(2)BUSINESS SCHOOLREWARD MANAGEMENT TIMED F

(
2
)
BUSINESS SCHOOL
REWARD MANAGEMENT TIMED FINAL ASSESSMENT
CMSE11175
Assessment Date: Thursday 9th December, 2021
From and To: From 10am to 2pm (UK GMT)
Please read full instructions before commencing writing
(
Assessment
information
Answer
the
TWO
questions,
writing

up
to
1,000
words
(+/-
10%)
for
each
question
These
should
take
a
total
of
two
hours
to

complete.
You
are
permitted
to
take
longer
if
you
wish.
The
completed
assessment
must
be
submitted
within
the
4-hour

period.
This
is
an
open
book
timed
assessment.
You
may
consult
books
and
papers,
use
the
internet
and
other

sources
but
are
forbidden
from
consulting
with
or
collaborating
with
other
people
(e.g.,
you
may
not
discuss
with

your
classmates).
)
Answer BOTH of the following questions.
Question 1
You are HR Director in a company that has recently run a Pay
Audit that has revealed marked disparities between the pay of
male and female employees. You suspect that this may, in part,
be due to some jobs in the company that are mostly held by
women being undervalued as compared to other jobs held
predominantly by men. As far as you can see, the best way
forward would be to conduct a job evaluation exercise across
the whole company and then use the results of that to adjust
wages using this evidence-based approach.
To do this you require the backing of senior management. Write
a report to senior management that explains the problems
exposed by the Pay Audit and why your use of a Job Evaluation
exercise might be the best way forward. Be sure to spell out the
problems that might arise if they agree to approve of your plan
and contrast these with the ‘do nothing’ alternative.[50
MARKS]
Question 2
For many years, your organisation has run a defined benefit
final salary pension scheme for all employees who wish to join.
Currently the employer contributes 20% of wages and the
employee contributes 10% of their wages respectively to the
pension fund. Increased longevity of retirees and disappointing
investment returns in the organisation’s pension fund

investments means that senior management wishes to move
away from the current pension offering to something less
expensive. Otherwise, the contributions to the pension fund are
going to have to increase dramatically.
You have recently joined the HR department from the
University of Edinburgh’s MSc programme. As such, your team
members in the HR Department have decided you are more
knowledgeable on the topic of pensions than any of them is.
Write a briefing paper for them that spells out the strengths and
weaknesses of the present arrangement, how the pension fits
into the organisation’s employee value proposition, and
evaluate the alternative pension arrangements that could be
offered to employees.
[50 MARKS]
[TOTAL MARKS: 100]
Reward Management
TEACHING AND LEARNING UNIT 10
Key Slides and Course Overview
Professor Brian Main
1
UNITS:
Unit 1. Introducing Employee Reward Systems; Conceptual
and Theoretical Frameworks.
Unit 2. The Legal, Employment Relations

and Market Context.
Unit 3. Base Pay Structures and Relationships;
Pay Setting, Composition and Progression.
Unit 4. Variable Pay Schemes.
Unit 5. Benefits and Pensions
(
Remember
the
Course
)
UNITS:
(
Unit
6.
Non-Financial
Reward.
Units
7
&
8.

Rewarding
Directors
and
Executives.
Unit
9.
International
Reward
Management.
)
Assessment
(
40%
Essay
+
60%
Final

Exam
)
· Try to think – what were key points?
· Any additional references (video/ class exercise/ reading)
· Spill Psychotherapy company
· Trade Union Recognition at Amazon
· Conducting an Equal Pay Review – Carrie Gracie at the BBC
· Job Evaluation/Job Sizing – UoE exercise
· Pay equity and the Monkeys
· Gordon Bethune – video clip
· FCA report on Incentives at Lloyds and BoS
· “Deliveroo” exercise
· “UBER” exercise
· Daniel Pink TED talk
· Google-Europe boss Matt Brittin – video clip
· Show me your money Pimlico Plumbers – video clip
· CEO remuneration – Persimmon case; Ryanair; Ocado.
· Purchasing Power Parity (McDonalds) exercise.
· Your Pay Report topic
(
Overall:
)
· Make a plan

· Answer the question.
Summary
· See lecture slides.
· Marked ‘core’ meant to denote ‘key material/ concept’.
· Marked ‘critical’ meant to denote ‘critical thinking’.
Reward Management Theory:
· Expectancy.
· Equity.
· Agency.
(
8
)
Critical Thinking
Recall.
(
9
)

· Do not accept models or arguments at face value.
· Think about and question the underpinning assumptions.
· Yes, examine the benefits of seeing things in a particular way
(a model).
· BUT, also be sure to identify any problems in terms of the
underlying assumptions and claims.
· Not the same as simply being negative (“this is a stupid
model!”).
· Requires that you engage deeply with the material.
Unit #1
Classical Labour Market
(
Units
(hours)
of
labour
) (
10
)
a) Classical Labour Market - ‘Economic man’:
· market-based exchange relation
· assumption that an employee will seek to minimise sacrificed
‘leisure time’ to work and to maximise the rate of pay.
· (
S

e
D
)Labour supply and demand regulate the price (wage rates).
Wage rate
Conventional View of Labour Supply
Wage
Marginal Value of Time
(£)
£25
£20
£15
Supply of Labour

D
C
B
£10
A
Labour units
5 9 11 14
Conventional view of Labour demand
Wage
Marginal Value of Labour
(£)
E
£25
F

£20
G
£15
£10
H
MVPL
Labour units
7 11 13 14
12
Conventional View of Labour Supply
Notion of the “going rate”
Marginal Value of Time

