ESSENTIALS OF ESSENTIALS OF REWARD REWARD MANAGEMENT MANAGEMENT

Definition:Definition: “Reward Management is

concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization”

CHARACTERISTICSCHARACTERISTICS1. REWARD MANAGEMENT AND PEOPLE:

-- is concerned with people -- employees are rewarded for their efforts skills & contribution.

2. A STAKEHOLDER APPROACH:-- purpose of HRM is to meet needs of all stakeholders in the business (e(e), customers, suppliers, management and the shareholders)

3. INTEGRATED REWARD MANAGEMENT: it consist of related set of activities that impact on all aspects of business and HRM

4. STRATEGIC REWARD MANAGEMENT: ultimately a way of thinking that one can apply to any reward issue arising in the organization, to see one can create the value

5. EVIDENCE-BASED REWARD MANAGEMENT: --- its based on fact rather than opinion --- on understanding rather than assumptions

THE REWARD MANAGEMENT THE REWARD MANAGEMENT FRAMEWORKFRAMEWORK

Reward management is a complex process with many interconnecting elements and under-pinning concepts.

AIMS OF REWARD AIMS OF REWARD MANAGEMENTMANAGEMENT support the achievement of business

goals through high performance;

develop and support the organization’s culture;

define what is important in terms of behaviors and outcomes;

reward people according to the value they create;

reward people according to what the organization values;

align reward practices with employee need;

help to attract and remain the high- quality people the organization need;

win the engagement of people.

ACHIEVING THE AIMS IN ACHIEVING THE AIMS IN GENERALGENERAL

1. Reward philosophy:The philosophy of reward management recognizes that if HRM is about investing in human capital from which a reasonable return is required,then it is proper to reward people differentially according to their contribution.

2. Distributive justice:It refers to how rewards are provided to people. They should feel that they have been treated justly i.e. they receive what was promised

3.Procedural justice:It is referred to the ways in which managerial decisions are made and reward policies are put into practice.

4. Fairness:It operates in accordance with the principles of distributive and procedural justice.

5. Equity:Equity is achieved when people are rewarded appropriately in relation to others within the organization.

6. Consistency:Decisions on pay do not vary arbitrarily- without due cause- between different people or at different times.

7. Transparency:It exists when people understand how reward processes function and how they are affected by them.

8. Strategic alignment:It ensures that reward initiatives are planned by reference to the requirements of the business strategy and are designed to support the achievement of business goals.

9. Contextual and culture fit:the design of the reward process should be governed by the context (characteristics of organization) and the organization’s culture(its values and behavior).

10. Performance and reward: 11. Segmentation: different segments

of workforce and individuals at different cadre are motivated differently

ACHIEVING THE SPECIFIC ACHIEVING THE SPECIFIC AIMSAIMS1. Support the achievement of business goals

and high performance2. Support and develop the organization’s

culture3. Define the right behaviours and outcomes4. Reward people according to the value they

create and the organization values5. Align reward practices with employee need6. Help to attract and retain high- quality

people7. Win the engagement of people8. Factors influencing the achievement of the

aims

Contextual factorsContextual factorsInternal context:The organization’s culture the shared values, norms

& assumptions that influence the people act and the way things get done

The organization’s business eg. Manufacturing, financial services, retail, transport, educational, etc. govern the ethos & core value

Work environment the way work is organized, managed and carried out influences the pay structure

People people’s occupations may affect their wants and needs. Reward strategies & policies should take account of the different needs of people and this may mean segmenting rewards to meet those individual needs

Business strategy determines where reward should go (reward strategies). Integrating reward and business

Political and social climate organizational politics & social factors such affect how the organization functions & the approach to reward management it adopts

External context

Globalization international reward strategies, expatriate workers, local country staff would decide the reward system

Rates of pay in the market place the external environment exerts a major influence on rates of pay

The economy whether a boom or a bust mode will inevitably affect reward policy & practice

Societal factors views about reward held in society at large may affect internal reward policies

FUNDAMENTAL CONCEPTSFUNDAMENTAL CONCEPTS The following fundamental concepts influence the

aims of Reward Management, reward strategy and how people are valued:

1. The resourse based view:

It includes the range of resources in an organization, including Human Resources that creates competitive advantage.

The role of Reward Management is to contribute to the acquisition and retention of such people.

