Lecture 15

Reward management
Part 1 – Key definitions
 1. What is Reward Management?

Reward management is concerned with the strategies, policies and processes

required to ensure that the value of people and the contribution they make
to achieving organizational, departmental and team goals is recognized and
rewarded

(Armstrong, 2010; p.6)

 “Strategic reward is based on the design and implementation of long-
term reward policies and practices to closely support and advance
business or organisational objectives as well as employee aspirations.”

CIPD (2014) Strategic reward and Total reward factsheet (

http://www.cipd.co.uk/hr-resources/factsheets/strategic-reward-total-reward.aspx)
 2. Reward philosophy

• The reward philosophy of the organization represents its beliefs about

how people should be rewarded.

• Reward philosophies can be expressed as guiding principles that define

the approach an organization takes to dealing with reward.
 3. Reward strategy

• Reward strategy provides the impetus for reward system design and
operation in order to achieve three major objectives: performance,
competitiveness and fairness
 Important strategic questions
• Financial reward:
• Should it recognise performance? Long service? Level of responsibility?
• How are pay decisions made? Is there is a strict grading structure or more
individual approach?
• Non-financial rewards
• How can we design rewards to suit all of our staff?
• What are the individual and business benefits of investing in x, y and z?
 Market Competitive Compensation

Lag-the-Market Strategy

• Used when the employer is experiencing financial difficulties and when an abundance of workers
is available

Lead-the-Market Strategy

• Aggressive approach that enables a company to attract and retain sufficient workers with the
required capabilities and be more selective when hiring

Match-the-Market Strategy

• Attempts to balance employer cost pressures and the need to attract and retain employees by
providing compensation levels that meet the market for the employer’s jobs
4. Reward system
 4.1. Financial rewards

 Financial rewards consist of job-based pay, which provides pay related to

the value of the job, and person-based pay, which provides rewards that
recognize the individual’s contribution.
 They also include employee benefits and pensions and financial recognition
schemes.
 The management of job and person-based pay involves:
 Pay determination
 Base pay management
 Contingent pay
 4.2. Non-financial rewards

 Non-financial rewards focus on the needs people have to varying degrees

for recognition, achievement, personal growth and acceptable working
conditions
4.3. Total reward
4.3. Total reward – the model
 5. Aims of RM

 Reward people according to the value they create

 Support the achievement of business goals
 Promote high performance
 Support and develop the organization’s culture
 Define the right behaviours and outcomes
 6. Pay determination

 Competitive pay
 Internally equitable pay
 Supply

Demand

When supply is LOW and demand is

HIGH…
- More power with job hunters
- Employers compete to attract top talent
- Sought after workers can demand higher
wages/salaries
- Workers likely to move between jobs
more often
 Demand

Supply

When supply is HIGH and demand is

LOW…
- Employers have more power
- More people competing for fewer jobs
- Companies can pay lower salaries/wages
to attract ‘talent
- Less worker movement due to greater
desire for financial stability
 7. Market Pricing
• Use of market pay data to identify the relative value of jobs based on what other
employers pay for similar jobs
• Identifying relevant market pay data for jobs that are good matches with the
employer’s:
• Jobs
• Geographic considerations
• Company strategies and philosophies about desired market competitiveness levels
Part 2 – Motivation theories and
compensation
 Motivation Theories and Compensation
• Expectancy theory: Employees’ motivation is based on the probability
that:
• Their efforts will lead to an expected level of performance that is linked to a
valued reward
 Motivation Theories and Compensation

• Equity theory: Individuals judge fairness in compensation by comparing

their inputs and outcomes against the inputs and outcomes of referent
others
• Referent others - Workers that the individual uses as a reference point to
make these comparisons
Equity Theory
 Compensation Fairness and Equity

Compensation Fairness
and Equity

External Internal equity Pay secrecy vs.

Procedural Justice
equity Distributive Justice openness