Transcript 投影片 1 - ukassignment

Employee rewards
and managing
performance
Dr. Jean (Qi) Wei
[email protected]
School of management RHUL
15th October, 2009
Structure

Part I

Overview of employee rewards
Strategic design of reward system
International approaches
Student task – case study
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Break




Part II
Overview of pay for performance
Problems with PRP
Student task – case study

Summary

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Part One: Overview of
employee rewards
•
Definitions
Rewards, total rewards and reward management
•
•
•
•
Importance of rewards
Reward management strategies and
models
Strategic design of rewards
Case Study 1&2
2
Rewards
“Employee rewards refer to all forms of
financial returns, tangible services and
benefits employees receive as part of an
employment relationship.”
(Bratton and Gold 1999)
3
Types of rewards
■ A motivational point of view
Intrinsic rewards: Inner satisfaction by doing the job.
Extrinsic rewards: Pay (wages, salary, commissions, etc.,)
Benefits (pension, medical care, health care,
housing, unemployment pension)
■ A total reward point of view
Money, benefits, work and development (Rowley, 2003)
4
What is a total reward?
Recognition
Base pay
Responsibility
Contingent
pay
Financial
rewards
and
benefits
Variable pay
(cash
bonuses)
Share
ownership
Meaningful work
Total
Remuneration
+
Nonfinancial
rewards –
those
arising
from the
work itself
and the
work
environme
nt
Autonomy
Opportunity to
use and
develop skills
Total
reward
Career
opportunities
Quality of
working life
Benefits
Work/life balances
Transactional rewards
Source: Armstrong & Murlis (1998)
Relational rewards
5
Framework for analysing different ‘Deals’
High
Low
TRANSACTIONAL
HIGH PAY – LOW
COMMITMENT
HIGH PAY – HIGH
COMMITMENT
Hired Guns
(Stockbrokers)
Cult-like
(Microsoft)
LOW PAY – LOW
COMMITMENT
LOW PAY – HIGH
COMMITMENT
Workers as Commodity
(Employers of Migrant Farm Workers)
Family
(Starbucks)
Low
High
RELATIONAL
Source: Milkovich & Newman (2002)
6
Employee benefits
Can benefits become strategic? If so, how?


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One way is to make sure that the benefits available are
attractive to high potential applicants and high performers.
A second way is developing a benefit specifically to attract a
desired set of employees. E.g. day care centres, tuition
reimbursement programmes.
Most benefits are future or need care oriented, it is difficult
to make linkage between performance and benefits.
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Non-monetary rewards
1. Other titles: recognition awards, low cost/no cost awards, hugs
and mugs etc.
2. The great strength of non-monetary rewards is their immediacy.
3. The change in recent years has not been so much the increase
in the number of awards or the amount of individual awards,
but the rationalisation of non-monetary rewards programmes
and their integration into the rest of the rewards system.
4. Different forms
Perquisites – Special eating areas, first class travel, club memberships etc.
Recognition awards – Top sales, travel awards, gift certificates etc.
Psychic pay – special parking, lunch with the CEO etc.
worksite policies – Casual dress codes, break areas, etc.
Family friendly policies - Flexible working hours etc.
8
What is reward management?

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 organisation.” (Milkovich & Newman 2002)
Principle objectives of RM:
 Attract and retain suitable employees
 Maintain or improve levels of employee
performance
 Comply with employment legislation and
regulations.
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Build
capability
Non-financial
rewards
Employee
benefits
Market
analysis
Business/
HR
strategy
Reward
strategy
Grade and
Pay
structure
policy
Grade and
pay
structure
(base pay)
Total
Remuneration
Total
reward
Improved
Performance
Job
evaluation
Contingent
pay
Performance
management
Components of reward management
Learning
and
development
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Source: Armstrong and Murlis (2004)
Importance of reward management
•
Reward systems can influence a number of HR processes and practices
which in turn have an impact on organisational performance. E.g..
Recruitment and retention
•
Employees see reward systems as signalling the importance the
employer places on various activities or behaviours.
•
The way in which employees are rewarded has a major influence on
corporate culture.
•
The reward system can help to define the status hierarchy and decisionmaking structure.
•
Cost & form large part of business & method of competing.
•
Attention-attracts public, institutional & government’s attention.
•
Varied internationally
11
Strategic design
of
reward systems
Internal alignment
Determining the
structure
“Internal equity refers to the pay relationships
between the jobs/skills/competences within a
single organisation. The relationships form a
pay structure that can support the workflow, is
fair to employees, and directs their behaviour
toward organisation objectives.”
• Factors that shape internal
structure
• Strategic choices in designing
structure
•Job-based or person based
External competitiveness
Determining the
pay level
“External competitiveness refers to the
pay relationships among organisations
– the organisation’s pay relative to its
competitor.”
•Factors that shape external
competitiveness
•Designing pay levels, pay
mix etc.
• Balancing the internal and
external pressures
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External factors:
Economic pressures
Government policies, laws/
regulations
Stakeholders
Cultures and customs
Internal
alignment
Organisational factors:
Strategy, technology, human
capital, HR policy, employee
acceptance, cost
implications
Internal structure:
Levels
Differentials
criteria
Person based
Job based
Job analysis
Job evaluation
Job based structure
Skills
Competencies
Skill analysis
Competency sets
Person based structure
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Labour market factors:
Nature of demand
Nature of supply
Product market factors:
External
competitiveness
Degree of competition
Level of product demand
Set policy
Organisational factors:
Industry, strategy, size,
individual manager / owner
Define market
Conduct survey
Merge internal & external pressures
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Competitive pay levels, mix and structures
Approaches to international rewards (1)
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Should reward packages be based on
(1) the salary level of the home country
or
(2) the salary level of the host country?
Two main approaches:
The going rate approach
The balance sheet approach
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Approaches to international rewards (2)
The going rate approach


