Kaarten: HRM C6 Reward management | Quizlet

What is the definition of financial remuneration according to Shields' model (2007)?

… consists of fixed pay (base salary), variable pay, and benefits (fringe benefits). Fixed pay provides stability, variable pay provides motivation, and benefits increase attractiveness. Fixed pay links to job satisfaction; variable pay to performance.

What is fixed pay or base pay?

Is the stable, guaranteed portion of income independent of performance, including salary and holiday allowance. Often based on seniority or experience. Example: €3000 monthly salary. Provides security but little motivation.

Advantages and disadvantages of fixed pay?

Advantages: stability, job satisfaction, loyalty.

Disadvantages: weak motivation, performance, and innovation effects.

Increasing fixed pay while reducing bonuses lowers productivity, especially among top performers.

Effect of external vs. internal recruitment on pay level?

External hires earn about 18% more but have lower performance and higher turnover (Bidwell, 2011). Highlights importance of internal equity. Example: external €4000 vs internal €3400.

What is variable pay?

• Links rewards to individual or group performance to increase motivation.

• Effects depend on design.

• Includes merit pay, bonuses, commissions.

• Provides extrinsic motivation.

What is merit pay?

• Links permanent base salary increases to performance.

• It is costly and requires at least a 10% increase to motivate.

• Example: 5% raise after strong evaluation.

Difference between merit pay and seniority-based raises?

Merit pay is performance-based and permanent; seniority pay depends on years of service. Merit is more motivating but expensive; seniority is predictable. Example: merit +€200 vs seniority +€100/year.

What is a bonus in variable pay?

A one-time reward for exceptional performance that must be re-earned. Example: €1000 bonus for exceeding targets. Unlike merit pay, it is non-permanent.

What is piece-rate pay?

Pay based on units produced. Example: €0.50 per item. Effective for simple tasks but may reduce quality.

What is commission pay?

Pay based on sales volume, revenue, or customer satisfaction. Example: 0.5% commission on €600,000 sales = €3000. Drives sales but may encourage aggressive behavior.

What are behaviour encouragement plans?

Rewards for displaying desired behaviors such as safety or teamwork. Example: bonus for zero accidents. Focus on qualitative outcomes.

What are referral plans?

Rewards for employees who refer successful new hires. Example: €500 per referral. Supports recruitment and organizational growth.

Potential downsides of individual bonuses (clothing store example)?

Pay per customers served causes rushed service; items sold leads to pushy sales; time spent causes inefficiency; sales value focuses on expensive items. Owners often choose sales value, risking stress and poor service.

What is a sign-on bonus?

A bonus paid when joining the organization, used in competitive labor markets. Example: €2000 at contract signing.

Retention bonus vs longevity bonus?

Retention bonus encourages staying short-term during transitions; longevity bonus rewards long service milestones. Example: retention €3000 for 1 year; longevity €5000 at 20 years.

What is a shift bonus?

Extra pay for unattractive or irregular shifts such as night or weekend work. Example: +20% for night shifts. Compensates inconvenience and health risks.

What are team incentive plans?

Bonuses based on group performance compared to expectations. Often ineffective due to free-riding, complexity, and lack of control. Can demotivate large teams.

What is profit sharing?

Employees receive a share of company profits. Example: 5% of annual profits distributed. Builds loyalty but weak motivation if individual impact is unclear.

What is gain sharing?

Employees share cost savings from efficiency improvements. Example: 50% of savings paid as bonuses. More motivating than profit sharing due to direct influence.

What are stock options?

The right to buy company shares at a fixed favorable price. Example: option to buy 100 shares at €10 when market price is €15. Aligns interests with long-term success.

What are benefits (fringe benefits)?

Non-cash rewards such as company cars, laptops, or remote work. Trends show growth in laptops and cars. Increase attractiveness but weak long-term motivation.

Effectiveness of benefits?

