Reward Management

Reward Management Introduction

• Reward management is increasingly crucial for attracting and retaining talent while influencing employee engagement, performance, and behavior.
• Key elements: pay, incentives, and benefits.

Scope of Reward Management

• Cost Implication: Reward packages are among the largest costs for employers, accounting for up to 50% of operating costs.
• Components of Rewards:
  • Pay: Basic wage or salary.
  • Incentives: Rewards for exceeding performance expectations.
  • Benefits: Indirect rewards such as health insurance and pensions.

Objectives of Reward Packages

• Attract and retain employees.
• Motivate employees.
• Integrate with HR and business strategy.
• Support organizational goals like growth and innovation.
• Address basic needs and promote fulfillment of higher-order desires.

Towards an Effective Reward System

• Key Considerations:
  • Differentiate between extrinsic and intrinsic rewards.
  • Determine if pay will be performance-contingent.
  • Align with business objectives and HR policies.
  • Consider the organization's cost structures and competitive strategies.
• Characteristics of Effective Reward Systems:
  • Individualized rewards.
  • Promote internal equity: fairness within organization.
  • External equity: fairness in the labor market.
  • Trust from shareholders.
  • Encourage collaborative efforts among employees.

Equity in Reward Management

• Types of Equity:
  • Distributive Equity: Comparison of personal performance and rewards against others.
  • Procedural Equity: Fairness of the processes determining compensation.

Recent Developments in Reward Management

• Increased focus on performance-related pay, shifting away from positional pay.
• The rise of performance management systems.

Total Reward Framework

• Total Reward Components:
  • Base Pay
  • Variable Pay (incentives and bonuses)
  • Non-financial rewards (recognition, benefits)

Job Value Determination

• Pay Equity: Assess the fairness of pay internally and externally.
  • External Competitiveness: Pay must be competitive with similar roles outside the organization.
  • Internal Equity: Pay should reflect the relative value of jobs within the organization.

Job Evaluation Approaches

• Job Evaluation Purpose:
  • To equitably structure pay based on job worth.
  • Ensure fair management of pay relativity.
• Evaluation Techniques:
  • Non-Analytical Schemes: Job ranking, classification, paired comparison.
  • Analytical Schemes: Points rating, competency-based evaluations.
• Advantages and Disadvantages:
  • Non-analytical methods are simpler and faster.
  • Analytical methods offer objectivity and detailed discrimination but can be complex and costly.

Criticisms of Job Evaluation

• May fail to recognize individual contributions.
• Inflexible job descriptions may inhibit adaptability.
• Not suited for knowledge worker environments.

Payment Systems Overview

• Payment Types:
  • Fixed rates (salaries, hourly wages).
  • Performance-related pay schemes.
  • Non-pay benefits (fringe benefits, stock options).

Payment by Results Systems

• Payment methods based on output or performance metrics:
  • Piecework
  • Gain-sharing
  • Skill-based pay
• Pros and Cons:
  • Incentivizes productivity but risks quality deterioration and inequity perceptions.

Cafeteria Approach to Rewards

• Provides flexibility in total remuneration packages.
• Advantages: Employee satisfaction, tailored options.
• Disadvantages: Complexity in costing, administration.

Motivation and Pay

• Pay effectiveness influenced by existing scales and perceived performance.
• Herzberg's theory suggests that pay alone may not suffice for motivation post-basic needs fulfillment.

Key Issues in Reward Management

• Active management of rewards is essential for leveraging human resources.
• Performance management should integrate broader HR strategies rather than only focusing on pay.

Conclusion

• Successful reward systems require transparency, consistency, and alignment with organizational goals.
• Understanding employee needs and preferences is vital for effective reward management.