 Reward Systems

 Legal Issues
 Traditional and Contingent Pay
(CP) Plans
Reasons for Introducing CP Plans
Possible Problems Associated with
CP
Selecting a CP Plan
 Putting Pay in Context
 Pay Structures
 Salary and salary increases are
based on
Position
Seniority
 Salary and salary increases are
based on
Job performance

 Also called: Pay for Performance

 If not added to base pay, called:
Variable pay
 Performance management is more
effective when rewards are tied to
results
 CP Plans force organizations to:
Clearly
define effective performance
Determine what factors are necessary
 Supervisors and employees
are better able to understand
what really matters
 CP plans enhance employee
motivation to accomplish goals
that match organizational needs
 CP plans help to recruit and
retain top performers
 CP plans project good corporate
image
• Employees see clear link between their
efforts and resulting performance
(Expectancy)

• Employees see clear link between their

performance level and rewards received
(Instrumentality)

• Employees value the rewards available

(Valence)
motivation =
expectancy x instrumentality x valence
 Poor performance management system
 Rewarding counterproductive behavior
(Rewarding A while hoping for B)
 Rewards are not considered significant
 Managers are not accountable
(The reward becomes the driver)
 Extrinsic vs. intrinsic motivation
 Disproportionately large rewards for
executives
A. Culture of organization
B. Strategic direction of
organization
 Traditional
Top-down decision making
Vertical communication
Jobs that are clearly defined
 Involvement
Shared decision making
Lateral communications
Loosely defined roles
 Traditional organizations
Piece rate
Sales commissions
Group incentives
 Involvement organizations
Profit sharing
Skill-based pay
 Employee development
Skill-based pay
 Customer service
Competency-based pay
Gainsharing
 Overall profit
Executive pay
Profit or stock sharing
 Productivity
Individual Group
 Piece rate  Gainsharing
 Sales commissions  Group incentives

 Teamwork
Team sales commissions
Gainsharing
Competency based pay
A reward increases the chance that
 Specific behaviors and results will be repeated, or
 Employee will engage in new behavior and produce
better results
 Pay  Trust & Respect
 Recognition  Challenge
Public  Responsibility
Private  Freedom
 Status  Relationships
 Time
 Define and measure performance
first and then allocate rewards
 Only use rewards that are
available
 Make sure all employees are
eligible
 Rewards should be both
Financial
Non-financial
(continued)
 Rewards should be:
Visible
Contingent
Timely
Reversible
 Job Evaluation
 Broad-banding
An organization’s pay structure
Classifies jobs
Into categories
 Based on their relative worth

Is designed by job evaluation

methods
 Method of data collection
Determine the worth of various jobs
Create a pay structure
 Consideration of
KSAs required for each job
Value of job for organization
How much other organizations pay
 Ranking
 Classification
 Point
 Create job descriptions
 Compare job descriptions
 Rank jobs
 Requires little time
 Minimal effort needed for administration
 Criteria for ranking may not be clear:
 Distances between each rank may not be
equal
 A series of classes or grades are created
 Each job is placed within a job class
 Jobs can be quickly slotted into structure
 Employees accept method because it seems valid
 Requires extensive time and effort for
administration
 Differences between classification levels
may not be equal
 Identify compensable factors (job
characteristics)
 Scale factors (e.g. on a scale of 1 – 5)
 Assign a weight to each factor so the sum of the
weights for all factors = 100%
 Establish worth of each job relative to all
other jobs within organization
 Comprehensive measurement of relative
worth of each job in organization
 Easy to rank jobs when total points are
known for each job
 Requires extensive administrative
Time
Effort
Fairness
Evaluators
 Impartial
 Objective
 Performance Management and the
Law
 Some Legal Principles Affecting PM
 Laws Affecting PM
 Performance management systems
are legally sound, if they are fair:
Proceduresare standardized
Same procedures are used with all
employees
 Employment-at-will
 Negligence
 Defamation
 Misrepresentation
 Adverse Impact
 Illegal Discrimination
 Employment relationship can be
ended at any time by
Employer
Employee
 Exceptions
Implied contract
Possible violation of legal rights
 If organization documents
describe a system
and
 It is Not implemented as
described,

 Employee can challenge

evaluation, charging negligence
 Disclosure of performance
information that is
Untrue and
Unfavorable
 Disclosure of performance
information that is
Untrue and
Favorable
 PM system has unintentional impact on a
protected class
 Organization must demonstrate:
 Specific KSA is a business requirement for the job
 All affected employees are evaluated in the same
way
• Organization should review ongoing
performance score data by protected class to
implement corrective action as necessary
 Raters assign different scores to employees
based on factors that are NOT related to
performance
 Employees receive different treatment as result
of such ratings
 Employees can claim they were intentionally and
illegally treated differently due to their status
 Direct evidence of discrimination, or
 Evidence regarding the following:
 Membership in protected class
 Adverse employment decision
 Performance level deserved
reward/different treatment
 How others were treated (not in protected
class)
 Legitimate and non-discriminatory reason for
action
 Related to performance

Note: Good performance management system

and subsequent performance-related decision,
used consistently with all employees, provides
defense
 LEGAL discrimination discriminates among
employees based on their level of
performance

 ILLEGAL discrimination is based on variables

that should not usually be related to
performance
During past few decades, several
countries have passed laws
prohibiting discrimination based
on:
Race or Ethnicity
Sex
Religion
National Origin
Age
Disabilitystatus
Sexual orientation
 Equal Pay Act of 1970
 Race Relations Act of 1976
 Sex Discrimination Act of 1975
 Disability Discrimination Act of 1995
 Employment Equality (Sexual
Orientation) Regulations 2003
 Employment Equality (Religion or Belief)
Regulations 2003
 Equal Pay Act of 1963
 Civil Rights Act of 1964
 Age Discrimination in Employment Act of 1967
(as amended in 1986)
 Americans with Disabilities Act of 1990
 Organization:
 The system is formally explained and communicated to
all employees
 The system includes a formal appeals process
 Procedures are standardized and uniform for all
employees within a job group
 The system includes procedures to detect potentially
discriminatory effects or biases and abuses in the system
 Management
 Supervisors are provided with formal training and
information on how to manage the performance of their
employees
 Performance information is gathered from multiple,
diverse, and unbiased raters
 The system includes thorough and consistent
documentation including specific examples of
performance based on first-hand knowledge
 Employees
 Performance dimensions and standards are:
 Clearly defined and explained to the employee,
 Job-related, and

Within the control of the employee
 Employees are given
 Timely information on performance deficiencies and

 Opportunities to correct them

 Employees are given a voice in the review process

and treated with courtesy and civility throughout
the process