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HUMAN RESOURCE MANAGEMENT

Course Book 2
Chapter 1
Reward Management
Md. Rifat Amin Ryhan
Assistant Professor, BiMS
rifat@bimsedu.com
(March, 2015)
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REWARD MANAGEMENT

What is 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 organisation.
Reward management strategies are designed to support
the achievement of business objectives, by helping to
ensure that the organisation can attract, retain and
motivate competent and committed employees.

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1.1 What is motivation?
The word 'motivation' is commonly used in different contexts
to mean:
(a) The mental process of choosing desired outcomes. This is
sometimes called 'intrinsic motivation', as it arises from
factors and processes within the individual.
(b) The social process by which the behaviour of an individual
is influenced by others. This is sometimes called 'extrinsic
motivation', as it arises from actions done to or for the
individual by others.

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1.1 What is motivation?

Theories of motivation are often categorised as 'content


theories' and 'process theories
Content theories assume that human beings have an innate
package of motives (needs or desired outcomes) which they take
action to pursue. They ask: 'What motivates people?' Maslow's
need theory and Herzberg's two-factor theory are two of
the most important approaches of this type.
Process theories explore the psychological process through
which outcomes become desirable and are pursued by
individuals. They ask: 'How are people motivated?'Expectancy
theory is a key example.
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1.2 Need theory
Need theories suggest that individuals have certain innate
needs. When a need is unsatisfied, the individual
experiences tension and acts in pursuit of goals that will
satisfy the need. Abraham Maslow (1954) developed the
original and most famous need theory.
Each level of need is dominant until satisfied: only then
does the next level of need become a motivating factor.

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1.3 Two factor theory

Frederick Herzberg (1966) interviewed Pittsburgh engineers


and accountants about 'critical incidents' which made them
feel good or bad about their work. He identified two basic
need categories of individuals at work.
(a) The need to avoid unpleasantness, associated with fair
treatment in compensation, supervision, working conditions
and administrative practices. These needs are satisfied by
what Herzberg called 'hygiene factors: Hygiene factors are
essentially extrinsic rewards, deriving from factors in the
environment or context of work, and offering satisfaction of
lower-level needs.

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1.3 Two factor theory

(b) The need to develop in one's occupation, as a source of


personal growth, associated with factors such as
advancement, recognition, responsibility, challenge and
achievement. These needs are satisfied by what Herzberg
called 'motivator' factors. Motivator factors are essentially
intrinsic rewards

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1.3 Two factor theory


In particular, the impact of job satisfaction on work performance
has proved difficult to verify and measure: 'A satisfied worker is
not necessarily a high producer, and a high producer is not
necessarily a satisfied worker.' (Armstrong, 2003)
Today's 'total reward' concept recognises that a reward system
offering a mix of both extrinsic and intrinsic rewards is likely to be
the most effective way of motivating employees

Reward refers to 'all of the monetary, non-monetary and


psychological payments that an organisation provides for its
employees in exchange for the work they perform.' (Bratton &
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Gold, 2007)

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1.4 Expectancy theory
Vroom (1964) suggested a formula by which motivation could be
assessed and measured, on an expectancy theory model. In its
simplest form it may be expressed as:
Force or strength of motivation = Valence

Expectancy

Valence is represented as a positive or negative number, or zero


since outcomes (or rewards) may be desired, avoided or
considered with indifference. Expectancy is expressed as a
probability (in the perception of the individual): any number
between 0 (no chance) and 1 (certainty).

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1.4 Expectancy theory
Vroom model helps to explain why performance incentives and
rewards work most effectively when:
(a) The link between effort and reward is clear. (This is a key
criterion in designing performance-based pay schemes but
would also apply to the giving of non-financial rewards such as
praise and recognition, for example.)
(b) Intended results and goals are made clear, and especially
when individuals share in setting goals (so they can complete the
calculation).
(c) The reward is perceived to be worth the effort. (This is
part of the rationale for flexible benefit schemes, allowing
employees to choose from a menu of incentives and rewards.)

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2. Job evaluation is the process of analysing and assessing the
content, worth or size of jobs within an organisation, in order to
rank and group them as a basis for an equitable remuneration
system.

2.1 The purpose and aims of job evaluation


(a) Assess the value of jobs to the organisation in relation to one
another
(b) Support the development of job gradings and pay structures
that are objective, balanced and equitable
(c) Ensure that the organisation is able to give (and demonstrate
that it gives) equal pay for work of equal value, as required by law.
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2.2 Arguments for and against formal job evaluation

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2.3 The process of job evaluation
Step 1. Select compensable factors
Compensable factors represent the aspects of jobs
for which the organisation is willing to pay.
Step 2. Gather data on jobs
Some information for evaluation may already
be available in the form of job descriptions,
or may have to be gathered by job analysis
Step 3. Evaluate jobs
# Non-analytical schemes make largely subjective
judgements
# Analytical schemes systematically analyse
how far compensable factors are present in each job
Step 4. Assign specific pay values to the job
The output of a job evaluation scheme is a
pay structure: a ranking or hierarchy of
jobs in terms of their relative value to the organisation.
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2.4 Job Evaluation schemes
Factor comparison involves the selection of key benchmark jobs, for
which the rate
of pay is considered to be fair (perhaps in comparison with similar
jobs in other
organisations).

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4.2 Components of the reward system
(a) Direct or base pay: a fixed salary or wage that constitutes a
standard rate for the job
(b) Performance or variable pay: a method or component of pay
directly linked to work- related behaviour, such as performance or
attainments. There are various types of variable pay, including:(i)
Payment by results (PBR)
(ii) Performance-related pay (PRP)
(iii) Organisation performance pay
(c) Indirect pay or 'benefits :non-cash items or services.

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4.3 The 'total reward' concept
The sum of the components discussed above is known as 'total
remuneration'.
The
concept of 'total reward' is based on the premise that monetary
payments are not the only, or necessarily the most effective, form
of reward and that financial and nonfinancial rewards should be
linked together as an integrated reward package

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6.1 Effective performance pay systems
Effective performance (or 'contingent') pay systems should fulfil the
following criteria.
(a) Targets and standards of performance required to earn the
rewards must be made clear to the people involved.
(b) The formulae used to calculate rewards, and any conditions that
apply, should be easily understood.
(c) The rewards should be and perceived to be significant enough
to make the effort worthwhile (perhaps 10% of basic salary).
(d) Rewards should be related to performance indicators over which
people have control or influence, through their own behaviour or
decision-making.
(e) There should not be a lengthy time lag between performance and
reward.

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7 INDIRECT PAY
7.1 Benefits
(a) Extended holiday entitlement.
(b)Company cars
(c) Employee assistance
(d)Insurance
(e) Catering services
(f) Recreational facilities
(g)Allowances
(h)Discounts or preferential terms
(i) Educational programmes
(j) Family-friendly policies
(k) Clothes

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