Reward Management

Reward Management

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  Reward Management Reward Managementis 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 Reward management involves the analysis and effective control of employee remuneration. It covers salary and all benefits. Reward management assesses the nature and the extent of rewards and the manner in which they are delivered. Reward management is a popular management topic. Reward management was developed on the basis of psychologists' behavioral research. Psychologists started studying behavior in the early 1900s; one of the first psychologists to study behavior was Sigmund Freud and his work was called the Psychoanalytic Theory. Many other behavioral psychologists improved and added onto his work. With the improvements in the behavioral research and theories, psychologists started looking at how people reacted to rewards and what motivated them to do what they were doing, and as a result of this, psychologists started creating motivational theories, which is very closely affiliated with reward management.[2] Objective Reward management deals with processes, policies and strategies which are required to guarantee that the contribution of employees to the business is recognized by all means. Objective of reward management is to reward employees fairly, equitably and consistently in correlation to the value of these individuals to the organization. Reward system exists in order to motivate employees to work towards achieving strategic goals which are set by entities. Reward management is not only concerned with pay and employee benefits. It is equally concerned with non-financial rewards such as recognition, training, development and increased job responsibility Types of rewards See also: Reward system, Intrinsic motivation, and Extrinsic motivation Rewards serve many purposes in organisations. They serve to build a better employment deal, hold on to good employees and to reduce turnover.[4] The principal goal is to increase people's willingness to work in one’s company, to enhance their productivity.[5] Most people assimilate "rewards", with salary raise or bonuses, but this is only one kind of reward, Extrinsic reward. Studies proves that salespeople prefer pay raises because they feel frustrated by their inability to obtain other rewards,[6] but this behavior can be modified by applying a complete reward strategy. There are two kinds of rewards: • Extrinsic rewards: concrete rewards that employee receive. • Bonuses • Salary raise • Gifts • Promotion • Other kinds of tangible rewards • Intrinsic rewards: tend to give personal satisfaction to individual[7] • Information / feedback
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  • Recognition • Trust •Relationship • Empowerment • Monogrammed name plaque Intrinsic rewards makes the employee feel better in the organization, while Extrinsic rewards focus on the performance and activities of the employee in order to attain a certain outcome. The principal difficulty is to find a balance between employees' performance (extrinsic) and happiness (intrinsic). [8] The reward also needs to be according to the employee’s personality. For instance, a sports fan will be really happy to get some tickets for the next big match. However a mother who passes all her time with her children, may not use them and therefore they will be wasted. When rewarding one, the manager needs to choose if he wants to rewards an Individual, a Team or a whole Organization. One will choose the reward scope in harmony with the work that has been achieved. • Individual • Base pay, incentives, benefits • Rewards attendance, performance, competence • Team: team bonus, rewards group cooperation • Organization: profit-sharing, shares, gain-sharing 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 Rewards by Individual, Team, Organisation • Individual: base pay, incentives, benefits – rewards attendance, performance, competence
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  • Team – teambonus, rewards group cooperation • Organisation – profit-sharing, shares, gain-sharing Role of Compensation and Reward in Organization: Compensation and Reward system plays vital role in a business organization. Since, among four Ms, i.e Men, Material, Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men. Land, Labor, Capital and Organization are four major factors of production. Every factor contributes to the process of production/business. It expects return from the business process such as Rent is the return expected by the Landlord. similarly Capitalist expects Interest and Organizers i.e Entrepreneur expects profits. The labour expects wages from the process. It is evident that other factors are in-human factors and as such labour plays vital role in bringing about the process of production/business in motion. The other factors being human, has expectations, emotions, ambitions and egos. Labour therefore expects to have fair share in the business/production process. Advantages of Fair Compensation System: Therefore a fair compensation system is a must for every business organization. The fair compensation system will help in the following: If an ideal compensation system is designed, it will have positive impact on the efficiency and results produced by workmen. Such system will encourage the normal worker to perform better and achieve the standards fixed. this system will encourage the process of job evaluation. It will also help in setting up an ideal job evaluation, which will have transparency, and the standards fixing would be more realistic and achievable. Such a system would be well defined and uniform. It will be apply to all the levels of the organization as a general system. The system would be simple and flexible so that every worker/recipient would be able to compute his own compensation receivable. Such system would be easy to implement, so that it would not penalize the workers for the reasons beyond their control and would not result in exploitation of workers. It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers. Such system would help management in complying with the various labor acts. Such system would also bring about amicable settlement of disputes between the workmen union and management. The system would embody itself the principle of equal work equal wages. Encouragement for those who perform better and opportunities for those who wish to excel. 48 Rewarding People
