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Reward Management

Words of wisdom
‘Organizations would be far less effective systems than they actually are if
economic rewards were the only, or even the principal, means of motivation
available.’

‘There is no such thing as a good pay system; there is only a series of bad
ones. The trick is to choose the least bad one.’

Web support material to accompany Human Resource Management: Theory and practice, Third Edition
© John Bratton and Jeffrey Gold 2003, published by Palgrave Macmillan

Reward Management


The Nature of Reward Management
Reward refers to all of the monetary, non-monetary and psychological
payments that an organization provides for its employees in exchange for
the work they perform.

Reward (or compensation) management is a core facet of the employment
relationship.

An organization can provide two types of reward: extrinsic and intrinsic.

The mix of extrinsic and intrinsic rewards provided by the employer is
termed the reward system, the monetary or economic element of the reward
system is termed the pay system.


All pay systems contain two elements that are in contradiction with
each other:

• Cooperation between worker and employer or manager is an essential
ingredient of the employment relationship if anything is to be produced
and is fostered through the logic of financial gain for the worker.

• Tensions and conflict are engendered through the logic that makes the
‘buying’ of labour power the reward for one group and the cost for the
other.

This fundamental tension underlying the employment relationship
makes an unstable contract between the two parties, who have different
objectives when it comes to monetary rewards.


A Model of Rewards Management


Strategic Perspective

A reward system is a key mechanism that can influence each step of the
strategy process. It is also important in influencing:

Employee goal behaviours

Membership behaviour

Conflict behaviour

The first two behaviours mould an organization in terms of its
competencies and intellectual capital, and thus can support organizational
strategy. However, the last can undermine organizational strategy.



Reward objectives

Any organizational reward system has three behavioural objectives:

1. membership behaviour to recruit and retain a sufficient number of
qualified workers

2. task behaviour to motivate employees to perform to the fullest extent of
their capabilities

3. compliance behaviour to encourage employees to follow workplace
rules and undertake special behaviours beneficial to the organizations
without direct supervision or instructions.


Reward Options


Reward Options

Base pay – the irreducible minimum rate of pay for a job; calculated on
time worked; reflects value of the job as measured by job evaluation. Can
be selected for simplicity and for psychological reasons.

Performance pay – added to base pay and related to certain work-related
behaviours: performance, learning or experience. Based on the
problematic assumption that pay alone motivates workers.

Indirect pay – refers to the total reward package in addition to base or
performance pay such as health and life insurance, pension plans and
other miscellaneous benefits.


A Model of Reward Management
Reward Options – Indirect Pay



Reward Techniques

Internal equity refers to comparisons between jobs or skill levels inside the
organization, which are compared in terms of their relative contributions to
the organization’s goals. Internal equity is established through three
reward techniques:

1. Job analysis

2. Job evaluation

3. Appraisal


Reward techniques: Job analysis

Knowledge on jobs and their requirements is collected through job
analysis, which is the systematic process of collecting and evaluating
information about the tasks, responsibilities and the context of a specific
job.

Job analysis consists of two mains stages:

1. data collection

2. the application of that data by the preparation of job descriptions, job
specifications and job standards.


Reward techniques: Job analysis


Reward Techniques: Job evaluation

Job evaluation is a systematic process designed to determine the relative
worth of jobs within a single work organization. The job evaluation process
comprises of four steps:

1. Gather data

2. Select compensable factors

3. Evaluate the job (ranking, job-grading, factor comparison, point method)

4. Assign pay to the job


Reward Techniques: Job evaluation


Reward competitiveness

Refers to reward relationships external to the organization – how should
an organization position its pay relative to what competitors are paying?
There are three options: to be a pay leader, to match the market rate or to
lag behind the market rate. The constraints defining the parameters within
which reward choices can be make include those relating to:

• the labour market

• the product/service market – affects external competitiveness

• the organizational


Establishing Pay levels

Determining the right pay means combining the results of the job analysis
and job evaluation processes and market pay data.

Although the pay levels within an organization reflect external
competitiveness and internal equity considerations, the decision on the
final pay level – the organization’s pay policy – will be determined by
many factors, including competitive strategy, HR strategy, reward
objectives, organizational design and culture.


Establishing Pay Levels


Government and Pay


Government and Pay
Equal pay legislation

The concept of pay equity is in conflict with the view that employees’ pay
should be dictated by the supply and demand of labour.

Despite the existence of equal pay legislation in the UK since 1975, income
disparity between men and women is widely acknowledged. Equal pay
legislation has failed to address occupational segregation.

All legislation requires that gender-neutral job evaluation schemes are used
to determine and compare the falue of female-dominated and male-
dominated jobs. Formal job evaluation is important in generating a
feeling of equity in the workplace, and thus constitutes the foundation
of pay equity.


Paradox and Reward
There are some fallacies and inconsistencies inherent in reward systems.

• Fostering commitment via variable pay may be undermined if reward is
not paid due to the company’s poor financial performance.

• Performance-related pay is open to subjectivity and inconsistency, and
can create tensions which undermine workers’ intrinsic motivation.

• All may result in a breach of the psychological contract, weakening
employee commitment.

• Reward practices are dictated by perceptions of power between labour
and management. Pay systems will change according to their
effectiveness in the effort-wage relationship with the balance of power.


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