Chaph 012 hrm organizational reward system

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Chapter 12


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• Organizational reward system• Concerned with selection of types of rewards to be used

by organization

• Organizational rewards

• Rewards that result from employment the organization;includes all types of rewards, both intrinsic and extrinsic

• Intrinsic rewards – Internal to individual and are normallyderived from involvement in certain activities or tass

• !xamples – "ob satisfaction and feelings ofaccomplishment

• !xtrinsic rewards – #irectly controlled and distributed byorganization and more tangible than intrinsic rewards

• !xamples – $ay and hospitalization bene%ts

• &lthough di'ering, intrinsic and extrinsic rewards are closelyrelated

• Often an extrinsic reward provides recipient with intrinsicrewards

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• (anagement must recognize what employeesperceive as meaningful rewards

• $ay is usually the %rst, and sometimes the only,reward most people thin about

•)owever, rewards should be viewed in the largerperspective as anything employees value

• (ay include things such as

• O*ce location

• &llocation of certain pieces of e+uipment

• &ssignment of preferred wor tass

• Informal recognition

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• Returns bene%ting organization throughdistribution of awards can be realized onlyif desires of employees are nown

• Organizations should learn what employees

perceive as meaningful rewards, which isnot necessarily what managementperceives

• raditionally, managers have assumed they arefully capable of deciding -ust what rewardsemployees need and want

• .nfortunately, this is often not true

• /tudies have shown that employees tend to ranlac of recognition as the most probable reasongood employees +uit their -obs

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• &nother false assumption is exempli%ed by fact thatmost organizations o'er same mix of rewards to allemployees

• /tudies show that many variables can in0uenceemployee preferences for certain rewards1 hey

include• &ge

• 2ender

• (arital status

• 3umber of dependents• 4ears of service

• 5or example, older employees are usually muchmore concerned with pension and retirementbene%ts than are younger employees

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• 6hen selecting types of rewards to o'er, intrinsicbene%ts that might accrue as a result of therewards need to be considered

• (anagers and employees alie consider onlytangible bene%ts associated with a reward

• !xternal factors that place limitations on anorganization7s reward system also exist

• hese factors 8usually beyond the control of theorganization9 include such things as

• Organization7s size

• !nvironmental conditions

• /tage in product life cycle

• :abor maret

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• 5ree enterprise system is based on the premise thatrewards should depend on performance

• $erformance–reward relationship is desirable at

• Organizational or corporate level

• Individual level• !mployees will be motivated when they believe such

motivation will lead to desired rewards

• (any formal rewards provided by organizations arenot related to performance

• hese rewards are almost always determined byorganizational membership and seniority; theyinclude

• $aid vacations

• Insurance plans

• $aid holidays12-8


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• Other rewards, such as promotion, can and should berelated to performance

• Opportunities for promotion may occur only rarely

• 6hen available, higher positions may be %lled

• On basis of seniority

• y someone outside the organization

• $rimary organizational variable used to reward employeesand reinforce performance is pay

• !ven though many .1/1 companies have some type ofpay


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• 6hy is the practice not more widespread=

• 3ot easy to do; much easier to give everybodythe same thing, as evidenced by the ever


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• rust in management

• If employees are septical of management, it isdi*cult to mae a pay


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• &n employee7s general attitude toward the -ob

• Organizational reward system often has a signi%cant impact onlevel of employee -ob satisfaction

• (anner in which extrinsic rewards are dispersed can a'ectintrinsic rewards 8and satisfaction9 of recipients

• here are %ve ma-or components of -ob satisfaction>

• &ttitude toward the wor group

• &ttitude toward the company

• &ttitude toward management

• 2eneral woring conditions

• (onetary bene%ts

• Other components include

• !mployee7s state of mind about the wor itself

• :ife in general

• )ealth, age

• :evel of aspiration, social status, and political and social

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• "/ is not synonymous with Organizationalmorale – !mployee7s feeling of beingaccepted by and belonging to a group ofemployees

• hrough common goals• Con%dence in desirability of those goals

• #esire to progress toward the goals

• (orale is the by


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• ?he path of least resistance@ – &ttempts to explainbelief that a satis%ed employee is necessarily a goodemployee

• If a performance problem exists, increasing anemployee7s happiness is far more pleasant than

discussing with the employee his or her failure tomeet standards

• &lthough happiness eventually results from satisfaction,the latter goes much deeper and is far less tenuous thanhappiness

• wo propositions concerning the satisfaction


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• $erformance leads to rewards that result in acertain level of satisfaction

• Rewards constitute a necessary interveningvariable in the relationship

• &nother position considers both satisfaction andperformance to be functions of rewards

• /atisfaction results from rewards, but currentperformance also a'ects subse+uentperformance if rewards are based on currentperformance

• Research evidence generally re-ects the morepopular view that satisfaction leads to performance

• It does provide moderate support for the viewthat performance leads to satisfaction

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• !vidence also strongly indicates that

• Rewards constitute a more direct cause ofsatisfaction than does performance

• Rewards based on current performance enhance

subse+uent performance

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• It has been clearly established that -ob satisfaction doeshave a positive impact on

• urnover

• &bsenteeism

• ardiness

• &ccidents

• 2rievances

• /tries

• !xperience, gender, and performance can have amoderating e'ect on these relationships

• Organizations prefer satis%ed employees simplybecause they mae the wor environment morepleasant

• &lthough a satis%ed employee is not necessarily a highperformer, there are numerous reasons for cultivatingemployee satisfaction