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  Rewarding special groups– key learning points Elements of directors’ and senior executives’ payBasic pay, bonus schemes, share options, executive restricted share schemes. Payment and incentive schemes for sales staff Types of payment for manual workers The pay of manual workers takes the form of time rates, also known as day rates, day work, fl at rates or hourly rates. Incentive payments by means of payment-by-results schemes may be made on top of a base rate. Payment-by-results schemes Payment-by-result (PBR) schemes provide incentives to workers by relating their pay or, more usually, part of their pay to the number of items they produce or the time taken to do a certain amount of work. The main types of PBR or incentive schemes for individuals are piece work, work measured schemes, measured day work and perform-ance-related pay. 1. Elements Of A Reward System Business Strategy The starting point of the reward system is the business strategy of the organization. This identifies the business drivers and sets out the business goals. The drivers are unique to any organization but will often include items such as high performance, profitability, productivity, innovation, customer service, quality, price/cost leadership and the need to satisfy stakeholders – investors, shareholders, employees and, in local authorities, elected representatives. Reward Strategy and Policy The reward strategy flows from an analysis of the business drivers. The question is: 'How can these be supported by reward in order to achieve the goals of the business?' The reward strategy will define longer-term intentions in such areas as pay structures, contingent pay, employee benefits, steps to increase engagement and commitment and adopting a total reward approach. Reward policy will cover such matters as levels of pay, achieving equal pay, approaches to contingent pay, the use of job evaluation and market surveys and flexing benefits. Base or Basic Pay The base rate is the amount of pay (the fixed salary or wage) that constitutes the rate for the job. It may be varied according to the grade of the job or, for shop floor workers, the level of skill required. Base pay will be influenced by internal and external relativities. The internal relativities may be measured by some form of job evaluation. External relativities (going rates) are assessed by tracking market rates. Alternatively, levels of pay may be agreed through collective bargaining with trade unions or by reaching individual agreements. Base pay may be expressed as an annual, weekly or hourly rate. This is sometimes
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  referred to asa time rate system of payment. Contingent pay or allowances as described later may be added to base pay. The rate may be adjusted to reflect increases in the cost of living or market rates by the organization unilaterally or by agreement with a trade union. Contingent Pay Additional financial rewards may be provided that are related to performance, competence, contribution, skill or experience. These are referred to as 'contingent pay'. Contingent payments may be added to base pay, ie 'consolidated'. If such payments are not consolidated (ie paid as cash bonuses) they are described as 'variable pay'. Employee Benefits Employee benefits include pensions, sick pay, insurance cover, company cars and a number of other 'perks'. They consist of elements of remuneration additional to the various forms of cash pay and also include provisions for employees that are not strictly remuneration, such as annual holidays. Allowances Allowances are paid in addition to basic pay for special circumstances (eg living in London) or features of employment (eg working unsocial hours). They may be determined unilaterally by the organization but they are often the subject of negotiation. The main types of allowances are location allowances, overtime payments, shift payments, working conditions allowances and stand-by or call-out allowances made to those who have to be available to come in to work when required. Total Earnings Total earnings (financial rewards) consist of the value of all cash payments (base pay, contingent pay and allowances, ie total earnings). Total Remuneration Total remuneration consists of the financial rewards represented by total earnings plus the value of the benefits received by employees. Job Evaluation Job evaluation is a systematic process for defining the relative worth or size of jobs within an organization in order to establish internal relativities and provide the basis for designing an equitable grade structure, grading jobs in the structure and managing relativities. It does not determine the level of pay directly. Job evaluation can be analytical or non- analytical. It is based on the analysis of jobs or roles, which leads to the production of job descriptions or role profiles. Market Rate Analysis Market rate analysis is the process of identifying the rates of pay in the labour market for comparable jobs to inform decisions on levels of pay within the organization and on pay structures. A policy decision may be made on how internal rates of pay should compare with external rates – an organization's market stance.
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  Grade and PayStructures Jobs may be placed in a graded structure according to their relative size. In such a structure, pay is influenced by market rates, and the pay ranges attached to grades provide scope for pay progression based on performance, competence, contribution or service. Alternatively, a 'spot rate' structure may be used for all or some jobs in which no provision is made for pay progression in a job. Performance Management Performance management processes define individual performance and contribution expectations, assess performance against those expectations, provide for regular constructive feedback, and result in agreed plans for performance improvement, learning and personal development. They are a means of providing non-financial motivation and may also inform contingent pay decisions. Non-Financial Tewards Non-financial rewards do not involve any direct payments and often arise from the work itself, for example achievement, autonomy, recognition, scope to use and develop skills, training, career development opportunities and high-quality leadership. Total Reward Total reward is the combination of financial and non-financial rewards available to employees disability insurance, vacation, employee stock ownership for the benefits and HR industry. 1.Factors Affecting Reward Management Policy And Practice Reward management policy and practice are subject to a number of influences. As summarized below, these consist of contextual factors arising from the internal and external environment and conceptual factors relating to theories and beliefs about strategic management, total reward, human capital management, the factors affecting pay levels, motivation, engagement, commitment and the psychological contract. The Internal Environment The internal environment consists of the organization's culture and its business, technology and people.
