REWARD

MANAGEMENT
43

134119010 - Stefanus Rianto

134119015 - Kristoforus Hendy O.

What is it???
Reward management deals with the strategies, policies, and processes required to
ensure that the value of people & the contribution they make to the achievement of
organizational, departmental and team goals is recognized & rewarded

Satisfy the needs of organization and its stakeholders ; and to operate

fairly, equitably, consistently
 Important in behaviours
and outcomes

High performance Reward with employee

needs

Aims of Reward
Management
Reward people with
Add value their value

Motivate employee Attract high quality

engagement people
 Guiding Principles

• Developing reward policies & practices

• Providing rewards Principles based at Diageo:
• Maintaining competitive rates of pay
A. Performance
• Rewarding according to contribution
• Recognize value of all staff who makes B. Market
effective contribution
C. Comunication
• Allowing a reasonable degree of
flexibility D. Effectiveness
• Devolving more responsibility to line
managers
 Reward Strategy

PERFORMANCE FAIRNESS

COMPETITIVENESS

1. What do we need to do about or reward practices to ensure that they are fit for purpose?
2. How do we intend to do it?
 Reward Strategy

Few examples of reward strategy:

 Development of a “total reward” system
 Introduction Performance pay
 Introduction of a new grade and pay structure
 Development of a flexible benefits system

Performance pay, ensure the Culture values, recognizes,

rates are competitive Pay people a fair rate for the rewards outstanding
job & give reward for performance
excellent contribution
 Critical Evaluation of Reward Strategy

“The most that companies can hope to do in their approach to reward is to make
sure that it does not distort the relationship (between management and
employees). Managing reward is thus a job of damage limitation and perhaps not
the ‘strategic level for organizational transformation’ that appears so seductive in
the writing of American commentators”

(Thompson, 1998)
 Reward Policies
Set specific guidelines for decision making and action and therefore provide the framework for
managing a reward system.

1. Value of the job

A measure of what a job is worth in terms of what it contributes to achieving the purpose of the
organization
2. Value of the person
Contribution they make for organization; their competencies and skills; experience to their jobs
3. Internal relativities
Achieve internal equity which occurs when people are awarded appropriately in relation to others
according to the value of their contribution
4. Financial circumstances of the organization
Ensure pay systems do not cost more than the organization can afford.
5. Trade union influence
Bargaining with trade unions
 Reward Policies
Set specific guidelines for decision making and action and therefore provide the framework for
managing a reward system.

6. Minimum or living wage

Minimum wage regulation in every region sets minimum rates to pay
7. Example of pay policy
AEGON UK recognizes 3 factors: Internal Job Value, External Job Value, Value of the person
8. External competitiveness vs. internal equity
Make explicit & fully identifiable the compromises with internal equity and to be made in response to
market pressures.
9. Segmentation
Varying the reward package for different jobs, or to reflect the types and levels of contribution people
make, or providing rewards that are tailored to meet individual needs.
 Reward Policies
Set specific guidelines for decision making and action and therefore provide the framework for
managing a reward system.

10. Level of rewards

Process of determining pay levels and the rates of pay for individual jobs within organizations
Name of Theory Summary of Theory
The law of supply and Other things being equal, if there is a
demand surplus of labour and supply exceeds
demand, pay levels go down; if there is a
scarcity of labour and demand exceeds
supply, pay goes up.
Efficiency wage theory Firms will pay above the market rate
because they believe that high levels of pay
will increase productivity by helping to
motivate and retain employees.
Human capital theory Workers have set of skills developed by
education and training that generate a
stock of productive capital.
Practical Significane
Highlights the role of labour market factors in
affecting rates of pay and therefore
emphasizes the importance of market pricing,
ie establishing the level of markets.
Firms use efficiency wage theory (although
they will not call it that) when they formulate
pay policies that place them as above the
average, eg in the upper quartile of the
distribution of market rates.
Employers and employees each benefit from
investment in creating human capital. Pay
should be fixed at a level which supplies both
parties with a reasonable return on that
investment.
Name of Theory Summary of Theory
Agency theory (also The owners of a firm (the principals) are
known as principal agent separate from the employees (the agents).
theory) The difference can create ‘agency cost’
because the agents may not be so
productive as the principals would like
them to be. The latter therefore have to
devise ways of motivating and controlling
the efforts of the employees.
Tournament theory The motivation of high-quality staff will be
increased by offering lucrative prizes (ie
pay) for small number of people who are
promoted to higher level jobs, with the
highest prize of all to the person who wins
the tournament by getting the top job.
The effort bargain Workers aim to strike a bargain about the
relationship between what they regard as a
reasonable contribution and what their
employer is prepared to pay to elicit that
contribution.
Practical Significane
A system of incentives is needed to motivate
and reward acceptable behavior. This process
of ‘incentive alignment’ consists of paying for
measureable results that are deemed to be in
the best interests of the owners. (Agency
theory is particularly relevant as a means of
explaining the high levels of executive pay.)
Provides a rationale for increasingly large pay
differentials between jobs in the hierarchy. Is
also a justification for high levels of pay for
chief executives.
Management has to assess what level and
type of inducement it has to offer in return
for the contribution it requires from its
workforce. Pay negotiations may in effect
centre on the effort bargain.
REWARD SYSTEM
MANAGING
REWARD
SYSTEMS
49

134119010 - Stefanus Rianto

134119015 - Kristoforus Hendy O.

CONTROLING REWARD
 GENERAL PAY REVIEWS
• Decide on the budget
• Analyse data on pay settlements made by comparable
organizations and rates of inflation
• Conduct negosiations with trade unions as required
• Calculate cost
• Adjust the pay structure
• Inform employees
INDIVIDUAL PAY REVIEWS
 INDIVIDUAL PAY REVIEWS
• Agree the budget
• Prepare and issue guidelines on the size, range and
distribution of awards and on methods of conducting
the review
• Provide advice and support
• Review proposals against budget and guidelines and
agree modifications to them if necessary
• Summarize and cost proposals and obtain approval
• Update the payroll
• Inform employee
 REWARD PROCEDURES

• Grading Jobs
• Fixing rates of pay on appointment
• Promotion increase
• Appeals
 THANK
YOU
“Love who you are, not what others want
you to be”