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• 6ide range of both internal and external factors a'ect anemployee7s level of satisfaction

• /urveys have found that the top drivers of employee -obsatisfaction were

• $ay, and bene%ts

• "ob security, and feeling safe in the wor environment

• 5lexibility to balance wor and life

• "ob satisfaction and motivation are not synonymous

• (otivation is a drive to perform

• Organizational reward systems can in0uence both -obsatisfaction and employee motivation

• It a'ects -ob satisfaction by maing the employee moreor less comfortable as a result of the rewards received

• It in0uences motivation primarily through the perceivedvalue of the rewards and their contingency onperformance

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• Compensation

• &ll extrinsic rewards that employees receive inexchange for their wor

• Composed of base wage or salary, any incentives orbonuses, and any bene%ts

• ase wage or salary – )ourly, weely, or monthlypay employees receive for their wor

• Incentives – Rewards o'ered in addition to the basewage or salary and are usually directly related toperformance

• ene%ts – Rewards employees receive as a result of

their employment and position with the organization8!xamples> $aid vacations, health insurance, andretirement plans9

• $ay

• Refers only to actual dollars employees receive inexchange for wor

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• Organizations must also mae decisionsconcerning

• )ow much money will go into pay increases forthe next year

• 6ho will recommend them• )ow raises will generally be determined

• &nother important decision concernswhether pay information will be ept secretor made public

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• (any organizations have a policy of not disclosing pay<related information

• Information about pay system as well as individual payreceived

• "usti%cation for pay secrecy

•

o avoid any discontent that might result from employees7nowing what everybody else is being paid

• (any employees, especially high achievers, feel verystrongly that their pay is nobody else7s business

• #rawbacs of pay secrecy

• #i*cult for employees to determine whether pay is

related to performance and does not eliminate paycomparisons

• (ay cause employees to overestimate pay of their peersand underestimate pay of their supervisors

• Can create feelings of dissatisfaction

• !mployees may become suspicious

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• /ome companies actually forbade employees todiscuss andAor disclose their pay

• In BD, the 3ational :abor Relations oard83:R9 ruled that forbidding employees to discusstheir pay constitutes a violation of the 3ational:abor Relations &ct

• 6omen7s groups in .1/1 and .E have begun tochallenge pay


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• heory holds that while true worth of -obs toemployer may be similar, some -obs 8especiallythose held by women9 are often paid a lower ratethan other -obs 8often held by men9

• #rawbac

•#etermining worth of the -obs in +uestion isdi*cult

• )ow should -ob worth be established=

• .1/1 courts have generally re-ected cases based oncomparable worth claims

• &lthough comparable worth has generally0oundered in court, it has received considerableattention

• &t the collective bargaining table

• In the political arena

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• :ittle doubt exists that inade+uate pay can have a verynegative impact on an organization

• $ay dissatisfaction can in0uence employees7 feelingsabout their -obs in two ways>

• Can increase desire for more money

• Can lower attractiveness of the -ob

• &n employee who desires more money is liely to engagein actions that can increase pay

• hese actions might include

• "oining a union• :ooing for another -ob

• $erforming better

• 5iling a grievance

• 2oing on strie12-34


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• &ll of the conse+uences 8except performing better9are generally undesirable by management

• etter performance results only in those caseswhere pay is perceived as being directly related toperformance

• 6hen -ob decreases in attractiveness, the employeeis more liely

• o be absent or tardy

• o +uit

•

o become dissatis%ed with the -ob itself

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• !+uity theory of motivation holds that

• !mployees have a strong need to maintain abalance between what they perceive as theirinputs to their -obs and what they receive fromtheir -obs in the form of rewards

• !mployees who perceive ine+uities will taeaction to eliminate or reduce them

• $ay e+uity concerns whether employees believethey are being fairly paid

• 5or example, if an employee believes he or she

is underpaid, that employee will liely reduceexpended e'ort by woring more slowly,taing o' early, or being absent

• /imilarly, if an employee believes she or he isbeing overpaid, that employee is liely to worharder or for longer hours

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• /everal dimensions of e+uity to be consideredwhen looing at pay e+uity

• Internal e+uity – &ddresses what an employeeis being paid for doing a -ob compared towhat other employees in the same

organization are being paid to do their -obs• !xternal e+uity – &ddresses what employees

in other organizations are being paid forperforming similar -obs

• Individual e+uity – &ddresses issue of

rewarding individual contributions; is veryclosely related to the pay


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• !mployee interpretations of pay e+uity are basedon their perceptions

• Organizations should mae these perceptions asaccurate as possible

• &n employee can also feel good about one or more

e+uity dimensions and feel bad about others• 5or example, an employee may feel good about

his or her pay in comparison to what friendsworing in other organizations are maing

• /he or he may also believe the company pro%ts

are fairly distributed within the company• )owever, this same person may be very unhappy

about his or her pay relative to several otherpeople in the same organization

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• Role of human resource manager in overallorganizational reward system is to assist in itsdesign and to administer the system

• &dministering the system – Carries responsibilityof ensuring that system is fair to all employees

and that it is clearly communicated to allemployees

• !nsuring that the system is fair places burden ofminimizing reward ine+uities and employee7sperceptions of reward ine+uities s+uarely on thehuman resources manager

• :ittle doubt exists that organizations need to do abetter -ob of explaining and communicating theircompensation system to employees

• (any tools and techni+ues are available to assisthuman resource managers in designing andadministering compensation systems

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Chaph 012 hrm organizational reward system