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.