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Chapter-4
Reward Systems and Legal Issues
Overview
Reward Systems: Overview
◼ Traditional and Contingent Pay (CP) Plans
•Reasons for Introducing CP Plans
•Possible Problems Associated with CP
•Selecting a CP Plan
◼ Putting Pay in Context
◼ Pay Structures
Traditional Pay
◼ Salary and salary increases are based on
•Position
•Seniority
Contingent Pay (CP)
◼ Salary and salary increases are based on
• Job performance
◼ Also called: Pay for Performance
◼ If not added to base pay, called:
•Variable pay
Reasons for Introducing CP (1)
◼ Performance management is more effective when rewards are tied to results
◼ CP Plans force organizations to:•Clearly define effective
performance
•Determine what factors are necessary
Reasons for Introducing CP (2)
◼ Supervisors and employees are better able to understand what really matters
◼ CP plans enhance employee motivation to accomplish goals that match organizational needs
Reasons for Introducing CP (3)
◼ CP plans help to recruit and retain top performers
◼ CP plans project good corporate image
CP plans help improve motivation
when:
• Employees see clear link between their efforts and resulting performance (Expectancy)
• Employees see clear link between their performance level and rewards received (Instrumentality)
• Employees value the rewards available (Valence)
motivation =
expectancy x instrumentality x valence
Possible Problems Associated with CP
◼ Poor performance management system
◼ Rewarding counterproductive behavior
(Rewarding A while hoping for B)
◼ Rewards are not considered significant
◼ Managers are not accountable
(The reward becomes the driver)
◼ Extrinsic vs. intrinsic motivation
◼ Disproportionately large rewards for executives
Selecting a CP Plan: Issues to
consider
A. Culture of organization
B. Strategic direction of organization
A. Culture of organization: Types of
organizations
◼ Traditional•Top-down decision making
•Vertical communication
• Jobs that are clearly defined
◼ Involvement•Shared decision making
•Lateral communications
•Loosely defined roles
CP systems for different organizational
cultures:
◼ Traditional organizations
•Piece rate
•Sales commissions
•Group incentives
◼ Involvement organizations
•Profit sharing
•Skill-based pay
B. CP Plans to enhance Strategic
Directions:(1)
◼ Employee development•Skill-based pay
◼ Customer service•Competency-based pay
•Gainsharing
◼ Overall profit•Executive pay
•Profit or stock sharing
B. CP Plans to enhance Strategic
Directions:(2)
◼ Productivity
• Individual◼ Piece rate
◼ Sales commissions
◼ Teamwork• Team sales commissions
• Gainsharing
• Competency based pay
•Group
◼ Gainsharing
◼ Group incentives
Putting Pay in Context
A reward increases the chance that
◼ Specific behaviors and results will be repeated, or
◼ Employee will engage in new behavior and produce better results
Rewards can include:
◼ Pay
◼ Recognition
• Public
• Private
◼ Status
◼ Time
◼ Trust & Respect
◼ Challenge
◼ Responsibility
◼ Freedom
◼ Relationships
How to Make Rewards Work
◼ Define and measure performance first and then allocate rewards
◼ Only use rewards that are available
◼ Make sure all employees are eligible
◼ Rewards should be both•Financial•Non-financial
(continued)
How to Make Rewards Work (continued)
◼ Rewards should be:•Visible
•Contingent
•Timely
•Reversible
Pay Structures
◼ Job Evaluation
◼ Broad-banding
Pay Structures
An organization’s pay structure➢ Classifies jobs
➢Into categories
➢Based on their relative worth
➢ Is designed by job evaluation methods
Job Evaluation
◼ Method of data collection
•Determine the worth of various jobs
•Create a pay structure
◼ Consideration of
•KSAs required for each job
•Value of job for organization
•How much other organizations pay
Types of job evaluation methods:
◼ Ranking
◼ Classification
◼ Point
Job evaluation methods: Ranking
◼ Create job descriptions
◼ Compare job descriptions
◼ Rank jobs
Advantages of using Ranking method
◼ Requires little time
◼ Minimal effort needed for administration
Disadvantages of using Ranking
method
◼ Criteria for ranking may not be clear:
◼ Distances between each rank may not be equal
Job evaluation methods:
Classification◼ A series of classes or grades
are created
◼ Each job is placed within a job class
Advantages of using Classification
method
◼ Jobs can be quickly slotted into structure