2. Human capital Management:

The concept of Human capital is often associated with the resource based view.

Human capital Management is an integrated effort to manage and develop Human capabilities to achieve significantly higher levels of performance.

3. Human process advantage:Boxall (1999) notes that a distinction should be

made between Human Process Advantage ( difficult to imitate, highly evolved processes within a firm) and Human Capital Advantage (follows from employing people with competitively valuable knowledge and skills)

4. Motivation Theory:Motivation Theory explains how motivation

works and the factors that determine its strength.

A distinction is made between extrinsic and intrinsic motivation. Extrinsic motivation occurs when things are done to or for people to motivate them.

The 5 categories of motivation theories:

1. Instrumentality Theory: Instrumentality is the belief that if we do

one thing it will lead to another.

Theory states that people only work for money, It assumes that people will be motivated to work if rewards and penalties are tied directly to their performance.

2. CONTENT (NEEDS) THEORY:2. CONTENT (NEEDS) THEORY:

This theory focuses on the content of motivation in the shape of needs. Level of satisfaction.

It provides guidance on what needs should be satisfied by the reward system if motivation is to occur.

The basis of content theory is the belief that an unsatisfied need creates tension and a state of disequilibrium.

The main contributors to needs theory were Alderfer (1972), Mc clelland (1961), and Maslow (1954).

3. PROCESS THEORY:3. PROCESS THEORY:

Three main theories under Process Theory are:

1. Expectancy Theory2. Goal Theory3. Equity Theory4. Cognitive Evaluation Expectancy Theory proposes that a person

will decide to behave or act in a certain way because they are motivated to select a specific behaviour over other behaviors due to what they expect the result of that selected behavior.

Goal Theory states that Motivation and Performance are higher when individuals are set specific goals, when goals are difficult but accepted, and when there is feedback on Performance.

Equity theory is a theory that attempts to explain relational satisfaction in terms of perceptions of fair/unfair distributions of resources within interpersonal relationships.

Cognitive Evaluation Theory as advised by DECI and RYAN argues that placing strong emphasis on monetary rewards decreases people’s interest in the work itself.

In other words, extrinsic rewards erode intrinsic interest.

4. Principal Agent Theory: Also known as Agency Theory, Principal Agent

theory is based on the supposition that the separation between the owners (the principals) & the agents (the managers) means that the principals may not have complete control over their agents.

The agents thus act in a way which conflicts with what the principal wants

Thus it is desirable to provide “incentive alignment” ie paying for measurable results.

5. Psychological contract :The unwritten expectations that employees

and employers have about the nature of their work relationships.

A psychological contract represents the mutual beliefs, perceptions, and informal obligations between an employer and an employee. It sets the dynamics for the relationship and defines the detailed practicality of the work to be done.

an implicit set of obligations and expectations concerning what the individual and the organization expect to give to and receive from each other.

Pay level Concepts:Pay level Concepts: Effective Reward ManagementThe criteria for judging the effectiveness of a reward

management system is the extent to which it:

is fit for purpose — the contribution it makes to achieving organizational objectives and recognizing the needs and wants of stakeholders;

is appropriate — fits the culture and context of the organization;

is designed in accord with what is generally regarded as good practice in the particular context of the organization, subject to the requirement that it must be appropriate;

functions in line with well-defined guiding principles, which include the need to achieve fairness, equity, consistency and transparency in operating the reward system;

includes processes for valuing and grading jobs and rewarding people according to their performance or contribution that are properly conceived and function well;

makes a significant impact on performance through performance management or contributions to high-performance working;

has produced an attractive employee-value proposition;

provides rewards that attract and retain people and enlist their engagement;

maintains competitive and equitable rates of pay;

incorporates successfully a total rewards approach;

manages reward processes carefully and obtains value for money;

provides for the evaluation of reward processes and taking corrective action as necessary;

communicates to all concerned how the reward system operates and how it affects them;

Effective Reward in the Effective Reward in the Best Performing FirmsBest Performing Firms

The best-performing firms view their reward programmes differently from the lower-performing organizations:

Top firms are more likely to use rewards as tools to engage people in improving business performance.

These firms make greater efforts than others to communicate their plans and to measure reward plan effectiveness.

They are more likely than the rest to link rewards to their organization's business strategies.