underlying “spine” of pay points – Common in public sector – allows to link to national agreements

• Broadbanding – Like grades, but broader – maybe 4-5 bands for whole organisation – Aim to increase flexibility to reward the individual

Pay spine and model grading structure

Source:

Joint Negotiating

Committee for Higher

Education Staffs

Types of pay structure

• Graded pay ranges – Each grade has a minimum and maximum rate, with opportunities for

individual pay progression (by increments or merit)

• Rate for the job or “spot rate” – Fixed pay rate for each job or grade (may use the reference point)

• Pay spine – Link grades to an underlying “spine” of pay points – Common in public sector – allows to link to national agreements

• Broadbanding – Like grades, but broader – maybe 4-5 bands for whole organisation – Aim to increase flexibility to reward the individual

Source: http://www.whatishumanresource.com/broadbanding

Source: Werner et al., 2012

Summary • Job Evaluation Systems

– Job ranking

– Job classification

– Point factor rating

• Compensation Structure – Rate for the job or “spot rate” – Pay spine – Broadbanding – job ranges

Employee Benefits

Professor Roberta Aguzzoli

Employee Benefits

In this session:

• Why employers provide benefits rather than “clean pay”

• The main types of benefits offered

Benefits

Employee benefits

• Employee benefits are those parts of the remuneration package that are not cash pay

• Smith (2000) estimated that employee benefits can comprise up to half the cost of the total remuneration package for some staff

• There is an absence of theory and research on the affects of benefits on employee motivation and performance.

Example of Total Reward

Total Reward Statement

Pay Basic annual salary Bonus Total

£30,000 £3,000 £33,000

Employee benefits Retirement, life insurance and ill-health Holidays Other fringe benefits (subsidized meals, employee assistance programme, concierge service, staff discount) Total

£5,000

£1,000 £2,000

Total Remuneration £41,000

• Identify the benefits in Google video

• https://www.youtube.com/watch?v=_QqT38Q RA84

© 2010 South-Western, a part of Cengage Learning. All rights reserved.

Source: Snell and Bohlander, 2015

Types of Employee Benefits

Required By Law Discretionary

Health care

Unemployment Insurance

Workers’ Compensation

Payment for time not worked

Supplemental Unemployment Benefits

Social Security

Unpaid leave (FMLA) Life care insurance

Pensions

• Extra-statutory sick pay

• Pensions

• Holidays with pay

• Private heath insurance

• Maternity/Paternity/parental leave

• Long-term disability/ permanent health insurance

• Extra-statutory redundancy pay

Main types of benefits

Main types of benefits (continued)

• Training and education fees

• Career breaks/sabbaticals.

• Company discounts

• Assisted travel to work (season ticket, cycle

loans)

• Sports or social clubs

• Subsidised catering

• Company car/mileage allowance

• Health screening

• Free or subsidised accommodation

• Company loans and mortgage assistance.

• Do you remember Hezberg?

What motivates?

Importance of benefits

© 2010 South-Western, a part of Cengage Learning. All rights reserved.

The Chief Objectives of Benefits Programs

• Improve employee work satisfaction

• Reduce turnover

• Maintain a favorable competitive position

From Snell and Bohlander, 2015

Requirements for a Sound Benefits Program

Strategic Benefits Planning

Allowing for Employee

Involvement

Benefits for a Diverse

Workforce

Providing for

Flexibility

Communicating Employee Benefits

Information

Why provide employee benefits?

A variety of reasons for providing benefits

• Some are legal requirements

• Take advantage of tax concessions

• Employees have diverse needs/ expectations

• Competition for staff. Attraction and retention

• Reward loyalty

• Improve workforce efficiency and effectiveness

• A benefit may be more effective than extra pay

• Welfare benefits:

– holidays, sick leave, maternity and parental leave, life insurance, personal accident cover, permanent health insurance, extra-statutory redundancy pay, childcare.

• Work-related benefits

– accommodation, mortgage assistance, loans and discounts, relocation, travel and subsistence.

Types of benefits

Status benefits

– company cars, credit/fuel cards, ex-pat benefits, eg private schooling for children.

Flexible benefits

• A system whereby employers provide a degree of employee choice in the benefits received

• One in ten UK employers allow some flexibility in benefits (CIPD, 2007)

© 2010 South-Western, a part of Cengage Learning. All rights reserved.

11–41

Providing for Flexibility

• Flexible Benefits Plans (Cafeteria Plans)

– Benefit plans that enable individual employees to choose the benefits that are best suited to their particular needs.

• A basic or core benefits package of life and health insurance, sick leave, and vacation ensures that employees have a minimum level of coverage.

• Employees use “credits” to “buy” whatever other benefits they need.

What are flexible benefits?

• ‘Cafeteria benefits’ or “flex”

• Fixed total package value

• Options – each with price or points tags: • alternative cars

• health insurance

• life assurance

• additional holidays

• Childcare assistance

• Some elements may be supported by tax breaks

What are flexible benefits (cont.)

• Employees choose their benefits up to a fixed total package value (cash or points)

– Once per year

– Some systems have set menu options

• Sent an annual reward statement

Flexible benefits: advantages and disadvantages

Advantages

• Aligns rewards with individual preferences, thus more effective?

Disadvantages

• Ill-informed or misguided choices

• Administrative burden and complexity

Little research evidence. But see Barber et al (1992).

Voluntary benefits

• Voluntary benefits are not funded by the employer. Instead, the employer arranges preferential rates on a variety of benefits and services

• Voluntary benefits on offer can include financial products, health products, motoring services, home and garden products, entertainment and gifts

Voluntary benefits (continued)

• HMRC allows ‘salary sacrifice’ systems, whereby employees can give up part of taxable pay in return for a non-cash benefit that is treated in a more beneficial manner for tax and/or National Insurance.

IDS, 2004

M&S benefits

• https://jobs.marksandspencer.com/life-at- mands

https://www.youtube.com/watch? v=RtANL3MMjPs

What is good and bad (dark side) about it?

Conclusions

• Some benefits must be provided (legal requirement) but employers can adapt these/

• Other benefits assisted by tax benefits

• ‘Good employers’ provide a range of benefits, sometimes to underpin an employer brand.

• Seek to maximise value for money and impact through flexible benefits