VICTORY TRAINING & DEVELOPMENT INSTITUTE

KINGDOM OF BAHRAIN

Instructor Profile
Name : Dr. Shabbir Khan Email : shabbir.khan@vtdi.net Mobile : 35519640 Membership Status : AcMCIPD

5RWM
Unit Title Unit Code : Reward Management : 5RWM

Credit Value : 6 Date : January 6 - 8, 2012

Learning Outcomes
LO1 - Understand the business context of reward and the use of reward intelligence. LO2 - Understand the key perspectives that inform reward decision making. LO3 - Understand key reward principles, policies and practices. LO4 - Understand the role of line managers in promoting a performance culture, in reward decision making and driving sustained organisation performance.

Rewards: Clarifying the concept

Bratton and Gold (2003) define rewards as all the cash, non-cash and psychological payments provided by an organization in return of their contribution. Reward presents all the tangible benefits and provisions an employee obtain as a part of employment relationship (Milkovich and Newman, 2004); Malhotra et al. (2007) illustrate that work rewards indicate the benefits, workers receive from their workplace and are considered the determinants of job commitment and satisfaction. Stone et al. (2010) found that financial incentives are not always welcomed by all employees and material incentives generally do not tend to satisfy the basic psychological needs and discern the 5 individual variance.

Reward Management Defined

Reward management deals with the strategies, policies and processes required to ensure that the contribution of people to the organization is recognized by both financial and nonfinancial means.

Definition of Reward Management

Definition of Reward Management Reward Management is 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 (Armstrong and Murlis 2004)

Shift in Jobs & Reward Systems

1960s & 70s manual workers, piece-rates/wage drift, measured day work, incomes policies 1980 & 90s service/knowledge workers, PRP, shares 2000s Reward management PRP 1998 20%, 2004 32%, 36% 2007 Total Reward

Objectives of Reward Management

Support the organization'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

Reward Options
Base pay--fixed or minimum wage/salary Plussage--capability, qualification Premia/Overtime Performance related pay Indirect pay--benefits, non-cash, shares Non-monetary: recognition, advancement Total Reward Pay, non-pay, flexible hours, cafeteria benefits

Rewards by Individual, Team, Organisation

Individual: base pay, incentives, benefits rewards attendance, performance, competence Team team bonus, rewards group cooperation Organisation profit-sharing, shares, gain-sharing

Motivation theories I
Maslows hierarchy of needs Physiological, safety, social, esteem, self-actualisation Herzberg Hygiene, motivators (e.g.,sense of achievement) McClelland Learned needs

Motivation theories II
Vrooms expectancy theory Valance: attractive outcome Instrumentality: performance results in desired reward or achievement Expectancy: effort will lead to level of performance Equity theory fairness judged by comparison--internal, external

Determining Reward: Job Evaluation

Ranking of jobs by relative worth to the organisation Non-Analytical whole jobs, paired jobs (matrix), job classifications Analytical components, factors, competencies points rating(e.g.; 1-10)

Pay & SHRM

Achievable organisational objectives Clear link between pay and objectives Contingency model: Vertical fit--alignment of pay systems & business objectives Horizontal fit--pay and HR practice support one another

Use of Reward Management (CIPD 2008)

Written Reward Strategy Total rewards approach Key factor in salary level market rates ability to pay Key factor in pay review organisational performance inflation 33% 29% 31%, 22% 53% 44%

Question and Answer

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Learning Outcome 2
Learning Outcome The learners can: LO2 : Understand the key perspectives that inform reward decision making. Assessment Criteria The learners will: AC2.1 - Explain the key perspectives that inform reward decisions and evaluate their appropriateness or limitations in a given context.

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Incentive plans (CIPD 2008)

Individual Business results Combination 60% 51% 50%

Team-based

27%

What Is Total Rewards?

Total Rewards: All of the tools available to the employer that

may be used to attract, motivate and retain employees.

Total rewards include everything the employee perceives to be of value resulting from the employment relationship. The concept of total rewards has advanced considerably. The power of total rewards is in leveraging the concept as a whole

and the individual elements to attract, motivate and retain

talent

Total Rewards Defined

There are five elements of total rewards, each of which includes programs, practices, elements and dimensions that collectively define an organizations strategy to attract, motivate and retain employees. Roll your mouse over the image on the left to learn more.

