1.  Understanding the key functions and role of reward management  Identifying types of rewards and reward categories  Understanding relevant theories associated with reward management  Define and evaluate different reward options (including base pay, performance pay and indirect pay)  Describe and evaluate reward techniques, such as job analysis, job evaluation and appraisal Learning Objectives Dr. Gizem Öksüzoğlu Güven © 2010

2. Class Discussion Questions 1.What is pay? 2.Is money the prime driver of employee performance? 3.Should organisations; a)Pay dependant on performance b)Pay dependant on position (not the individual performance) Dr. Gizem Öksüzoğlu Güven © 2010

3.  Reward: refers to the benefits which employees receive in return for working on behalf of an employing organisation.  Reward is also a fashionable term for an established aspect of HRM with a more positive connotation than equivalent labels such as compensation or remuneration.  Reward Management: aspect of HRM that deals with the management of remuneration (extrinsic rewards) and management of intrinsic rewards. Reward Management Dr. Gizem Öksüzoğlu Güven © 2010

4.  An organisation can provide 2 types of rewards;  Extrinsic e.g.: Cash payments, employment benefits (staff discounts, occupational pensions, health insurance, company cars)  Intrinsic e.g.: job satisfaction, recognition, personal development, social status which may be attached to particular job roles. Reward Management Dr. Gizem Öksüzoğlu Güven © 2010

5.  If an organisation provides both intrinsic and extrinsic rewards, this is termed as reward system.  If only extrinsic (monetary or economic element), then is termed as pay system.  There is an increasing attention to use intrinsic rewards o Recognition o Award Schemes Reward Management to celebrate & reinforce high performance. Dr. Gizem Öksüzoğlu Güven © 2010

6. Reward Categories Monetary Rewards: basic pay, bonuses, commission payments, overtime payments. Benefits: pensions, health care, subsidized meals, loans, membership of health and fitness clubs, company cars, flexible working hours. Extrinsic Dr. Gizem Öksüzoğlu Güven © 2010

7. Intrinsic Psychological Rewards: recognition, praise, sense of achievement, recognizing that work is important and has an intrinsic value, enjoyment. Personal Rewards: promotion, advancement and development, acquisition of new skills, increased employability. Reward Categories Dr. Gizem Öksüzoğlu Güven © 2010

8. Merit Pay: Pay increase added to employees base pay based on their level of performance. Bonus: One-time annual financial award based on productivity that is not added to base pay. Piecework: Incentive pay plan in which employees are paid for each unit they produce. Flextime: Practice of permitting employees to choose their own working hours, within certain limitations. Reward Options Dr. Gizem Öksüzoğlu Güven © 2010

9. Performance Related Pay: A reward feature generally controllable by employees is their job performance. This performance level is typically determined through performance appraisal. Profit Sharing: Reward plans that result in the distribution of a predetermined percentage of the firm’s profits to employees. Stock Option Plans: Incentive plan in which individuals can buy a specified amount of stock in their company in the future at or below the current market price. Reward Options Dr. Gizem Öksüzoğlu Güven © 2010

10. Objectives of the Reward System Dr. Gizem Öksüzoğlu Güven © 2010 Support the organisation’s strategy Recruit qualified employees Retain capable employees  turnover is held to an acceptable level Ensure internal and external equity Be sustainable within the financial means of the organisation Motivate employees to perform to the maximum extent of their capabilities Strengthen the psychological contract Promote “organisational citizenship” Comply with legal regulations Be efficiently administered.

11.  Old Pay Base Pay (The fixed amount which traditionally has increased yearly to reflect inflation and length of service) Changes upon promotion to a more responsible job. Pay the position not the person =Assumes  Length of Service = Experience & Loyalty. Ensures predictability, security and permanence Principal Aim: to attract, retain and motivate employees. Different Approaches to Pay Dr. Gizem Öksüzoğlu Güven © 2010

12.  New Pay Emerging Paradigm  Pay as an integrating and signalling mechanism to achieve overarching business objectives. Align pay with organisational objective Use pay to change employee behaviour Different Approaches to Pay Dr. Gizem Öksüzoğlu Güven © 2010

13.  VPS attempts to move away from time or seniority based pay to performance related criteria.  Number of ways to pay for performance and various schemes; Incentive pay Performance related pay (PRP) Variable pay Payment by results (PBR)  UK is one of the leading European countries diffusing VPS with PBR. (Redman & Wilkinson, 2009:149). Paying for Performance: Variable Pay Systems Dr. Gizem Öksüzoğlu Güven © 2010

14.  ADVANTAGES Aids the recruitment, retention and motivation of staff. Are means of consolidating moves towards the creation of an internal labour market in line with other HRM techniques. Are fairer way of rewarding people as reward should have a direct link with effort. Are linked to notions of HRM/HPWS/TQM and they are preferred as VPS provide a strategic and coherent approach to employees. HPWS: High Performance Work Systems TQM: Total Quality Management HRM: Human Resource Management Variable Pay Schemes Dr. Gizem Öksüzoğlu Güven © 2010

15. Variable Pay Schemes Dr. Gizem Öksüzoğlu Güven © 2010  DISADVANTAGES Are applied as a universal recipe without taking into account the organisational and sectoral factors. “Fairness” is relative, so VPS ignore the possibility of disagreement on this notion. VPS may lead to employee demotivation as it increase work intensification rather than productivity.

