1. Reward Systems and Legal Issues Overview

2. Reward Systems: Overview
Traditional and Contingent Pay (CP) Plans
Reasons for Introducing CP Plans
Possible Problems Associated with CP
Selecting a CP Plan
Putting Pay in Context
Pay Structures

3. Traditional Pay Salary and salary increases are based on Position
Seniority

4. Contingent Pay (CP) Salary and salary increases are based on
Job performance
Also called: Pay for Performance
If not added to base pay, called:
Variable pay

5. Reasons for Introducing CP (1)
Performance management is more effective when rewards are tied to results
CP Plans force organizations to:
Clearly define effective performance
Determine what factors are necessary

6. Reasons for Introducing CP (2)
Supervisors and employees are better able to understand what really matters
CP plans enhance employee motivation to accomplish goals that match organizational needs

7. Reasons for Introducing CP (3)
CP plans help to recruit and retain top performers
CP plans project good corporate image

8. CP plans help improve motivation when:
Employees see clear link between their efforts and resulting performance (Expectancy)
Employees see clear link between their performance level and rewards received (Instrumentality)
Employees value the rewards available (Valence)
motivation =
expectancy x instrumentality x valence

9. Possible Problems Associated with CP
Poor performance management system
Rewarding counterproductive behavior
(Rewarding A while hoping for B)
Rewards are not considered significant
Managers are not accountable
(The reward becomes the driver)
Extrinsic vs. intrinsic motivation
Disproportionately large rewards for executives

10. Selecting a CP Plan: Issues to consider
Culture of organization
Strategic direction of organization

11. A. Culture of organization: Types of organizations
Traditional
Top-down decision making
Vertical communication
Jobs that are clearly defined
Involvement
Shared decision making
Lateral communications
Loosely defined roles

12. CP systems for different organizational cultures:
Traditional organizations
Piece rate
Sales commissions
Group incentives
Involvement organizations
Profit sharing
Skill-based pay

13. B. CP Plans to enhance Strategic Directions:(1)
Employee development
Skill-based pay
Customer service
Competency-based pay
Gainsharing
Overall profit
Executive pay
Profit or stock sharing

14. B. CP Plans to enhance Strategic Directions:(2)
Productivity
Individual
Piece rate
Sales commissions
Teamwork
Team sales commissions
Gainsharing
Competency based pay
Group
Gainsharing
Group incentives

15. Putting Pay in Context A reward increases the chance that
Specific behaviors and results will be repeated, or
Employee will engage in new behavior and produce better results

16. Rewards can include: Pay Recognition Status Time Trust & Respect
Public
Private
Status
Time
Trust & Respect
Challenge
Responsibility
Freedom
Relationships

17. How to Make Rewards Work
Define and measure performance first and then allocate rewards
Only use rewards that are available
Make sure all employees are eligible
Rewards should be both
Financial
Non-financial
(continued)

18. How to Make Rewards Work (continued)
Rewards should be:
Visible
Contingent
Timely
Reversible

19. Pay Structures
Job Evaluation
Broad-banding

20. Pay Structures An organization’s pay structure Classifies jobs
Into categories
Based on their relative worth
Is designed by job evaluation methods

21. Job Evaluation Method of data collection Consideration of
Determine the worth of various jobs
Create a pay structure
Consideration of
KSAs required for each job
Value of job for organization
How much other organizations pay

22. Types of job evaluation methods:
Ranking
Classification
Point

23. Job evaluation methods: Ranking
Create job descriptions
Compare job descriptions
Rank jobs

24. Advantages of using Ranking method
Requires little time
Minimal effort needed for administration

25. Disadvantages of using Ranking method
Criteria for ranking may not be clear:
Distances between each rank may not be equal

26. Job evaluation methods: Classification
A series of classes or grades are created
Each job is placed within a job class

27. Advantages of using Classification method
Jobs can be quickly slotted into structure
Employees accept method because it seems valid

28. Disadvantages of using Classification method
Requires extensive time and effort for administration
Differences between classification levels may not be equal

29. Job evaluation methods: Point method
Identify compensable factors (job characteristics)
Scale factors (e.g. on a scale of 1 – 5)
Assign a weight to each factor so the sum of the weights for all factors = 100%

30. Advantages of using Point method
Establish worth of each job relative to all other jobs within organization
Comprehensive measurement of relative worth of each job in organization
Easy to rank jobs when total points are known for each job