(£)
Wage
£25
£20
£15
E
Supply of Labour
F
C
G
B
£10
A
H
Labour units
5 9 11 14
Adam Smith’s
Compensating Wage Differentials

1. Non-pecuniary aspects of working conditions
2. Human capital: “Expense of learning the business”
3. Constancy of employment
4. Responsibility or trust reposed
5. Probability of success
(
15
)
Critical:
Efficiency Wages
(
15
)
Paying higher wages is CHEAPER:
1. Cheat-threat effect – lose good job
2. Sample selection effect – get good people
3. Turnover effect - stay at good job
4. Gift-exchange/ Morale effect – feel good
5. Union deterrence effect – do not need to join

Yellen (1984)
Unit #2:
Legal, Employment Relations and Market Context
· Legal regulation, e.g., Minimum wage; Trade Unions;
Equal Pay Act and statutory protections etc;
· Pay Audit
Unit #2
Trade Unions and Wages
- CRITICAL
(
20
)

Wage rate
S1 = # union members
S0
Union
effect
W1
“good” for TU
W0 members A
D
“bad” if lose job;
also higher costs
loss of competiveness
Unit #2
Wage rate
Minimum Wage

critical
(
19
)
B
W1
Good for those who keep their jobs.
S
MIN WAGE
W0 A
D
Bad for those who loose or cannot find
job

Unit #3
Internal Labour Markets
(
20
)
Promotion as incentive/ reward Not for ‘fit’
Internal Promotion
Entry Level 2
“ports of entry”
Entry Level 1
Promotion as an incentive device - tournaments
Anti-Discrimination Legislation

Equality and Human Rights Commission (2007)
9 Protected characteristics:
1. Age
2. Disability
3. Gender reassignment
4. Marriage and civil partnership
5. Pregnancy and maternity
6. Race
7. Religion or belief
8. Sex
9. Sexual orientation.
http://www.emplaw.co.uk/
UK Equality Act
2010
Equal pay audit;
Equality impact assessments;
(later)
General Human Capital- University
(
22
) (
Becker

(1975)
)
Earnings Or
Costs
W1
University decision
(
Earnings
with
degree
Earnings
with
no
degree
21
Age
)W0

18
General Human Capital – Numerical Example- CRITICAL
Earnings
(
“B”
=
£120,000
Earnings
with
degree
Earnings
with
no
degree
“C”
=
£90,000
18
21
Age
)Or Costs
W1=£40k

W0=£30k
· If employer pays your £90k University expenses, will you
continue to work
(
after
graduation
for
£30k
??
) (
23
)

General Human Capital – Impact of family formation
(
“C”
) (
“B”
) (
Then
going
to
University
is
NOT
worthwhile
) (
≤
) (
24
)
Earnings Or
Costs
“B” = £80,000
- CRITICAL

(
Earnings
with
degree
)W1=£40k
W0=£30k
“C” =
Earnings with no degree£90,000
18 21
Age
Family formation years
Unit #3:
Base Pay Structures and Relationships
1. Grading structures.
2. Job Evaluation Schemes.

3. How to pay.
Unit #3
Review - Types of pay structure
1. Individual ‘spot rate’ or ‘rate for the job’
2. Individual pay ranges3. Narrow-graded structures
4. Pay spines5. Broad-banded structures
6. ‘Job’ or ‘career’ families
Types of organisational structure
3. Narrow-graded structures
Higher education pay spine and model grading
structure
Broad bands

Traditional graded structure – 40% grade width:
Broadbanded structure – 100% band width:
Source: IPD (1997)
£ PAY
£ PAY
Unit #3
Progression types

1. Service
2. Performance3. Competency
4. Skills5. Market
6. Contribution
Types of job evaluation
Non-analytical schemes (whole jobs)
1. Job ranking.
2. Paired comparison ranking.
3. Job classification.
4. Internal benchmarking.
Analytical schemes (factors)
5. Factor comparison.
6. Point-factor rating.
7. Competence-based job evaluation.
32
Unit #3
Conserving pay after Job Sizing exercise.

Pay After JE
(£)
Current Pay (£)
Job evaluation – 11 issues
critical

1. Pseudo “Scientific” comparison of jobs.
2. Unions worry over “loss of ownership” of the job.
3. Originally devised for manual non-craft jobs.
4. Wage inflation through re-grading of jobs.
5. “Time span of discretion” (work unsupervised) as a metric.
6. Bureaucratic and paper intensive – undermines labour market
forces.
7. Introduces ‘rigid hierarchy’.
8. Inhibits flexibility in placing people (on hire).
9. “Success” linked to moving to bigger and bigger jobs.
10. Not always what is best in knowledge economy.
11. “New Pay” writers see it as a barrier to pay as strategic
reward.
Job evaluation - issues
critical
But, “New Pay” writers critique
– Ed Lawler, J.R. Schuster and Patricia Zingheim

consequences of their own behaviour and to their enterprise’s
success (or failure) - a greater element of risk in a dynamic
business environment
Unit #4:
Variable Pay Schemes
1. The concept of variable pay
2. Various means of delivery3. The concept of incentive pay
4. Various types of incentive pay:
Theories of incentive pay
Important !
1. Efficiency Wage theory
2. Expectancy theory3. Goal setting theory
4. Equity theory5. Principal-Agent theory

38
(
39
)
2. Expectancy theory - Victor Vroom (1964)
Extrinsic motivational force (Xi) Xi = F(Eij, Ijk, Vk)
Xi = extrinsic motivational force on agent to take act i Eij =
Expectancy that act i will be followed by outcome j Ijk =
Instrumentality of outcome j for attaining outcome
(reward) k
Vk = Valency (value) of reward k
(
can

you
attain
the
performance
target
?
*
what
do
you
get
if
you
do
?
*
how
important/valuable
is

that
to
you?
)
(
Theories
) (
Link
to
OB
) (
Important:
)
4. Equity theory – Adams (1965)
(