Elements of Total Rewards

There are five elements of total rewards, each of which includes programs, practices, elements and dimensions that collectively define an organization's strategy to attract, motivate and retain employees. These elements are: - compensation - benefits - work - life - performance and recognition - development and career opportunities

Learning Outcome 3
Learning Outcome The learners can: LO3: Understand key reward principles and the implementation of policies and practices. Assessment Criteria The learners will: AC3.1 - Evaluate the principle of total rewards and its importance to reward strategy AC3.2 - Evaluate the significance of equity, fairness, consistency and transparency as they affect reward policies and practices. AC3.3 - Evaluate how policy initiatives and practices are implemented
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The Factors behind Performance Management in Companies

Armstrong (2006), as an organized process for improving organizational performance by developing the performance of individuals and teams. Also Performance Management is a process which contributes to the effective management of individuals and teams in order to achieve high levels of organisational performance.

The Factors behind Performance Management in Companies (cont..)

It establishes share understanding about what is to be achieved and an approach to leading and developing people which will ensure that it is achieved. (Armstrong and Baron, 2004, Cited Pilbeam and Corbride, 2006).
In other words, by Bones (1996), cited Pilbeam and Corbride (2006) that Performance does not need managing; it needs encouraging, developing, supporting and sustaining.

Equity Considerations in Compensation

Figure 127 External Labour Markets

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Fair Labor Standards Act 1938

Provisions of the Act
Minimum wage requirement sets wage floor Child labor (under 14 years old) is prohibited Requires overtime payments for non-exempt employees Exempts highly-paid computer workers Requires overtime (1) pay for hours over 40 hours Requires compensatory time at overtime (1) pay rates
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Figure 128c

Wage/Hour Status Under Fair Labor Standards Act

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Pay and Gender

Equal Pay Act of 1963 Requires that men and women be paid the same for performing substantially similar jobs with limited nongender exceptions (e.g., merit and seniority).

Issue of Pay Equity Similarity in pay for all jobs requiring comparable level of knowledge, skills, and abilities, even if actual duties and market rates differ significantly.

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Job Analysis

Job Evaluation

Ranking

Classification

Job Evaluation Methods

Factor Comparison Point Method

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Legal Issues and Job Evaluation

Americans with Disabilities Act
Job evaluations may not identify job functions related to physical demands as essential

Job Evaluation
Gender Issues
Traditional job evaluations place less weight on knowledge, skills, and working conditions for female-dominated jobs

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Developing Pay Surveys

Select Employers with Comparable Jobs

Determine Jobs to be Surveyed

Decide What Information Is Needed

Conduct Survey
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Pay Structures
Market Line The line on a graph showing the relationship between the job value, as determined by job evaluation points, and pay survey rates. Common Pay Structures Hourly and salaried Office, plant, technical, professional, managerial Clerical, information technology, professional, supervisory, management, and executive

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Establishing Pay Structures

Figure 1212

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Pay Structures (contd)

Pay Grades A grouping of individual jobs having approximately the same job worth. Broadbanding The practice of using fewer pay grades having broader pay ranges that in traditional systems. Benefits Encourages horizontal movement of employees Is consistent with trend towards flatter organizations Creates a more flexible organization Encourages competency development Emphasizes career development
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Issues Involving Pay Increases

Seniority Time spent in an organization or on a particular job. Used to determine eligibility for organizational rewards and benefits. Maturity Curve A curve that depicts the relationship between experience and pay rates. Assumption is that as experience increases, proficiency and performance increase.

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Performance-based
Our research shows that most private sector employers have now linked an element of pay to performance. However, there are a wide range of practices, including: consolidated pay rises non-consolidated pay rises bonus awards recognition and non-cash incentives.

Performance-based (Cont.)
And there is a wide variation in the factors used to define what is meant by performance, including: - individual performance

- individual performance and competency

- individual and organisational performance - individual performance and length of service - competency and organisational performance

Strategic
Employers are increasingly asking themselves whether their current reward practices have validity in the present and future business context. They are examining what they are rewarding and whether it adds value to the organisation. Having an articulated reward strategy helps in working out what the organisation needs to do to be a success, what values, behaviours and performances they need from their employees to be a success, and how they will communicate these expectations and reward those individuals who exhibit the values, behaviours and performances required.

