Reward Management

Managing Human Resources

Definition of 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
organization”
 (Armstrong and Murlis 2004)
Shift in Jobs & Reward Systems
 1960s & ‘70s
– manual workers, piece-rates/wage drift, measured day
work, incomes policies
 1980 & ‘90s
– service/knowledge workers, PRP, shares
 2000s
– Reward management
– PRP 1998 20%, 2004 32%, 36% 2007
– “Total Reward”
Objectives of Reward
Management
 Support the organisation’s strategy
 Recruit & retain
 Motivate employees
 Internal & external equity
 Strengthen psychological contract
 Financially sustainable
 Comply with legislation
 Efficiently administered
Basic Types of Reward
 Extrinsic rewards
– satisfy basic needs: survival, security
– Pay, conditions, treatment
 Intrinsic rewards
– satisfy higher needs: esteem,development
Reward Options
 Base pay--fixed or minimum wage/salary
 Plussage--capability, qualification
 Premia/Overtime
 Performance related pay
 Indirect pay--benefits, non-cash, shares
 Non-monetary: recognition, advancement
 “Total Reward” Pay, non-pay, flexible hours,
cafeteria benefits
Rewards by Individual, Team,
Organisation
 Individual: base pay, incentives, benefits
– rewards attendance, performance, competence
 Team
– team bonus, rewards group cooperation
 Organisation
– profit-sharing, shares, gain-sharing
Motivation theories I
 Maslow’s hierarchy of needs
– Physiological, safety, social, esteem, self-
actualisation
 Herzberg
– Hygiene, motivators (e.g.,sense of
achievement)
 McClelland
– Learned needs
Motivation theories II
 Vroom’s expectancy theory
– Valance: attractive outcome
– Instrumentality: performance results in desired
reward or achievement
– Expectancy: effort will lead to level of
performance
 Equity theory
– fairness judged by comparison--internal, external
Hierarchy of Needs Theory
(Maslow)
Hierarchy of Needs Theory
There is a hierarchy of five needs
—physiological, safety, social,
esteem, and self-actualization; as
each need is substantially
satisfied, the next need becomes
dominant.

Self-Actualization
The drive to become what one is capable of becoming.
 Maslow’s Hierarchy of Needs
Lower-Order Needs Higher-Order Needs
Needs that are satisfied
Needs that are satisfied
externally; physiological
internally; social, esteem,
and safety needs.
and self-actualization
needs.

Source: Motivation and Personality , 2nd ed,, by A.H. Maslow, 1970.

Reprinted by permission of Prentice Hall, Inc., Upper Saddle River, NJ.
Two-Factor Theory (Frederick Herzberg)
Two-Factor (Motivation-Hygiene) Theory
Intrinsic factors are related to job satisfaction,
while extrinsic factors are associated with
dissatisfaction.
Hygiene Factors
Factors—such as company policy
and administration, supervision,
and salary—that, when adequate
in a job, placate workers. When
factors are adequate, people will
not be dissatisfied.
 Comparison of
Satisfiers and
Dissatisfiers
Factors characterizing
events on the job that led to
extreme job dissatisfaction
Factors characterizing
events on the job that
led to extreme job
satisfaction

Source: Reprinted by permission of Harvard Business Review. An exhibit from One More Time:
How Do You Motivate Employees? by Frederick Herzberg, September–October 1987. Copyright
E X H I B I T 6–2
E X H I B I T 6–2
© 1987 by the President and Fellows of Harvard College: All rights reserved.
Contrasting Views of Satisfaction
and Dissatisfaction

E X H I B I T 6–3
E X H I B I T 6–3
ERG Theory (Clayton Alderfer)
ERG Theory
There are three groups of core needs: existence,
relatedness, and growth.

Core
CoreNeeds
Needs Concepts:
Concepts:
Existence:
Existence:provision
provisionof More
basic
of Morethan
thanone
oneneedneedcan
can
basicmaterial
material be operative at the same
be operative at the same
requirements.
requirements. time.
time.
Relatedness:
Relatedness:desire
desirefor IfIfaahigher-level
relationships.
for higher-levelneed
need
relationships. cannot
cannotbe befulfilled,
fulfilled,the
the
Growth: desire
desiretotosatisfy
satisfyaalower-
Growth:desire
desirefor
for level need increases.
lower-
personal
personaldevelopment.
development. level need increases.
David McClelland’s Theory of
Needs
Need for Achievement Need for Affiliation
The drive to excel, to achieve The desire for friendly
in relation to a set of and close personal
standards, to strive to relationships.
succeed.

