Kujtim Hameli PhD.

(C)

October 2019,
Istanbul
 REWARD TYPES

The most obvious reward employees receive from work is pay.

Rewards also include promotions, desirable work assignments, and a

host of other less obvious payoffs – a smile, peer acceptance, work
freedom, or a kind word of recognition.
 REWARD TYPES
Intrinsic
Reward
• The personal satisfactions one
derives from doing the job.
• Self-initiated rewards: pride in
one’s work, a sense of
accomplishment, or enjoying
being part of a work team.
Extrinsic
Reward
• Include money, promotions,
and benefits.
• Are external to the job and
come from an outside source,
mainly management.
 REWARD TYPES

Financial Nonfinancial
Rewards Rewards
• Enhance directly the • Make life on the job more
employee’s financial well- pleasant.
being. • Retirement plans, paid
• Wages, bonuses, or profit vacations, paid sick leaves,
sharing purchase discounts.
 REWARD TYPES

Performance-Based Rewards Membership-Based Rewards

• Rewards exemplified by the • Include cost-of-living

use of commissions,
piecework pay plans,
incentive systems, group
bonuses, or other forms of
merit pay.
increases, benefits, and salary
increases attributable to
labor-market conditions,
seniority or time in rank,
credentials (such as a college
degree or a graduate
diploma), a specialized skill,
or future potential (for
example, the recent MBA
graduate from a prestigious
university).
 JOB EVALUATION AND THE PAY STRUCTURE

▪ Job evaluation is the process whereby an organization

systematically establishes its compensation program. In this
process, jobs are compared to determine each job’s appropriate
worth within the organization.
▪ Using job analysis information to systematically determine the
value of each job in relation to all jobs within the organization.
▪ A job evaluation seeks to rank all jobs in the organization in a
hierarchy that reflects the relative worth of each.
▪ A ranking of jobs, not people.
 JOB EVALUATION AND THE PAY STRUCTURE

▪ The heart of job evaluation is determining appropriate criteria to

arrive at the ranking.
▪ Most job-evaluation plans use responsibility, skill, effort, and
working conditions as major criteria, but each of these, in turn,
can be broken down into more specific terms.
▪ Skill, for example, is “an observable competence to perform a
learned psychomotor act (like keyboarding).”
▪ But other criteria can and have been used: supervisory controls,
complexity, personal contacts, and the physical demands
needed.
JOB EVALUATION METHODS

ORDERING

CLASSIFICATION

POINT
▪ Ranking job worth from highest to lowest.
▪ Requires a committee, typically composed of both management
and employee representatives, to arrange jobs in a simple rank
order, from highest to lowest.
▪ The committee members merely compare two jobs and judge
which one is more important or more difficult to perform.
▪ Then they compare another job with the first two, and so on until
all the jobs have been evaluated and ranked.
▪ The most obvious limitation to the ordering method is its sheer
unmanageability with numerous jobs
▪ Evaluating jobs based on predetermined job grades.
▪ Classifications are created by identifying some common denominator
– skills, knowledge, responsibilities – to create distinct classes or
grades of jobs.
▪ Examples might include shop jobs, clerical jobs, and sales jobs,
depending, of course, on the type of jobs the organization requires.
▪ Once the classifications are established, they are ranked in an overall
order of importance according to the criteria chosen, and each job is
placed in its appropriate classification.
▪ The classification method shares most of the disadvantages of the
ordering approach, plus the difficulty of writing classification
descriptions, judging which jobs go where, and dealing with jobs
that appear to fall into more than one classification.
▪ On the plus side, the classification method has proven itself
successful and viable in classifying millions of kinds and levels of
civil service jobs.
▪ Breaking jobs down into categories such as education, skill, effort,
responsibility and working conditions.
▪ Points are assigned to each category based on the importance of
the criteria to successful performance of the job.
▪ Points may be weighted more heavily if increased education, skill
or experience are required for the position.
▪ Pay grades or ranges are assigned to jobs based on the total
number of points.
▪ The point method offers the greatest stability as jobs may change
over time, but the rating scales established under the point
method stay intact.
▪ On the other hand, the point method is complex and therefore
costly and time-consuming to develop.
▪ However, is the most widely used method.
 ESTABLISHING THE PAY STRUCTURE

Used to gather factual data on pay practices among firms and companies
within specific communities.
It can tell compensation committees if the organization’s wages are in line
with those of other employers and, in shortages of individuals to fill certain
positions, may help set wage levels.
 ESTABLISHING THE PAY STRUCTURE

A completed wage curve tells the

compensation committee the average
relationship between points of established
pay grades and wage base rates.

It can identify jobs whose pay is out of the

trend line.

When a job’s pay rate is too high, it may be identified as a “red circle”
rate.
When a job’s pay rate is too low, it may be identified as a “green circle”
rate.
 ESTABLISHING THE PAY STRUCTURE
WAGE STRUCTURE

▪ A pay scale showing ranges of pay within

each grade.
▪ Jobs similar in terms of classes, grades, or
points are grouped together.
▪ The more important jobs are paid more;
and as individuals assume jobs of greater
importance, they rise within the wage
hierarchy. Jobs may also be paid in
accordance with knowledge- or
competency-based pay.

