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organizational reward system

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organizational reward system

  2. 2. Part Four Compensating Human Resources 12. The Organizational Reward System 13. Base Wage and Salary System 14. Incentive pay System
  3. 3. Chapter Twelve The Organizational Reward System
  4. 4. Group Members 26 Hafiza kainat 31 Summiyya Akram 18 Faiza Baloch 27 Shaheen Kousar
  5. 5. Chapter Overview Define Organizational Rewards Selection of Rewards Relating Rewards to Performance Job Satisfaction & Rewards Employee Compensation The Role of the Human Resource Manager in the Reward system Summary of Learning Objectives
  6. 6. Organizational Reward System Organizational reward system concerned with the selection of the types of rewards to be to used by the organization. Organizational Rewards Rewards that result from employment with the organization; includes all types of rewards, both intrinsic and extrinsic.
  7. 7. Intrinsic Rewards Rewards internal to the individual and normally derived from involvement in certain activities or task. Extrinsic Rewards Rewards that are controlled and distributed directly by the organization and are of a tangible nature.
  8. 8. Selection Of Rewards Pay is usually the first, and sometimes the only, reward most people think about Organizations should learn what employees perceive as meaningful rewards, which is not necessarily what management perceives  Studies show that many variables can influence employee preferences for certain rewards. They include  Age  Sex  Marital status  Number of dependents  Years of service
  9. 9. Relating Rewards to Performance Free enterprise system is based on the premise that rewards should depend on performance Performance__reward relationship is desirable at  Organizational & corporate level  Individual level Employees will be motivated when they believe such motivation will lead to desired rewards  Many formal rewards provided by organizations are not related to performance
  10. 10. These rewards are almost always determined by organizational membership and seniority; they include  Paid vacations  Insurance plans  Paid holidays Other rewards, such as promotion, can and should be related to performance  Opportunities for promotion may occur only rarely When available, higher positions may be filled on basis of seniority By someone outside the organization
  11. 11. Preconditions for implementing pay-for- performance program Trust in management Absence of performance constraints Trained supervisors and managers Good measurement systems Ability to pay Clear distinction among cost of living , seniority and merit Well communicated total pay policy Flexible reward schedule
  12. 12. Job Satisfaction and Rewards An employees general attitude towards the job  Organizational reward system often has a significant impact on level of employee job satisfaction.
  13. 13. There are five major components of job satisfaction:  Attitude towards the work group  General working condition  Attitude towards the company  Monetary benefits  Attitude towards the management Other components include:  Employees state of mind about the work itself  Life in general  Health, Age  Level of Aspiration, social status & political & social activities
  14. 14. Organizational Morale An employees feeling of being accepted & belonging to a group of employees  Through common goals  Confidence in desirability of those goals  Desire to progress toward the goal
  15. 15.  Morale is the product of a group  Job satisfaction is more an individual state of mind  Two concepts are interrelated in that job satisfaction can contribute to morale and morale can contribute to job satisfaction.
  16. 16. The Satisfaction-Performance Controversy “The path of least Resistance”__Attempts to explain belief that a satisfied employee is necessarily a good employee Although happiness eventually results from satisfaction . Two propositions concerning the satisfaction performance RELATIONSHIP  Traditional view is that satisfaction causes performance  Satisfaction is the effect rather than the cause of performance
  17. 17. The Satisfaction-performance controversy Performance leads to rewards that result in a certain level of satisfaction. Another positions consider both satisfaction and performance to be functions of rewards. Research evidence generally rejects the more popular view that satisfaction leads to performance. Evidence also strongly indicates that  Rewards constitute a more direct cause of satisfaction than does performance.  Rewards based on current performance enhance subsequent performance.
  18. 18.  Lay people often tend to believe strongly that satisfied employees are more productive at work. It has been clearly established that job satisfaction does have a positive impact on  Turnover  Absenteeism  Tardiness  Accidents  Grievances  Strikes Experience, gender & performance can have a moderating effect on these relationship.
  19. 19. Other Factors Affecting Job Satisfaction Wide range of both external & internal factors affect an employees level of satisfaction Surveys have found that the top drivers of employee job satisfaction were  Pay and Benefits  Job security and feeling safe in the work environment  Flexibility to work and life
  20. 20. Refers only to the actual dollars employees receive in exchange for their work All the extrinsic rewards that employees receive in exchange for their work Composed of the base wage or salary, any incentives or bonuses and any benefits
  21. 21. Compensation Policies Compensation must deal with following issues:  Minimum and maximum level of pay  General relationships among levels of pay  Division of total compensation dollar ORGANIZATION must also make decisions concerning  How much money will go into pay increases for the next years  Who will recommend them  How raises will generally be determined ANOTHER IMPORTANT decision concerns whether pay information will be kept secret or made public
  22. 22. PAY SECRECY Many organization have a policy of not disclosing pay- related information  Information about pay system as well as individual pay received. Justification for pay secrecy  To avoid any discontent that might result from employees knowing what everybody else is being paid  Many employees, especially high achievers ,feel very strongly that their pay is nobody else’s business
  23. 23. Drawbacks of pay secrecy Difficult for employees to determine whether pay is related to performance and does not eliminate pay comparisons Many cause employees to overestimate pay of their peers and underestimate pay of their supervisors Can create feelings of dissatisfaction Employees may become suspicious  A compromise on issue of pay secrecy is to disclose pay ranges for various job levels within the organization.