Financial Rewards: Indirect Compensation

Protection Programs
Examples: pensions, health coverage, life insurance, social welfare programs

Public Private
Mandatory versus Voluntary Contributory versus Non-contributory

Financial Rewards: Indirect Compensation

Pay for Time Not Worked (at work and off work) Examples: breaks, meal time, transit time, medical leave, military leave, education leave, vacation Services and Perquisites General (e.g. financial services, counseling, dining discounts) Limited (e.g. automobile, cellular phone, clothing allowance, gym membership)

Financial Rewards: Direct Compensation

Base Pay Incentives

Cost-of-Living Adjustments (COLAs)

Merit Pay

Compensation System Objectives

External Competitiveness Internal Equity Legal Compliance Motivational Soundness Linkages to Performance Cost Effectiveness Culture Creating

Total Comp Policy Planning: Key Issues

Degree of income protection and replacement to be provided for employees, for dependents and for retirees. Provisions (if any) to be made for income supplementation benefits. Relation of benefits to job level. Recognition for seniority. Recognition for performance or productivity. Employers responsibility for costs of Employee benefits, dependent benefits, and retiree benefits.

Total Comp Policy Planning: Key Issues (cont..)

Basis and use of external comparisons.
Effect of union settlements on benefits for non-represented employees.

Application of plans to employees of acquired orgs.

Coverage for part-time employees. Employee choice and plan flexibility. Responsibility for planning and managing the plans/programs.

Compensation Laws & Regs

Wages Wage Controls Payment Schedules Pay Increases Overtime Incentive Pay Wage Adjustments (longevity, education, etc.) Bonuses Contracts Work Agreements Child Labor Benefits

Basic Compensation Markets

Blue Collar Labour Professional Supervisory and Managerial Entertainers and Athletes

External Influences on Compensation

Supply of Labor Demand for Labor Org Location Economic State Competition Union Influence Product/Service Demand

Internal Influences on Compensation

Organization Size Willingness to Pay Ability to Pay Tradition Unionization Job Itself Employer Prestige Work Force Character Desired Employee Quality Ratio of Labor Costs to Total Costs

Performance Appraisal: Major Goals

Improve performance Increase motivation identify training/development needs manage careers set levels of reward Control

Appraisal Methods
OUT Rank & Yank Critical Incident IN Psychometric Scales 360 Appraisal Frequent Review Role of line manager

Who does Appraisal?

owned and driven by line-manager (Armstrong, 2006) 360 Appraisal Managers (alone 180) HRM personnel Peers Subordinates Self Customers (540)

Organizational Compensation System Requirements

Maximize ability to attract and retain qualified employees Be within ability to pay

Allow organization to remain competitive

Compensation Terminology
Wage versus Salary Exempt versus Non exempt

Assigning Pay to Jobs

Job Pricing = placing a monetary value on the worth of a job to the organization RULE: Each job is worth only so much to the organization

OPTIONS: 1. Flat Rates 2. Pay Ranges

Pay Considerations
Prevailing wages and salaries Collective bargaining Economic realities Worth of position/job Worth of employee Difficulty in filling job Priority of work in organization

Basic Compensation Decisions

Wage level decisions compared to other organizations Wage structure decisions comparing job to job Individual wage decisions comparing individuals in same jobs

Wage Level Decisions

Lead Competition Match Competition Lag Competition

Wage Structure Decisions

System for assigning value to jobs within an organization: Ranking Classification Point/Factor

Wage Structures
Rankings - Each job in relation to other from most important to least important Classification - Jobs sorted by requirements, responsibilities Point/Factor - Jobs evaluated and sorted by objective factors

Ranking System
Job A - President Job B Vice President Job C1 Treasurer/CFO Job C2 Manager of Operations/COO Job D Sales Manager Job E Salesperson Job F Order Entry Clerk Job G Cleaning Crew Member

Classification System
Grade 1 2 3 Step 1 15,625 17,568 19,168 Step 2 16,146 17,985 19,807 Step 3 16,666 18,567 20,446 Step 4 17,183 19,060 21,085 Step 5 18,009 19,841 21,724 Step 6 19,039 20,408 22,363 Step 7 19,543 20,975 23,002

4
5

22,235
24,878

23,057
25,681

23,669
26,484

24,386
27,287

25,430
28,090

26,110
28,982

26,833
29,876

27,731

28,626

29,521

31,011

32,206

33,104

34,891

Point/Factor Systems
Job A = 100 Job B = 110 points Job C = 160 points Job D = 180 points Job E = 200 points Job F = 220 points Job P = 430 points