Link
to
OB
) (
Important:
) (
Theories
)
(
40
)
[My reward] [My inputs]
?
[Co-worker’s reward]
=
[Co-worker’s inputs]
· If not, if I perceive co-worker to be getting ‘better
treated’, then I will reduce my efforts.
· Until the arrangement seems ‘fair’.
Video clip with the Monkeys
Unit #4
Base Pay versus Performance Pay

(
42
)
Firm A
Pay
Firm B
Incentive compensation
Performance

Unit #4
Deferred Compensation
Note NOT the same diagram as above.
(
42
)
Firm A
Pay
Firm B
Deferred compensation
Years of service

Always LABEL AXES !!
Unit #4
2.
The pros and cons of performance pay
Arguments for:· It is right that those who perform better receive
higher rewards than those who perform less well.
· Linking pay to performance improves motivation and hence
performance.· Performance-linked pay can send strong messages
about what behaviour is expected (self-selection).
Case Study - Eddie Lazear (2000) – Safelite Glass Case
Unit #4
The pros and cons of performance pay

Arguments against:
· Pay is not a motivator.
· It de-motivates staff who do not benefit.· It ruptures
relationships and team work.
· It represents a diversion from managing staff performance
properly.· It discourages risk-taking.
· It undermines the intrinsic interest in the work.
Intrinsic versus extrinsic motivation
Alfie Kohn (1993)
Jeff Pfeffer (2006) (“What’s Wrong with Pay-for-
Performance”)
Base Pay versus
Performance Pay
Pre-contractual:
· Self selection of high ability types
· Self selection of entrepreneurial types· Tolerance for risk
· Self-belief
Post-contractual:
· Rewards effort

(
Unit #4
)
(
45
)
Jeffrey Pfeffer: “Six Dangerous Myths About Pay”
(HBR May/June 1998)
1. Labour rates are the same as labour costs.
2. Cutting labour rates will lower labour costs.
3. Labour costs represent a large portion of a company's total
costs.
4. Keeping labour costs low creates a potent and sustainable
competitive edge.
5. Individual incentive pay improves performance.
6. People work primarily for the money.
Unit #4 Incentivising Teams:
(
This
is
a
“dumb”
outcome
–

not
Pareto
Optimal
as
everyone
could
be
better
off
by
working
)
Others Work
Others Slack
I work
(50,50)
(-40,10)
I slack
(90,40)
( 0, 0)

(My net pay-off, net pay-off of representative other team
member)
(
merit
bonus
piece
rates
work
measured
commission
non-cash
rewards
)Types of variable payIndividual
(
long-term goal-based
incentives (e.g., end of
project)
)
Short-term Long-term

· (
group
bonus
team bonus
team
non-cash
rewards
) (
share
bonus
option
schemes
)profit-sharing
· gain-sharing
Organisation-wide
Label AXES !
Work
Independent Interdependent

(
Individual
Bonuses
) (
Individualist
)Misfit !!
People
(
Team
Bonuses
) (
Collectivist
)Misfit !!

Unit #5:Benefits and Pensions
1. Employee benefits
2. Purpose and role of pensions.
3. Origins of pension schemes.
4. Different types and advantages/disadvantages.
5. Main features of occupational pension scheme.
6. Choice of pension scheme.
7. Role of HR in design and choice of scheme.
8. Current trends in provision.
Unit #5
Benefits - Theory
1. Economic reasons – it’s cheaper
2. Asymmetric information/ sorting:
3. Psychological reasons
4. Paternalism
5. Government regulation

1. Tax-efficient means of payment. In a progressive tax system
a pension smooths taxable income over lifetime.
2. Tax efficient means of savings. Contributions and
earnings on accumulated capital exempt from tax.
3. Insurance against disappointing productivity or health in old
age.
(
Unit #5
) (
Six
Explanations
of
Pensions
)

4. Sorting device between high and low turnover types of
worker.
5. Deferred compensation or bonding.
6. Underfunded pensions inhibit opportunistic behaviour by
workers. Turns workers into unsecured bond holders.
(
Unit #5
) (
Six
Explanations
of
Pensions
)
Unit #55.1.1
Defined Benefit Scheme (Final salary)
(
e.g.
£40,000*(40/80)
=
£20,000
) (
55
)

£1
£2
£3
.
. Invested
. by
. company
. in
. Stock
Market
£38
e.g., scheme with a 1/80th
“accrual rate”.
Assume 40 years employment in scheme.

Best 12
£39
£40
months
* 40/80 = PENSION
Unit #5
5.1.2 CARE – Career Average Revalued Earnings, e.g. 1/80th
(
Defined
benefit
=
this
amount
per
year
) (
Sum
all

of
above
) (
56
)
Sal1 *(1/80) = £1
Sal2 *(1/80) = £2 Sal3 *(1/80) = £3
.
. Invested
. by
. company
. in
. Stock
Market
………………………… £1 * inflation
……………………….. £2 * inflation
..………………….. £3 * inflation
Sal38 *(1/80) = £38 Sal39 *(1/80) = £39
Sal40 *(1/80) = £40
…………. £38 * inflation
……… £39 * inflation
….. £40 * inflation
Unit #5
CARE – Career Average Revalued Earnings
(
•
) (

Agency.
) (
57
)
· CARE accrual rate -1/80 above but can be more or less
generous.
· CARE revaluation rate – inflation rate above, but may use
increase on average earnings.
· Still a Defined Benefit (DB) Scheme.
· Not a Final Salary.
· If enjoy no promotion in career then pension same as in Final
Salary.
· If enjoy promotion then pension is an AVERAGE of career
positions.
· Expectancy.
· Equity.
Unit #5
Defined Contribution Scheme
(
£
1

+
£
2
+
£
3
+
£
4
+
£
5
+
£
6
+
£
7
………+
£
36
+
£

37
+
£
38
+
£
39
+
£
40
)£1
£2
£3 MARKET
.
. Invested
. by you
. in
. Stock
. Market

£38
£39
£40
POT
(
Buy
ANNUITY
)
(
“ANNUITY”
Unit #5
Opposite of a life insurance policy.
Life insurance policy
· I pay £x per month and,
· when I die,
– the insurance company pays my heir/beneficiary £Y.

