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Web support material to accompany Human Resource Management: Theory and practice, Third Edition © John Bratton and Jeffrey Gold 2003, published by Palgrave Macmillan

Words of wisdom

‘Organizations would be far less effective systems than they actually are if

economic rewards were the only, or even the principal, means of motivation

available.’

‘There is no such thing as a good pay system; there is only a series of bad

ones. The trick is to choose the least bad one.’

Reward Management


Reward Management


Reward refers to all of the monetary, non-monetary and psychological

payments that an organization provides for its employees in exchange for

the work they perform.

Reward (or compensation) management is a core facet of the employment

relationship.

An organization can provide two types of reward: extrinsic and intrinsic.

The mix of extrinsic and intrinsic rewards provided by the employer is

termed the reward system, the monetary or economic element of the reward

system is termed the pay system.

The Nature of Reward Management




Pay systems and conflict

All pay systems contain two elements that are in contradiction with

each other:

• Cooperation between worker and employer or manager is an essential

ingredient of the employment relationship if anything is to be produced

and is fostered through the logic of financial gain for the worker.

• Tensions and conflict are engendered through the logic that makes the

‘buying’ of labour power the reward for one group and the cost for the

other.

This fundamental tension underlying the employment relationship

makes an unstable contract between the two parties, who have different

objectives when it comes to monetary rewards.



A Model of Rewards Management


Strategic Perspective

Strategic Perspective

A reward system is a key mechanism that can influence each step of the

strategy process. It is also important in influencing:

Employee goal behaviours

Membership behaviour

Conflict behaviour

The first two behaviours mould an organization in terms of its

competencies and intellectual capital, and thus can support organizational

strategy. However, the last can undermine organizational strategy.





Reward Objectives

Reward objectives

Any organizational reward system has three behavioural objectives:

1. membership behaviour to recruit and retain a sufficient number of

qualified workers

2. task behaviour to motivate employees to perform to the fullest extent of

their capabilities

3. compliance behaviour to encourage employees to follow workplace

rules and undertake special behaviours beneficial to the organizations

without direct supervision or instructions.



A Model of Rewards ManagementReward Options


Reward Options

Reward Options

Base pay – the irreducible minimum rate of pay for a job; calculated on

time worked; reflects value of the job as measured by job evaluation. Can

be selected for simplicity and for psychological reasons.

Performance pay – added to base pay and related to certain work-related

behaviours: performance, learning or experience. Based on the

problematic assumption that pay alone motivates workers.

Indirect pay – refers to the total reward package in addition to base or

performance pay such as health and life insurance, pension plans and

other miscellaneous benefits.



A Model of Reward Management

Reward Options – Indirect Pay



Reward Options – Indirect Pay


Reward Techniques

Reward Techniques

Internal equity refers to comparisons between jobs or skill levels inside the

organization, which are compared in terms of their relative contributions to

the organization’s goals. Internal equity is established through three

reward techniques:

1. Job analysis

2. Job evaluation

3. Appraisal



Job analysis

Reward techniques: Job analysis

Knowledge on jobs and their requirements is collected through job

analysis, which is the systematic process of collecting and evaluating

information about the tasks, responsibilities and the context of a specific

job.

Job analysis consists of two mains stages:

1. data collection

2. the application of that data by the preparation of job descriptions, job

specifications and job standards.



A Model of Reward ManagementReward techniques: Job analysis






Reward Techniques: Job evaluation

Job evaluation is a systematic process designed to determine the relative

worth of jobs within a single work organization. The job evaluation process

comprises of four steps:

1. Gather data

2. Select compensable factors

3. Evaluate the job (ranking, job-grading, factor comparison, point method)

4. Assign pay to the job



A Model of Rewards ManagementReward Techniques: Job evaluation


A Model of Rewards ManagementReward Techniques: Job evaluation


Reward competitiveness

Reward competitiveness

Refers to reward relationships external to the organization – how should an

organization position its pay relative to what competitors are paying?

There are three options: to be a pay leader, to match the market rate or to

lag behind the market rate. The constraints defining the parameters within

which reward choices can be make include those relating to:

• the labour market

• the product/service market – affects external competitiveness

• the organizational





Determining the right pay means combining the results of the job analysis

and job evaluation processes and market pay data.

Although the pay levels within an organization reflect external

competitiveness and internal equity considerations, the decision on the

final pay level – the organization’s pay policy – will be determined by

many factors, including competitive strategy, HR strategy, reward

objectives, organizational design and culture.

Establishing Pay levels


Establishing Pay Levels


Government and Pay


Government and Pay


Equal pay legislation

The concept of pay equity is in conflict with the view that employees’ pay

should be dictated by the supply and demand of labour.

Despite the existence of equal pay legislation in the UK since 1975, income

disparity between men and women is widely acknowledged. Equal pay

legislation has failed to address occupational segregation.

All legislation requires that gender-neutral job evaluation schemes are used

to determine and compare the falue of female-dominated and male-

dominated jobs. Formal job evaluation is important in generating a

feeling of equity in the workplace, and thus constitutes the foundation

of pay equity.

Government and Pay


Paradox and Reward

There are some fallacies and inconsistencies inherent in reward systems.

• Fostering commitment via variable pay may be undermined if reward is

not paid due to the company’s poor financial performance.

• Performance-related pay is open to subjectivity and inconsistency, and

can create tensions which undermine workers’ intrinsic motivation.

• All may result in a breach of the psychological contract, weakening

employee commitment.

• Reward practices are dictated by perceptions of power between labour

and management. Pay systems will change according to their

effectiveness in the effort-wage relationship with the balance of power.

Paradox and Reward



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