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HRM for MBA Students

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HRM for MBA Students Lecture 7 Rewarding people: the management of rewards and performance Learning outcomes An understanding of the importance of pay in HRM An ... – PowerPoint PPT presentation

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Title: HRM for MBA Students


1
HRM for MBA Students
  • Lecture 7
  • Rewarding people
  • the management of rewards and performance

2
Learning outcomes
  • An understanding of the importance of pay in HRM
  • An appreciation of the significance of fairness
    in rewards
  • An appreciation of the main types of payment
    systems
  • An understanding of how rewards fit with
    performance management systems
  • An understanding of the importance of fringe
    benefits
  • An understanding of the concepts of pay for
    competence or skills
  • An appreciation of the cafeteria approach to
    rewards
  • An understanding of the principles of job
    evaluation
  • An understanding of the principles of performance
    management

3
Recent developments
  • Rewards are of obvious concern to both employers
    and employees
  • The emergence of HRM has produced or coincided
    with the great expansion of
  • performance-related pay (a culture of
  • pay for contribution, not pay for
  • position)
  • performance management

4
Pay systems
  • Management normally seek a pay system they
    believe will
  • give the greatest degree of cost and supervisory
    control, and
  • provide the best incentive for employees
  • Pay and fringe benefits remain central features
    in contracts of employment and are always
    prominent issues in collective bargaining

5
Fairness
  • Any pay system will fail if it is perceived by
    the employees to be unfair
  • Fairness of pay is a comparative concept, not an
    absolute one

6
Types of payment system
  • Payment by time
  • Performance-related pay or incentive pay
    schemes
  • payment by results (PBR), in which the variable
    element is determined by some objective measure
    of the work done or its value
  • merit-based systems, in which the variable
    element is related to an assessment of overall
    job performance by a supervisor or manager

7
Incentive pay schemes
  • The 2004 WERS survey
  • 40 of UK workplaces had incentive pay schemes
    (more popular in the private sector than in the
    public), with a rising trend
  • Incentive schemes were more common generally
    where product market competition was higher

8
Payment by time
  • A fixed rate per hour, per shift or per week
    (wages) or per month, per quarter or per year
    (salary)
  • In a pure payment-by-time system the employees
    performance can only be managed by supervision,
    or by custom or other social pressure
  • The simplicity of the time rate system is its
    main virtue, but this is often compromised in
    practice by additional payments, grade drift
    and proliferation of grades

9
Performance-related pay (incentive pay)
  • Payment by results (PBR), in which the variable
    element is determined by some objective measure
    of the work done or its value
  • Merit-based systems, in which the variable
    element is related to an assessment of overall
    job performance by a supervisor or manager

10
Payment by results (PBR)
  • Piecework
  • The employee is paid a standard price for each
    piece or unit of output
  • Incentive bonus schemes
  • Schemes may be work-study-based in
    production-oriented work

11
Merit-based pay
  • Reflects an HRM approach to rewards
  • Pay policy should reflect and support the
    business objectives and strategies of the firm.
  • Pay should be part of a wider human resources
    strategy
  • Pay policy and practices should help reinforce
    the dominant culture of the organisation

12
Criteria for merit-based pay
  • Employees are able to influence performance
  • The reward is clearly and closely linked to the
    effort of the individual or group
  • The reward closely follows the accomplishment
    that generated it
  • Employees are clear about the targets and
    standards of performance needed
  • It is possible to measure performance with
    fairness and consistency
  • The pay systems use a clearly defined and
    understood formula
  • There is a reasonable degree of stability in work
    methods

13
Pay for skills or competence
  • Pay progression is linked to the number, kind and
    depth of skills which individuals develop and use
  • The successful acquisition of skills blocks or
    modules results in an increment to basic pay
  • The order in which each skill has to be attained
    may be determined by management
  • The training and acquisition of skills must be
    accredited
  • The system can be bureaucratic and costly

14
Non-pay benefits
  • Fringe or employee benefits
  • to ensure that a competitive total remuneration
    package is provided to attract, retain and
    motivate staff
  • to increase the employees commitment to the
    organisation
  • to take advantage of tax-efficient methods of
    rewarding employees

15
Typical non-pay benefits
  • Pension schemes
  • Personal security
  • Eg above-statutory sick pay, death-in-service
    benefits, personal accident cover, medical
    insurance, etc
  • Financial assistance
  • Company car

16
The cafeteria approach to rewards management
  • Allows employees a degree of choice in their
    total remuneration package eg by permitting
    them to take less in non-pay benefits and more in
    pay, or vice versa
  • The total overall value of their compensation
    will be the same, whatever choices they make
  • This allows individuals to tailor their rewards
    to their particular needs and alter them as their
    needs change

17
The cafeteria approach
  • Advantages
  • employee satisfaction
  • communication of the real costs of benefits to
    employees and employers
  • determining the popularity of various benefits
  • Disadvantages
  • costing of non-pay benefits can be complex
  • possibly greater administrative costs
  • possible tax complications for employees

18
Job evaluation
  • Determines the relative positions of jobs within
    a hierarchy
  • Is a comparative process which determines grades
    but not rates of pay, which must be established
    by some other mechanism
  • Is normally conducted by a panel on the basis of
    information obtained by means of job analysis
  • Is a systematic but not infallible process
  • The job not any current job-holders
    performance is what is evaluated

19
Points-factor job evaluation schemes
  • Jobs are compared in terms of a number of
    separately defining characteristics or factors
    eg skill, knowledge, decision-making, etc
  • Each factor is weighted to reflect its relative
    importance
  • This is the only type of scheme that can give an
    employer a defence against an equal value pay
    claim at a tribunal

20
Designing a points-factor scheme
  • Select factors and decide on the number of levels
    required (typically between three and 12 factors)
  • Allocate points to levels and weights to factors
  • Select benchmark jobs
  • Analyse benchmark jobs
  • Rank jobs according to points values
  • Determine the number of job grades and define
    them in terms of points
  • Allocate jobs according to points values

21
Performance management
  • A means of getting better results from the
    organisation, teams and individuals by
    understanding and managing performance within an
    agreed framework of planned goals, objectives and
    standards
  • Armstrong and Murlis (1994)
  • Performance appraisal is central to performance
    management but performance management is more
    than appraisal

22
A typical performance management agreement
  • A performance agreement between an individual and
    a manager setting out objectives, but also
    development needs
  • Performance is continually monitored and
    assessed
  • high performance is reinforced with praise,
    recognition and the opportunity to take on more
    responsible work
  • low performance is responded to by means of
    coaching and counselling
  • Provision is made for the regular formal review
    of performance against the objectives, and the
    setting of any new performance agreement

23
Performance management and performance-related pay
  • Performance management systems are typically
    linked to performance-related pay but this is
    not essential

24
Key issues in rewarding people
  • Rewards have to be actively managed to secure the
    maximum utilisation of human assets, and to
    attract, motivate and retain core employees
  • We cannot ignore the importance of money in
    rewards packages
  • Payment systems may be based on time, or may be
    variable in cases where an element of total pay
    is dependent on some measure of output or an
    assessment of overall performance

25
Key issues in rewarding people (Cont.)
  • A cafeteria system of rewards allows employees
    the flexibility to decide the composition of
    their total rewards package
  • Performance management is really a management
    philosophy rather than just a set of techniques,
    and more comprehensive than simply
    performance-related pay or performance appraisal
  • Since only an analytical job evaluation scheme
    can provide an employer with a legal defence in
    equal pay cases, its importance is growing
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