ORGANIZATIONAL REWARD

SYSTEM

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 The Dominant Organizational
Reward
• Organizations provide rewards to their
employees in order to try to motivate their
performance and encourage their loyalty
and retention. Organizational rewards take a
number of different forms including money
(salary, bonuses, incentive pay),
recognition, and benefits.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Introduction
• People do what they do to satisfy some
need and they look for a payoff or
reward.
• The most obvious reward is pay, but
there are many others, including:
– promotions
– desirable work assignments
– peer recognition
– work freedom
Fundamentals of Human Resource Management 8e, DeCenzo and Robbins
 Introduction

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Types of Reward Plans
Intrinsic versus Extrinsic Rewards
• Intrinsic rewards (personal
satisfactions) come from the job itself,
such as:
– pride in one’s work
– feelings of accomplishment
– being part of a work team

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Types of Reward Plans
Intrinsic versus Extrinsic Rewards
• Extrinsic rewards come from a source
outside the job
– include rewards offered mainly by
management
– Money
– Promotions
– Benefits

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Types of Reward Plans
Financial versus Nonfinancial Rewards
• Financial rewards include:
– wages
– bonuses
– profit sharing
– pension plans
– paid leaves
– purchase discounts
• Nonfinancial rewards emphasize making life
on the job more attractive; employees vary
greatly on what types they find desirable.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Types of Reward Plans
Performance-based versus Membership-
Based Rewards
• Performance-based rewards are tied to
specific job performance criteria.
– commissions
– piecework pay plans
– incentive systems
– group bonuses
– merit pay
• Membership-based rewards such as cost-of-
living increases, benefits, and salary increases
are offered to all employees.
Fundamentals of Human Resource Management 8e, DeCenzo and Robbins
 Compensation Administration
• The process of managing a
compensation program so that the
organization can attract, motivate and
retain competent employees who
perceive that the program is fair.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Traditional Methods of
Administering Pay
Traditionally organizations have used two
methods of administering pay:
• Base Pay
• Merit Pay
• Pay for Performance
These programs are now being extended to
New Pay Programs

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 The New Rewards System
• Manage Expectations
• Expectations should be kept simple
• The programs should be simple
• The Programs should be designed to meet
the objectives
• When in doubt ,do it

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 New Pay Techniques
• Commissions beyond sales to customers
• Rewarding Leadership effectiveness
• Rewarding New Goals
• Pay for Knowledge workers in teams
• Skill Pay
• Competency Pay
• Broad Banding

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Compensation Administration
• Job evaluation – the process used to
determine each job’s appropriate worth
within the organization.
• Based on job analysis information.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Compensation Administration
Government Influence on
Compensation Administration
• Fair Labor Standards Act: 1938 act
which requires
– minimum wage
– overtime pay
– record-keeping
– child labor restrictions

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Compensation Administration
Government Influence on Compensation
Administration
Fair Labor Standards Act
• Exempt employees
– include professional and managerial employees
– not covered under FLSA overtime provisions
• Nonexempt employees
– eligible for premium pay (time and one-half)
– when they work more than 40 hours in a week

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Compensation Administration
Government Influence on
Compensation Administration
• Equal Pay Act of 1963 act requires that
men and women hired for the same job
be paid the same.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Compensation Administration
Government Influence on
Compensation Administration
• Civil Rights Act:
– broader than Equal Pay Act
– prohibits discrimination on the basis of
gender
– used to support comparable worth concept
• Salaries should be established on the
basis of skill, responsibility, effort, and
working conditions.
Fundamentals of Human Resource Management 8e, DeCenzo and Robbins
 Job Evaluation and the Pay
Structure
Job Evaluation
• Use of job analysis information to
determine the relative value of each job
in relation to all jobs within the
organization.
– The ranking of jobs
– Labor market conditions
?
– Collective bargaining
– Individual skill differences

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Job Evaluation and the Pay
Structure
Isolating Job Evaluation Criteria
• Judgment is involved in defining what
factors should be used to compare jobs.
• Typical criteria:
– mental requirements
– supervisory control
– complexity
– physical demands
– personal contacts
Fundamentals of Human Resource Management 8e, DeCenzo and Robbins
 Job Evaluation and the Pay
Structure
Isolating Job Evaluation Criteria
• Typically jobs are grouped according to
type and compared within their group
– clerical jobs
– sales jobs
– professional jobs

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Job Evaluation and the Pay
Structure
Job Evaluation Methods
• Ordering method: A
committee places jobs in a
simple rank order from
highest (worth highest pay) to
lowest.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Job Evaluation and the Pay
Structure
Job Evaluation Methods
• Classification method:
– Jobs are placed in classification grades
– Compare their descriptions to the
classification description and benchmarked
jobs
– Look for a common denominator such as
skills, knowledge, or responsibility