Based on local market rates
Relies on survey comparisons among: local nationals
(HCNs), expatriates of same nationality and expatriates of
all nationalities

Compensation based on the selected survey comparison

Base pay and benefits may be supplemented by additional
payments for low-pay countries
(Source: Dowling and Welch, 2004:145)
16
Approaches to international rewards (3)
The going rate approach
Advantages:
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Equality with local nationals
Simplicity
Identification with host
country
Equity amongst different
nationalities
Disadvantages:



Variation between
assignments for same
employee
Variation between expatriates
of same nationality in
different countries
Potential re-entry problems
(Source: Dowling and Welch, 2004:145)
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Approaches to international rewards (4)
The balance sheet approach (the most widely used)
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
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Based on home-country pay and benefits
Adjustments to home package to balance additional
expenditure in host country
Financial incentives (expatriate/hardship premium) added to
make the package attractive
(Source: Dowling and Welch, 2004:146)
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Approaches to international rewards (5)
The balance sheet approach
Advantages:

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Equity
--between assignments for
the same employee
--between expatriates of the
same nationality
Facilitates expatriate re-entry
Easy to communicate to
employees
Disadvantages:
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Can result in great inequality
--between expatriates of
different nationalities
--between expatriates and
local nationals
Can be complex to administer
(Source: Dowling and Welch, 2004:148)
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Case study 1: Strategic employee rewards at
Richer Sounds
• How is Richer Sounds’ business strategy reflected
in its rewards?
• What other
considered?
types
of
rewards
might
be
• How might the type be influenced by its business
strategy?
Source: From Marchington and Wilkinson, 2002
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Case study 2
Pay under scrutiny as recession bites

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To what extent is cutting pay a good idea for
employers in an economic downturn?
How would you motivate and retain good
performers in the current economic situation?
Source: The Times July 17th, 2008
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Part Two: Performance related
pay (PRP)
• Definition
•
•
•
•
•
Main forms of PRP
Reason for using PRP
Advantages and disadvantages
Problems with PRP
Case study 3&4
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What is PRP?
PRP is the payment that is in
addition to base pay and the
payment that ties to performance
measure of individual, group and
firm level. (Armstrong 1999)
Focus of PRP
1.
Coverage
2.
Measurement (e.g. results, behaviours)
3.
Link between pay and performance
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Main forms of PRP
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Payment –by-results schemes: pay linked directly
to output such as productivity bonus, sales
incentives etc.
Performance schemes: pay not linked directly to
output but overall business goals. Individual PRP
and team based pay etc.
Financial participation scheme: such as profit
sharing paid in cash or shares via some form of
equity-based arrangement
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Types of performance measure
Level of aggregation
Results
Behaviours
Individual
Individual incentives Merit pay
Sales commissions
Merit bonuses
Skill-based
/competence based
Collective
Group incentives
Gain-sharing
Business unit plans
Profit sharing
Stock plans
Merit pay for
groups
Source: Gerhart and Rynes (2003) .
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Historical development of PRP
•
•
•
•
•
Early 1900s, it was very uncommon for a person to have
rewards based on individual contribution, profit sharing
bonuses, stock options, plus choices among various
benefit and services.
1930s and 1940s, group based gain-sharing plans gained
ground to solve production problems and improve
productivity.
In 1953, 50 percent of US workers were paid by some
type of group based incentive plans.
During 1960s and 1970s, the use of all forms of PRP
plans declined. Only about 20 percent of manufacturing
workers were paid under incentive plans.
By 1990s, forms of PRP diversified.
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Reasons for using PRP?
Perspectives
Theories
Economic
perspective
Agency theory examines the relationship between principals (e.g.
shareholders) and agents (e.g. CEOs). It sees the remuneration as one way of
motivating the directors to manage the company in line with the shareholders’
wishes.
Motivational
perspective
Maslow (1970) the hierarchy of needs: physiological, safety, love, esteem
needs and self actualisation.
Psychological
perspective
Expectancy theory (Vroom,1964) states that employees will only be
motivated by a reward if they see that reward as being something worthwhile,
believe that they will receive the reward for achieving the appropriate
performance.
Equity theory (Adams, 1963) places the emphasis of PRP on a comparison
with others both internally and externally, rather than just considering the
absolute monetary incentive.
Institutional
perspective
Institutional theory takes the view that often companies structure themselves
in order to be like others, rather than for reason tailored to their individual
circumstances.
Legitimacy
theory
Companies need to structure their activities in order to achieve legitimacy in
the constituencies from which they draw resources.
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Empirical evidence for using PRP