Pay Adjustments
Fixed Rate Increases step increases, flat dollar increases Percentage Increases across the board, competitive percent

Incentives

Levels of Incentives
Individual Group Company-wide

Executive

Individual Incentive Plans

Piecework Payment (Straight and Differential) Standard Hour Commissions Bonuses Skills-based Pay Non-financial Awards

Group Incentive Plans

Piece-rate Systems
Standard Hour Plans Group Bonuses

Profit Sharing

Company-wide Incentives
Profit Sharing (Cash Plan or Deferred Plan) Gain sharing Stock Ownership Plans (ESOP)

Executive Incentives
Salaries Stock Options Long-term Incentive Plan Payouts Directors Fees Perquisites

Executive Compensation
Organization Boeing Tenet Healthcare Dell Computer Disney Household Intl GE Salary & Bonus 2,684,000 116,400,000 82,300,000 14,500,000 5,000,000 6,900,000 Long-term Comp 1,245,000 72,000,000 37,500,000 48,000,000 41,300,000 43,000,000 Company Performance -128% +63% -13.2% -60% -50% -39%

Directors Fees
Board Member Compensation Fees Insurance Travel Stocks Retirement contributions

Board Fees
Bear Sterns Investments PM Industries Pepsico American Express Coca-cola Georgia Pacific Microsoft $150,000 $ 85,000 $ 78,000 $ 67,500 $ 61,000 $ 53,000 $ 42,000

Perquisites
Memberships Company car/limo Corporate Travel Corporate Jet/Yacht Clothing Allowance Free Parking Dining Privileges No/low Cost Loans Memberships:

Perquisites (cont..)
Gym, Golf & Social Clubs Entertainment Expenses Season Tickets to Sporting Events Financial and Legal Counseling Education/seminar Funding Funding for Family Education

Perquisites (Perks) (Cont..)

Kidnapping & Ransom Insurance & Services Housing Allowance or Accommodations Living Accommodations Away from Home Company Credit Cards Special Relocation Allowances Spouse/family Travel Golden Parachute/Severance Package

Golden Parachute
In effect if acquisition or forced to leave

Typical severance package: 2-3 x annual salary and bonus accelerated vesting of options
Example: Mattel Corporation Package=5 years salary and bonuses = $26.4 mil Purchase office furniture & equipment for $1.00 Forgiveness of $4.2mil personal loan Forgiveness of $3mil home loan Cash of $3.31mil to cover taxes on loans Received $47mil, plus options

HRM Crises of Finances: HRM Implications

Bankruptcies Acquisitions and Mergers Scandals with officers/managers Private & Corporate Lawsuits Government investigations and charges Arrests and convictions Tragedies
workplace accidents & illnesses , travel accidents work-related accidents EXAMPLE: Air France Concorde/SST crash Union Carbide Bophol, India, chemical spill Merrill Lynch 9/11 Twin Towers crashes

Evaluation of Incentives
Attention getter? Understandable?

Establishes culture through values?

Improves communication?

Pays when it should? (achievements versus failures)

Improves individual performance? Improves organizational performance?

 Tangible rewards Economic Reciprocal access gained to information and knowledge Intangible rewards Employees will enjoy seeing the positive results of their knowledge sharing Enhanced reputation and personal satisfaction

Rewards and incentives for knowledge management

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Rewards and Incentives for Knowledge Management

According to John Campbell, Regional Director of Rewards and Recognition: CITI Bank
The key role of the reward function is to examine the various ways that individual and collective contribution is rewarded. Bonus schemes are a powerful way of telling our employees: this is what we need from you and this is how we will reward you. However, you have to invest time in ensuring that bonuses that are awarded support what the business needs and do not encourage the wrong values and behaviours.

Learning Outcome -4
Learning Outcome The learners can: LO4 :Know how to support line managers in making reward decisions. Assessment Criteria The learners will:
AC4.1 - Explain the various ways in which line managers contribute to reward decision making. AC4.2- Evaluate the contention that pay can improve employee performance. AC4.3 - Assess the contribution of intrinsic rewards to improving employee contribution and sustained organisation performance

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Organizational Compensation System Requirements

Maximize ability to attract and retain qualified employees Be within ability to pay

Allow organization to remain competitive

Line Managers Impact on Reward Program

Question and Answer

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