week 12 remuneration and performance-based pay

7/26/2019 Week 12 Remuneration and Performance-Based Pay

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MGMT2718

Human Resource Management

Lecture 12:

Remuneration, Rewards and

Performance-Based Pay

Introduction

Recap

PA dual purposes developmental and judgemental

Lay basis for termination

PA is very difficult to get right

Importance of felt fairness if PA is to be acceptable and not toundermine morale > especially if linked to remuneration

Dangers: - many orgs are moving away from PA

Shields:

Technically demanding: difficult to do well, easy to do badly

Signs of reward mismanagement: perceived inequity; reduced

commitment; poor engagement

Constructively critical, non-managerialist, pluralist approach


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Introduction

1. Rewards: Nature and Purpose

Types and typologies of rewards: Direct vs Indirect,

Extrinsic vs Intrinsic

2. Base Pay

Job-based, person based

3. Performance-related reward

Individual vs collective (short & long term)

4. Critical Considerations

Dangers of PBP > Importance of communication and

involvement

Types of employee rewardanything tangible (eg pay) or intangible (praise) that an organizationoffers to its employees in exchange for their contribution to the

organization. (Shields)


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A reward system has fourprimaryobjectives

!To attract(or buy) the right people at the right time for

the right jobs, tasks or roles.

!To retainthe best people by satisfying their work-related

needs and aspirations, and recognizing and rewarding

their contribution.

!To develop(or build) the required workforce capabilities

by recognizing and rewarding employeesactions to

enhance their knowledge, skill and ability.

!

To motivateemployees to contribute to the best of theircapability by recognizing and rewarding high individual

and group contributions towards meeting the

organizations strategic objectives.

and six secondary objectives: to be

1.Needs-fulfilling of value to employees in fulfilling their

needs

2.Equitable or felt fair commensurate with individual

contributions and with the rewards received by others

3.Legal should comply with relevant legal requirements re

employees rights and entitlements esp minimum pay

levels and I would add anti-discrimination requirements

4.Affordable should be within the orgs financial means

5.Cost-effective there should be an appropriate return on

investment

6.Strategically-aligned should support the orgs strategic

objectives.

These can come into conflict


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Intrinsic versus extrinsic rewards

Intrinsic rewards arise from the content of the job

Interest, challenge, task variety, autonomy, feedback,

significance ie elements of JQ

Effectiveness as motivators cf Contenttheories

Extrinsic rewards arise from factors associated with

but external to the job that the employee does.

financial rewards

developmental rewards

social rewards.

Ie Processtheories of motivation

Financial Rewards

Base pay the fixed component of total remuneration

Benefits like the employer contribution to

superannuation, workers compensation insurance

Performance-relatedpay, including incentives which

vary with measured performance. Aka variable pay, at risk pay

The greater the component of at risk, the more

Motivating?

Effective as an employee control system?

Potentially disruptive to the employees life?


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Motivation theories

Content Process and Equity as discussed

Agency theory

Potential conflict of interests between

principles (owners) and agents (managers)

PBP = best way of aligning interests of agents and

principles when outcomes are linked to remuneration

But this can go wrong when agents capture the

remuneration process, and pay themselves exhorbitant

bonuses issue of executive pay rewarded themselves often at expense of shareholders

and customers GFC

Debates: motivation theories

Question claimed effectiveness of extrinsic rewards

intrinsic rewards are the only effective ones

Cognitive Evaluation Theory if a reward is

attached to job content, people will revise their

motivations and attitudes

If PBP is reduced, people will adjust their

psychological contract

Importance of employee influence in design of PA

and PBP.

Role of unions: usually excluded; decline in density

and influence


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2) Base Pay: Job-based and person-based

Job-based base pay:Two ways of determining:

1. Market Surveys: what are similar employers paying for

similar jobs? external competitiveness

The organisation decides where it wants to position itself

in relation to average

2. Job Evaluation (JE)

First, establish job content - tasks, duties and

responsibilitiesthrough JA (>PD) job size is crucial idea

Then, determine the value of the job through JE

internal equity

Job Evaluation

The systematic determination of the relative worth of

jobs within an organisation: how big or how small a

job is.

Basis for establishing the organisations job hierarchy and

associated pay structure.

Outcome of process = Job Gradingor Classification

Two approaches: whole job (qualitative) and jobfactors (quantitative)


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Example of job ranking

Job Grading or Classification: Points Systems

Identify job related factors Eg education, experience, responsibility, mental demands

(stress), physical demands

Allocate points to each eg.

Dangers:

What counts for points (what is compensable)?


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Person-based base pay

Pay for skill or competency of the job demands, OR of

the person occupying the job

Person description output of JA

But: what is competence and skill?

Hard, technical skills and qualifications

Soft skills? (communication skills, coordination,

awareness) hard to measure and weight and often left

uncodified; use of proxies maturity

Skill set and skill elements components

Deep competencies EI; leadership; composure

soft skills in another guise?

Job-based versus person-based pay


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3) Performance-related reward: Individual vs

Collective (short vs long)

Individual Performance Pay (merit)

Shields and Stone call them merit based pay systems

Problematic, cf lean payment systems in Japan in 1980s

Even so merit raises on basis of appraised

performance for past year (at risk) rolled into base pay -

incremental

Not same as seniority (not at risk)

Merit bonuses

NOTrolled into base pay has to be re-earned eachyear

Piece rates, commissions, goal-based bonuses

Even in kind or vouchers

Collective performance pay plans

appropriate when work is interdependent and

organized in cross-functional teams and where

individuals in a team or work group make

contributions to output that are difficult to distinguish

Dangers of unleashing peer pressure

OR social loafing free riding

3 kinds

Profit-sharing (whole org)

Gain-sharing (individual component of org)

Goal-sharing (goal based bonuses)

Collective Long-Term Equity Incentive Plans

Share Grant; Share purchase; Employee Options


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Performance-related reward plans

4) Criticism of performance-related rewards

undermine intrinsic interest in the job

motivate people to pursue the reward ratherthan do a good job

are instruments of behavioural manipulation and

punishment

rupture cooperative work relationships

ignore or mask the reasons underlying work

problems

discourage sensible risk-taking [Kohn]


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Conclusion: (Shields)

Can work in certain cultures and contexts if not in

others

Effectiveness and felt fairness depend on:

Link between pay and performance how the perf

criteria are designed

How well the link is explained and communicated

And conforms to procedural and distributive justice

Reward Communication To sharpen the line of sight between perf and pay

(me) Appeal Mechanism is important

But this probably makes it unwieldy!

week 12 remuneration and performance-based pay

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