Rewards/Benefits
Group vs. Individual
• Additionally, it is important to consider whether it is a group or an individual financial incentive. A group financial incentive would be appropriate when you want to reward and encourage team performance, and some research has demonstrated the effectiveness of group-/unit-level incentives. Individual-level incentives/rewards tend to increase competition among employees, especially when there is a fixed amount of rewards to be distributed (Lawler, 2006).
Social Cognitive Theory
• Bandura, 1986 • one of the most "basic" psychological science theories that has been applied to rewards systems. • SCT posits that human behavior is initiated and regulated by internal self-set standards and self-evaluative reactions to those standards. After personal standards have been set, then, incongruity between one's standards and his/her actual behavior initiates self-evaluations, and in turn modification of future behavior. • Bandura (1969) follows up this theory by explaining that behavior modification is regulated through feedback, rewards, and punishments. This theory can be well-applied to rewards systems, particularly when they are given as feedback or discussed as follow-ups to performance management systems such as performance appraisals.
Social Exchange Theory
• Blau, 1964 • discusses the norm of reciprocity. This suggests that individuals who are treated favorably by others feel a sense of obligation to respond positively, or to return the favorable treatment in some manner. Understandably, a great deal of the rewards literature has been based in this theory (e.g. Wayne et al., 2002). • Employees who feel a high level of organizational support or feel contingently rewarded (to be discussed below) for their actions may feel a sense of indebtedness to the organization, and act in turn then to benefit the organization. This may manifest through higher performance (task or organizational citizenship behaviors), retention, speaking positively of the organization to outside parties, and many other possibilities. • A related theory includes the social exchange approach to leadership (Hollander, 1978), which posits that "a fair exchange involves a climate in which a leader sees that equitable rewards are provided. • Basic to the exchange process is the belief that rewards, such as recognition, will be received for benefits given." With that said, social exchange theory serves as feasible foundation for understanding how organizational rewards and benefits may subsequently influence employee behavior.
Decisions to make:
• Contingent or non contingent? • Financial or non financial? public recognition or non public recognition? • Group or individual level?
Types of rewards - contingent vs. noncontingent
• Contingent versus non-contingent rewards refer to whether rewards are administered depending on performance or not. Contingent rewards are commensurate with performance, and there is a strong link between an employee's performance and his/her reward. • Non-contingent rewards are rewards that are delivered regardless and independently of performance or specified behaviors (Lawler, 2006). An example of this is a set number of vacation days each year regardless of performance or number of hours worked. • Some research has demonstrated that the distinction between contingent and non-contingent rewards makes a big difference on outcomes, and thus the administration of rewards should be closely attuned to (Lawler, 2006). • Some findings indicate that the more closely rewards are tied to behavior, the greater the improvement on a variety of outcomes. For example, reward contingencies moderate the performance-turnover relationship in that higher performers reported more turnover intentions when rewards were not perceived as contingent on performance (Sturman & Trevor, 2001; Trevor et al., 1997). When a weak pay-for-performance link exists, organizations are more likely to lose their top employees because the desire to change jobs increases as inequality increases (Gerhardt et al., 1992). • It has been found that contingent systems are viewed as more fair in competitive, Western societies than in Eastern, collectivistic cultures (Webb et al., 2013). • Thus, it is generally recommended that rewards are contingent.
Types of rewards - financial vs. nonfinancial
• Financial rewards (specifically money) has been shown to attract, retain, and motivate employees (Stajkovic & Luthans, 1997) and can act as a punishment when withheld (Milkovich & Newman, 1999). Forms of financial incentives beyond money include vacations, gift certificates, and lump-sum bonuses. • To make financial incentives more effective, Lawler (2000) suggested the administration is closely attuned to and that these rewards are as contingent as possible. One deficiency of financial rewards is that they do not generally provide feedback or specific information about a person's task performance. • Non-financial incentives often include recognition, social recognition, and performance feedback. These are closely linked to performance and generally allow employees to know exactly what they are being rewarded for. • Recognition refers to formal programs such as employee of the month or top sales award. • Social recognition, on the other hand, refers to informal praise, appreciation, and approval such as an email to everyone recognizing an employee's or a team's accomplishment (Luthans & Stajkovic, 2000). These do not require money, but they do require managers' time and effort (Stajkovi & Luthans, 2001). • Performance feedback can also be viewed as a reward, and is quantitative or qualitative information on past performance highlighting what to maintain or what to change (Prue & Fairbank, 1981). This is best if you wish to guide performance down the road; there are more mixed results of performance feedback as a reward, but it is valued by employees and is an important component of behavioral management at the very least (Peterson & Luthans, 2006).