▪ Typically, organizations design their wage structures with ranges in

each grade to reflect different tenure in positions, as well as levels of
performance.
▪ Geographic Differences - When local supply of labor falls short
of demand, wages will increase. Conversely if the local labor
supply exceeds demand, wages will decrease. This can cause
wage fluctuations in some geographic areas or cities, depending
on how far workers are willing to travel for a job.
▪ Labor Supply - When unemployment rates are low, employers
must work harder to attract qualified workers. This often
includes raising wages to tempt workers to leave their current
employment and apply. When unemployment rates are high,
wages tend to be depressed because employers have a plentiful
supply of applicants.
▪ Competition - When setting a policy on how to react to
competition wages, HR professionals have three choices: match,
lead and lag.
▪ Cost of Living - Inflation raises the price of consumer goods and
reduces the buying power of wages in real terms. As the CPI
increases, wages must also increase to allow workers to maintain
their standard of living.
▪ Collective Bargaining - The major function of most unions or
collective bargaining units is to negotiate for the wages of its
members.
▪ Communicating with Employees: - No matter how the wage
structure is developed, employees must know how the system is
derived. If an organization neglects to inform its employees and
fails to communicate how the process works, it will only lead to
problems later. In
 ▪ Individual Incentives – Motivation
systems based on individual work
performance.
▪ Popular approaches include merit
pay, piecework plans, time-savings
bonuses, commissions, and stock
options. One popular and almost
universally used incentive system is
merit pay where employees who
receive merit increases have a sum of
money added to their base salary.

▪ The most widely used, the best-known incentive is undoubtedly piecework where
the employee is typically guaranteed a minimal hourly rate for meeting some pre-
established standard output. When output exceeds this standard, the employee
earns so much for each piece produced.
▪ Group incentive - Motivational plan provided to a group of employees based on
their collective work. Group incentives make the most sense when employees’ tasks
are interdependent and thus require cooperation.
▪ Organization-wide incentives – direct the efforts of all employees toward achieving
overall organizational effectiveness. This type of incentive produces rewards for all
employees based on organization-wide cost reduction or profit sharing.
▪ One of the best-known organization-wide incentive systems is the Scanlon Plan. It
seeks cooperation between management and employees through sharing problems,
goals, and ideas.
▪ Another incentive plan called IMPROSHARE , a contraction of Improving
Productivity through Sharing, uses a mathematical formula to determine employees’
bonuses. For example, if workers save labor costs in producing a product, a
predetermined portion of the labor savings goes to the employee. Profit-sharing
plans, or gain sharing plans, are also organization-wide incentives.
 PAYING FOR PERFORMANCE
▪ Pay-for-performance programs – compensate employees based on a performance
measure.
▪ Examples: Piecework plans, gain sharing, wage incentive plans, profit sharing,
and lump sum bonuses.
▪ Pay is adjusted to reflect performance measures that might include individual
productivity, team or work group productivity, departmental productivity, or the
overall organization’s profits for a given period
 PAYING FOR PERFORMANCE

▪ A recent extension of the pay-for-performance concept is competency-based

compensation used in such industries as diverse as healthcare and energy
production.
▪ Pays and rewards employees on their skills, knowledge, or behaviors. Competencies:
Leadership, problem solving, decision making, or strategic planning. Pay levels
reflect the degree of competency.

▪ Broad-banding: Paying employees at preset levels based on their level of

competency.

▪ Team-based compensation - pay based on how well the team performed. Providing
for fair treatment of each team member encourages group cohesiveness
Salaries of Top Managers

Supplemental Financial Compensation

Non financial: Perquisites

Non financial: Golden Parachute

 INTERNATIONAL COMPENSATION

▪ Base Pay - ideally, this equals the pay of employees in comparable jobs at home.
▪ Differentials - the cost of living fluctuates around the world, and the value of
the dollar to foreign currencies affects prices. Differentials offset the higher
costs of overseas goods, services, and housing.
▪ Incentives - Not all employees are willing to leave family, friends, and the
comfort of home support systems for long periods of time. Thus, mobility
inducements to go on foreign assignments are regularly offered. These may
include monetary payments or services, such as housing, a car, chauffeur, and
other incentives
 Benefits as a whole do not directly affect a
Additional considerations that performance!
worker’s enrich employees’ life.

Benefits attract qualified applicants, affect whether applicants accept

their employment offers or, once employed, determine if they stay with
the organization.

Benefits offer important financial advantages and security that would be

difficult or prohibitively expensive for employees to acquire on their own.
 Benefits Increase
Direct
and in labor
compensation
services costs
▪ What has triggered the sweeping changes in benefits
offerings that will carry us into the future?

Domestic partner benefits?

