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Performance, Rewards and the New Psychological Contract

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Performance, Rewards and the New Psychological Contract

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Performance, Rewards and the New Psychological Contract

  1. 1. 1 Performance, Rewards and the New Psychological Contract John Shields Work & Organisational Studies School of Business University of Sydney
  2. 2. Heaven, Hell and the Late HR Manager 2
  3. 3. The Psychological Contract Perceptions of mutual obligations by which both parties to the employment relationship interpret, act and respond to each other. 3
  4. 4. The Psychological Contract (Management Perspective) 4 (Adapted from Denise Rousseau, 1995) Old Deal – ‘Relational’ A fair day’s work for a fair day’s pay If you:  are loyal  work hard  do as you are told We’ll provide:  a secure job  steady pay increases  financial security And you’ll be part of:  a dull but safe organisation New Deal – ‘Transactional’ A flexible, mutually beneficial partnership If you:  develop the competencies we need  apply them in ways that help us to succeed  behave consistently with our new values We’ll provide:  a challenging work environment  development support  employability  rewards for your contribution And you’ll be part of:  a revitalised, dynamic organisation
  5. 5. Typical Negative Psychological Contract (Employee Perspective) The Real Deal – ‘Diabolical’ More work and more risks for the same pay If you:  Stay  Do your job plus someone else’s  Volunteer for extra tasks 5 We’ll provide:  A job if we can  Gestures that we care  The same pay And you’ll be part of:  An untrustworthy organisation with change fatigue
  6. 6. The Employee Psychological Contract: 6 Determinants & Outcomes (Adapted from Guest 1998) State of the Employee Psychological Contract (+ or -) Personal Determinants: Prior experience Values Expectations Organisational Determinants: Workplace Culture Leadership style HR Practices Work relationships Attitudinal Outcomes: Trust Fairness Reward Satisfaction Job Satisfaction Motivation Commitment Behavioural Outcomes:  Membership Task performance Citizenship behaviour
  7. 7. Shifting Employee Expectations: A New Psychological Contract? 7  Commitment to own career rather than to organisation  Employees expecting greater job satisfaction  Belief that changing jobs is necessary for career growth  Employees assuming personal responsibility for career growth
  8. 8. 8 Commitment @Work 2003 (Aon Consulting) Research questions:  How committed are employees to their organisations?  How effective are current workplace practices in meeting employee needs and expectations?  Which practices have the greatest influence on employee commitment?  How confident are employees about their organisation’s current & future success?  How effective are HR departments in taking care of employees?  How effective are the organisation’s senior leaders? Survey methodology:  Second annual Australian survey  Conducted in USA since 1997, Canada since 1999 and UK since 2000  1,200 phone interviews in May-June  Randomly selected national sample, weighted to reflect gender distribution in each state  Respondents had to be over 18, working at least 20 hours per week and not self employed  80 questions  Five point Likert scales: Disagree/Well Below, through Neutral/Meets to Agree/Well Above.
  9. 9. Commitment@Work: Research Model 9
  10. 10. 10 2003 Findings: Commitment Level (Comparable 2002 figures shown in brackets)  Productivity: 53% (37%) believed that their co-workers make efforts to improve their skill, and 55% (40%) agreed that co-workers made personal sacrifices to assist group success.  Pride: Although 62% (48%) would recommend their organisation’s products and services, only 44% (33%) would recommend their organisation as one of the best places to work.  Retention: 59% (54%) intended to stay with current employer for several years, but only 39% (36%) would stay if offered a similar job elsewhere with slightly higher pay. 28% would leave for a 10% pay increase and 58% would leave for 20% increase.  Responsibility: 78% feel responsible for helping the organisation to succeed and 63% feel responsible for helping their supervisor to succeed.  Trust: Only 48% share the values of their organisation while just 40% trust its leaders.  Overall: Commitment Index up to 94.0 (91.5) but commitment is inconsistent and polarised, with more feeling responsibility toward the organisation and supervisor and greater pride in produces/services, but less than half share their organisation’s values, trust its leaders, would recommend it as a good place to work, or would resist external pay opportunities.