The initial "wow" effect fades quickly, creating entitlement. No strong link to engagement or retention. Supports work-life balance (Lambert, 2000).

Most desired benefits in Belgium (2025, Robert Walters)?

Top benefits: company car/transport (64%), flexible work (55%), hospitalization insurance (54%), pension contribution (50%), performance bonus (49%).

Satisfaction with reward package flexibility?

Only 28% of employees are satisfied with their ability to customize reward packages. Cafeteria plans increase choice but reduce pension accumulation.

What are cafeteria plans?

Flexible benefit systems allowing employees to choose benefits within a budget. Advantages: autonomy and cost neutrality. Disadvantages: lower social security and pension, higher administration.

Gen Z reward preferences (Robert Half)?

Gen Z prefers higher net wages over benefits due to living costs. Mobility budgets are attractive. Shows strong financial awareness.

Criticism of performance-based pay?

It reduces trust and crowds out intrinsic motivation. Linked to lower job satisfaction and increased depression risk.

Incentive effect of performance-based pay?

Increases effort but not necessarily quality, especially in complex jobs. Meta-analyses show harder work, not smarter work (Jenkins et al., 1998).

What is the sorting effect?

Performance pay attracts and retains more productive workers (44-50% effect; Lazear, 2000). Helps talent selection but increases inequality.

Impact of incentive size?

Very large incentives increase mistakes under pressure (Ariely, 2009). High stakes can harm performance.

Effect of incentives on team collaboration?

Incentives raise effort but reduce learning and information sharing (Gardner, 2012). Performance quantity rises; quality may fall.

Link between performance-based pay and well-being?

Switching to performance pay increases antidepressant use (2019 study). Indicates stress and mental health risks.

Gender pay gap in Belgium (2023)?

0.7% hourly gap favoring men; reduced by 6.8 points in 10 years. Second lowest in the EU after Luxembourg.

Causes of gender pay gap?

Main causes include job type (48%), negotiation differences (Stevens, 1993), and context effects (Baer, 2012). Transparency laws aim to reduce the gap.

Pay transparency (EU from 2026)?

Mandatory salary transparency to close the gender pay gap. Side effect: smaller raises for men reduce morale and productivity (Bennedsen, 2022).

Steps to determine rewards (insurance company exercise)?

Consider equity, internal alignment, external benchmarking, and integration. Pay depends on responsibility, market rates, and sector.

What are equity principles in reward management?

Fair treatment, access, and opportunities in pay structures. Foundation for internal and external alignment.

Internal alignment - job level approach?

Systematic job evaluation assigning points to responsibilities and skills. Ensures internal fairness.

Internal alignment - competency-based approach?

Pay based on employee skills rather than job role. Encourages development but raises costs.

Skill-based pay example?

Employees earn more as they acquire new skills. Strongly motivates learning and flexibility but increases labor costs.

Competency-based plan risks?

Competencies are hard to identify and measure objectively, making them risky for pay decisions.

Performance-based approach in internal alignment?

Pay tied to measurable results rather than time or tasks. Integrates variable pay internally.

What is external benchmarking?

Comparing pay levels with competitors to remain market competitive.

Competitive alignment strategies?

Lead (above market), match/follow (average), or lag (below market). Most firms use a hybrid strategy.

Final wage structure?

Integration of internal job value and external market competitiveness. Must feel fair internally and externally.

Factors influencing pay beyond education degree?

Sector and organization size strongly affect pay levels. Larger firms and tech sectors pay more.

Centralization of compensation decisions?

Compensation decisions increasingly involve line managers alongside HR and finance.

Public vs private sector reward differences - goals?

Private sector focuses on profit and performance incentives; public sector emphasizes equity, stability, and service.

Public vs private sector constraints?

Public sector faces budget limits, unions, and regulations; private sector has more flexibility in incentives.

Motivation in public sector?

Primarily intrinsic motivation such as job security, societal contribution, and meaningful work. Less reliance on financial incentives.