Annuity
· I pay the life insurance company £Z now, and,
· they agree to pay me £p per month,
– until I die.
Assume a Sixtieths Scheme:
(
Unit #5
) (
Defined
Benefit
Pensions
-
Retention
)
(
Years
) (
t
1
=

20
) (
t
2
=
40
)
£ Possible job change at t1 ?
Ŵ(t)
W2 VM
W1
(20/60)W1 + (20/60)W2
£ VERSUS: (40/60)W2
W2 W1
Ŵ(t)
VMP
Unit #5

Pros and cons
Defined benefit [DB] schemes:
· They were originally seen as assisting recruitment and
retention because they encouraged employees to stay (example
above).
· For employees, the big advantage is that the pension amount is
‘guaranteed’.
· The disadvantage for employers is that they have to take the
risk and pay the guaranteed amount. The cost of the scheme may
exceed liabilities, meaning that the employer has to make a
substantial subsidy.
DB – final salary and DB-CARE career average revalued
earnings.
Unit #5
Pros and cons
Defined contribution [DC] schemes:

· The advantage to the employee is the portability of the fund,
so the schemes may be better for employees who change jobs
frequently.
· The advantage to employers is that such schemes are relatively
risk-free – deficits do not have to be met by the employer.
· The disadvantage for employees is that they will not know the
value of the future pension until they retire(“retirement date
risk”), and no fixed amount is guaranteed.
Unit #6:
Non-Financial Benefits
· Holistic view of employees – as persons, not ‘resources’.
· Reflecting the ‘hierarchy of needs’ – and/or a sophisticated
consumer culture in which ‘talent’ segments expect to mix a
‘reward bundle’ tailored to their personal situation.
· ‘Talent market segmentation’ analysis to optimise investment

in different groups with changing traits.
· Social exchange theory predicts that employers who
demonstrate a personalised commitment to their employees will
be rewarded in return with ‘affirmative commitment’ and
‘discretionary effort’ – i.e., beyond a ‘continuance’ relationship
(simply ‘turning up’) at work.
(
Unit #6
) (
THEORY:
)
1. Holistic – focus on attract retain and motivate.
2. Best Fit – contingency approach – tailor to culture, structure
and strategy.
3. Integrative – reward links to other HR practices.
4. Strategic – aligns with business strategy
5. People-centred – people key resource in sustainable
competitive advantage.
6. Customised – match employees’ needs, lifestyles and stage of
life.
7. Distinctive – create ‘employer brand’.
8. Evolutionary – use incremental rather than radical change.
(
Unit #6
) (
THEORY:
)
Unit #6
Intrinsic versus Extrinsic

Intrinsic motivation – dependent on interest or enjoyment of the
task for its own sake. Derives from within the individual rather
than relying on any external reward. Self-actualisation.
(Maslow’s Hierachy)
Extrinsic motivation – dependent on securing an outcome that
comes from others.
Recall Herzberg's two-factor theory:
· Motivating factors: challenging interesting work with
recognition and responsibility) which give positive satisfaction,
and
· Hygiene factors: job security, salary and fringe benefits- note,
these do not
motivate as such, but, if absent, produce demotivation.
McGregor: Theory X v Theory Y people.
(
Leadership
Values
Reputation
Emotional
Alignment
Lifestyle
Workstyle
Building
for

future
Quality
of
Work
Engagement
factors
Car
allowance
Concierge
service
Corporate discounts
Active
benefits
Retirement
Health
cover
Holidays
Passive
Benefits
Stock/
equity
Performance
shares
Long-term
incentive

Annual
bonus
Commission
Short-term
incentive
Annual
salary
Hourly
wage
Base
cash
) (
TOTAL
R
E
W
A
R
D
Total
P
A
Y
&
B

E
N
E
F
I
T
S
Total
Direct
R
e
m
u
n
e
r
C
A
S
H

)Examples Reward Element Definition
Total Rewards Optimisation (TRO)
Increase
(
Unit #6
)
(
Decrease
)A
Impact on
Employee B
Behaviour
C
(
Increase
)Obvious Improvements
Impact on Cost

Copyright: Towers Watson
Decrease
Employee Value Proposition
Three Factor Approach to Employee Engagement
(
Unit #6
)
REWARD
JOB CONTENT/ CAREER CONCERNS
(
Attract
Motivate
Retain
)

EMPLOYER REPUTATION / BRAND
culture, values, environment
Not assessed in 2021-22
Theories:
1. Agency.2. Managerial Power.
3. Social Influence.
4. Institutions.
Unit #7 and 8:Executive Reward
1. Market clearing, but a more complex picture than this:

Wage
Supply of Labour
W * E
Labour Demand MVPL
L * Labour units
2. “The Board”
Executive directors
Non-executive directors

PAY
Remuneration Committee
Principal-agent solution
(
76
)
Two features in design
1: Maximise incentive – aim for greatest pay for performance
possible.
Incentive effect