  11. 11. 2003 Findings: Commitment Demographics 11 Groups with lowest overall commitment levels:  Workers under 30  Men  Workers in production or operations  Workers with postgrad. degrees  Workers in organisations with 1001- 4,999 employees  Workers with 1-5 years of tenure with the organisation  Workers working >60 hours per week  Workers without onsite child care or paid maternity leave  Workers who prefer working alone Groups with highest overall commitment levels:  Workers over 60  Women  Senior management/executive  Workers with PhD  Workers in small and very large organisations  Workers with <1 year or >5 years of tenure  Workers working 31-35 hours per week  Workers with on-site child care & paid maternity leave  Workers who prefer working in team
  12. 12. 12 2003 Findings: Commitment Drivers (Effectiveness =negative response rate <17%; ineffectiveness = negative response rate > 24%) Safety/Security:  Expectations met or exceeded regarding: fairly treatment (94% positive), safe secure workplace (89%), workplace health & safety (89%), work environment free from fear, intimidation & harassment (81%).  Expectations not met regarding: stress-free work environment (39% negative), organisation’s concern about their job security (24%), OHS (23%). Rewards:  Expectations met or exceeded regarding: communication of reward package (88%).  Expectations not met regarding: communication of benefits options (31%negative), pay program’s encouragement of ownership and loyalty (39%), pay & benefits encouragement of performance (40%); link between performance and pay (30%).  Although most organisations do not offer a share plan, 52% of employees say that they would participate if one was offered. Affiliation:  Expectations met or exceeded regarding: trust shown in employees to do what is right for company (84% positive).  Expectations not met regarding: employee retention (33% negative), employee involvement in planning change (33%), open candid communication (25%), people taking responsibility for the results of their actions (21%). Growth:  Expectations not met regarding: personal growth opportunities arising from job and training provided (28% negative), communication of career opportunities (32%), efforts to create climate of learning (22%), managing and communicating change (37%), ability to attract new workers (29%), and ability to retain key staff (29%). Work/Life harmony:  Expectations not met regarding: management’s recognition of the importance of personal or family life (26% negative).
  13. 13. Commitment Drivers: Average Success Rates 2002 & 2003 13
  14. 14. Implications for HR Practice: A Balanced Psychological Contract?  Main shortcomings are in the middle-order drivers (rewards, affiliation, 14 growth)  Don’t neglect lower level needs (safety/security & financial rewards)  Provide pay and benefits packages that encourage a sense of loyalty and ownership.  Dom more to involve employees in meaningful decision-making and change management.  Be more effective in linking performance and pay and in communicating the link.  Create an organisational work environment that minimises stress.  Manage and communicate changes in a way that encourages employee alignment with the organisation’s core values and strategic goals.  Provide more effective opportunities for in-house learning and growth.  Recognise the importance of personal and family lives.  Accentuate strategies designed to address employees’ higher order needs (personal growth, work/life balance).
  15. 15. Aligning Risk Expectations and Rewards 15 Transactional/Risk-Inclined:  Performance-based salary increases  Variable pay  Equity incentives  Transferable self-managed benefits  Independent self-managed career (external LM)  Work/life balance Relational/Risk Averse:  Graded pay  Guaranteed annual salary  Superannuation  CPI increased  Fixed working hours  Hierarchical career progression (internal LM)  In-house competency development
  16. 16. Aligning Reward Practices and Psychological Contracts 16 (Adapted from Denise Rousseau) Performance- Reward Highly Specified/High Risk Link Unspecified/Low Risk Short term Duration of Employment Transactional: Pay based on short term results e.g. STIs in ‘prospector’ firms Transitional: Pay not performance-linked; total pay static; retrenchment packages e.g. pay in turn-around firms Relationship Long term Balanced: Mix of person-based base pay, STIs and LTIs e.g. high involvement ‘analyser’ firms Relational: Seniority-based pay e.g. traditional ‘defender’ firms

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