1. Lecture 7 Rewarding people: the management of rewards and performance
HRM for MBA Students
Lecture 7
Rewarding people:
the management of rewards and performance

2. Learning outcomes An understanding of the importance of pay in HRM
An appreciation of the significance of fairness in rewards
An appreciation of the main types of payment systems
An understanding of how rewards fit with performance management systems
An understanding of the importance of fringe benefits
An understanding of the concepts of pay for competence or skills
An appreciation of the cafeteria approach to rewards
An understanding of the principles of job evaluation
An understanding of the principles of performance management

3. Recent developments
Rewards are of obvious concern to both employers and employees
The emergence of HRM has produced or coincided with the great expansion of
performance-related pay (a culture of
‘pay for contribution, not pay for
position’)
performance management

4. Pay systems Management normally seek a pay system they believe will
give the greatest degree of cost and supervisory control, and
provide the best incentive for employees
Pay and fringe benefits remain central features in contracts of employment and are always prominent issues in collective bargaining

5. Fairness
Any pay system will fail if it is perceived by the employees to be unfair
Fairness of pay is a comparative concept, not an absolute one

6. Types of payment system
Payment by time
Performance-related pay or ‘incentive pay schemes’:
payment by results (PBR), in which the variable element is determined by some objective measure of the work done or its value
merit-based systems, in which the variable element is related to an assessment of overall job performance by a supervisor or manager

7. Incentive pay schemes The 2004 WERS survey:
40% of UK workplaces had incentive pay schemes (more popular in the private sector than in the public), with a rising trend
Incentive schemes were more common generally where product market competition was higher

8. Payment by time
A fixed rate per hour, per shift or per week (‘wages’) or per month, per quarter or per year (‘salary’)
In a pure payment-by-time system the employees’ performance can only be managed by supervision, or by custom or other social pressure
The simplicity of the time rate system is its main virtue, but this is often compromised in practice by additional payments, ‘grade drift’ and proliferation of grades

9. Performance-related pay (incentive pay)
Payment by results (PBR), in which the variable element is determined by some objective measure of the work done or its value
Merit-based systems, in which the variable element is related to an assessment of overall job performance by a supervisor or manager

10. Payment by results (PBR)
Piecework
The employee is paid a standard price for each piece or unit of output
Incentive bonus schemes
Schemes may be work-study-based in production-oriented work

11. Merit-based pay Reflects an HRM approach to rewards
Pay policy should reflect and support the business objectives and strategies of the firm.
Pay should be part of a wider human resources strategy
Pay policy and practices should help reinforce the dominant culture of the organisation

12. Criteria for merit-based pay
Employees are able to influence performance
The reward is clearly and closely linked to the effort of the individual or group
The reward closely follows the accomplishment that generated it
Employees are clear about the targets and standards of performance needed
It is possible to measure performance with fairness and consistency
The pay systems use a clearly defined and understood formula
There is a reasonable degree of stability in work methods

13. Pay for skills or competence
Pay progression is linked to the number, kind and depth of skills which individuals develop and use
The successful acquisition of skills blocks or modules results in an increment to basic pay
The order in which each skill has to be attained may be determined by management
The training and acquisition of skills must be accredited
The system can be bureaucratic and costly

14. Non-pay benefits ‘Fringe’ or ‘employee’ benefits
to ensure that a competitive total remuneration package is provided to attract, retain and motivate staff
to increase the employee’s commitment to the organisation
to take advantage of tax-efficient methods of rewarding employees

15. Typical non-pay benefits
Pension schemes
Personal security
Eg above-statutory sick pay, death-in-service benefits, personal accident cover, medical insurance, etc
Financial assistance
Company car

16. The ‘cafeteria’ approach to rewards management
Allows employees a degree of choice in their total remuneration package – eg by permitting them to take less in non-pay benefits and more in pay, or vice versa
The total overall value of their compensation will be the same, whatever choices they make
This allows individuals to tailor their rewards to their particular needs and alter them as their needs change

17. The cafeteria approach
Advantages:
employee satisfaction
communication of the real costs of benefits to employees and employers
determining the popularity of various benefits
Disadvantages:
costing of non-pay benefits can be complex
possibly greater administrative costs
possible tax complications for employees

18. Job evaluation
Determines the relative positions of jobs within a hierarchy
Is a comparative process which determines grades but not rates of pay, which must be established by some other mechanism
Is normally conducted by a panel on the basis of information obtained by means of job analysis
Is a systematic but not infallible process
The job – not any current job-holder’s performance – is what is evaluated

19. Points-factor job evaluation schemes
Jobs are compared in terms of a number of separately defining characteristics or ‘factors’ – eg skill, knowledge, decision-making, etc
Each factor is weighted to reflect its relative importance
This is the only type of scheme that can give an employer a defence against an ‘equal value’ pay claim at a tribunal

20. Designing a points-factor scheme
Select factors and decide on the number of levels required (typically between three and 12 factors)
Allocate points to levels and weights to factors
Select benchmark jobs
Analyse benchmark jobs
Rank jobs according to points values
Determine the number of job grades and define them in terms of points
Allocate jobs according to points values

21. Performance management
‘A means of getting better results from the organisation, teams and individuals by understanding and managing performance within an agreed framework of planned goals, objectives and standards’
Armstrong and Murlis (1994)
Performance appraisal is central to performance management but performance management is more than appraisal

22. A typical performance management agreement
A performance agreement between an individual and a manager setting out objectives, but also development needs
Performance is continually monitored and assessed:
high performance is reinforced with praise, recognition and the opportunity to take on more responsible work
low performance is responded to by means of coaching and counselling
Provision is made for the regular formal review of performance against the objectives, and the setting of any new performance agreement

23. Performance management and performance-related pay
Performance management systems are typically linked to performance-related pay – but this is not essential

24. Key issues in rewarding people
Rewards have to be actively managed to secure the maximum utilisation of human assets, and to attract, motivate and retain core employees
We cannot ignore the importance of money in rewards packages
Payment systems may be based on time, or may be variable in cases where an element of total pay is dependent on some measure of output or an assessment of overall performance

25. Key issues in rewarding people (Cont.)
A ‘cafeteria’ system of rewards allows employees the flexibility to decide the composition of their total rewards package
Performance management is really a management philosophy rather than just a set of techniques, and more comprehensive than simply performance-related pay or performance appraisal
Since only an analytical job evaluation scheme can provide an employer with a legal defence in equal pay cases, its importance is growing