2: Design must ensure that expected (average)
outcome must be as good as can get in similar job elsewhere.
(
Participation
Constraint
)
Motivation and Remuneration
· Hidden information
– adverse selection
“Stay for a long time ?”
· Hidden action
– moral hazard

KEY
FACTOR
(
77
)
“Work hard in the interests of firm?”
but
lots of performance shares
Units #7 & 8 Base Pay versus Performance Pay
(
78
)
1. Pay for Performance
Firm A
Pay

Firm B
Incentive compensation
Performance
Units #7 & 8
Base Pay versus Performance Pay
(
79
)
2. Deferred compensation - long term incentive
Firm A

Pay
Firm B
Deferred compensation
Years of service
Units #7 & 8 Not assessed in 2021-22Incentive Alignment and
the Participation Constraint
Typical share option/ Ltip design - threshold and cap

(
quartile
) (
quartile
) (
81
)
· No pay-out below a certain “threshold”.
Ltip = long term incentive plan
· Maximum pay-out (“vesting”) at a set level of performance
(“stretch”).
%
Vest
“Target”
Stretch
Stretch
100%
Threshold
CAP
Bonus

Threshold
0%
Lower
Upper
Relative
perf.
3. Career Concerns
Internal Labour Market
(
82
)
Promotion as incentive/ reward Not for ‘fit’

Internal Promotion
Entry Level 2
Entry Level 1
Promotion as an incentive device - tournaments
(
83
)Tournaments
Lazear, Edward and Rosen, Sherwin (1981) ‘Rank-Order

Tournaments as Optimum Labor Contracts’, Journal of Political
Economy, Vol. 89, No 5, October, pp 841-864.
Lazear Rosen
Top prize CEO job
Relative performance measures
Critical:
Pfeffer rejects the Principal-Agent perspective
(
"The
image

of
workers
in
these
models
is
somewhat
akin
to
Newton's first
law of motion: employees remain in a state of
rest
unless
compelled
to
change
that
state
by

a
stronger
force
impressed
upon
them
-
namely,
an
optimal
labor
contract."
)

Pfeffer (1998)
Bebchuk and Fried “Pay without Performance”
· There is no arms-length relationship.
· Long-term incentives are just ‘stealth wealth’.
· A way of paying executives ‘under the radar’.
· The only thing that restrains executives is the fear of
‘outrage costs’.
· The board itself is ineffective in restraining pay.
· The board is ‘captured’.
Institutional isomorphism
Paul DiMaggio

“social cascade”
Walter Powell
Critical:
DiMaggio and Powell
Isomorphisms in organisational practice
- need for legitimacy – mimic actions of others
Duesenberry on the distinction between economics versus
sociology:
“Economics is all about how people make choices. Sociology is
all about why they don’t have any choices to make.”
Unit #9
Unit #9:

International Reward Management
· The current context multinational employers encounter
influencing their aims and choices on employee reward.
· The various types of employees involved.
· The use of theory and empirical research in weighing
opportunities and problems in rewarding employees in an
international context.
Stages:
· Exporting goods.
· Licencing and Franchising overseas activities.
· Establish host country facilities (“foreign direct investment,
FDI”)– promoted by low cost labour and materials.
· Transnational taps tacit knowledge embedded in its
global network.
(
Unit #9
) (
Internationalisation
)

Parent Country
(
Host
Country
B
Host
Country
A
) (
Host
Country
D
Host
Country
C
)
(
Unit #9
) (
Multinational
)

(
Host
Country
B
Host
Country
A
) (
Host
Country
D
Parent
Country
Host
Country
C

)
A and D link; B and C link; not drawn here
(
Unit #9
) (
Transnational
)
· Traditionally, usual assignment 3 – 5 years
· Now more of a continuum:
Sort Term Long Term
(
Unit #9
) (
Expatriates
and

Reward
)
ST one- off
Commuters LT
assignment
LT
permanent
Regional v Global Accompanied vs. Unaccompanied
· “Making the expatriate whole”.
· An exchange relationship.
· Less emphasis on reward as such, or on the effort-reward
bargain.
· Compensation for ‘dislocation’/ ‘hardship’.
· Preserve relativities with parent company peers.
· Purchasing power parity, tax equalisation.
· Home-based /salary build-up’/ ‘balance-sheet’
(see below).
· Home leave, education costs, dual-career allowance etc..
(
Unit #9
) (

Expatriates
and
Reward
)
Major consideration in portfolio
· COLA – cost-of-living-adjustment
· Housing Allowance
· Education Allowance
· Foreign Assignment Allowance
· Tax adjustment
· Dual Career Allowance
· Foreign Assistance Allowance (Hardship Allowance –
personal safety, distance, language, culture, climate etc.)
Also, subsequent repatriation and relocation costs.
(
Unit #9
) (
Expatriates
and

Reward
)
(
Foreign
assignment
allowance
Housing
allowance
Adjustment
cost
of
living
COLA
on
65
%
= 65% home country
component
=
35%
home
country

net
salary
component
Health
Insurance
Social
Security
TAX
(+/-)
)Unit #9
(
Net
Salary
Health
Insurance
Social
Security
TAX
(+/-)
)Balance Sheet Approach:

Note – here the cost of living adjustment is on the 65% of net
income that is generally consumed
Exercise:
Using the Economist’s BigMac Index and the data provided
there, calculate how much one would have to receive in the
currency of your own country to be equivalent to $100,000
(USA $):
1. Using the International Spot Exchange rate.
2. Using Purchasing Power parity as suggested by the Big Mac
Index.
3. What is the % difference (#2 as % of #1)?
(
If
you
are

from
the
USA,
pretend
you
are
from
another
country
– your choice.
)
(
Unit #9
) (
Which
Exchange
Rate
?
)

