1. A Behavioral Framework for Compensation
Chapter 3
A Behavioral Framework for Compensation
References:
Strategic Compensation in Canada (4th Edition), Richard J. Long, Nelson Education Ltd.
Resource Person: Furqan-ul-haq Siddiqui

2. Types of Reward Problems
Failure to produce desired behavior
When reward system simply has no impact on behavior
In some cases reward system not only fails to produce the desired behavior, but also produces undesirable behavior, or behaviors that leads to negative consequences
Green Giant wanted to improve the quality of its canned food. It decided to give bonus to each worker depending on the number of insect parts each plucked from processing line. The plan seemed to enormously successful. Hundreds of insects parts were turned in and large bonuses were paid. The only problem was that most of the additional insect parts came from worker’s backyard

3. Production of desired behavior and undesirable consequences
A consumer goods company set the following rewards
Marketing to increase sales
R&D to secure more patents
Production to minimize cost
This reward system did:
motivate marketing to increase sales
Production department did minimize cost but did so by using poor quality materials or by over simplifying
R&D department did secure many patents , most of these products had either no market or difficult to produce.

4. By rewarding mutually incompatible goals in situation where interdependence is high and cooperation is essential, the company is guaranteeing failure.
A reward system that looks reasonable when viewed in a narrow (departmental) context may in fact be very damaging.
A slightly different variation of reward problem occurs when the reward system does generate the rewarded behavior with no obvious negative consequence but serves to suppress other desirable behavior that are not measured or rewarded
If sales staff is are paid only on the basis of their individual sales, why would they want to spend time training possible competitor?

5. Production of Reward Dissatisfaction
When employees believe that the rewards they receive:
are not consistent with the contribution they are making to the organization,
Are unfair.
Reward dissatisfaction can result in a variety of negative consequences such as:
Poor work performance
High turnover
Poor customer service
dishonesty

6. Desired Reward Outcomes
What outcomes should the reward system produce?
How can we produce them?
Three Key Employee Behaviors
Membership Behavior
When employee decides to join and remain with the firm.
Task Behavior
When employees produce the specific task that an organization has assigned to them

7. 3. Organizational Citizenship Behavior
When an employee voluntarily undertake special behaviors beneficial to the organization that go beyond simple membership and task behavior such as:
Extra efforts
High cooperation with others
High initiative
High innovativeness
Organizational citizenship is also known as contextual performance in contrast to task performance

8. How to create reward system that create these behaviors?
Reward system does not affect human behavior directly. it:
Affects employee perception and attitudes,
Which drive their behavior.
Three Key attitudes
Job satisfaction:
The attitude one holds towards one’s job and work place either positive or negative.
Work Motivation:
The attitude one holds towards good job performance either positive or negative
It is an strength of an employee’s desire to perform his or her duties well

9. Organizational Identification
Organizational Identification (OID) is the sense of oneness individuals have with an organization and the degree to which individuals define themselves as organization members.
Consists of three interrelated elements
A sense of shared goals and values with the organization
A sense of membership or belongingness
An intention to remain a member of the organization. This element is sometimes known as “organization Commitment”

10. Causes of Reward Dissatisfaction
Violation of Psychological Contract
Perceived Inequity
Reward Dissatisfaction
Relative Deprivation
Lack of organizational justice

11. Causes of Reward Dissatisfaction
Violation of the Psychological Contract
Expectations about the rewards offered by a given job and the contributions necessary to perform the job
Research has shown that violation of psychological contract can cause employees to have:
Less trust on their employers
Decreased job satisfaction
Reduced citizenship behavior
Decreased work performance
Increased turnover, theft
Even sabotage

12. Perceived Inequity
Individuals use at-least two perceptual screens
An internal calculus, based on their own variations and the rewards received and contributions made
Comparison with rewards/ contribution ratio of relevant others
The essence of equity theory is simple: people make comparison s between the ratio contributions they make and the rewards they receive and the ratios of relevant others.