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  The External Environment Thefeatures of the external environment are competitive pressure, globalization, and changes in demographics and employment. Strategic Management Strategic reward is an aspect of strategic management the purpose of which, is to 'elicit the present actions for the future' and become 'action vehicles – integrating and institutionalizing mechanisms for change'. Strategic management as 'the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of an organization'. However, strategic management in reality is not necessarily a formal, well-articulated and linear process. Strategies may be formulated as they are used, strategy emerges over time in response to evolving situations. He believes that business strategy is best regarded as a 'pattern in a stream of activities'. This applies equally to reward strategy. Total Reward Total reward policies provide for a holistic approach to be adopted to reward management, which ensures that all aspects of reward are treated as a coherent portfolio of policies and practices. Human Capital Management Human capital management (HCM) is concerned with obtaining, analysing and reporting on data, which informs the direction of value-adding people management strategic, investment and operational decisions at corporate level and at the level of front-line management. An HCM approach to reward management will assemble data on the effectiveness of reward management policies but in a more advanced form will attempt to assess the impact of remuneration policies on people and the business, thus informing strategic plans. The Factors Affecting Levels of Pay The factors affecting levels of pay influence pay decisions regarding the rate for the job, market rates and pay reviews. Motivation Motivation theory is important as a guide to the use of contingent pay and the non-financial elements of total reward. Engagement and Commitment The concepts of job engagement and organizational commitment also provide guidance on total reward policies and contingent pay. The Psychological Contract It is necessary to understand what the psychological contract is and its significance when formulating and implementing reward policy as a key aspect of relationships with employees.
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  A grade structureconsists of a sequenceor hierarchy of grades, bands or levelsinto which groups of jobs that are broadlycomparable in size are placed. A pay structure defines the differentlevels of pay for jobs or groups of jobsby reference to their relative internalvalue as determined by job evaluation,to external relativities as established bymarket rate surveys and, sometimes,to negotiated rates for jobs. It providesscope for pay progression inaccordance with performance,competence, contribution or service . Grade Structure• Grade Structure consists of a sequence or hierarchy of grades, bands or levels into which groups of jobs that are broadly comparable in size are placed.• It is used as a part of non-financial reward processes. • 3. Pay Structure• If a grade structure is defined by pay ranges or grades are attached to a „pay spine , it is called “pay Structure”.• There may be a single pay structure covering the‟ whole organization or there may be one structure for staff and another for manual workers. • 4. Pay Structure Contains…• Contain the organizations pay ranges or scales for jobs grouped into grades, bands or job family levels.• Define different levels of pay for jobs by market rate survey & negotiated rates for jobs.• Provide scope for any progression in accordance with performance, competence, contribution or service. • 5. Role of Pay Structure• To provide a logically designed framework• To determine the position of a job in a hierarchy• To Define pay levels• To determine the scope for pay progression• To monitor & control the implementation of pay practices• To Communicate with employees about career and pay opportunities. • 6. Features of Pay Structure• Be appropriate to the culture, characteristics and needs of the organization and its employees.• Facilitate the management of relatives and achievement of fair & equal pay.• Be capable of adapting to pressures• Facilitate operational flexibility & continuous development• Provide scope for reward and increase in competence and skill• Clarify reward, lateral development and career opportunities• Should be logical and not complicated for employees• Enable the organization to exercise control over pay policies and budgets. *Types of Pay Structure• ** • NARROW-GRADED STRUCTURES• • BROAD BANDED PAY STRUCTURES• • CAREER FAMILY STRUCUTRES• • JOB FAMILY STRUCTURES • PAY SPINES • • 1. NARROW-GRADED STRUCTURES• „single-graded structure• Universal type of‟ structure in private sector• Pay range is attached to each grade (Between 20%-50% above minimum)• „Reference Point or „Target Salary is referred to the fully competent‟ ‟ individual• Provide Scope for Pay Progression Example: A company have following pay In Broadbanding we reduce the scales; number of pay scales:• Scale/Grade 1: Rs 8,000-10,000 • Scale/Grade 1: Rs 8,000-15,000• Scale/Grade 2: Rs 9,500-11,500 • Scale/Grade 2: Rs 14,000-24,000• Scale/Grade 3: Rs 11,000- 14,000 • Scale/Grade 3: Rs 22,000-30,000• Scale/Grade 4: Rs 12,500-15,500• Scale/Grade 5: Rs 14,000-18,000• Scale/Grade 6: Rs 16,000-20,000• Scale/Grade 7: Rs 18,000-22,000• Scale/Grade 8: Rs 20,000-24,000• Scale/Grade 9: Rs 23,000-28,000• Scale/Grade 10: Rs 25,000- 30,000