31. Disadvantages of using Point method
Requires extensive administrative
Time
Effort

32. Does job evaluation method matter?
Fairness
Evaluators
Impartial
Objective

33. Compensation surveys Information on
Base pay
All other types of compensation
Conducted in-house or by consultants, such as: or

34. Broad-banding
Most commonly used pay structure
Pay structure collapses job classes into fewer (≤ 5) categories

35. Advantages of Broad-banding
Provides flexibility in rewarding people
Reflects changes in organization structure
Provides better base for rewarding growth in competence
Gives more responsibility for pay decisions to managers
Provides better basis for rewarding career progression

36. Reward Systems: Summary
Traditional and Contingent Pay (CP) Plans
Reasons for Introducing CP Plans
Possible Problems Associated with CP
Selecting a CP Plan
Putting Pay in Context
Pay Structures

37. Legal Issues: Overview
Performance Management and the Law
Some Legal Principles Affecting PM
Laws Affecting PM

38. Performance Management and the Law
Performance management systems are legally sound, if they are fair:
Procedures are standardized
Same procedures are used with all employees

39. Some Legal Principles Affecting PM: Overview
Employment-at-will
Negligence
Defamation
Misrepresentation
Adverse Impact
Illegal Discrimination

40. Employment relationship can be ended at any time by
Employment-at-will
Employment relationship can be ended at any time by
Employer
Employee
Exceptions
Implied contract
Possible violation of legal rights

41. Negligence
If organization documents describe a system
and
It is Not implemented as described,
Employee can challenge evaluation, charging negligence

42. Defamation
Disclosure of performance information that is
Untrue and
Unfavorable

43. Misrepresentation
Disclosure of performance information that is
Untrue and
Favorable

44. Adverse Impact / Unintentional Discrimination
PM system has unintentional impact on a protected class
Organization must demonstrate:
Specific KSA is a business requirement for the job
All affected employees are evaluated in the same way
Organization should review ongoing performance score data by protected class to implement corrective action as necessary

45. Illegal Discrimination or Disparate Treatment
Raters assign different scores to employees based on factors that are NOT related to performance
Employees receive different treatment as result of such ratings
Employees can claim they were intentionally and illegally treated differently due to their status

46. Employee claim of illegal discrimination:
Direct evidence of discrimination, or
Evidence regarding the following:
Membership in protected class
Adverse employment decision
Performance level deserved reward/different treatment
How others were treated (not in protected class)

47. Employer response to claim of illegal discrimination
Legitimate and non-discriminatory reason for action
Related to performance
Note: Good performance management system and subsequent performance-related decision, used consistently with all employees, provides defense

48. Difference between legal and illegal discrimination
LEGAL discrimination discriminates among employees based on their level of performance
ILLEGAL discrimination is based on variables that should not usually be related to performance

49. Laws Affecting PM:
During past few decades, several countries have passed laws prohibiting discrimination based on:
Race or Ethnicity
Sex
Religion
National Origin
Age
Disability status
Sexual orientation

50. Laws in the United Kingdom:
Equal Pay Act of 1970
Race Relations Act of 1976
Sex Discrimination Act of 1975
Disability Discrimination Act of 1995
Employment Equality (Sexual Orientation) Regulations 2003
Employment Equality (Religion or Belief) Regulations 2003

51. Laws in the United States of America
Equal Pay Act of 1963
Civil Rights Act of 1964
Age Discrimination in Employment Act of 1967 (as amended in 1986)
Americans with Disabilities Act of 1990

52. Characteristics of Legally Sound PM Systems
Organization:
The system is formally explained and communicated to all employees
The system includes a formal appeals process
Procedures are standardized and uniform for all employees within a job group
The system includes procedures to detect potentially discriminatory effects or biases and abuses in the system

53. Characteristics of Legally Sound PM Systems
Management
Supervisors are provided with formal training and information on how to manage the performance of their employees
Performance information is gathered from multiple, diverse, and unbiased raters
The system includes thorough and consistent documentation including specific examples of performance based on first-hand knowledge

54. Characteristics of Legally Sound PM Systems
Employees
Performance dimensions and standards are:
Clearly defined and explained to the employee,
Job-related, and
Within the control of the employee
Employees are given
Timely information on performance deficiencies and
Opportunities to correct them
Employees are given a voice in the review process and treated with courtesy and civility throughout the process

55. Legal Issues: Summary Performance Management and the Law
Some Legal Principles Affecting PM
Laws Affecting PM

56. Quick Review
Reward Systems
Legal Issues