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7/26/2019 Week 12 Remuneration and Performance-Based Pay
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MGMT2718
Human Resource Management
Lecture 12:
Remuneration, Rewards and
Performance-Based Pay
Introduction
Recap
PA dual purposes developmental and judgemental
Lay basis for termination
PA is very difficult to get right
Importance of felt fairness if PA is to be acceptable and not toundermine morale > especially if linked to remuneration
Dangers: - many orgs are moving away from PA
Shields:
Technically demanding: difficult to do well, easy to do badly
Signs of reward mismanagement: perceived inequity; reduced
commitment; poor engagement
Constructively critical, non-managerialist, pluralist approach
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Introduction
1. Rewards: Nature and Purpose
Types and typologies of rewards: Direct vs Indirect,
Extrinsic vs Intrinsic
2. Base Pay
Job-based, person based
3. Performance-related reward
Individual vs collective (short & long term)
4. Critical Considerations
Dangers of PBP > Importance of communication and
involvement
Types of employee rewardanything tangible (eg pay) or intangible (praise) that an organizationoffers to its employees in exchange for their contribution to the
organization. (Shields)
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A reward system has fourprimaryobjectives
!To attract(or buy) the right people at the right time for
the right jobs, tasks or roles.
!To retainthe best people by satisfying their work-related
needs and aspirations, and recognizing and rewarding
their contribution.
!To develop(or build) the required workforce capabilities
by recognizing and rewarding employeesactions to
enhance their knowledge, skill and ability.
!
To motivateemployees to contribute to the best of theircapability by recognizing and rewarding high individual
and group contributions towards meeting the
organizations strategic objectives.
and six secondary objectives: to be
1.Needs-fulfilling of value to employees in fulfilling their
needs
2.Equitable or felt fair commensurate with individual
contributions and with the rewards received by others
3.Legal should comply with relevant legal requirements re
employees rights and entitlements esp minimum pay
levels and I would add anti-discrimination requirements
4.Affordable should be within the orgs financial means
5.Cost-effective there should be an appropriate return on
investment
6.Strategically-aligned should support the orgs strategic
objectives.
These can come into conflict
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Intrinsic versus extrinsic rewards
Intrinsic rewards arise from the content of the job
Interest, challenge, task variety, autonomy, feedback,
significance ie elements of JQ
Effectiveness as motivators cf Contenttheories
Extrinsic rewards arise from factors associated with
but external to the job that the employee does.
financial rewards
developmental rewards
social rewards.
Ie Processtheories of motivation
Financial Rewards
Base pay the fixed component of total remuneration
Benefits like the employer contribution to
superannuation, workers compensation insurance
Performance-relatedpay, including incentives which
vary with measured performance. Aka variable pay, at risk pay
The greater the component of at risk, the more
Motivating?
Effective as an employee control system?
Potentially disruptive to the employees life?
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Motivation theories
Content Process and Equity as discussed
Agency theory
Potential conflict of interests between
principles (owners) and agents (managers)
PBP = best way of aligning interests of agents and
principles when outcomes are linked to remuneration
But this can go wrong when agents capture the
remuneration process, and pay themselves exhorbitant
bonuses issue of executive pay rewarded themselves often at expense of shareholders
and customers GFC
Debates: motivation theories
Question claimed effectiveness of extrinsic rewards
intrinsic rewards are the only effective ones
Cognitive Evaluation Theory if a reward is
attached to job content, people will revise their
motivations and attitudes
If PBP is reduced, people will adjust their
psychological contract
Importance of employee influence in design of PA
and PBP.
Role of unions: usually excluded; decline in density
and influence
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2) Base Pay: Job-based and person-based
Job-based base pay:Two ways of determining:
1. Market Surveys: what are similar employers paying for
similar jobs? external competitiveness
The organisation decides where it wants to position itself
in relation to average
2. Job Evaluation (JE)
First, establish job content - tasks, duties and
responsibilitiesthrough JA (>PD) job size is crucial idea
Then, determine the value of the job through JE
internal equity
Job Evaluation
The systematic determination of the relative worth of
jobs within an organisation: how big or how small a
job is.
Basis for establishing the organisations job hierarchy and
associated pay structure.
Outcome of process = Job Gradingor Classification
Two approaches: whole job (qualitative) and jobfactors (quantitative)
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Example of job ranking
Job Grading or Classification: Points Systems
Identify job related factors Eg education, experience, responsibility, mental demands
(stress), physical demands
Allocate points to each eg.
Dangers:
What counts for points (what is compensable)?
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Person-based base pay
Pay for skill or competency of the job demands, OR of
the person occupying the job
Person description output of JA
But: what is competence and skill?
Hard, technical skills and qualifications
Soft skills? (communication skills, coordination,
awareness) hard to measure and weight and often left
uncodified; use of proxies maturity
Skill set and skill elements components
Deep competencies EI; leadership; composure
soft skills in another guise?
Job-based versus person-based pay
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3) Performance-related reward: Individual vs
Collective (short vs long)
Individual Performance Pay (merit)
Shields and Stone call them merit based pay systems
Problematic, cf lean payment systems in Japan in 1980s
Even so merit raises on basis of appraised
performance for past year (at risk) rolled into base pay -
incremental
Not same as seniority (not at risk)
Merit bonuses
NOTrolled into base pay has to be re-earned eachyear
Piece rates, commissions, goal-based bonuses
Even in kind or vouchers
Collective performance pay plans
appropriate when work is interdependent and
organized in cross-functional teams and where
individuals in a team or work group make
contributions to output that are difficult to distinguish
Dangers of unleashing peer pressure
OR social loafing free riding
3 kinds
Profit-sharing (whole org)
Gain-sharing (individual component of org)
Goal-sharing (goal based bonuses)
Collective Long-Term Equity Incentive Plans
Share Grant; Share purchase; Employee Options
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Performance-related reward plans
4) Criticism of performance-related rewards
undermine intrinsic interest in the job
motivate people to pursue the reward ratherthan do a good job
are instruments of behavioural manipulation and
punishment
rupture cooperative work relationships
ignore or mask the reasons underlying work
problems
discourage sensible risk-taking [Kohn]
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Conclusion: (Shields)
Can work in certain cultures and contexts if not in
others
Effectiveness and felt fairness depend on:
Link between pay and performance how the perf
criteria are designed
How well the link is explained and communicated
And conforms to procedural and distributive justice
Reward Communication To sharpen the line of sight between perf and pay
(me) Appeal Mechanism is important
But this probably makes it unwieldy!