1377072968x

GSBS6040 Human Resources Management
asif.hoshiarpur@newcastle.edu.au
Pay and Rewards
Learning Objectives
1
2
3
4
Understand the strategic considerations, challenges and choices
involved in employee reward management
Appreciate the importance of reward management in contemporary
human resource management strategy and practice
Identify the four main elements of a ‘total reward’ approach, namely
financial, developmental, social and intrinsic rewards
Compare and contrast the main components of employee
remuneration and distinguish between base pay, benefits and
performance-related pay
(cont.)
Learning Objectives (cont.)
5
Critically analyse the main types of performancerelated reward, including individual and collective
plans, short-term and long-term plans and the
advantages and disadvantages of each
6
Understand the processes and challenges involved in
developing a strategically-aligned reward management
system
7
Understand the nature of executive incentives and the
reasons for the controversy surrounding them
Introduction
‘A reward may be anything tangible ... or intangible ...
that an organisation offers to its employees in
exchange for their potential or actual work
contribution ... to which employees as individuals
attach a positive value as a satisfier of certain selfdefined needs.’
(Nankervis, Compton, Baird & Coffey 2011, p.395)
Strategic remuneration also known as
Compensation
 Remuneration:
 What employees receive in exchange for their work.
Includes pay and benefits (total remuneration) or
just pay (cash remuneration).
 Remuneration is one of the most important HRM
functions.
 It can help to reinforce the organisation’s culture
and key values and facilitate the achievement of
its strategic business objectives.
 A significant mismatch between remuneration
and organisational strategy is likely to result in
major barriers to business achievement.
Importance of Remuneration
 Impacts employer’s ability to attract & retain
employees
 Ensure optimal levels of employee performance in
meeting organization’s strategic objectives
 Compensation’s components
 Direct compensation in wages or salary
 Base pay (hourly, weekly, monthly)
 Incentives (sales bonuses &/or commissions)
 Indirect compensation in form of benefits


Legally required benefits (e.g. superannuation)
Optional (e.g., health cover)
Key Strategic Issues in
Remuneration
 Determining compensation relative to market
 Balance between fixed & variable compensation
 Deciding whether or not to utilize team-based
versus individual pay
 Creating appropriate mix of financial & nonfinancial compensation
 Developing cost-effective compensation program
resulting in high performance
Remuneration philosophy
 A formal remuneration policy should:
 reflect the organisation’s strategic business
objectives and culture;
 articulate the objectives that an organisation
wants to achieve via its remuneration programs;
 be communicated to all employees;
 provide the foundation for designing and
implementing remuneration and benefit
programs.
Market posture (Positioning)
 Market posture:
 An organisation can adopt one of the three market
postures:

