1. A Personnel Psychological Perspective
REMUNERATION
A Personnel Psychological Perspective

2. 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

3. 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.”

4. 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

5. 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

6. … 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

7. 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)?

8. … 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)?

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

10. …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

11. …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

12. …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

13. …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)

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

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

16. 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

17. 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

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

19. QUESTIONS??