What Is Meant by the Term Reward?

Reward Systems & Motivation:

1a. What is meant by the term Reward?

 Reward can be broadly defined as the ‘bundle of returns offered in exchange for a cluster of employee contributions’ (Bloom and Milkovich, 1994).

 Intrinsic rewards are personal satisfactions which derive from the nature of the job or from the more general working environment. (Self-actualisation through interesting or worthwhile work or a sense of pride in belonging to a well-regarded team or company.)

 Extrinsic rewards assume a more tangible and material form. They cover a variety of fringe benefits including health schemes, pension entitlements, welfare facilities and car allowances. However, the main form of extrinsic reward is pay. Organisations often combine the use of different kinds of rewards to establish a remuneration package.

1b. What factors influence the choice of pay system in an organization?

Type of workers:

The nature of the work associated with occupations affects the viability of different pay systems.

For those in caring professions (nurses and teachers, for instance) it is often difficult to identify meaningful individual performance targets which can then be linked to pay.

Similarly, for those in routine, administrative tasks, it may be difficult to continually set new individual work targets given the limited scope for improvement in the post.

Thus sales staff have often been on commission and shop-floor manufacturing workers on piecework.

The difficulties of individual performance targets for employees in caring occupations in the public service have traditionally led to such workers being paid according to the job or personal characteristics such as qualification and experience.

Culture:

Culture plays a significant part in the appropriateness of a pay system in a number of respects.

Organisational culture (or a company’s history in terms of embedded values, beliefs and habits) will influence the acceptability and viability of a payment system.

In the British Civil Service, for instance, where there was a tradition of all employees receiving the same annual pay increase, the introduction of individual performance related pay saw those receiving the performance increase pooling the additional money and taking colleagues out for an office outing.

The Lincoln Electric Pay System (US manufacturer of arc welding products.) - Organisational culture Example

Its approach to pay comprises the following features:

• It has a number of pay practices: a piecework system, shared profits, year end bonuses and stock ownership options.

• It has developed a range of additional practices, which support this pay approach including an employee advisory board, a suggestion scheme and job security.

These pay practices have been established for many years reflecting, and then supporting, the company’s philosophy of rewarding individuals for their contribution. The piecework system was introduced in 1914 and the year-end bonus in 1943.

Location:

The location of a company may also affect the viability of a pay system. Thus, national culture can have a bearing on the adoption of pay practices.

Certain pay schemes are more in tune with national values and beliefs than others.

As Trompanaars (1993) notes: ‘The internationalisation of business life requires more knowledge of cultural patterns. Pay for (individual) performance, for example, can work out well in the USA, the Netherlands and the UK. In more collectivist cultures like France, Germany and large parts of Asia it may not be so successful.’

In Japan, for example, where the national culture has been based upon strong collective values, team bonuses and seniority pay (rather than individual performance-related pay) have until very recently been the norm.

The selection of an appropriate pay system is therefore contingent on a number of issues, in particular what managerial objectives are being pursued, the pay system most suited to their pursuit and organisational circumstances related to, for instance, technology, type of worker and culture. However, organisational sensitivity to these contingent factors is no guarantee of the pay system’s efficiency and effectiveness. A range of operational problems can still arise once a pay scheme has been introduced.

1c. How can a HR manager ensure that the pay system in an organization is fair?

Discussion Points: Organisational Justice:

Distributive Justice: Adam’s Equity Theory. Matching: Industry, Job Scope, Person & Performance.

Procedural Justice: Levanthal’s 6 principles

Interactional Justice: Appraisals & Evaluation – Communication system>Breach>Behaviour & Perfornance

10.3.1 Structural/formal aspects of procedural justice

Rormal procedures by which decisions are made. Leventhal (1980) identified six general procedural justice rules. Fair Procedures:

• Consistency.

For a procedure to be fair, it must be applied consistently across persons and across time. Consistency across persons generally takes the form of equal treatment for all affected by the procedure. In practical terms, all parties must believe that they have the same rights under the procedure and are treated similarly. For example, when laying off employees, if one decides that the criteria is performance then this must be used throughout the organisation.

• Bias suppression.

There may be many biases that could arise in allocation procedures. Leventhal only mentions two.

First, procedures are unfair if the decision-maker has a vested interest in any specific decision. Second, procedures are unfair if the decision-maker is so influenced by his or her prior beliefs that all points of view do not receive adequate and equal consideration.

• Accuracy of information.

Procedures are perceived to