Organizational Behavior Modification Model
• Luthans & Kreitner, 1985 • This model proposes five steps for organizations to manage employee performance: (1) identify, (2) measure, (3) analyze, (4) contingently intervene in, and (5) evaluate employee task behaviors aimed at performance improvement. • While this is a general model that applies to many components of I-O psychology, rewards/benefits fit in well in the "contingently intervene in" step of behavior modification. In other words, rewards can be used as a means for intervention, either by removing or adding rewards based on the ultimate goal (Luthans & Kreitner, 1985). • Additionally, some research has shown that actually following the steps of the OB.Mod model is more effective in administering rewards and subsequently improving performance than simply offering rewards from the beginning or other processes of rewarding. For example, Stajkovic and Luthans (2001) found that rewarding employees with money improved performance overall, but improved performance more when it was administered through the OB.Mod method than the pay-for-performance method.
Types of Rewards/Benefits - Intro
• Once past theories have informed an understanding of how rewards can effectively have their desired effects (e.g. improve performance, increase retention, etc.), it is then important to select the types of rewarding that are possible. Generally, the research tends to discuss these types in two categories: financial versus non-financial rewards, and contingent versus non-contingent rewards.
Conclusion
• Organizations must first identify what their goals are with a rewards system, and then decide which theories can be applied in order to guide whether financial, non-financial, contingent, or non-contingent rewards (or a combination of all of these) should be used. • Generally, it is suggested that a combination of reward types is used, especially if the goals behind the reward system are many (Stajkovic & Luthans, 2001). • Stajkovic and Luthans (2001) found that monetary interventions using the O.B. mod. Lead to a 37% performance increase (over an 11% performance increase when the money was not tied to this model). This demonstrates the importance of theoretically grounding rewards choices. Additionally, they found that social recognition lead to a 24% performance increase, and performance feedback a 20% increase. • Thus, all of these methods make a difference, and a combination may be most effective and account for the greatest number of objectives of a rewards system • Organizations must also consider their time and monetary resources, as different types of rewards differentially require different amounts of these, and the values of the culture, what would be perceived as a "fair" system. Thus, taking these findings into account along with the goals, context, and resources of an organization are all important steps in creating effective rewards systems
Introduction
• Reward and benefit systems within organizations serve numerous functions necessary for a fully effective workforce. They help to recruit and retain high-performing employees, and can help to give organizations a competitive edge in hiring and retaining top talent in an increasingly competitive market (Lawler, 2006). An appropriate and competitive benefits/reward system is additionally a way to market an organization, to demonstrate its strategy, and to motivate, guide, and correct employee behavior. They can also help to establish a sense of organizational justice in organizations, which has important consequences for employee performance and work attitudes (Webb et al., 2013). • Additionally, reward and benefit systems are crucial in making the all elements of an organization operate effectively and cohesively; for example, it does not make sense to combine a structure that calls for teams with a reward system that only rewards individual performance. • As such, these systems are important not only in recruiting and retaining top talent, they can also help establish organizational norms and structures and move organizational structures forward (Lawler, 2006). • Ultimately, the rewards organizations choose to offer employees for a variety of reasons can send strong messages to employees about how they are valued, perceptions of fairness, and what they are supposed to do at the organization. • With that said, I will begin by discussing some of the most important theories behind rewards/benefits, followed by different types of rewards systems, and finally some best practices in establishing these systems.
Theories Behind Rewards Systems - Intro
• Theories of reward systems are numerous, and range from basic social psychological theories to organizational behavior theories. While there are many theories that can be and have been applied to rewards systems, I will discuss three: social exchange theory (Blau, 1964), organizational behavioral modification (O.B. Mod; Luthans & Kreitner, 1985), and social cognitive theory (Bandura, 1986). • Stajkovic and Luthans (2001) found that monetary interventions using the O.B. mod. Lead to a 37% performance increase (over an 11% performance increase when the money was not tied to this model). This demonstrates the importance of theoretically grounding rewards choices.
If asked to design:
• explain each of the theories and decisions to make, and then explain each one through different contexts in terms of design. Example: if I were designing a system that was aimed to improve performance among individuals and wished to increase competition among employees, I would offer individual financial rewards solely contingent on performance, and would pair that with informal public social recognition for employees who were doing well. If I wanted to improve teamwork and performance, I would offer team financial rewards based on performance (at a minimum - could also offer nonfinancial rewards). If I wanted to decrease competition in the company, I would not offer public recognition.