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Lesson 2 Introduction To Compensation and Rewards Chapter 1: Objectives of Compensation and Rewards Learning Objective
Lesson 2 Introduction To Compensation and Rewards Chapter 1: Objectives of Compensation and Rewards Learning Objective
Determinants of Incentives
Though compensation and compensation policies are only one of the factors which
impinge on macro-economic stability, they do contribute to (or impede) balanced and
sustainable economic development.
(4) Efficient allocation of labor in the labor market. This implies that employees
would move to wherever they receive a net gain, such movement may be form one
geographical location to another or form on job to another (within or outside an
enterprise). The provision or availability of financial incentives causes such
movement.
For example, workers may move form a labor surplus or low wage area to a high
wage area. They may acquire new skills to benefit form the higher wages paid for
skills. When an employers wages are below market rates employee turnover
increases. When it is above market rates the employer attracts job applicants. When
employees move from declining to growing industries, an efficient allocation of labor
due to structural changes takes place.
Other Objectives of Compensation:
(1) Acquire qualified personnel compensation needs to be high enough to attract
applicants. Pay levels must respond to the supply and demand of workers in the labor
market since employers compete for workers. Premium wages are sometimes needed to
attract applicants already working for others.
(2) Retain current employees- Employees may quit when compensation levels are not
competitive, resulting in higher turnover.
(3) Reward desired behaviour- pay should reinforce desired behaviors and act as an
incentive for those behaviors to occur in the future. Effective compensation plans reward
performance, loyalty, experience, responsibility, and other behaviors.
Control costs- a rational compensation system helps the organization obtain and retain
workers at a reasonable cost. Without effective compensation management, workers
could be over paid or under paid.
(4) Comply with legal regulations- a sound wage and salary system considers the legal
challenges imposed by the government and ensures the employers compliance.
Facilitate understanding- the compensation management system should be easily
understood buy human resource specialists, operating managers and employees.
(5) Further administrative efficiency- wage and salary programs should be designed to be
managed efficiently, making optimal use of the HRIS , although this objective should be
a secondary consideration compared with other objectives.
Rewards:
The use of Incentives or Rewards assumes that people's actions are related to their skills
and ability to achieve important longer-run goals. Even though many organizations, by
choice, or tradition or contract, allocate rewards on non-performance criteria, rewards
should be regarded as a "payoff" for performance.
An Incentive Plan has the following important objectives:
(1) An incentive plan may consist of both 'monetary' and 'non-monetary' elements.
(2) Mixed elements can provide the diversity needed to match the needs of
individual employees.
(3) The timing, accuracy and frequency of incentives are the very basis of a
successful incentive plans.
(4) The plan requires that it should be properly communicated to the employees
to encourage individual performance, provide feedback and encourage
redirection.
Determinants of Incentives
These feature are contingencies, which affect the suitability and design of incentives to
varying degrees. The effective use of incentives depends on three variables-the
individual, work situation, and incentive plan.
(I and Ill) The Individual and the Incentives: Different people value things differently.
Enlightened managers realize that all people do not attach the same value to monetary
incentives, bonuses, prizes or trips. Employees view these things differently because of
age, marital status, economic need and future objectives.
However, even though employee reaction to incentives vary greatly, incentives must
have some redeeming merits. For example, there might be a number of monetary and
non-monetary incentive programmes to motivate employees. Money, gift certificates,
praises, or merit pay are of the continuous parade of promotion.
(ii) The Work Situation: This is made up of four important elements:
Technology machine or work system, if speed of equipment operation can be varied, it
can establish range of the incentive.
(b) Satisfying job assignments, a workers' job may incorporate a number of activities that
he finds satisfying. Incentives may take the form of earned time-off, greater flexibility in
hours worked, extended vacation time and other privileges that an individual values.
Feedback, a worker needs to be able to see the connection between his work and rewards.
These responses provide important reinforcement.
Equity, worker considers fairness or reasonableness as part of the exchange (or his work,
Incentives, in general, are important motivators. Their effectiveness depends upon three
factors: drives, preference value, and. satisfying value of the goal objects.
Misra says: "Beyond subsistence level, becoming needs (self-actualization needs) possess
greater preference value and are more satisfying than deficiency needs (which are
necessary for survival). Below the subsistence level, however, the reverse holds true." He
makes the following generalizations:
(i)
(ii) Financial incentives relate more effectively with basic motivation or deficiency
needs.
(iii) Non-financial incentives are linked more closely with higher motivation, or
becoming needs.
(iv) The higher the position of a person in an organizations hierarchy, the
greater is his vulnerability to non-financial incentives.
"While budgetary restrictions and' temporary improvements in performance place a limit
on the potency of money as a motivator, non-financial incentives involve only human
ingenuity as investment and also insure a relatively stable acceleration in output.
Monetary incentive imply' external motivation, non-monetary incentives involve internal
motivation. Both are important. It is a judicious mix-up of the two that tends to cement
incentives with motivation.
Tutorial Activity 1.1
(1) Discuss the objectives of compensation and Rewards.
(2) Discuss the determinants of compensation and Rewards.
Tutorial Activity 1.2
Let us study the reason that why doesn't pay motivate?
Most companies have some form of incentive plan. However, one of the most frequent
comments heard is that "my employees aren't performing any better with the incentive
plan than they were before. Am I wasting my money?" Chances are you are.