Pay above market average

Pay market average

Pay below market average.
IMPLICATIONS?
REM Objectives
 Create a reward culture
 Remain competitive
 Maintain salary equity
 Motivate employees
 Control salary costs
 Attract and retain excellent people
 Reduce unnecessary turnover
 Reinforce organisation culture
 Support business plans and direction
Key Issues in REM
 For what will people be rewarded?
 Reward mix - fixed, variable, non-financial
 Where should we position ourselves? top?
median? bottom?
 Individual pay - award? market rate? experience?
contribution, performance
 Variable pay - what? how? makeup? at risk?
 Reviews - how often?
 Total employment costs V Total employee
rewards - transparency issues
Influences on REM strategies
 Legal - Awards, EBAs, Contracts, Statutes
 Market forces - Supply of labour, economics.
 Value of work - Knowledge, skills, impact on
organisation, complexity, problem solving.
 REM Philosophy - What to reward? Can we afford?
Who to attract? Fixed or variable? Benefits?
 Individual contribution - performance,
contribution, bargaining power, competences
 Link to performance The Law of effect.
Remuneration (REM)
Strategies
Employee Issues
 Am I being paid fairly?
 Equity with others?
 Equity with market?
 How do I get a pay rise?
 Benefits/rewards?
 Packaging?
 Incentive schemes?
 Performance links?
REM issues for employers
 Will we attract the calibre of individuals we
need?
 Are rates equitable across organisation?
 Are rates equitable across the competition?
 What can we afford?
 Is our system simple and easy to understand?
 Is it flexible?
 Is it acceptable to our people?
 Is it easy to change?
A strategic model of reward management
Reward system objectives
Attract
The right
people at the
right time for
the right jobs,
tasks or roles
Retain
Develop
Motivate
The best people
by satisfying
their workrelated needs
and aspirations
and recognising
and rewarding
their
contribution
Required
workforce
capabilities by
recognising
and rewarding
employees for
knowledge,
skill and
ability
enhancement
To contribute to
the best of their
capability by
recognising and
rewarding high
individual and
group
contributions
towards meeting
the organisation's
strategic objectives
Secondary reward system
objectives
Satisfy
relevant
human needs
Equitable
Legal
Affordable
Cost-effective
Strategically
aligned
‘Rewards’ and ‘total reward’
 Extrinsic
 associated with but external to the job
 Financial rewards
 base pay
 benefits
 performance related
 Development rewards
 Social rewards
 Intrinsic
 from the content of the job itself
Elements of ‘total reward’
Incentives: for and against
The case for
The case against
 Agency theory, reinforcement
theory, expectancy theory and goal
setting theory all emphasise the
centrality of employee cognitive
processes to understanding and
managing the relationship between
rewards and task motivation
 Incentives undermine intrinsic
interest in the job
 Performance-related rewards
operationalise the ‘equity’ norm of
distributive justice
 Rewards motivate people to pursue
one thing above all else
 Rewards punish
 Rewards rupture cooperative work
relationships
 Rewards ignore underlying reasons
for work problems
 Rewards discourage risk-taking
Should teachers be paid for performance? If so, how? If not, why not?
Strategic reward management
 Internal fit
 External fit
 Competitive strategies
 defender
 analyser
 prospector
Pay determination in the changing Australian
regulatory environment
 HRM and reward strategies and practices are influenced
by the dynamic external environment
Economic
Political
Legal
Industrial
relations
contexts
Pay determination in the changing Australian
regulatory environment
 20th century remuneration standards for the majority shaped by
award determinations
 Last two decades have witnessed an accelerating trend away from
centralised system of pay-setting and pay adjustment towards
agreement-making at enterprise and individual levels
 WorkChoices Act 2005
 Fair Work Act 2009
‘Pay-setting by means of individual agreement-making is good for business; paysetting by means of collective agreements is bad for business.’ Discuss this
statement.
Pay plan types
Base pay plans
• The foundational or fixed component of employee
remuneration and is generally regarded as the pay best suited
to addressing the objectives of staff attraction and retention
Benefits plans
• Financial entitlements that directly supplement cash base pay,
including employer contributions to superannuation and
health and medical insurance, paid leave etc.
Performance-related pay plans and rewards
• Also known as incentive plans, these are rewards given in
recognition of past performance and in order to reinforce and
enhance future performance
Job-based base pay
 Job-based base pay
 Skilled-based pay
 Competency-based pay
Why does the gender pay gap persist, who is responsible for
it, and what (if anything) can be done about it?
Options for base pay
Performance-related pay plans and rewards
Performance-related pay plans and
rewards
 Collective short-term incentive plans
Profitsharing
• regular bonuses to eligible employees using formula
Gainsharing
• management shares financial gains with employees
Goalsharing
• collective goal-based bonus
Team incentives
• small group adaptation of goalsharing
Benefits plans
 Mandatory benefits
 Provision for employee economic security
 Include such benefits as superannuation, workers’ compensation,
various forms of paid leave
 Voluntary benefits
 Enhance an organisation’s ability to attract and retain high-value
employees and enable it to offer employees a more appealing ‘value
proposition’
 Includes such benefits as company cars, gym membership, self-
education, computers, mobile phones
Flexible benefit plans
 Diverse 21st century organisations reflect the
diversity of employees. Accordingly, different
benefits are needed.
 Some organisations offer flexible (cafeteria or
buffet) benefits.
 Employees can select benefits based on:
 Personality
 Interests
 Values
 Needs.
Examples of employee benefits
International perspective
 Differences may be due to particular social, cultural, legal-
institutional, economic, and political context
 Move from an ethnocentric approach to a polycentric
approach or a blend of the two (geo-centric approach)
How
can a multinational firm ensure that the rewards it offers to host
country professionals working beside home country expatriates in a
low labour cost country such as India best address the need to attract,
retain and motivate these local employees?
Meeting the challenge of
strategic reward alignment
1. Preparing a statement of reward philosophy and strategy
2. Determining total reward mix
3. Determining remuneration levels
4. Ensuring strategic fit or alignment
5. Communicating the ‘deal’
Which is best from the organisation’s
perspective: pay openness or pay secrecy? Why?
Executive incentive plans
 Increasing linkage of executive pay to performance
 Short-term incentives:
 generally one year and linked to goals in
organisational financial performance
 instrumentality and reinforcement
 susceptible to manipulation
(cont.)
Executive incentive plans
(cont.)
 Long-term incentives:
 generally for three or five years and in the form of company
equity rather than cash
 main types are restricted share plans, option plans,
performance shares and share appreciation rights
If we are happy to see film stars, rock stars and sports stars receive
astronomical incomes, shouldn’t we also be willing to see ‘celebrity’ CEOs
rewarded in a similar way?
Summary
 Aim is to maximise contribution of human resources to
organisational effectiveness and success
 Importance of ‘total reward’ approach
 Three main elements of total remuneration
 Incentives for line employees
 Incentives for executives
 Challenging and complex but also allows HR to demonstrate
their worth
Equity theory


