reward system
DESCRIPTION
reward systemTRANSCRIPT
International reward International reward systemsystem
Submitted by Submitted by Deepankar vermaDeepankar verma
Mba 4 bMba 4 b11048039121104803912
2
Overview of rewardsOverview of rewards
• DefinitionsDefinitions Rewards, total rewards and reward managementRewards, total rewards and reward management
• Importance of rewardsImportance of rewards• Reward management strategies and Reward management strategies and
modelsmodels• Strategic design of rewardsStrategic design of rewards• Case Study 1&2Case Study 1&2
3
RewardsRewards
““Employee rewards refer to all forms Employee rewards refer to all forms of financial returns, tangible services of financial returns, tangible services and benefits employees receive as and benefits employees receive as part of an employment relationship.” part of an employment relationship.”
(Bratton and Gold 1999)(Bratton and Gold 1999)
4
Types of rewardsTypes of rewards
■ ■ A motivational point of viewA motivational point of view
Intrinsic rewards: Inner satisfaction by doing the job.Intrinsic rewards: Inner satisfaction by doing the job.
Extrinsic rewards: Pay (wages, salary, commissions, Extrinsic rewards: Pay (wages, salary, commissions, etc.,)etc.,)
Benefits (pension, medical care, health Benefits (pension, medical care, health care,care,
housing, unemployment housing, unemployment pension)pension)
■ ■ A total reward point of viewA total reward point of view
Money, benefits, work and development (Rowley, 2003)Money, benefits, work and development (Rowley, 2003)
5
What is a total reward?
Base pay
Financial rewards
and benefits
Contingent pay
Variable pay (cash bonuses)
Total Remuneration
Total reward
Share ownership
Benefits
Transactional rewards
Source: Armstrong & Murlis (1998)
Relational rewards
Non-financial
rewards – those
arising from the
work itself and the
work environme
nt
+
Recognition
Work/life balances
Quality of working life
Career opportunities
Opportunity to use and develop skills
Autonomy
Meaningful work
Responsibility
6
Framework for analysing different ‘Deals’Framework for analysing different ‘Deals’
HIGH PAY – LOW HIGH PAY – LOW COMMITMENTCOMMITMENT
Hired GunsHired Guns
(Stockbrokers)(Stockbrokers)
HIGH PAY – HIGH HIGH PAY – HIGH COMMITMENTCOMMITMENT
Cult-like Cult-like
(Microsoft)(Microsoft)
LOW PAY – LOW LOW PAY – LOW COMMITMENTCOMMITMENT
Workers as CommodityWorkers as Commodity
(Employers of Migrant Farm (Employers of Migrant Farm Workers)Workers)
LOW PAY – HIGH LOW PAY – HIGH COMMITMENTCOMMITMENT
FamilyFamily
(Starbucks)(Starbucks)
Low High
RELATIONALSource: Milkovich & Newman (2002)
Hig
h L
ow
TR
AN
SA
CTIO
NA
L
7
Employee benefitsEmployee benefits
Can benefits become strategic?Can benefits become strategic? If so, how?If so, how?
One way is to make sure that the benefits available One way is to make sure that the benefits available are attractive to high potential applicants and high are attractive to high potential applicants and high performers.performers.
A second way is developing a benefit specifically to A second way is developing a benefit specifically to attract a desired set of employees. E.g. day care attract a desired set of employees. E.g. day care centres, tuition reimbursement programmes.centres, tuition reimbursement programmes.
Most benefits are future or need care oriented, it is Most benefits are future or need care oriented, it is difficult to make linkage between performance and difficult to make linkage between performance and benefits. benefits.
8
Non-monetary rewardsNon-monetary rewards
1. Other titles: recognition awards, low cost/no cost 1. Other titles: recognition awards, low cost/no cost awards, hugsawards, hugs
and mugs etc. and mugs etc.
2. The 2. The great strengthgreat strength of non-monetary rewards is their of non-monetary rewards is their immediacy. immediacy.
3. The 3. The changechange in recent years has not been so much the in recent years has not been so much the increaseincrease
in the number of awards or the amount of individual in the number of awards or the amount of individual awards,awards,
but the rationalisation of non-monetary rewards but the rationalisation of non-monetary rewards programmesprogrammes
and their integration into the rest of the rewards and their integration into the rest of the rewards system. system.