13. Relative Deprivation
Employees experience dissatisfaction with their pay level under six conditions, when
There is a discrepancy between the outcome they want and what actually they receive
They see that a comparison ”other” receives more than they do
Past experience has led them to expect more than they now receive
Future expectancies for achieving better outcomes are low
They feel they are entitled for more
They absolve themselves of personal responsibility for the lack of better outcomes

14. Lack of Organizational Justice
Organizational justice has two main components
Distributive justice
The perception that overall reward outcomes are fair, which is what equity theory is all about
Procedural justice
The perception that the process through which rewards are determined is fair
Unless people believe that both of these are fair, they will not feel that the reward is fair

15. Copyright (c) 2010 by Nelson Education Ltd
Consequences of Reward Dissatisfaction: Employees have two main options to redress the imbalance 1. Attempt to increase the rewards they receive
Find More Rewarding Job
Acquire Illicit Rewards
Demand Higher Pay/Unionize
Increase Effort / Performance
Demand Improved Job Duties
Copyright (c) 2010 by Nelson Education Ltd

16. 2. Attempt to Reduce Contributions
Demand Reduced Job Duties
Reduce Effort / Performance
Increased Absenteeism
Find Less Demanding Job
Copyright (c) 2010 by Nelson Education Ltd

18. Understanding Membership Behavior
Why do people work?
People accept employment
They have unsatisfied needs
If employment is seen the best vehicle to satisfy these needs
If they are able and willing to do things that the employment require
Put another way people accept a job if the inducements or rewards associated with the job exceed the costs of contributions they have to make to secure and retain the job
People can value the same rewards, contribution differently, depending on their personal characteristics and circumstances

19. Causes of Membership Behavior
Factors that determine whether an employee is going to stay with an employer on long term basis.
Two job attitudes play an important role in causing membership behavior.
Job Satisfaction
Organizational Commitment

20. 1. Job Satisfaction
It occurs when one’s important needs are satisfied through job.
there are five dimensions of job satisfaction
Satisfaction with pay
Satisfaction with Promotion
Satisfaction with supervision
Satisfaction with coworkers
Satisfaction with the Job

21. 2. Organizational Commitment
The strength of individual attachment to his or her organization
There are three main types of commitment
Affective Commitment
Attachment to the organization based on positive feeling towards the organization
Normative Commitment
Commitment to a organization based on an ideology or a sense of obligation. For example, the organization may have invested resources in training an employee who then feels a 'moral' obligation to put forth effort on the job and stay with the organization to 'repay the debt. It may also reflect an internalized norm, developed before the person joins the organization through family or other socialization processes, that one should be loyal to one's organization. The employee stays with the organization because he/she "ought to".

22. Continuance Commitment
Attachment to the organization based on perceived lack of better alternatives
Continuance commitment implies nothing about an employee’s level of emotional attachment or that of employees level of job satisfaction
It is simply a hardheaded calculation that, “ I have no better alternative available to me.”
It is even possible that an employee might have high continuance commitment but extremely low levels of job satisfaction and affective commitment

23. Rewards, Satisfaction, and Commitment
The role reward system can play in generating job satisfaction and organizational commitment
Since rewards is any thing provided by the organization that satisfies person’s needs
Reward has a direct impact on job satisfaction
To generate organizational commitment the key issue is the relationship between employees and the organization as whole.
Psychological contract, trust, and organizational justice – especially procedural justice play a major role organizational commitment
Job security has also been found to relate to both job satisfaction and affective commitment.

24. Money as a Motivator
Human behavior is driven by needs, money itself is not technically a need, but rather a generalized resource that can be exchanged for things that will satisfy needs
For those persons whose underlying needs are satisfied , money might not be much of a motivator, at least in its instrumental role as a vehicle for satisfaction of underlying need.
In its role a generalized resource gives them control over their needs will be satisfied. This sense of control is in fact an important intrinsic human need.
Money also has symbolic value and represent status and accomplishment to many people.
Money can also be seen as a source of social comparison where it is the relative amount, not absolute amount that is important to people.
A study conducted at Harvard university found that when asked about whether they would prefer a circumstance where they earned $ 100,000 per year while other employees earned $200,000 per year, or a circumstance where they earned $ 50,000 when every one earned $ 25,000, the majority of participants chose the second option