A Personnel Psychological Perspective REMUNERATION A Personnel Psychological Perspective

INTRODUCTION Two groups are involved: Employees May see remuneration as return for services rendered OR As reward for satisfactory work Management Views remuneration as a major expense Aware of influence of remuneration on employee’s attitudes, motivation & behaviour Due to the differing perspectives, remuneration has the potential to generate conflict and misunderstandings

DEFINITION “Remuneration is the term used to resume the financial recognition employees receive due to their commitment to the organisation. Compensation can be: Direct : weekly or monthly pay Deferred: fringe benefits, company car ext.”

Additional remuneration Employee benefit programmes TYPES OF COMPENSATION Wages & Salaries Additional remuneration (Incentives) Employee benefit programmes Additional benefits Salaries Weakly Monthly Yearly Additional Long-term or Short-term Membership unions Paid vacations Pension programme Company car Country club membership Travel allowances

PURPOSES OF REMUNERATION 1. It enhances individual and organisational performance 2. The prospect of remuneration encourages value-adding performance 3. Remuneration integrates the various HRM processes 4. It encourages flexibility: such as skill-based pay 5. Provides a support basis for management 6. It facilitates the organisational strategic goals: for example, the enhancement of client services 7. It serves to motivate employees: individuals are motivated by different aspects: therefore personal needs need to be taken into account

… PURPOSES OF REMUNERATION 8. Method for the organisation to compete within the labour market. 9. Means of maintaining fairness and equity: legislation requires that remuneration needs to be sufficient and unbiased. 10. Remuneration ensures that the employees provide value for money: cost control should be a priority 11. Teamwork can be enhanced if remuneration is managed well

MOTIVATION & REMUNERATION Equity Theory: Equity = fairness of remuneration Refers to the perception of treatment by the organisation in relation to others Equity is not equal treatment for all Equity = feelings & perceptions, which is always a comparative process (where one party may perceive the exchange process was unfair): Inputs VS Outputs 2 Types of Equity: Distributive Equity – fairly rewarded? Procedural Equity – fair procedures (e.g appraisal)?

… MOTIVATION & REMUNERATION ... Equity Theory: Equity exists when the input/output ratio is perceived by an employee to be the same for all Example: Peter = works long hours & develops a new product for which he receives a merit bonus and the “employee of the year” award (Peter’s perception?) James = Works long hours & develops a new product for which he receives a letter of recognition for his efforts (James’ perception?) 2 Types of Equity: Distributive Equity – fairly rewarded? Procedural Equity – fair procedures (e.g appraisal)?

…MOTIVATION & REMUNERATION Expectancy Theory: Three (3) components: 1. Valence 2. Instrumentality 3. Expectancy

…MOTIVATION & REMUNERATION ... Expectancy Theory: 1. Valence The emotional orientation towards the outcome Outcome has a positive valence when a person prefers to receive it or not to receive it. Example: a person will prefer (with everything else being equal) a job with a higher salary instead of a lower one. With remuneration being the outcome Preference for the higher salary reflects the strength of a person’s underlying needs It refers to the expectancy regarding the outcome Valence from a practical perspective: Emotional orientation = wants it, motivates him/her, has a positive feeling about it Outcome = prefers higher salary Underlying need = wants extra resource to satisfy extra need He /she is now motivated to attain a higher salary

…MOTIVATION & REMUNERATION ... Expectancy Theory: 2. Instrumentality Instrumental = believes it will lead to something else It helps to acquire something else Instrumentality determines valence Believes that good performance will lead to a higher salary Valence based on good performance will be strong Instrumentality from a practical perspective: If I perform better (performance is instrumental), I shall receive a higher salary Good performance = Instrumental in acquiring a higher salary

…MOTIVATION & REMUNERATION ... Expectancy Theory: 3. Expectancy Strength of an individual’s belief that a specific outcome is possible: It is attainable!!!! Pay & Extrinsic Motivation Remuneration is a form of extrinsic motivation Motivation can take place through two means: 1. Intrinsic: factors within the individual which drives him/her in a certain direction: Responsibility Freedom to act Developed skills and capabilities 2.Extrinsic: Outside, other people, increased salaries, critique, disciplinary hearings

…MOTIVATION & REMUNERATION Employee Perceptions of Pay 1. Employees will perform if they think that the reward is equally distributed: compared to other organisations and employees 2. Payment received serves as motivation for individuals (expectancy theory) 3. Individuals are motivated by unique needs which vary from time to time: remuneration should make provision for individuals’ (individual) needs 4. Support and acceptance leads to motivation (rewards and punishment) 5. The will to accomplish personal goals leads to motivation: (provide individuals with the opportunities to reach their goals)

FACTORS INFLUENCING REMUNERATION Legislation Unions Labour market Organisational factors & Equal payment for equal work Economy Globalisation

PAY SYSTEM MECHANISMS Allocating a monetary value to each job – Steps: Job analysis Job evaluation Salary surveys Develop pay structure

PAY FOR PERFORMANCE External equity (value of jobs in labour market) & internal equity (value of jobs in organisation) = Establish base pay Payment for competencies are at an increase Performance-based pay – focuses on performance of individual (rather than job value) Rewarding employees who provide real outputs! Purpose of Pay for Performance: To accomplish strategic goals To strengthen organisational values To motivate employee performance To recognise differences in contributions

EMPLOYEE BENEFITS Objectives: To provide an attractive & competitive compensation package → Attracts & retains high-quality employees To increase employee commitment Main types of benefits: Pension schemes Personal security Financial assistance Personal needs Company vehicle & petrol Other benefits Intangible benefits

NEW TRENDS Broad Banding Skill-based Pay Market Pricing Competence-based Evaluation Team-based Pay

QUESTIONS??