Need for Power nPow

The need to make others
behave in a way that they
would not have behaved
otherwise.
nAch nAff
Equity Theory
Equity Theory
Individuals compare their job inputs and outcomes
with those of others and then respond to eliminate
any inequities.
Referent
Referent
Comparisons:
Comparisons:
Self-inside
Self-inside
Self-outside
Self-outside
Other-inside
Other-inside
Other-outside
Other-outside
Equity Theory (cont’d)

E X H I B I T 6–7
E X H I B I T 6–7
Equity Theory (cont’d)
Choices
Choicesfor
fordealing
dealingwith
withinequity:
inequity:
1.
1. Change
Changeinputs
inputs(slack
(slackoff)
off)
2.
2. Change
Changeoutcomes
outcomes(increase
(increaseoutput)
output)
3.
3. Distort/change
Distort/changeperceptions
perceptionsof
ofself
self
4.
4. Distort/change
Distort/changeperceptions
perceptionsofofothers
others
5.
5. Choose
Chooseaadifferent
differentreferent
referentperson
person
6.
6. Leave
Leavethe
thefield
field(quit
(quitthe
thejob)
job)
Equity Theory (cont’d)
Propositions
Propositionsrelating
relatingto
toinequitable
inequitablepay:
pay:
1.
1. Overrewarded
Overrewardedhourly
hourlyemployees
employeesproduce
produce
more
morethan
thanequitably
equitablyrewarded
rewardedemployees.
employees.
2.
2. Overrewarded
Overrewardedpiece-work
piece-workemployees
employees
produce
produceless,
less,but
butdodohigher
higherquality
qualitypiece
piece
work.
work.
3.
3. Underrewarded
Underrewardedhourly
hourlyemployees
employeesproduce
produce
lower
lowerquality
qualitywork.
work.
4.
4. Underrewarded
Underrewardedemployees
employeesproduce
producelarger
larger
quantities
quantitiesof
oflower-quality
lower-qualitypiece
piecework
workthan
than
equitably
equitablyrewarded
rewardedemployees
employees
Expectancy Theory
Expectancy Theory (Victor Vroom)
The strength of a tendency to act in a certain way
depends on the strength of an expectation that the
act will be followed by a given outcome and on the
attractiveness of that outcome to the individual.
 Expectancy
Expectancy Theory
Theory Relationships
Relationships
 Effort–Performance Relationship
– The probability that exerting a given amount of effort
will lead to performance.
 Performance–Reward Relationship
– The belief that performing at a particular level will lead
to the attainment of a desired outcome.
 Rewards–Personal Goals Relationship
– The degree to which organizational rewards satisfy an
individual’s goals or needs and the attractiveness of
potential rewards for the individual.
Determining Reward: Job
Evaluation
 Ranking of jobs by relative worth to the
organization.
 Non-Analytical
– whole jobs, paired jobs.

 Analytical
• components, factors, competencies
• points rating.
Pay and Organizational objective
 Achievable organizational objectives
 Clear link between pay and objectives
 Contingency model:
– Vertical fit--alignment of pay systems &
business objectives
– Horizontal fit--pay and HR practice support
one another
Performance appraisal: MAJOR
GOALS
 Improve performance
 Increase motivation
 Identify training/development needs
 Manage careers
 Set levels of reward
 Control
WHO DOES APPRAILSAL?
 “…owned and driven by line-manager”
(Armstrong, 2006)
 360º Appraisal
– Managers (alone 180º)
– HRM personnel
– Peers
– Subordinates
– Self
– Customers (540º)
PSYCHOMETRIC SCALES
 BARS--Behavior Anchored Rating Scale
– Anonymous questionnaire
– 1-7 “unacceptable” to “excellent” behavior

 BOS--Behavioral Observation Scale

– Anonymous questionnaire
– 1-5 “never” to “always” behavior traits