◼ Employees accept method because it seems valid
Disadvantages of using Classification
method
◼ Requires extensive time and effort for administration
◼ Differences between classification levels may not be equal
Job evaluation methods: Point
method◼ Identify compensable factors (job
characteristics)
◼ Scale factors (e.g. on a scale of 1 – 5)
◼ Assign a weight to each factor so the sum of the weights for all factors = 100%
Advantages of using Point method
◼ Establish worth of each job relative to all other jobs within organization
◼ Comprehensive measurement of relative worth of each job in organization
◼ Easy to rank jobs when total points are known for each job
Disadvantages of using Point method
◼ Requires extensive administrative
•Time
•Effort
Does job evaluation method
matter?•Fairness
•Evaluators
◼ Impartial
◼ Objective
Compensation surveys
◼ Information on
•Base pay
•All other types of compensation
◼ Conducted in-house or by consultants, such as:
www.salary.com or www.haypaynet.com
Broad-banding
◼ Most commonly used pay structure
◼ Pay structure collapses job classes into fewer (≤ 5) categories
Advantages of Broad-banding
◼ Provides flexibility in rewarding people
◼ Reflects changes in organization structure
◼ Provides better base for rewarding growth in competence
◼ Gives more responsibility for pay decisions to managers
◼ Provides better basis for rewarding career progression
Reward Systems: Summary
◼ Traditional and Contingent Pay (CP) Plans
•Reasons for Introducing CP Plans
•Possible Problems Associated with CP
•Selecting a CP Plan
◼ Putting Pay in Context
◼ Pay Structures
Legal Issues: Overview
◼ Performance Management and the Law
◼ Some Legal Principles Affecting PM
◼ Laws Affecting PM
Performance Management and the Law
◼ Performance management systems are legally sound, if they are fair:
•Procedures are standardized
•Same procedures are used with all employees
Some Legal Principles Affecting PM:
Overview
◼ Employment-at-will
◼ Negligence
◼ Defamation
◼ Misrepresentation
◼ Adverse Impact
◼ Illegal Discrimination
Employment-at-will
◼ Employment relationship can be ended at any time by•Employer
•Employee
◼ Exceptions• Implied contract
•Possible violation of legal rights
Negligence
◼ If organization documents describe a system
and
◼ It is Not implemented as described,
◼ Employee can challenge evaluation, charging negligence
Defamation
◼ Disclosure of performance information that is
•Untrue and
•Unfavorable
Misrepresentation
◼ Disclosure of performance information that is
•Untrue and
•Favorable
Adverse Impact / Unintentional
Discrimination
◼ PM system has unintentional impact on a protected class
◼ Organization must demonstrate:
• Specific KSA is a business requirement for the job
• All affected employees are evaluated in the same way
• Organization should review ongoing performance score data by protected class to implement corrective action as necessary
Illegal Discrimination or Disparate
Treatment
◼ Raters assign different scores to employees based on factors that are NOT related to performance
◼ Employees receive different treatment as result of such ratings
◼ Employees can claim they were intentionally and illegally treated differently due to their status
Employee claim of illegal discrimination:
◼ Direct evidence of discrimination, or
◼ Evidence regarding the following:
• Membership in protected class
• Adverse employment decision
• Performance level deserved reward/different treatment
• How others were treated (not in protected class)
Employer response to claim of illegal
discrimination
◼ Legitimate and non-discriminatory reason for action
◼ Related to performance
Note: Good performance management system and subsequent performance-related decision, used consistently with all employees, provides defense
Difference between
legal and illegal discrimination
◼ LEGAL discrimination discriminates among employees based on their level of performance
◼ ILLEGAL discrimination is based on variables that should not usually be related to performance
Laws Affecting PM:
During past few decades, several countries have passed laws prohibiting discrimination based on:◼Race or Ethnicity
◼Sex
◼Religion
◼National Origin
◼Age
◼Disability status
◼Sexual orientation
Laws in the United Kingdom:
◼ Equal Pay Act of 1970
◼ Race Relations Act of 1976
◼ Sex Discrimination Act of 1975
◼ Disability Discrimination Act of 1995