Switzerland
What costs = 6.5 CHF
In the USA costs = $4.79
To be equal: (6.5/exchange rate) = 4.79
$1 has to cost: (6.5/4.79) = 1.36
On Foreign Exchange Markets $1 costs 0.95CHF
(
Unit #9
) (
Which
Exchange
Rate
?
)
Swiss Franc overvalues = (1.36/0.95) = 1.43

Switzerland
· You live in USA and eat only BigMacs.
· You spend $2,000 per year on food (BigMacs).
· That (at $4.79) buys you 417.5 burgers.
· Going off to Switzerland for a year.
· Convert $2,000 at official exchange rate (0.95CHF/$).
· Get back 1,900 CHF
· Once in Switzerland find that you can only buy 292.3 burgers
(=1,900/6.5).
· You paid too much for your CHF [417.5/292.3 = 1.43 ]
· The dollar appears overvalued by 43%
· If you do not recognise this your ex-patriates working in
Switzerland are going to be very unhappy.
(
Unit #9
) (
Which
Exchange
Rate
?
)

· This does not happen with traded goods.
· Otherwise would buy cheap in USA and sell at high price in
Switzerland.
· Key is that not all goods are traded.
· Purchasing Power Parity attempts to take this into account.
(
Unit #9
) (
Which
Exchange
Rate
?
)
E.g., Japanese Employment System
· Job-related pay (“shokumukya”) still dominant.
· Recruit straight from school/University (“Shinsotsu-Ikkatsu-
Saiyō”).
· Job-for-life with single (first) employer (“Syushin-Koyō”).
· External pay not considered.
· “Stock-based” approach (sum over career of individual’s
performance to date
-type) “flow emphasis” on current worth.
· Twice yearly bonus paid in July & December – significant
profit dependent part of remuneration “(kaki shoyo”).
· Personal bonuses/incentives rare.

Note: all of this is under considerable pressure after recent
decades of poor economic performance.
(
Unit
#9
Culture
and
Institutions
–
make
a
difference:
)
· Attitude to what makes an ‘effective’ employee.
· Orientation to giving and receiving performance feedback.
· Career anchor preference – e.g., seniority versus performance.
· Conception of what makes ‘socially healthy’ pay distribution
between individuals and groups.

-country labour market benchmarks.
(
Unit #9
) (
Local
Culture
and
Reward
)
· Many consistent/ contradictory results.
· Research conducted by application of Hofstede’s (1980)
questionnaire (on culture).
· Failure to adequately incorporate institutional setting.
· Formal (legal etc.).
· Informal (social, cultural, religious etc.).
· Societal values (legitimacy of effort-reward bargain etc.).
understand individual’s satisfaction, preferences, and
institutional impact of each aspect of the reward package.

Culture's consequences : international differences in work-
related values
Geert H. Hofstede
Beverly Hills, Calif. : Sage Publications ; 1980], (and many
other versions) Main Library (STANDARD LOAN) - 2nd floor
GN502 Hof.
(
Unit #9
) (
National
Cultures
and
Reward
)
· Ecological fallacy – using country-level constructs to explain
individual-level data)
· Protestant countries have higher suicide rates – does
being Protestant cause suicide?
· Counties with high fatty diets record higher incidence of
breast cancer – does a fatty diet cause breast cancer?
· Mixes up correlation and causation.
The “Ecological fallacy” is drawing conclusions about the
nature of individuals based on observations on the group to

which those individuals belong. E.g., suicide rate were higher in
Protestant countries (Durkheim,1897). But there are
confounding factors – it is not the religion as such.
(
Unit #9
) (
National
Cultures
and
Reward
)
· “High power distance” (e.g. Latin and Asian countries,
African areas and the Arab world)
· Title, rank matter
· Pay level associated with rank.
· Office / secretary important
“Low power distance” (e.g., UK, USA, Israel, ..)
· Financial reward matters more than title or rank
· Pay outcome dependent on performance
· Having office or secretary not key considerations
(
Unit #9
) (
National

Cultures
and
Reward
)
“High uncertainty avoidance” (e.g., Latin countries)
· Seniority.
· Skills weighting.
· Less focus on individual performance-related pay.
“Low uncertainty avoidance” (e.g., protestant/ anglo-saxon
countries).
· Less on seniority.
· Less on skills weighting.
· More focus on individual performance-related pay.
(
Unit #9
) (
National
Cultures
and
Reward
)

High “Individualism” (e.g., USA, UK, Australia)
· Focus on performance-related pay in general.
· More focus on individual performance-related pay.
Low “Individualism” (e.g., Spanish/Portuguese speaking)
· Less performance-related pay.
· Collectivists keen to consolidate performance pay into base
salary.
And so on ……….
(
Unit #9
) (
National
Cultures
and
Reward
)

Alternative approaches:
· Use ‘Topping-up’ home-based pay (Balance Sheet Approach)
versus
· Use host-country labour market benchmarks, especially in
-plus’
versus
· Permanent transfers ~ ‘localisation’
(
Unit #9
) (
core
) (
E
xpatriates
and
Reward
)
· Gaps in economic development
pay in that country.
Recall: Equity Theory [Adams (1965) - OB lectures]:
· Judgement on equity relative to own outcome.
· Judgements based on social referents

(“significant others”).
· Pay attention to treatment in other local transnationals
“(efficiency wage premium”).
· Expatriates themselves may be ‘too different’ to create any
problem.
(
Unit #9
) (
T
he
Expatriate
Local
interface
) (
core
)
Unit #1 – Introduction
· Lawler (1995) ‘The New Pay: a strategic approach’
· Yellen (1984) Efficiency wages
· Hilde Behrend (1957)
· Pfeffer (1994)