4. Different forms4. Different forms Perquisites – Special eating areas, first class travel, club memberships Perquisites – Special eating areas, first class travel, club memberships
etc.etc. Recognition awards – Top sales, travel awards, gift certificates etc.Recognition awards – Top sales, travel awards, gift certificates etc. Psychic pay – special parking, lunch with the CEO etc.Psychic pay – special parking, lunch with the CEO etc. worksite policies – Casual dress codes, break areas, etc.worksite policies – Casual dress codes, break areas, etc. Family friendly policiesFamily friendly policies - - Flexible working hours etc. Flexible working hours etc.
9
What is reward management?What is reward management?
Reward managementReward management “ “Reward management is concerned with the Reward management is concerned with the
formulation and implementation of strategies formulation and implementation of strategies and policies that aim to reward people fairly, and policies that aim to reward people fairly, equitably and consistently in accordance with equitably and consistently in accordance with their value to the organisation.” (Milkovich & their value to the organisation.” (Milkovich & Newman 2002)Newman 2002)
Principle objectives of RM:Principle objectives of RM: Attract and retain suitable employeesAttract and retain suitable employees Maintain or improve levels of employee Maintain or improve levels of employee
performanceperformance Comply with employment legislation and Comply with employment legislation and
regulations.regulations.
10
Business/HR
strategy
Rewardstrategy
Build capability
Grade and Pay
structure policy
Grade and pay
structure (base pay)
Total Remunera-
tion
Total reward
Improved Perfor-mance
Non-financialrewards
Employee benefits
Market analysis
Performance management
Job evaluation
Contingent pay
Learning and
development
Components of reward management Source: Armstrong and Murlis (2004)
11
Importance of reward management
• Reward systems can influence a number of HR processes and practices which in turn have an impact on organisational performance. E.g.. Recruitment and retention
• Employees see reward systems as signalling the importance the employer places on various activities or behaviours.
• The way in which employees are rewarded has a major influence on corporate culture.
• The reward system can help to define the status hierarchy and decision-making structure.
• Cost & form large part of business & method of competing.
• Attention-attracts public, institutional & government’s attention.
• Varied internationally
12
“Internal equity refers to the pay relationships between the jobs/skills/competences within a single organisation. The relationships form a pay structure that can support the workflow, is fair to employees, and directs their behaviour toward organisation objectives.”
• Factors that shape internal structure• Strategic choices in designing structure•Job-based or person based
“External competitiveness refers to the pay relationships among organisations – the organisation’s pay relative to its competitor.”
•Factors that shape external competitiveness •Designing pay levels, pay mix etc.• Balancing the internal and external pressures
Strategic design of
reward systems
Strategic design of
reward systems
Internal alignmentDetermining the
structure
Internal alignmentDetermining the
structure
External competitivenessDetermining the
pay level
External competitivenessDetermining the
pay level
13
Internal alignment
Internal alignment
Job based
Job analysis
Job evaluation
Job based structure
Person based
Skills Competencies
Skill analysis Competency sets
Person based structure
External factors: Economic pressures
Government policies, laws/regulations
StakeholdersCultures and customs
External factors: Economic pressures
Government policies, laws/regulations
StakeholdersCultures and customs
Organisational factors:Strategy, technology, human capital, HR policy, employee
acceptance, cost implications
Internal structure:Levels
Differentialscriteria
14
External competitiveness
External competitiveness
Set policy
Define market
Conduct survey
Merge internal & external pressures
Competitive pay levels, mix and structures
Labour market factors:
Nature of demandNature of supply
Labour market factors:
Nature of demandNature of supply
Product market factors:
Degree of competitionLevel of product demand
Product market factors:
Degree of competitionLevel of product demand
Organisational factors:
Industry, strategy, size, individual manager / owner
Organisational factors:
Industry, strategy, size, individual manager / owner
15
Approaches to international rewards (1)Approaches to international rewards (1)
Should reward packages be based on Should reward packages be based on
(1) the salary level of the (1) the salary level of the homehome country country
or or
(2) the salary level of the (2) the salary level of the hosthost country? country?