◼ Employment Equality (Sexual Orientation) Regulations 2003
◼ Employment Equality (Religion or Belief) Regulations 2003
Laws in the United States of America
◼ Equal Pay Act of 1963
◼ Civil Rights Act of 1964
◼ Age Discrimination in Employment Act of 1967 (as amended in 1986)
◼ Americans with Disabilities Act of 1990
Characteristics of Legally Sound PM
Systems
◼ Organization:
• The system is formally explained and communicated to all employees
• The system includes a formal appeals process
• Procedures are standardized and uniform for all employees within a job group
• The system includes procedures to detect potentially discriminatory effects or biases and abuses in the system
Characteristics of Legally Sound PM
Systems
◼ Management• Supervisors are provided with formal
training and information on how to manage the performance of their employees
• Performance information is gathered from multiple, diverse, and unbiased raters
• The system includes thorough and consistent documentation including specific examples of performance based on first-hand knowledge
Characteristics of Legally Sound PM
Systems◼ Employees
• Performance dimensions and standards are:
◼ Clearly defined and explained to the employee,
◼ Job-related, and
◼ Within the control of the employee
• Employees are given
◼ Timely information on performance deficiencies and
◼ Opportunities to correct them
• Employees are given a voice in the review process and treated with courtesy and civility throughout the process
Legal Issues: Summary
◼ Performance Management and the Law
◼ Some Legal Principles Affecting PM
◼ Laws Affecting PM
Managing Team
Performance
11-56
Overview
◼ Definition and Importance of Teams
◼ Types of Teams and Implications for PM
◼ Purposes and Challenges of Team PM
◼ Including Team Performance in the PM System
◼ Rewarding Team Performance
11-57
Definition of Team
Two or more people
• Interact
◼ Dynamically
◼ Independently
•Share common and valued
◼ Goal, Objective, or Mission
11-58
Importance of Teams
◼ Increased pressure, including global competition
◼ Flexibility in flatter organizations
◼ Complexity of products and services
◼ Rapidly changing business environments
11-59
Performance Management and
Teams◼ PM systems should target:
• Individual performance
• Individual’s contribution to team performance
•Performance of entire team
11-60
General Principles of PM Relating
to Teams
1. Design and implement best system possible
2. Consider dangers of poorly implemented system
11-61
Managing for Improved Team
Performance
◼ Don’t limit team processes with other task or organizational requirements
◼ Provide good team design and organizational support
◼ Give feedback only on processes that the team members can control
11-62
Types of Teams
◼ Classified by
•Complexity of task
•Membership configuration
11-63
Complexity of Task Ranges
From:◼ Routine
• Well-defined
• Few deviations in how work is done
• Outcomes are easily assessed
- to -
◼ Nonroutine• Not defined well
• No clear specifications on how to do the work
• Outcomes are long term and difficult to assess
11-64
Membership Configuration Includes
◼ Length of time team expects to work together
◼ Stability of team membership
11-65
Static Dynamic
Types of Teams Based on
Membership Configuration and Task
Complexity
11-66
Dynamic ° Network
Teams
Membership
Configuration
° Project
Teams
Static ° Work and
Service Teams
Routine Non-Routine
Task Complexity
Types of Teams
◼ Work or Service Teams
◼ Project Teams
◼ Network Teams
11-67
Work or Service Teams
◼ Intact
◼ Routine tasks
◼ Share similar skill sets
11-68
Project Teams
◼ Assembled for specific purpose
◼ Tasks outside core product or service
◼ Members from different functional areas
11-69
Network Teams
◼ Membership not constrained by: • Time or space
• Organizational boundaries
◼ Teams may include:• Temporary or full-time workers
• Customers
• Vendors
• Consultants
◼ Work is extremely nonroutine
11-70
Examples of PM Approaches by
Type of Team
11-71
Type of Team Type of PM Approach
Work and Service Team Peer ratings
Project team Ongoing measurements
Network Team Development of competencies
Purposes of Team PM
◼ Traditional goals of any PM system
◼ Specific to team performance:
• Make all team members accountable
• Motivate all team members to have a stake in team performance
11-72
Challenges of Team PM
◼ How do we assess relative individual contribution?
