6. Chapter Overview
Define Organizational Rewards
Selection of Rewards
Relating Rewards to Performance
Job Satisfaction & Rewards
Employee Compensation
The Role of the Human Resource Manager in the
Reward system
Summary of Learning Objectives
7. Organizational Reward System
Organizational reward system concerned with the
selection of the types of rewards to be to used by
the organization.
Organizational Rewards
Rewards that result from employment with the
organization; includes all types of rewards, both
intrinsic and extrinsic.
8. Intrinsic Rewards
Rewards internal to the individual
and normally derived from involvement in
certain activities or task.
Extrinsic Rewards
Rewards that are controlled and distributed
directly by the organization and are of a
tangible nature.
9.
10. Selection Of Rewards
Pay is usually the first, and sometimes the only, reward
most people think about
Organizations should learn what employees perceive as
meaningful rewards, which is not necessarily what
management perceives
Studies show that many variables can influence
employee preferences for certain rewards. They include
Age
Sex
Marital status
Number of dependents
Years of service
11. Relating Rewards to Performance
Free enterprise system is based on the premise that
rewards should depend on performance
Performance__reward relationship is desirable at
Organizational & corporate level
Individual level
Employees will be motivated when they believe such
motivation will lead to desired rewards
Many formal rewards provided by organizations
are not related to performance
12. These rewards are almost always determined by
organizational membership and seniority; they include
Paid vacations
Insurance plans
Paid holidays
Other rewards, such as promotion, can and should be
related to performance
Opportunities for promotion may occur only rarely
When available, higher positions may be filled
on basis of seniority
By someone outside the organization
13. Preconditions for implementing pay-for-
performance program
Trust in management
Absence of performance constraints
Trained supervisors and managers
Good measurement systems
Ability to pay
Clear distinction among cost of living , seniority and
merit
Well communicated total pay policy
Flexible reward schedule
14. Job Satisfaction and Rewards
An employees general attitude towards the job
Organizational reward system often has a
significant impact on level of employee job
satisfaction.
15. There are five major components of job satisfaction:
Attitude towards the work group
General working condition
Attitude towards the company
Monetary benefits
Attitude towards the management
Other components include:
Employees state of mind about the work itself
Life in general
Health, Age
Level of Aspiration, social status & political & social
activities
16. Organizational Morale
An employees feeling of being accepted & belonging to
a group of employees
Through common goals
Confidence in desirability of
those goals
Desire to progress toward
the goal
17. Morale is the product of a group
Job satisfaction is more an individual state of mind
Two concepts are interrelated in that job
satisfaction can contribute to morale and
morale can contribute to job satisfaction.
18. The Satisfaction-Performance Controversy
“The path of least Resistance”__Attempts to explain
belief that a satisfied employee is necessarily a good
employee
Although happiness eventually results from
satisfaction .
Two propositions concerning the satisfaction
performance RELATIONSHIP
Traditional view is that satisfaction causes
performance
Satisfaction is the effect rather than the cause of
performance
19. The Satisfaction-performance controversy
Performance leads to rewards that result in a certain
level of satisfaction.
Another positions consider both satisfaction and
performance to be functions of rewards.
Research evidence generally rejects the more popular
view that satisfaction leads to performance.
Evidence also strongly indicates that
Rewards constitute a more direct cause of
satisfaction than does performance.
Rewards based on current performance enhance
subsequent performance.
20. Lay people often tend to believe strongly that satisfied
employees are more productive at work.
It has been clearly established that job satisfaction
does have a positive impact on
Turnover
Absenteeism
Tardiness
Accidents
Grievances
Strikes
Experience, gender & performance can have a
moderating effect on these relationship.
21. Other Factors Affecting Job Satisfaction
Wide range of both external & internal factors affect
an employees level of satisfaction
Surveys have found that the top drivers of employee
job satisfaction were
Pay and Benefits
Job security and feeling safe in the work environment
Flexibility to work and life
22. Refers only to the actual dollars employees receive in
exchange for their work
All the extrinsic rewards that employees receive in
exchange for their work
Composed of the base wage or salary, any incentives or
bonuses and any benefits
23. Compensation Policies
Compensation must deal with following issues:
Minimum and maximum level of pay
General relationships among levels of pay
Division of total compensation dollar
ORGANIZATION must also make decisions concerning
How much money will go into pay increases for the next
years
Who will recommend them
How raises will generally be determined
ANOTHER IMPORTANT decision concerns whether pay
information will be kept secret or made public
24. PAY SECRECY
Many organization have a policy of not disclosing pay-
related information
Information about pay system as well as individual pay
received.
Justification for pay secrecy
To avoid any discontent that might result from employees
knowing what everybody else is being paid
Many employees, especially high achievers ,feel very strongly
that their pay is nobody else’s business
25. Drawbacks of pay secrecy
Difficult for employees to determine whether pay is
related to performance and does not eliminate pay
comparisons
Many cause employees to overestimate pay of their
peers and underestimate pay of their supervisors
Can create feelings of dissatisfaction
Employees may become suspicious
A compromise on issue of pay secrecy is to
disclose pay ranges for various job levels within
the organization.
