Reward Management

Justice in rewards (3 types)

1.) Equity Theory (the theory suggests that an employee perceive her/his relationship with employer as an exchange: the employee contributes 'inputs' (e.g. knowledge, skills, abilities, effort and enthusiasm) and expects to receive a just return, or 'outcomes', such as pay, perquisites, and recognition) 2.) Procedural Justice (Procedural justice concerns the fairness of the procedure used to make a decision regarding the allocation of rewards. The importance of procedural justice is reflected in the so-called 'fair process effect'. If individuals perceive the amount of rewards allocated to them as unfair, but regard the process of allocation as fair, they are less likely to react negatively to the distributive inequity. This is a strong argument in favour of not just fair, but also transparent, performance and reward management policies and processes. 3.) Interactional Justice ( Interactional justice covers two types of justice perceptions: - Interpersonal justice perceptions, i.e. whether one feels treated with dignity and respect in the context of a decision. - Informational justice perceptions, i.e. whether one feels informed about what is happening and is given an adequate explanation as to why it happened.

Pay for Performance: Ineffective Incentives Systems (features)

1.) Incomplete measures 2.) Subjective measures 3.) Uninfluenceable measures 4.) Size of the Incentives (at least 7% to matter) 5.) Simultaneous use of multiple incentives (that are cross)

Aims of Reward Management

1.) support the achievement of business goals by stimulating high performance; 2.) define what is important in terms of behaviours and outcomes; 3.) align reward practices with employee needs; reward people according to the value they create; 4.) attract and retain the high-quality people; 5.) motivate and engage employees. 6.) add value by introducing effective and affordable reward practices.

Reward System (Definition)

A reward system consists of the interrelated processes and practices which ensure that reward management is carried out effectively for the benefit of the organisation and its employees. It consists of (1) remuneration, including: base pay, contingent pay, and employee benefits and (2) non-financial rewards.

Reward Management System (Key elements)

Financial rewards versus non-financial rewards Financial rewards: 1.) Base pay 2.) Contingent awards (skill-based pay, service-related pay, pay for performance) 2a.) Pay for performance (Individual versus group based / results-based vs. merit pay) 3.) Allowances 4.) Employee benefits

Reward Management (Definition)

In the term "reward management", reward refers to the recognition of contributions or achievements of individuals or groups by a financial payment or some form of non-financial recognition. (In the United States, the term 'compensation' or 'compensation and benefits' is commonly used, rather than 'rewards'.) Reward management is the process of ensuring that people are rewarded fairly for their work and their contribution to the achievement of organisational goals. Reward management provides answers to two fundamental questions: "What do we value?" and "What are we prepared to pay for?"

Pay for Performance Programmes: Advantages and Shortcomings

Individual-based plans are likely to fit better where work is independent and competition between individuals is encouraged. They work less well where there is interdependence and a greater need for cooperation. Group and organisation-based plans would seem to provide the solution in the latter case. However, such plans have potentially weaker incentive effects. Results-based plans can achieve strong incentive intensity, but a compensating differential for the increased risk borne by workers is likely to make such plans more costly, unless expected performance improvements actually materialise. Also, objectives not explicitly included in the plan may be ignored. Behaviour-based plans can be better on these dimensions, but it is typically more difficult to achieve strong incentive intensity without objective performance measures.

Reward Philosophy (Definition)

Reward philosophy is a set of values and beliefs that influence reward strategy and the design and operation of the reward system.

Reward Strategy (Definition)

Reward strategy flows from an analysis of the business drivers. The drivers are unique to any organisation but will often include profitability, productivity, innovation, customer service, quality, and the need to satisfy the stakeholders. The question it addresses is: 'How can rewards support the business drivers in order to achieve the organisational goals?' The reward strategy defines longer-term intentions in pay structures, contingent pay, employee benefits, and ways increase employee engagement and commitment. The strategy is influenced by the reward philosophy of the organisation and by the organisational context - organisational culture, structure, operations and size and the external environment.

Non-Financial Rewards: Recognition

When considering rewards, we frequently overlook non-financial rewards, particularly recognition. Fred Luthans, Distinguished Professor of Management, University of Nebraska, and an expert on employee recognition, offers the following 12 recommendations for recognising employees (Luthans 2010: 105): "Employees never seem to tire of recognition. In psychological terms, they do not seem to become satiated, or filled up with recognition as they do, say, with food or even money. For some, in fact, the more recognition they get, the more they want. Fortunately, it is not difficult to recognize people, and there are many ways in which it can be done.