  24. 24. Government Acts Fair Labor standard Act Davis-Bacon Act Walsh-Healey Public contracts Act Federal Wage Garnishment Law Equal pay Act Union Contracts
  25. 25. Fair Labor Standard Act (FLSA)  Commonly called Wage and Hour Act  Primary requirements are that  Individuals employed in interstate commerce or in organizations producing goods for interstate commerce must be paid a certain minimum wage  They be paid time-and-a-half for hours over 40 worked in one week  Possible exemptions  Amendments to law have reduced number of exemptions, but careful study is necessary to determine an organization’s obligations
  26. 26. Discussions of compensation systems often use the terms exempt and nonexempt personnel  Nonexempt employees are covered by the FLSA; they must be paid overtime and are subject to minimum wage  Exempt employees are not covered by the FLSA and include executive, administrative, and professional employees
  27. 27. Requires that contractors and subcontractors on federal construction contracts in excess of $2,000 pay prevailing wage rates for locality of project Prevailing wage rate is determined by secretary of labor Has normally been the same as prevailing union rate for the area Overtime of time-and-a-half – For more than 40 hours per week
  28. 28. Walsh-Healey Public Contracts Act Requires that organizations manufacturing materials, supplies, articles, or equipment in excess of $10,000 to the federal government pay at least the minimum wage for the industry as determined by the secretary of labor Defense Authorization Act of 1986 stipulated overtime as being hours worked over 40 in a week
  29. 29. Federal Wage Garnishment Law Garnishment – A legal procedure by which an employer is empowered to withhold wages for payment of an employee’s debt to a creditor Law limits amount of an employee’s disposable earnings that can be garnished in any one week and protects employee from discharge because of garnishment
  30. 30. Equal Pay Act Illegal to pay different wages to men and women for jobs that require equal skill, effort, and responsibility and are performed under similar conditions Does not prohibit payment of wage differentials based on seniority systems, merit systems that measure earnings by quantity and quality of production, or systems based on any factor other than sex
  31. 31. Union Contracts If an organization is unionized, the wage structure is usually largely determined through collective bargaining process Because wages are a primary concern of unions, current union contracts must be considered in formulating compensation policies
  32. 32. Impact of Comparable Worth  Theory holds that while true worth of jobs to employer may be similar, some jobs (especially those held by women) are often paid a lower rate than other jobs (often held by men)  Drawback  Determining worth of the jobs in question is difficult  How should job worth be established?  U.S. courts have generally rejected cases based on comparable worth claims  Although comparable worth has generally floundered in court, it has received considerable attention  At the collective bargaining table  In the political arena
  33. 33. The Importance of Fair Pay  Little doubt exists that inadequate pay can have a very negative impact on an organization  Pay dissatisfaction can influence employees’ feelings about their jobs in two ways:  Can increase desire for more money  Can lower attractiveness of the job  An employee who desires more money is likely to engage in actions that can increase pay  These actions might include  Joining a union  Looking for another job  Performing better  Filing a grievance  Going on strike
  34. 34. The Importance of Fair Pay Better performance results only in those cases where pay is perceived as being directly related to performance All of the consequences (except performing better) are generally undesirable by management When job decreases in attractiveness, the employee is more likely  To be absent or tardy  To quit  To become dissatisfied with the job itself
  35. 35. PAY EQUITY Equity theory of motivation holds that Employees have a strong need to maintain a balance between what they perceive as their inputs to their jobs and what they receive from their jobs in the form of rewards Employees who perceive inequities will take action to eliminate or reduce them
  36. 36. PAY EQUITY Several dimensions of equity to be considered when looking at pay equity  Internal equity – Addresses what an employee is being paid for doing a job compared to what other employees in the same organization are being paid to do their jobs  External equity – Addresses what employees in other organizations are being paid for performing similar jobs  Individual equity – Addresses issue of rewarding individual contributions; is very closely related to the pay-for-performance question  Organizational equity – Addresses how profits are divided up within the organizations
  37. 37. PAY SATISFACTION Based on the idea that employees will be satisfied with their pay when their perception of what their pay is and of what they think it should be agree Present pay is a primary factor influencing an employee’s perception of equity
  38. 38. These factors account for the fact that two people may view the same level of pay in a very different manner An employee’s perception of what pay should be depends on several other factors, including Job inputs The perceived inputs and outcomes of friends and peers Nonmonetary outcomes It makes allowances for employees who believe their pay exceeds what they think it should be
  39. 39. The Role of HR Manager in the Reward System Role of human resource manager in overall organizational reward system is to assist in its design and to administer the system  Administering the system – Carries responsibility of ensuring that system is fair to all employees and that it is clearly communicated to all employees  Ensuring that the system is fair places burden of minimizing reward inequities and employee’s perceptions of reward inequities squarely on the human resources manager
  40. 40. Summary of Learning Objectives  Define organizational rewards  Distinguish between intrinsic and extrinsic rewards  List several desirable preconditions for implementing a pay-for-performance program  Define job satisfaction and list its five major components  Summarize the satisfaction–performance relationship  Define compensation, pay, incentives, and benefits  List several pieces of government legislation that have had a significant impact on organizational compensation  Explain the equity theory of motivation  Discuss internal, external, individual, and organizational equity