HR purpose
PRP as a motivator, to promote business strategies, to
retain good performers, a communication tool, better than
nothing etc.

Institutional reasons
Best practice, following the leading companies.
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Legitimacy
Very little empirical support.
Small sample, not generalisable. Each of these theories on its
own is an incomplete explanation of why firms using PRP, but
together they explain behaviour more fully.
Source: Wei (2008) ‘’Pay for performance in China: A case study of knowledge based firms’
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Why companies use PRP?
Market practices
Need for corporate governance
Need to attract and retain
Implement PRP
Set measures and goals and communicate with employees
Managers’ actions and behaviours
Luck (external factors)
Business performance
PRP award
Effect on
Individual’s self worth
Monetary award
Increased human capital
for future negotiations
Source: Wei (2008) ‘’Pay for performance in China: A case study of knowledge based firms’
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What’s happening in reality?
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1,158 respondents had PRP
59% introduced this prior to 1998
23% discontinued this between 1990-1998
74% believed that PRP improved performance but respondents
mainly HR specialists
67% felt that PRP gave a clear message about organisational
performance
57% believed PRP rewarded people in a fair way
14% thought PRP worsened perceptions about fairness
21% thought that PRP schemes made their most impact on the
behaviour of high performers
4% thought they had an impact on average performers and 4%
an impact on poor performers.
41% thought no change to average performance and 52%
thought no real change in poor performance
Source: A survey done by CIPD in 2003.
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Advantages and disadvantages
of PRP forms
Advantages
Disadvantages
Individual PRP
(E.g. Merit pay,
individual bonus,
incentives etc.,)
Substantial
contribution to raise
productivity, to lower costs, and to
increase earnings
Less direct supervision is required
It helps costing and budgetary control.
Greater
Team PRP
(Cash profit
sharing, stock
options, gainsharing, team
incentives etc.,)
Low
Profit
administrative cost
Improved communications
Clear performance and reward link
Foster teamwork
Stimulating ideas and problem solving.
Better reflect how work is performed.
conflicts between
employees and managers
Mistrust between employees and
management
Obstacles of introduce new
technology or unwillingness of
employees to suggest new
production
influenced by many
factors beyond employee control
May be viewed as an
entitlement
Can be complex
Can be administratively
complicated
Difficult to set equitable targets
for all teams
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Main problems with PRP
■ Problems with strategy
Clarity and communication of scheme objectives linked to
business goals.
PRP becomes part of base pay.
■ Problems with design
The link between pay and performance, pay and effort
Narrow differentials
Lack of employee or line managers’ participation
Culture issues
■ Problems with process
Lack of transparency, line management involvement
Poor appraisal system and communication channel
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Case study 3
Incentives shift for Taiwan tech workers
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How was the PRP changed in the case?
What can we learn from the shifting
composition of the PRP illustrated in the case?
Source: The Financial Times September 25, 2008
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Case study 4
Fat cat row over public sector pay
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What are the problems with executive pay in
the public sector?
How would you solve the problems with
executive pay as a HR specialist?
Source: The Sunday Times November 11, 2007
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References
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Rowley “The management of people: HRM in context”
(2003) Spiro Business Guide
Marchington and Wilkinson “People management and
development: HRM at work” 2nd (2002) CIPD
Brown and Armstrong “Paying for contribution: Real PRP
strategies” (1999) Kogan Page
Thorpe & Homan “Strategic reward systems”
(2000)Pearson
Milkovich & Newman “Compensation” (2002) 7th McGrawHill
Reilly “New reward II: Issues in developing a modern
remuneration system” (2003) IES
Armstrong & Murlis “Reward management: A handbook
of remuneration strategy and practice” (2004) 5th Kogan
Page
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