Reward Management

Managing Human Resources

Definition of Reward
Management
 “Reward Management is concerned with
the formulation and implementation of
strategies and policies that aim to reward
people fairly, equitably and consistently in
accordance with their value to the
organization”
 (Armstrong and Murlis 2004)
Shift in Jobs & Reward Systems
 1960s & ‘70s
– manual workers, piece-rates/wage drift, measured day
work, incomes policies
 1980 & ‘90s
– service/knowledge workers, PRP, shares
 2000s
– Reward management
– PRP 1998 20%, 2004 32%, 36% 2007
– “Total Reward”
Objectives of Reward
Management
 Support the organisation’s strategy
 Recruit & retain
 Motivate employees
 Internal & external equity
 Strengthen psychological contract
 Financially sustainable
 Comply with legislation
 Efficiently administered
Basic Types of Reward
 Extrinsic rewards
– satisfy basic needs: survival, security
– Pay, conditions, treatment
 Intrinsic rewards
– satisfy higher needs: esteem,development
Reward Options
 Base pay--fixed or minimum wage/salary
 Plussage--capability, qualification
 Premia/Overtime
 Performance related pay
 Indirect pay--benefits, non-cash, shares
 Non-monetary: recognition, advancement
 “Total Reward” Pay, non-pay, flexible hours,
cafeteria benefits
Rewards by Individual, Team,
Organisation
 Individual: base pay, incentives, benefits
– rewards attendance, performance, competence
 Team
– team bonus, rewards group cooperation
 Organisation
– profit-sharing, shares, gain-sharing
Motivation theories I
 Maslow’s hierarchy of needs
– Physiological, safety, social, esteem, self-
actualisation
 Herzberg
– Hygiene, motivators (e.g.,sense of achievement)
 McClelland
– Learned needs
Motivation theories II
 Vroom’s expectancy theory
– Valance: attractive outcome
– Instrumentality: performance results in desired
reward or achievement
– Expectancy: effort will lead to level of
performance
 Equity theory
– fairness judged by comparison--internal, external
Determining Reward: Job
Evaluation
 Ranking of jobs by relative worth to the
organisation
 Non-Analytical
– whole jobs, paired jobs (matrix), job
classifications
 Analytical
• components, factors, competencies
• points rating(e.g.; 1-10)
Pay & SHRM
 Achievable organisational objectives
 Clear link between pay and objectives
 Contingency model:
– Vertical fit--alignment of pay systems &
business objectives
– Horizontal fit--pay and HR practice support one
another
Use of Reward Management
(CIPD 2008)
 Written Reward Strategy 33%
 Total rewards approach 29%
 Key factor in salary level
– market rates 31%,
– ability to pay 22%
 Key factor in pay review
– organisational performance 53%
– inflation 44%
Incentive plans (CIPD 2008)
 Individual 60%

 Business results 51%

 Combination 50%

 Team-based 27%
Performance appraisal: MAJOR
GOALS

 Improve performance
 Increase motivation
 identify training/development needs
 manage careers
 set levels of reward
 control
APPRAISAL METHODS
 OUT  IN

 Psychometric Scales
 “Rank & Yank”

 360º Appraisal
 Critical Incident
 Frequent Review

 Role of line manager

WHO DOES APPRAILSAL?
 “…owned and driven by line-manager”
(Armstrong, 2006)
 360º Appraisal
– Managers (alone 180º)
– HRM personnel
– Peers
– Subordinates
– Self
– Customers (540º)
PSYCHOMETRIC SCALES
 BARS--Behavior Anchored Rating Scale
– Anonymous questionnaire
– 1-7 “unacceptable” to “excellent” behavior

 BOS--Behavioral Observation Scale

– Anonymous questionnaire
– 1-5 “never” to “always” behavior traits
Use by HR Practitioners
 Annual Appraisal 83%  Twice-yearly appraisal
 Personal development 24%
68%  Subordinate 20%
 Self-appraisal 45%  Continuous
 Coaching 39% assessment 17%
 Competence  360° appraisal 11%
Assessment 31%
Problems with PRP
 Objectivity
 Psychological contract & equity
 Inhibits open discussion of training needs
 Time consuming
 short-termism
 “PRP is not a silver bullet” (CIPD)
 Shift from ‘performance” to ‘contribution’