People evaluate the
fairness of their
situations by comparing
them with those of other
people. It is a matter of
perception.
Internal Equity
Perceived fairness of pay and
reward differentials between
different jobs in organization –
and people.
External Equity
 Perceived fairness of
organizational compensation
levels relative to external
compensation
External Equity
 Lag policy
 Lower wages than
competitors,
compensates
employees through
other means





Opportunity for
advancement
Incentive plans
Good location
Good working
conditions
Employment security
 Market policy
 Wages equal to
competitors
 Neutralizes pay as
factor
 Lead policy
 Higher wages than
competitors to
ensure organization
becomes employer of
choice
Importance of Pay Equity
 External equity
 Pay relative to ‘market’
 determined by salary surveys
 Internal equity
 Pay differentials within the organisation
 Determined by job analysis and evaluation
 Individual equity
 Perceptions of fairness of pay in relation to skills, work,
position of an individual – perception is reality.
 Collective equity
 Perceptions of fairness of pay in relation to other
occupation/professional groups, same kinds of workers
in other industries
Individual Equity
 Fairness about pay differentials among
individuals in same job
 Established by using
 Seniority-based pay systems: Reward longevity
 Merit-based pay systems: Reward employee
performance
 Incentive plans: Employees receive part of
compensation based on performance
 Skills-based pay systems: Compensation based
on employees possessing skills that firm values
 Team-based pay plans: Encourage cooperation &
flexibility
Individual Equity
 Team-based pay plans
 Can be less time-consuming than administering
individual reward systems
 May impact group dynamics
 Can adversely impact & intensify conflict
 Need decentralized decision-making system
 Need high level of communication with employees
 Employees should have voice & provide input into
design
 Team members need to feel system is fair &
equitable
Equity & Work-Related Outcomes
Broader notions of Equity
 Distributive justice (also distributive fairness).
The perception that rewards are distributed in
relation to contribution. Perceptions again!!
 Procedural justice – A concept of justice focusing
on the methods used to determine the outcomes
received. Is the system fair? Valid? Reliable?
Understandable?
Market Testing
Where do you get it?
 Published reports
 Customised remuneration survey
 HR professionals in other organisations
 Newspaper advertisements
 Employer associations, conferences, recruitment
consultants
Questions?
Class Exercise