Two main approaches: Two main approaches:
The going rate approachThe going rate approach
The balance sheet approachThe balance sheet approach
16
Approaches to international rewards (2) Approaches to international rewards (2)
The going rate approachThe going rate approach
Based on Based on local local market ratesmarket rates
Relies on survey comparisons among: local Relies on survey comparisons among: local nationals (HCNs), expatriates of same nationality nationals (HCNs), expatriates of same nationality and expatriates of all nationalitiesand expatriates of all nationalities
Compensation based on the selected survey Compensation based on the selected survey comparisoncomparison
Base pay and benefits may be supplemented by Base pay and benefits may be supplemented by additional payments for low-pay countries additional payments for low-pay countries
(Source: Dowling and Welch, 2004:145)
17
Approaches to international rewards (3)Approaches to international rewards (3)
Advantages:Advantages: Equality with local Equality with local
nationalsnationals SimplicitySimplicity Identification with host Identification with host
countrycountry Equity amongst different Equity amongst different
nationalitiesnationalities
Disadvantages: Disadvantages: Variation between Variation between
assignments for same assignments for same employeeemployee
Variation between Variation between expatriates of same expatriates of same nationality in different nationality in different countriescountries
Potential re-entry Potential re-entry problemsproblems
The going rate approach
(Source: Dowling and Welch, 2004:145)
18
Approaches to international rewards (4)Approaches to international rewards (4)
The balance sheet approachThe balance sheet approach (the most widely (the most widely used)used)
Based on Based on home-countryhome-country pay and benefits pay and benefits
Adjustments to home package to balance additional Adjustments to home package to balance additional expenditure in host countryexpenditure in host country
Financial incentives (expatriate/hardship premium) Financial incentives (expatriate/hardship premium) added to make the package attractiveadded to make the package attractive
(Source: Dowling and Welch, 2004:146)
19
Approaches to international rewards (5)Approaches to international rewards (5)
Advantages:Advantages: EquityEquity --between assignments for --between assignments for
the same employeethe same employee --between expatriates of the --between expatriates of the
same nationalitysame nationality Facilitates expatriate re-Facilitates expatriate re-
entryentry Easy to communicate to Easy to communicate to
employeesemployees
Disadvantages:Disadvantages: Can result in great inequalityCan result in great inequality --between expatriates of --between expatriates of
different nationalitiesdifferent nationalities --between expatriates and --between expatriates and
local nationalslocal nationals Can be complex to Can be complex to
administeradminister
The balance sheet approach
(Source: Dowling and Welch, 2004:148)
20
Case study 1: Strategic employee rewards at
Richer Sounds
• How is Richer Sounds’ business strategy reflected in its rewards?
• What other types of rewards might be considered?
• How might the type be influenced by its business strategy?
Source: From Marchington and Wilkinson, 2002
21
Case study 2 Case study 2 Pay under scrutiny as recession bitesPay under scrutiny as recession bites
To what extent is cutting pay a good idea To what extent is cutting pay a good idea for employers in an economic downturn?for employers in an economic downturn?
How would you motivate and retain good How would you motivate and retain good performers in the current economic performers in the current economic situation?situation?
Source: The Times July 17Source: The Times July 17thth, 2008, 2008
22
ReferencesReferences
Rowley “The management of people: HRM in Rowley “The management of people: HRM in context” (2003) Spiro Business Guidecontext” (2003) Spiro Business Guide
Marchington and Wilkinson “People management Marchington and Wilkinson “People management and development: HRM at work” 2and development: HRM at work” 2ndnd (2002) CIPD (2002) CIPD
Brown and Armstrong “Paying for contribution: Brown and Armstrong “Paying for contribution: Real PRP strategies” (1999) Kogan PageReal PRP strategies” (1999) Kogan Page
Thorpe & Homan “Strategic reward systems” Thorpe & Homan “Strategic reward systems” (2000)Pearson(2000)Pearson
Milkovich & Newman “Compensation” (2002) 7Milkovich & Newman “Compensation” (2002) 7thth McGraw-HillMcGraw-Hill
Reilly “New reward II: Issues in developing a Reilly “New reward II: Issues in developing a modern remuneration system” (2003) IESmodern remuneration system” (2003) IES
Armstrong & Murlis “Reward management: A Armstrong & Murlis “Reward management: A handbook of remuneration strategy and practice” handbook of remuneration strategy and practice” (2004) 5(2004) 5thth Kogan Page Kogan Page