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  • 2. BROADBANDED PAY STRUCTURES• „Broad banding means that the number of‟ grades is compressed into a relatively small number of much wider „bands .• Managed more‟ flexibly• Attention is paid to market relativities.• There are four or six bands in such structures.• Jobs may be placed in the bands purely by reference to market rates or by a combination of job evaluation and market rate analysis. Broad banded Pay StructuresGRADE JE Range £ A 1000+ X 900-999 X B 800-899 X 700- 799 X C 600-699 X 500-599 X D 400-499 X 300-399 X E 200-299 X 100-199 X (X= reference point) • 15. Broad banded Pay StructuresAdvantages Disadvantages• managed more flexibly & adapt • Broad banded structures are to market rate easily. harder to manage than• Role specific and performance narrower – graded structures. management focus on reward. • It can be difficult to explain to• Dismantles the overly people how broad binding structured and bureaucratic works. approach of typical multigraded structure. • 3. CAREER FAMILY STRUCTURES• Consist of jobs in a function or occupation (Ex. marketing, operations, finance, IT)• Jobs are related through the activities carried out and the basic knowledge and skills required.• But the levels are differentiated through responsibility, knowledge, skill or competence needed.• In effect, a career structure is a single – graded structure in which each grade has been divided into families.• Job evaluation indicates the same range of scores. Similarly, the pay ranges in corresponding levels across the career families are the same. • 4. JOB FAMILY STRUCTURES• Based on common processes (ex. IT, finance, HR)• Divided into 3-5 families and again sub-divided into levels (5-7)• Levels are defined in terms of accountability, skills and knowledge• No commonality (each job family has its own grade and pay structure) • 18. Strategic Decision Develop Career/ Job Family Structure Choose and Choose method define families of job evaluation Decide and define levels Develop role Validate throughprofiles and match job evaluation to levels Conduct market survey and decide pay ranges Formulate and Calculate agree assimilation ITERATE assimilation cost policies COMMUNICATE IMPLEMENT • • 5. PAY SPINES• Pay spines consist of a hierarchy of pay or spinal column points between which there are pay increments and to which are attached grades.• Public sector, agencies and charities (adopts public sector approach)• Consist of a series of incremental „pay points‟ (lowest to highest)• Increments are between 2.5-3 % •
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  • 2. BROADBANDED PAY STRUCTURES• „Broad banding means that the number of‟ grades is compressed into a relatively small number of much wider „bands .• Managed more‟ flexibly• Attention is paid to market relativities.• There are four or six bands in such structures.• Jobs may be placed in the bands purely by reference to market rates or by a combination of job evaluation and market rate analysis. Broad banded Pay StructuresGRADE JE Range £ A 1000+ X 900-999 X B 800-899 X 700- 799 X C 600-699 X 500-599 X D 400-499 X 300-399 X E 200-299 X 100-199 X (X= reference point) • 15. Broad banded Pay StructuresAdvantages Disadvantages• managed more flexibly & adapt • Broad banded structures are to market rate easily. harder to manage than• Role specific and performance narrower – graded structures. management focus on reward. • It can be difficult to explain to• Dismantles the overly people how broad binding structured and bureaucratic works. approach of typical multigraded structure. • 3. CAREER FAMILY STRUCTURES• Consist of jobs in a function or occupation (Ex. marketing, operations, finance, IT)• Jobs are related through the activities carried out and the basic knowledge and skills required.• But the levels are differentiated through responsibility, knowledge, skill or competence needed.• In effect, a career structure is a single – graded structure in which each grade has been divided into families.• Job evaluation indicates the same range of scores. Similarly, the pay ranges in corresponding levels across the career families are the same. • 4. JOB FAMILY STRUCTURES• Based on common processes (ex. IT, finance, HR)• Divided into 3-5 families and again sub-divided into levels (5-7)• Levels are defined in terms of accountability, skills and knowledge• No commonality (each job family has its own grade and pay structure) • 18. Strategic Decision Develop Career/ Job Family Structure Choose and Choose method define families of job evaluation Decide and define levels Develop role Validate throughprofiles and match job evaluation to levels Conduct market survey and decide pay ranges Formulate and Calculate agree assimilation ITERATE assimilation cost policies COMMUNICATE IMPLEMENT • • 5. PAY SPINES• Pay spines consist of a hierarchy of pay or spinal column points between which there are pay increments and to which are attached grades.• Public sector, agencies and charities (adopts public sector approach)• Consist of a series of incremental „pay points‟ (lowest to highest)• Increments are between 2.5-3 % •