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Compensation and Benefits/Reward
Introduction
Learning outcomes2
To understand and be able to explain the following:
The definition, nature and context of rewardThe content and objectives of the reward
relationshipThe theoretical context to reward
What is Reward Management?4
Reward management is an umbrella term covering:- design, implementation, maintenance, communication and evolution of reward processes which help organizations to improve performance and achieve their objectives.
(Armstrong and Murlis, 1994)Two questions:-
How much should be paid (rewarded) to each employee?
What form should the payment (reward) take?
Dimensions of reward5
Reward 3-dimensionalExternal:-Market (labor pools/skills shortages)legal requirements - min wage, equal pay
Internal:-job evaluationnegotiationcorporate performance
Individual:-performancecompetenciesteams
Company’s reward strategygoverned by dimensions:strategy positioned accordingto actual behavior andcorporate values on relativeimportance of dimensions
The content of reward management6
Direct financial reward in the form of base pay and incentives/allowances.
Indirect financial reward in the form of employee benefits and conditions.
Non-financial reward in the form of job satisfaction, career development and good working environment.
Reward strategy takes a holistic approach to these three areas.
Types of reward7
Group related
Individual related
Non
-mon
ey r
elat
ed Money related
Security driven Lifetime jobs Corporate prestige
Contribution driven Performance pay Merit bonuses
Tradition driven Cost of living increases Perks
Employability driven Training & development Personal career plans
Objectives of reward strategy8
Congruence with corporate values and beliefs
Linked to business strategyDrive and support behavior at all levelsFit desired management styleProvide a competitive edge in HR termsReflect market realities (Armstrong
2002)
Determinants of Reward Strategy9
Corporate CultureBehavioral factors Economic contextLegal contextPolitical contextSocial context
From backroom to boardroom?10
In the past, pay and benefit administration largely governed by the outcomes of collective bargaining. A backroom function.
Today, the management of reward is increasingly seen as a key HR function linked to the strategic objectives of the employer.
The context of reward in the 21st century
11
Increasing global competitionTrend to lower levels of trade union
membership and less collective bargaining and pay regulation
Increasingly individual employment relationship
Changes in the psychological contract at work - more insecurity and uncertainty
Differing views of what‘Reward’is
Key trends since the 1990s12
Growing inequality in pay - incomes of higher paid have increased much faster than the lower paid.
Growth in financial participation schemes Growth in regulation of reward - particularly
in Equal Pay and Hours and Holidays, minimum wage, increasing casual and part-time workers protection.
The New Pay Philosophy13
New Pay ideas originate in USA (Lawler; Schuster and Zingheim; Gomez-Mejia; Mahoney)
Influenced by HRM literature - new pay based on concept that management of people must be strategically focused.
Prescriptive or descriptive?
The New Pay Philosophy14
Change to pay systems which are contingent on business strategy and circumstances
Trend away from ‘job related’ pay to ‘person related’ pay.
Shift away from stable, seniority based systems to more variable and ‘at risk’ pay.
Move away from fixed benefits to flexible (cafeteria) benefits
Traditional vs New pay15
Focus
Objectives
Determination
Approach
Basis
Demarcations?
Flexibility?
External constraints Business needsFairnessRecompense for time Enhancement ofgiven up loyalty and commitmentCollective bargaining Management
Evolutionary, ad hoc Rational, strategic
Job based Person basedTime based Performance basedDiff conds for diff groups HarmonisationWage and salary based All salary basedMany grades Few gradesFixed benefits Flexible benefits
Traditonal pay New pay
Reward systems - the major components
16
1. What are the objectives of the reward system?2. What is the corporate strategy that provides
the foundation of the system? 3. What techniques are used to link strategy and
objectives.4. The four main strategy areas are: 1) internal
2) external 3) rewarding employee contribution and 4) administration.
(Milkovitch and Newman 2002)
Looking at Old Issues in a New Way
Best Practise vs. Best Fit (Schuster and Zingheim, 2002; Brown and Christie, 2005)
All encompassing offerings are seen as Best Practise Focus should be on best fit for the organisation AND its
employees Employer - Understand Yourself
Organisations need to understand what they need to succeed Employer - Understand Your Employees
True performance success is gained through employee involvement and seeking the employee’s direct voice (Walton ,1985; Lawler, 1986)
HR can assist by bridging the gap, by understanding the business AND becoming an employee advocate so as to understand the employees (Legge, 1999)
Rewards can then become that which meets the needs of both Rewards becomes more than Total Rewards, it becomes a
Total Relationship approach (Schuster and Zigheim, 2000)
Reward Elements Examples
Reward Elements:
Basic SalaryCompany BonusPersonal BonusProfit SharingStock or Share OptionsSales Incentives/CommissionLong Term IncentivesPrivate Medical CoverPrivate Dental CoverPrivate Vision CoverHealth Screens/PhysicalsDefined Benefit PensionDefined Contribution PensionCritical Illness CoverLife InsuranceRecognition SchemeLong Service AwardsCompany Car or AllowancePetrol AllowanceMobile PhoneOn-site CrècheChildcare VouchersOn-site CafeteriaOn-Site Coffee BarLuncheon VouchersOn-Site Life style/ConciergeTube or rail pass benefitsOn-site or discounted parkingWellness ProgrammesOn-site or discounted Gym membershipShopping DiscountsEmployee Assistance ProgrammeSalary sacrifice Bicycle purchase
Work Experience Elements:
Opportunities for career advancementJob-orientated trainingOther training availablePerformance appraisalMerit pay increasesOpportunities for job enhancementEmployer is ‘people’-focussedPositive leadershipSupportive managementPositive colleague interactionsGreat workWork/life balanceFlexible working practicesYou feel ‘involved’You trust your employerYour employer trusts youOpen and honest communicationsStakeholdershipCompany is growingCompany is successfulCompany has a positive imageCompany has a positive reputationCompany has a clear visionCompany has a clear set of values(Source: Schuster and Zigheim 2000)
References20
Perkins, S. & White, G. (2010) Employee Reward: Alternatives, Consequences and Contexts.
CIPD: LondonThorpe, R. & Homan, G. (2009) Strategic Reward Systems.
Prentice Hall: LondonWhite, G. & Druker, J. (2009) Reward Management: a Critical Text.
Routledge: London