Include medical, dental, or vision coverage for an

employee’s live-in partner – whether or not that live-in
partner is of the opposite sex.
 Social Security

Unemployment Compensation

Workers’ Compensation

• Social Security – Retirement, disability, and survivor benefits paid by the government to
the aged, former members of the labor force, the disabled, or their survivors.
• Is financed by employee contributions matched by the employer, and computed as a
percentage of the employee’s earnings
• Unemployment Compensation – Employee insurance that provides some income
continuation in the event an employee is laid off.
• Being fired from a job, may result in a loss of unemployment compensation rights.

• Workers’ Compensation – Employee insurance that provides income continuation if a

worker is injured on the job.
• Protects employees’ salaries and attributes the cost for occupational accidents and
rehabilitation to the employing organization.
• The entire cost of workers’ compensation is borne by the organization.
 HEALTH INSURANCE

▪ We all have insurance needs.

▪ Organizations today offer some health insurance coverage to
their employees.
▪ One of the most important benefits for employees because of the
tremendous increases in the cost of healthcare.
▪ A major purpose of health insurance is to protect the employee
and his or her immediate family from the catastrophes of a major
illness and to minimize their out-of-pocket expenses for medical
care.
▪ Healthcare coverage generally focuses on hospital and physician
care.
▪ Prescriptions, medical supplies, and equipment necessary for
treatment and recovery
 HEALTH INSURANCE
▪ Traditional Health Insurance – offers coverage for health services provided by
any healthcare provider. It usually includes three categories of coverage:
hospitalization, medical/surgical and major medical.
▪ Health Maintenance Organizations (HMOs) – provide quality healthcare at a
lower cost for their members. The major disadvantage is that HMOs provide full
coverage only if clients receive services from selected providers.
▪ Preferred Provider Organizations (PPOs) – using specific physicians and
healthcare facilities to contain the rising costs of healthcare. Have a large
network of doctors, hospitals, and other related medical service facilities to
provide services at a reduced cost. In return for accepting this lower cost, the
employer or the insurer promises to encourage employees to use their services.
▪ Point-of-Service (POS) – plans require that primary care physicians provide
most health services and make referrals like HMOs.
▪ Others: Consumer Driven Health Plans (CDHP), Employer-Operated Coverage,
Health Insurance Continuation , The HIPAA Requirement.
 RETIREMENT BENEFITS

▪ Retirement plans - a way to attract qualified employees of all

ages.
▪ Can increase retention, productivity, and employee satisfaction.
▪ Vesting rights – the permanent right to pension benefits.
▪ Defined Benefit Plans – specifies the dollar amount benefit
workers will receive at retirement. The amount typically revolves
around some fixed monthly income for life or a variation of a
lump-sum cash distribution.
▪ Defined Contribution Plans – No specific benefit payout is
promised because the value of the retirement account depends on
the growth of contributions of employee and employer.
▪ Money Purchase Pension Plans – type of defined contribution
plan. The organization commits to deposit annually a fixed
amount of money or a percentage of the employee’s pay into a
fund.
 RETIREMENT BENEFITS

▪ Profit-Sharing Plans – another variation of defined contribution

plans. The company contributes to a trust fund account an
optional percentage of each worker’s pay (maximum allowed by
law is 25 percent). This, of course, is guided by profit level,
although it isn’t even necessary for the employer to make a profit
to make contributions.
▪ Individual Retirement Accounts – a type of defined contribution
plan with employer contributions.
▪ 401(k)s – is named after the IRS tax code section that created it.
These programs permit workers to set aside a certain amount of
their income on a tax-deferred basis through their employer. The
most common match is 50 cents for each dollar of employee
contribution up to the first 6 percent of pay.
▪ After employees have been with an organization for a specified period of time, they
usually become eligible for a paid vacation. The rationale behind paid vacation is to
provide a break in which employees can refresh themselves. Employees who do not
take a break ultimately may be adversely affected, which can ultimately affect
productivity.
▪ Holiday pay is paid time off to observe some special event - federally mandated
holidays (such as New Year’s Day, Presidents’ Day, Labor Day, Thanksgiving, or
Christmas), company-provided holidays (such as Christmas Eve and New Year’s
Eve), or personal days (days employees can take off for any reason).

▪ Most employees face a greater probability of a disabling injury that requires an absence
from work of more than ninety days than dying before retirement.
▪ Sick Leave - is allocated at a specific number of days a year

▪ Short Term Disability Programs - provides a percentage of the employee’s income (usually
around 70 percent) if the employee must be absent from work due to an illness or injury.
▪ Long-Term Disability Programs - provide replacement income for an employee who cannot
return to work and whose short-term coverage has expired.
▪ Group Term Life Insurance – life insurance is one of the most
common and most popular voluntary benefits. Many employers
offer a small amount of group term life insurance to full-time
employees. This coverage is frequently equal to the employee’s
annual salary.

▪ Travel Insurance – covers employees’ lives in the event of death

while traveling on company time. A typical policy would pay
five times the employee’s salary up to $1 million.
1. DeCenzo, D. A., Robbins, S. P. & Verhulst,
PHR, S. L. (2013). “Fundamentals of
Human Resource Management”, 11th
Edition,Wiley.

2. Dessler, G. (2017). “Human Resource

Management”, 15th Edition, Pearson.