To provide effective motivation, incentives must:
1. Flow from the business process
the company or the actions employees can actually control to achieve those goals.
Compensation must be seen as part of the total business process to be successful.
Ted Buyniski is a Principal with Quantic, Inc., a compensation and strategic HR
consulting firm headquartered in San Francisco. He manages the East Coast practice from
Chester, NJ.
Theodore R. Buyniski
Tutorial Activity 1.3
From the case below let us understand the Reward system of this organization:
The Employers Organization
Company background:
The Employers' Organisation for local government's (EO) role is to help councils achieve
the high standards of people management needed to ensure the continuous improvement
of services.
We offer a range of services to local authorities, from free telephone advice and specialist
guides to tailor made consultancy services.
Essex Our approach to pay progression
Essex County Council has been going through radical change. Some of that change has
been structural but the more important aspect of the change is cultural. We are seeking to
move the organisation to a much more customer focused and facing organisation.
Situation
One of the mechanisms to support this move has been our approach to pay strategy. We
also wanted to implement the Single Status Agreement, which removes the employment
conditions divide between some of our staff. The Agreement and the approach we used
affected our 9,000 staff.
The cornerstone of our approach was to develop the Essex Competency Framework. This
sets out the skills and abilities that our staff need to deliver best quality services for the
Council. We then incorporated this into our individual performance management system.
This formed the foundation on which we could build our new approach. The principles of
the approach are:
(1) It is simple and consistent
(2) A member of staff meeting the objectives of their job and their competency
statements can expect pay progression
enough to cover all jobs and roles within the Council including the Member role. For jobs
above spinal column point thirty-four and for Members the Competency Framework is
used in a different way.
Each year, the manager will identify the spinal column point for their member of staff as
at the first of April. A database will produce all of the appropriate statements under the
selected Competency Heading for that spinal column point. These will be recorded on the
appropriate form for the individual together with their agreed objectives for the year. The
professional technical statements are not prescribed because they relate directly to the
area of work and the manager will draft these with the individual, although there is
general guidance in place to assist the process.
Questions:
(1) What do you understand by the term People Management.
(2) What is pay progression and discuss its relevance to this case.
Tutorial Activity 1.4
Let us understand the rewarding strategy of an another company belowFRONT RANGE SOLUTIONS
Company Information:
Founded in 1989, FrontRange Solutions Inc. is a privately held company, delivering
software that facilitates extraordinary relationship solutions. An international leader in
business relationship software for nearly 15 years, FrontRange Solutions employs more
than 500 people worldwide.
FrontRange Solutions' products address the needs of customer service and support (help
desk), sales force automation (SFA), knowledge management and customer relationship
management. FrontRange's expertise lies in delivering the highest value, industryspecific, integrated software solutions for the complete lifecycle of business relationships.
And FrontRange puts its knowledge into practice by providing outstanding customer
service to the over 100,000 customers and one million plus users. One result: HEAT, the
service and support solution from FrontRange, has a 98% customer satisfaction rating as
indicated by an independent survey.
We have a reputation for providing big-company solutions at prices that dont exclude
small organizations. FrontRange has earned more than 60 major industry awards,
including: Software Magazine Hot 500, Windows Magazine "Win 100," Call Center
CRM Solutions Magazine Editor's Choice, RealWare Award for CRM, WinMag.com
WinList Award, Entrepreneur Magazine Best Software, Call Center Solutions Product of
the Year, and InformationWeek Top 50 Application Service Providers.
Rewarding strategy of FrontRange
FrontRange Solutions rewards its employees
FrontRange Solutions' Total Rewards Strategy contains four key components to attract,
motivate and retain the best talent available in the marketplace:
Compensation:
FrontRange Solutions offers its employees a competitive pay package that provides:
-
Our goal is to give employees a variety of benefits choices and to deliver these benefits in
a tax-effective, economical manner.
Development:
We believe in helping employees develop to their utmost potential. Given the unique
nature of FrontRange Solutions' business, we cannot rely on external recruiting as a
primary source of talent- so we have developed those critical skills internally.
Workplace Environment
FrontRange Solutions is committed to creating an environment that attracts and rewards
talented, ambitious people. Employment with our company is an enriching experience
that enables employees to achieve their highest potential. To that end, we will recognize
and reward teamwork, excellence and innovation, and will provide opportunities
consistent with these contributions.
We also foster diversity among our employees and value the broad spectrum of thought
and skills each person brings to FrontRange Solutions. Performance is measured in ways
that encourage reasonable risk-taking, foster an awareness of personal accountability, and
support standards and competencies consistent with FrontRange Solutions' basic values.
Overall, the relationship between our company and our employees is governed by respect
for the individual and a sense of personal integrity. FrontRange Solutions recognizes that
only when a company truly values people can it expect to be prized as an employer.
To the extent permitted by applicable law, FrontRange Solutions retains employees on an
at-will basis. Nothing in this website is intended to alter an employee's at-will status, or
create an offer or contract of employment.
Questions:
(1) Discuss the Rewarding Strategy of FrontRange.
(2) Discuss on the nature of pay package offered by FrontRange.
(3) What do you understand by the term employee benefits and throw light on the
nature of benefits provided by FrontRange to its employees.
(4) Discuss the importance of Workplace Environment with regard to reward
management.