◼ How do we balance individual and team performance?
◼ How do we identify individual and team measures of performance?
11-73
Six Basic Principles for Designing a
PM System
That Includes Team Performance
1. Make sure your team is really a team
2. Make the investment to measure
3. Define measurement goals clearly
4. Use a multi-method approach to measurement
5. Focus on process as well as outcomes
6. Measure long-term changes
11-74
Performance Management Process (Overview/Review)
Performance
Review
Performance
Renewal and
Recontracting
Performance
Assessment
Performance
Execution
Performance
PlanningPrerequisites
11-75
Prerequisites
◼ Knowledge of mission• Organization
• Team
◼ Knowledge of job to be performed by the team, including KSAs
11-76
Prerequisites
KSAs needed for most teams:
• Task
• Contextual
◼ Communication
◼ Decision-making
◼ Collaboration
◼ Team leadership
◼ Self-control
11-77
Performance Planning
◼ Results expected of the team
◼ Behaviors expected of team members
◼ Developmental objectives to be achieved by team and its members
11-78
Performance Planning
◼ Facilitate adaptive learning
• Encourage new behaviors
◼ Facilitate generative learning
•Provide best practices recommendations
◼ Facilitate transformative learning
•Deep learning by, for example, bringing in members of other teams into the team to work temporarily
→ Innovation and change
11-79
Performance Execution
Team responsibilities
1. Commit to goal achievement
2. Seek feedback from
• One another
• Supervisor
3. Communicate openly and regularly
4. Conduct regular and realistic peer appraisals
11-80
Performance Execution
Supervisor responsibilities
1. Observe and document• Team performance
• Relative contribution of team members
2. Update team on any changes in goals of the organization
3. Provide resources and reinforcement
11-81
Performance Assessment
Types of Assessments
◼ Self-appraisals
◼ Peer evaluations
◼ Supervisor evaluation
◼ Outsider appraisals (if appropriate)
11-82
Performance Assessment
Kinds of Performance to be Assessed
◼ Individual task performance
◼ Individual contextual performance
◼ Team performance
11-83
Dimensions of Team
Performance to Assess
◼ Effectiveness
◼ Efficiency
◼ Learning and growth
◼ Team member satisfaction
11-84
Performance Review
◼ Two meetings with supervisor or review board
• Team meeting
• Individual meeting
◼ Emphasis on past, present, and future
11-85
Team Meeting
◼ Discuss overall team
• Performance
• Results
◼ Information comes from:
• Team members
• Other teams/outsiders
• Supervisor’s evaluation
11-86
Individual Meeting
◼ Discuss how individual behavior contributed to team performance
◼ Information comes from:
• Self-appraisal
• Peer ratings
• Supervisor’s evaluation
11-87
Performance Renewal and
Recontracting
◼ Make adjustments to performance plan
◼ Include plan for individual performance as it affects team functioning
11-88
Making Team-Based Rewards
Effective
◼ All employees should be eligible
◼ Rewards should be:• Visible
• Contingent
• Reversible
◼ Avoid factors which cause reward systems to fail
◼ Consider variable pay systems (in addition to individual bonuses)
11-89