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Job Evaluation and the Pay
Structure
Job Evaluation Methods
• Point method:
– Jobs are rated and allocated points on
several identifiable criteria, using clearly
defined rating scales.
– Jobs with similar point totals are placed
in similar pay grades.
– Offers the greatest stability.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Job Evaluation and the Pay
Structure
Establishing the Pay Structure
• Compensation surveys
– Used to gather factual data on
pay rates for other organizations
– Information is often collected on
associated employee benefits as
well

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Job Evaluation and the Pay
Structure
Establishing the Pay Structure
• Wage curves
– Drawn by plotting job evaluation data (such
as job points or grades) against pay rates
(actual or from survey data).
– Indicate whether the pay structure is logical

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Job Evaluation and the Pay
Structure
Establishing the Pay Structure
• Wage structure
– Designates pay ranges for groups of jobs
which are
• similar in value to the organization
• grouped by their classifications, grades or
points.
– Results in a logical hierarchy of wages,
consisting of ranges that overlap.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Special Cases of
Compensation
Incentive Compensation Plans
Incentives can be added to the basic
pay structure to provide rewards for
performance.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Special Cases of
Compensation
Incentive Compensation Plans
• Individual Incentives include
– merit pay plans (annual
increase, based on performance)
– piecework plans (pay based on
number of units produced
typically in a specified time
period.)
– time-savings bonuses and
commissions
Fundamentals of Human Resource Management 8e, DeCenzo and Robbins
 Special Cases of
Compensation
Incentive Compensation Plans
Individual Incentives:
– Work best where clear objectives can be
set and tasks are independent.
– Many organizations today require
employees to place a percentage of their
salary “at risk” so that merit pay does not
become a substitute for automatic cost-of-
living raises.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Special Cases of
Compensation
Incentive Compensation Plans
• Group Incentives
– Incentives can be offered to groups, rather
than individuals, when employees' tasks
are interdependent and require
cooperation.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Special Cases of
Compensation
Incentive Compensation Plans:
• Plant-wide Incentives:
• Direct employee efforts toward organizational
goals (such as cost reduction)
– Scanlon Plan - supervisor and employee
committees suggest labor-saving improvements
– IMPROSHARE - formula is used to determine
bonuses based on labor cost savings

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Special Cases of
Compensation
Paying for Performance
• Pay is based on some measure of
performance.
• Common performance measures are:
– piece-rate plans
– gainsharing
– wage incentive plans
– profit sharing
– lump sum bonuses
Fundamentals of Human Resource Management 8e, DeCenzo and Robbins
 Special Cases of
Compensation
Paying for Performance
• Competency-based compensation
– Rewarded for skills, knowledge and behaviors
• leadership
• problem solving
• decision making
• strategic planning
– Broad-banding - pre-set pay levels that
determine what people are paid based
upon the type and level of competencies
they possess.
Fundamentals of Human Resource Management 8e, DeCenzo and Robbins
 Special Cases of
Compensation
Team-Based Compensation
– Incentives for empowered work teams to
exceed established goals and share
equally in rewards.
– Depends on:
• clarity of team purpose and goals
• ability of the team to obtain needed resources
• effective team communication skills and trust

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Executive Compensation
Programs
Salaries of Top Managers
– Executive salaries, bonuses and stock
options may seem high.
– Top twenty CEOs average more than
$100 million in total compensation.
– Competition for executive talent raises
the price of hiring an executive.
– High salaries can be a motivator for
executives and lower-level managers

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Executive Compensation
Programs
Supplemental Financial Compensation
– Deferred bonuses – paid to executives
over extended time periods, to encourage
them to stay with the company.
– Stock options – allow executives to
purchase stock in the future at a fixed
price.
– Hiring bonuses – compensate for the
deferred compensation lost when leaving a
former company.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Executive Compensation
Programs
Supplemental Nonfinancial Compensation:
Perquisites
• Perks may include:
– paid life insurance
– club memberships
– company cars
– expense accounts
– interest-free loans
– free financial
– legal and tax counseling
– mortgage assistance

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Executive Compensation
Programs
• Supplemental Nonfinancial
Compensation: Perquisites
– Golden parachutes protect executives
when a merger or hostile takeover occurs
by providing severance pay or a
guaranteed position.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 Newer Types of Benefits

• Wellness Programs
• Life Cycle Benefits
• Other Benefits
• Flexible Cafeteria – Style Benefits

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 International Compensation
• Important to understand the statutory
requirements of each country.
• International compensation packages
generally utilize the “balance-sheet
approach,” using the four factors below:
– Base Pay
– Differentials
– Incentives
– Assistance Programs

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 International Compensation
• Base Pay: The pay of employees in
comparable jobs at home.
• Differentials: Compensation given to
offset higher costs of living abroad.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins

 International Compensation
• Incentives: Inducements given to
encourage employees to accept
overseas assignments.
• Assistance Programs: Payment for
expenses involved in moving a family
abroad and in providing some services
overseas.

Fundamentals of Human Resource Management 8e, DeCenzo and Robbins