· Gomez-Mejia (2010)
· Smith (1776);
Unit #2 - The Legal, Employment Relations and Market Context
· EHRC (2013) [Equality and Human Rights Commission How
to
Conduct a Pay Review]
· Hall and Soskice (2001);
· Freeman & Medoff (1984);
· Hirschman (1970); Gary Becker (1975);
· Mincer & Polachek (1974).
(
Some
standard
references
to
draw
on
)
Unit # 3 - Base Pay Structures and Relationships; Pay Setting,
Composition and Progression
· Doeringer & Piore (1971)
· Thompson, M. (2000), “Salary progression systems
· Lazear & Rosen (1981) – deferred compensation etc.
(
Some

standard
references
to
draw
on
)
Unit # 4 - Variable Pay Schemes
· Fama (1980) settling-up + career concerns
· Lawler (1995) ‘The New Pay: a strategic approach’/Schuster
& Zingheim (1992)
· Lazear (2000) – Safelite Glass
· Pfeffer & Sutton (2006);
· Victor Vroom (1964);
· Locke and Latham (2006);
· Adams (1965);
· Jensen & Meckling (1976);
· Gomez-Mejia et al. (2010);
· Kohn (1993); Pfeffer (2006);
· Yellen (1984);
· Smith (1776).
(
Some
standard
references

to
draw
on
)
Unit # 5 - Benefits and Pensions
· Lazear (1979)
· Thaler & Sunstein (2009)
· Turner (2006)
· Herzberg (1987); Maslow (1954)
· Legge (1995);
Unit # 6 - Non-Financial Reward
· Daniel Pink [TED]
· Pfeffer & Sutton. (2006)
· Kohn, Alfie (1993) /Pink (2009);
· McGregor/ Maslow/ Herzberg
· Lawler(1995);
· Michaels (2001);
· Maslow (1954); Herzberg’s (1987); McGregor (1960);
(
Some
standard
references
to
draw

on
)
Unit # 7 - Rewarding Directors and Executives
Jensen & Murphy (1990)
(
Some
standard
references
to
draw
on
)
· Conyon et al. (2012)
· Main et al. (2008)
· Gregory-Smith & Main (2014)
· Rosen (1981);
· Michaels (2001);
· Edmans & Gabaix (2008) ;
· Vroom (1964);
· Holmstrom (1979);
· Pfeffer (1998);
· Bebchuk & Fried (2002);
· Fama (1980);
· Lazear and Rosen (1981);

· Milgrom and Roberts (1988);
· DiMaggio and Powell (1983).
Some standard references to draw on
Unit # 9 - International Reward Management
· all the above.
· Geert Hofstede (1980 +)
REWARD MANAGEMENT
2021-22

(
Prof. Brian
Main
Edinburgh University
)
Much of this you may have already covered
in your latest Town Hall Meeting.
Objectives
(
•
How
to
tackle
your
final
assessment
•
What goes
in
an

answer?
•
What
did
we
do?
•
When
is
it again?
)
· Thursday 9 December 10am (UK time) – start.
· Thursday 9 December 2pm (UK time) – end.· 4-hour time
block.
· Actual work ~ 2 hours.· But you are free to spend as much
time as you choose.
· Avoid plagiarism.· No collaboration.
(
How
to
tackle

your
final
assessment
)
Assessment information
· Answer the TWO questions, writing up to 1,000 words (+/ -
10%) for each question
· These should take a total of two hours to complete.
· You are permitted to take longer if you wish.
· The completed assessment must be submitted within the 4-
hour period.
· This is an open book timed assessment.
· You may consult books and papers, use the internet and other
sources but are forbidden from consulting with or collaborating
with other people (e.g., you may not discuss with your
classmates).
2- hours to “do 2 from 2”
· no choice· makes life simple!
· and it’s “Open Book”
(
•

•
•
•
•
•
•
Read
the
questions
Think
Prepare
Plan
Write
Questions
are
equal
weighted
1,000
words
limit
on
each
)

(
How
to
write
your
final
assessment
)
(
•
Question
can
link
several
topics.
•
Use
diagrams

where
appropriate.
•
Remember
the
lectures
and
models.
•
Citations
where
appropriate:
–
no
need
for
full
formal
referencing
– just
“Bebchuck

and
Fried
(2004)”
etc….
)
How to Write and Answer
(
•
Structure
each
answer
No
need
to
repeat
the
question!
Introduction.
Points
(in

paragraphs).
Conclusion.
)
(
•
•
•
Say
what
you
are
going
to
say.
Say
it.
Say
what
you
have
said.

)
(
•
It
is
NOT
a
‘Who
done
it?’
detective
novel
•
You
are
not
Raymond

Chandler
-
not
even
Agatha
Christie
!
)
(
How
to
Write
and
Answer
)

(
•
Put
yourself
in
the
examiner’s
shoes
Internal
examiner.
Second
marker/moderator.
The
External
Examiner.
•
Use
even
very
basic
material
•
Make

it
legible,
lay
it
out
clearly.
)
How to Write and Answer
(
•
Structure
+
Argument.
•
Use
and
application
of
analytical

material.
•
Background
reading.
•
Style
and
presentation.
•
Write
enough.
)
AND – answer the question asked!
Critical Thinking
Recall.
· Do not accept models or arguments at face value.
· Think about and question the underpinning assumptions.
· Yes, examine the benefits of seeing things in a particular way
(a model).
· BUT, also be sure to identify any problems in terms of the
underlying assumptions and claims.