16. Elements of Reward Management Model Dr. Gizem Öksüzoğlu Güven © 2010 1.Strategic Perspective focuses on reward choices which support strategic goals 2.Reward Objectives emphasize the link between a reward system and human behaviour (recruitment, performance, compliance, retention, etc) 3.Reward Options for the organization include: base pay, performance pay, and indirect pay (benefits-life insurance etc). 4.Reward Techniques examined include job analysis, job evaluation and performance appraisal. These techniques are used to achieve, internal equity (which refers to the pay relationships among jobs within a single organization) 5.Reward Competitiveness refers to comparisons between the organization’s pay and that of its strategic competitors. External competitiveness depends upon, in part, labour market and product markets conditions and management’s strategy.

17. Class Activity Dr. Gizem Öksüzoğlu Güven © 2010 Find below a selection of job titles and you have to decide how much to pay these staff. You are to consider who you think ought to be paid the most rather than considering what actually happens in reality. Put the jobs listed below in order of importance, i.e. with number 1 being the job that you judge should be paid the most. List two factors that will influence how much you will pay these staff. Waiter or waitress_____ Nurse_____ Sales assistant (clothes shop) _____ Car park attendant_____ Office cleaner_____ Accountant_____ Police officer_____ Receptionist_____ Teller (bank)_____ Warehouse supervisor_____ University lecturer_____ Truck driver_____ Secretary_____ Traffic warden_____ Security guard_____ Safety officer (manufacturing company) _____ Undertaker_____ Professional football player _____

18. Class Activity (continued) Dr. Gizem Öksüzoğlu Güven © 2010 Compare your order with others and try to reach an agreement about the list of factors that should be taken into account when you are making these decisions.

19. Main theories of Work Motivation Figure 5.4 Dr. Gizem Öksüzoğlu Güven © 2010

20. Money as a Motivator Rational – Economic Concept Fredric Taylor (Scientific management) asserted that what workers wanted from employers was high wages. “If the pay is right the man will do the job” Dr. Gizem Öksüzoğlu Güven © 2010

21. Abraham Maslow’s Hierarchy of Needs Human is a wanting animal, seeking to satisfy social and professional needs. The needs that are satisfied are no motivator. Individuals are only driven by needs which remain unattained. http://www.ict.griffith.edu.au/~davidt/self-actualisation.htm

22. Applying Maslow’s Hierarchy (contd.) Source: Steers, R. M. and Porter, L. W., Motivation and Work Behaviour, Fifth Edition, McGraw-Hill (1991), p. 35. Reproduced with permission from The McGraw-Hill Companies Inc.

23. Herzberg’s Two-Factor Theory Psychologist Frederick Herzberg  focused on the job & the environment where work is done. In his study, Herzberg asked engineers and accountants to relate what job related issues made them feel good about their jobs and which ones made them feel bad. He identified Maintenance factors and Motivational factors Maintenance factors  those aspects of a job that relate to the work setting, including wages, comfortable working conditions, fair company polices, and job security. Motivational factors  Those aspects of a job that relate to the content of the work, including achievement, recognition, the work itself, involvement, responsibility and advancement. Dr. Gizem Öksüzoğlu Güven © 2010

24. Herzberg – Two Factor Theory Figure 5.6

25. Equity Theory Developed from the research of J. Stacy Adams.  Extent to which people are willing to contribute to an organisation depends on their assessment of the fairness of the rewards that they will receive in exchange. In an equitable situation, a person receives rewards proportional to the contribution (s)he makes to the organisation. Outcome/Input Ratio o inputs -- what employee contributes (e.g. skill) o outcomes -- what employees receive (e.g. pay) Comparison Other o person/people we compare ratio with o not easily identifiable Dr. Gizem Öksüzoğlu Güven © 2010

26. Expectancy Theory o Developed by psychologist Vroom. o Motivation depends not only on how much a person wants something but also on the person’s perception of how likely (s)he is to get it. o A person who wants something (a particular outcome) and has reason to think (s)he will actually get it by putting effort towards performance will be strongly motivated. Expectancy - If I tried could I do it? Get away with it? A person’s expectation that efforts will lead to high performance. Instrumentality – the probability that valued rewards follow from high performance Valence (subjective valuation) - do I really value what's available? The importance of each potential outcome to the individual. Dr. Gizem Öksüzoğlu Güven © 2010

27. Summary This lecture has emphasized that reward management is central to the effective management of the employment relationship. A reward system influences at least two important employee behaviours: - Membership behaviour - Conflict behaviour (which may derive from employee dissatisfaction with the reward system.) A reward system is a key mechanism that can influence each step of the strategy process. Current new pay literature stresses that an ‘effective’ pay system is one that is aligned with the organization’s business strategy. Dr. Gizem Öksüzoğlu Güven © 2010

28. Further Reading Banfield, P. and Kay, R. (2008) Introduction to Human Resource Management. USA: Oxford University Press. Chapter 12: Managing Rewards pp.294-320. Redman, T. and Wilkinson, A. (2009) Contemporary Human Resource Management: Text and Cases. 3 rd edition. Italy: FT Prentice Hall. Chapter 6: Reward Management pp.138-174. Bratton, J. and Gold, J. (2003) Human Resource Management: Theory and Practice. 3 rd edition. GB: Palgrave MacMillan. Chapter 9: Reward Management pp.276-315. Dr. Gizem Öksüzoğlu Güven © 2010