26. Government Acts
Fair Labor standard Act
Davis-Bacon Act
Walsh-Healey Public contracts Act
Federal Wage Garnishment Law
Equal pay Act
Union Contracts
27. Fair Labor Standard Act (FLSA)
Commonly called Wage and Hour Act
Primary requirements are that
Individuals employed in interstate commerce or in
organizations producing goods for interstate commerce
must be paid a certain minimum wage
They be paid time-and-a-half for hours over 40 worked in
one week
Possible exemptions
Amendments to law have reduced number of exemptions,
but careful study is necessary to determine an
organization’s obligations
28. Discussions of compensation systems often use the terms
exempt and nonexempt personnel
Nonexempt employees are covered by the FLSA;
they must be paid overtime and are subject to
minimum wage
Exempt employees are not covered by the FLSA
and include executive, administrative, and
professional employees
29. Requires that contractors and subcontractors on
federal construction contracts in excess of $2,000 pay
prevailing wage rates for locality of project
Prevailing wage rate is determined by secretary of
labor
Has normally been the same as prevailing union rate
for the area
Overtime of time-and-a-half – For more than 40 hours
per week
30. Walsh-Healey Public Contracts Act
Requires that organizations manufacturing materials,
supplies, articles, or equipment in excess of $10,000 to
the federal government pay at least the minimum wage
for the industry as determined by the secretary of
labor
Defense Authorization Act of 1986 stipulated overtime
as being hours worked over 40 in a week
31. Federal Wage Garnishment Law
Garnishment – A legal procedure by which an
employer is empowered to withhold wages for
payment of an employee’s debt to a creditor
Law limits amount of an employee’s disposable
earnings that can be garnished in any one week and
protects employee from discharge because of
garnishment
32. Equal Pay Act
Illegal to pay different wages to men and women for
jobs that require equal skill, effort, and responsibility
and are performed under similar conditions
Does not prohibit payment of wage differentials based
on seniority systems, merit systems that measure
earnings by quantity and quality of production, or
systems based on any factor other than sex
33. Union Contracts
If an organization is unionized, the wage structure is
usually largely determined through collective
bargaining process
Because wages are a primary concern of unions,
current union contracts must be considered in
formulating compensation policies
34. Impact of Comparable Worth
Theory holds that while true worth of jobs to employer may
be similar, some jobs (especially those held by women) are
often paid a lower rate than other jobs (often held by men)
Drawback
Determining worth of the jobs in question is difficult
How should job worth be established?
U.S. courts have generally rejected cases based on
comparable worth claims
Although comparable worth has generally floundered in
court, it has received considerable attention
At the collective bargaining table
In the political arena
35. The Importance of Fair Pay
Little doubt exists that inadequate pay can have a very negative
impact on an organization
Pay dissatisfaction can influence employees’ feelings about their
jobs in two ways:
Can increase desire for more money
Can lower attractiveness of the job
An employee who desires more money is likely to engage in
actions that can increase pay
These actions might include
Joining a union
Looking for another job
Performing better
Filing a grievance
Going on strike
36. The Importance of Fair Pay
Better performance results only in those cases where
pay is perceived as being directly related to
performance
All of the consequences (except performing better) are
generally undesirable by management
When job decreases in attractiveness, the employee is
more likely
To be absent or tardy
To quit
To become dissatisfied with the job itself
37.
38. PAY EQUITY
Equity theory of motivation holds that
Employees have a strong need to maintain a balance
between what they perceive as their inputs to their
jobs and what they receive from their jobs in the
form of rewards
Employees who perceive inequities will take action
to eliminate or reduce them
39. PAY EQUITY
Several dimensions of equity to be considered when
looking at pay equity
Internal equity – Addresses what an employee is being
paid for doing a job compared to what other employees
in the same organization are being paid to do their jobs
External equity – Addresses what employees in other
organizations are being paid for performing similar jobs
Individual equity – Addresses issue of rewarding
individual contributions; is very closely related to the
pay-for-performance question
Organizational equity – Addresses how profits are
divided up within the organizations
40. PAY SATISFACTION
Based on the idea that employees will be satisfied with
their pay when their perception of what their pay is
and of what they think it should be agree
Present pay is a primary factor influencing an
employee’s perception of equity
41. These factors account for the fact that two people may view
the same level of pay in a very different manner
An employee’s perception of what pay should be
depends on several other factors, including
Job inputs
The perceived inputs and outcomes of friends and
peers
Nonmonetary outcomes
It makes allowances for employees who believe their
pay exceeds what they think it should be
42.
43. The Role of HR Manager in the Reward System
Role of human resource manager in overall organizational
reward system is to assist in its design and to administer
the system
Administering the system – Carries responsibility of ensuring
that system is fair to all employees and that it is clearly
communicated to all employees
Ensuring that the system is fair places burden of minimizing
reward inequities and employee’s perceptions of reward
inequities squarely on the human resources manager
44. Summary of Learning Objectives
Define organizational rewards
Distinguish between intrinsic and extrinsic rewards
List several desirable preconditions for implementing a
pay-for-performance program
Define job satisfaction and list its five major components
Summarize the satisfaction–performance relationship
Define compensation, pay, incentives, and benefits
List several pieces of government legislation that have had
a significant impact on organizational compensation
Explain the equity theory of motivation
Discuss internal, external, individual, and organizational
equity