· This is not the same as simply being negative (“this is a stupid
model!”).
· Requires that you engage deeply with the material.
11
Critical Thinking
Description:
1. States what happened.
2. States what something is like.
3. Explains what a theory says.
4. Explains how something works.
5. Notes the methods used.
6. Says when something occurred.
7. Lists the different components.
8. States the options.
9. States links between items.
Description:
Critical analysis:
1. States what happened.
Analyses significance of what happened.
2. States what something is like.
Evaluates strengths and weaknesses
3. Explains what a theory says.
Shows why this theory is relevant or suitable.
4. Explains how something works.
Indicates why something will work

(best) and when will not.
5. Notes the methods used.
Discusses whether these methods are appropriate or suitable.
6. Says when something occurred.
Identifies why the timing is important,
assess the lead up and consequences
7. Lists the different components.
Weighs up their importance.
8. States the options.
Gives reasons for selecting each option.
9. States links between items.
Shows the relevance impact of these
links.
Descriptive -
· states/explains/notes/says/lists
· has nothing to say about it.
· simply knowledge transfer.
Critical analysis -
· evaluates/shows why/indicates why/discusses
· identifies why/weighs up/gives reasons
· shows relevance
· knowledge development
· Relevance to set question
Scope: consistently focused on the question asked in an

organised and coherent way; thorough and competent
understanding of context.
Purpose: features an excellent and comprehensive statement of
purpose.
· Approach
Concepts and theories: complete and correct.
Method: fully outlined in a critical fashion with clear
argumentation for choices made.
· Quality of argument
Excellent knowledge and understanding of methods underlying
the answer; demonstrates application of methods to complex
settings. Competent thought in critically evaluating and
integrating evidence and ideas; deals confidently with
complexities and subtleties of the arguments.
(
How
to
Write
an
Answer
)
· Depth of analysis
Sophisticated synthesis coupled with evidence of independent
insight. Uses appropriate, relevant and compelling content to
illustrate mastery of the subject.
· Originality and creativity
Original, thoughtful / creative, and elegant presentation.
Able to state and defend original ideas with flair and
imagination.

· Use of course readings and literature
Extensive and comprehensive grasp of course readings, and
support material and literature.
Skilful use of high quality, relevant sources.
· Use of figures, tables and examples
Excellent (possibly original) use of figures and tables that
enhance the narrative.
Examples that richly enhance and add to clarity of argument and
may include comparative examples from outside the discipline.
· Structure
Organisation of material enhances audience understanding;
introduction, body and conclusion are well defined, effective
and aligned with purpose. Excellent use of headings, sections
and paragraphs to enhance the narrative.
· Writing
Clear and succinct writing style that reinforces precision and
clarity. Precise and clear writing.
· Citations
Work clearly referenced; draws on a wide, relevant literature
base.
(
How
to
Write
an
Answer
)
All past Degree Exam Papers are on the University

Library Web Site
https://www.ed.ac.uk/information-
services/library-museum-gallery/exam-papers
– 2020/21
(
-
) (
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匡己一
“As a prominent Director of HRM, you have been invited by the
CIPD trade journal, ‘People Management’, to write an article
for publication in the next issue. The topic you have been asked
to address is the use by HR Departments of Job Evaluation
Schemes in ensuring their organisation is not open to any claims
of discrimination on any of the nine protected characteristics.
Although you have only been allowed 1,000 words, ensure you
both critically evaluate the approach and discuss the handling of
the necessary adjustments that often follow such exercises.” (50
marks)
(
Past
question:
)

“The CEO of your company feels that the current dominance of
salary in the company’s reward package is holding the company
back. As a newly recruited member of the HRM team, you have
been asked to write a 1,000 word briefing paper to be presented
to the Board that outlines the strengths and weaknesses of
switching to a more pay-for-performance based approach. In
writing your report, ensure that you position the possible switch
in the context of the company’s employee value
proposition.” (50 marks)
UNITS:
Unit 1. Introducing Employee Reward Systems; Conceptual
and Theoretical Frameworks.
Unit 2. The Legal, Employment Relations
and Market Context.
Unit 3. Base Pay Structures and Relationships;
Pay Setting, Composition and Progression.
Unit 4. Variable Pay Schemes.
Unit 5. Benefits and Pensions.
(
Remember
the

Course
)
UNITS:
(
Unit
6.
Non-Financial
Reward.
Units
7
&
8.
Rewarding
Directors
and
Executives
.
Unit
9.

International
Reward
Management.
)
(
•
40%
Pay
Report
+
•
60%
Final
Exam
)
(
Course

Assessment
)
(
Pay
Report
mark
=
42%
+
Final
Exam
mark
=
57%
)Course outcome = 42x(0.40) + 57x(0.60)= 51
(
Pay
Report

mark
=
52%
+
Final
Exam
mark
=
67%
(
Course
Assessment
-
mitigation
)
(
Pay

Report
mark
=
62%
+
Final
Exam
mark
=
42%
(
Pay
Report
mark
=
66%
+
Final

Exam
mark
=
56%
(
Pay
Report
mark
=
64%
+
Final
Exam
mark
=
74%

(
Pay
Report
mark
=
76%
+
Final
Exam
mark
=
66%
(
Two
approaches:
1.
Sit
at

home
and
read
over
notes
and
text
book,
etc.
2.
Attempt
past
exam
questions.
)
(
Revision
)
(

•
Do
not
over
specialise.
•
DO
not
panic
–
think
over
what
we
did
in
class
–
basically
that’s

it!
•
“Think”
–
a
carefully
constructed
answer
is
vital.
•
Write
something
–
blank
paper
gets
ZERO!
)
(
Summary
)

(2)BUSINESS SCHOOLREWARD MANAGEMENT TIMED F

(2)BUSINESS SCHOOLREWARD MANAGEMENT TIMED F

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