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Western University
Management and Organizational Studies
Management and Organizational Studies 1021A/B

CH 7 RECOGNIZING AND REWARDING EMPLOYEES • Important work-related variables leading to job satisfaction include challenging work, interesting job assignments, equitable rewards, competent supervision, and rewarding careers • Pay is major consideration in HRM because it provides employees with tangible reward for their services, and a source of recognition and livelihood • HR professional gathers compensation info and develop approaches to how compensation is managed, manager makes decisions on who gets compensated what • Direct compensation: employee wages and salaries, incentives, bonuses, commissions • Indirect compensation: benefits, eg. Dental plans, life insurance coverage, nonfinancial compensation: employee recognition programs, rewarding jobs, flexible work hours Direct and indirect compensation referred to as “total compensation” or “total rewards approach” • REWARDS AS PART OF COMPANY STRATEGY • Companies that make rewards strategy a part of overall motivational framework have higher organizational performance than those companies that don’t • Looking at compensation system in strategic fashion serves to mesh monetary payments made to employees with specific HR, therefore, business objectives o Rate of pay for jobs can increase or limit supply of applicants in recruitment of new employees • Organization should ensure it has a systematic way to manage employee compensation and it is linked to business performance • “total rewards” includes tangible rewards of pay, benefits, etc. but also includes factors such as career development, work climate/culture, work-life balance, peer-to-peer recognition programs, extra day off, organizing fun event Linking Compensation to Organizational Objectives • many companies listed improving employee’s focus on achieving business goals as significant objective influencing reward changes • ensure employees feel they are being rewarded, otherwise employees would reward themselves (take sick day, longer breaks, etc) • organizations has to establish specific goals for aligning their organizational objectives with their compensation program • 1. Reward employees’ past performance • 2. To remain competitive in labour market • 3. To maintain salary equity among employees. 4. To mesh employees’ future performance with organizational goals • • 5. To control compensation budget • 6. To retain key staff • 7. To influence employee behaviours and attitudes • To achieve these goals, following 3 areas of actions must be taken The Pay-for-Performance Standard • Raise productivity and lower labour costs • direct compensation options: merit-based pay, bonuses, salary commissions, job and pay banding, team or group incentives, gainsharing programs o seek to differentiate between pay of average performers and that of outstanding performers • design a sound pay-for-performance system is not easy o how employee performance will be measured o what monies will be allocated for compensation increases o which employees will be covered o what payout method will be used o when payments will be made o critical concern: size of monetary increase and its perceived value to employees Motivating Value of Compensation • it’s essential pay be equitable in relation to employee’s contributions, and equitable in relation to what other employees are receiving for their contributions • Equity: anything of value earned through investment of something of value • Equity theory: motivation theory explains how employees respond to situations in which they feel they have received less (or more) than they deserve o Role of perception in motivation and individuals make comparisons o Individuals form a ratio of their inputs (abilities, skills, experiences) to their outcomes (salary, benefits)àcompare this ratio with other individuals’ ratio in a similar class of jobs either internal or external to organization If ratio is sameà equitable, no tension   If perceive inequitable relative to othersàcreates tension, motivates them to eliminate or reduce inequity  Strength of motivation proportional to magnitude of perceived inequity HR practitioners concerned with 1) employees are paid fairly for the work they do 2) paid • equitably relative to other people in the organization • Pay is equitable when compensation given is perceived to be equal to the value of work performed o Internal equity: employees believe wage rates for their jobs approximate the job’s worth to the organization o External equity: wages and benefits are relatively equal to other employers are paying for similar types of work Bases for Compensation • Hourly work: work paid on hourly basis • Piecework: work paid according to number of units produced • Hourly employees/ wage earners • Compensation computed on basis of weekly, biweekly, or monthly pay periods are salaried employees; receive certain benefits not provided to hourly employees DETERMINING COMPENSATION • Internal and external factors can influence, directly or indirectly, rates at which employees are paid INTERNAL Compensation strategy of organization • Employers set pay policies reflecting o 1) internal wage relationship among jobs and skill levels o 2) external competition or an employer’s pay position relative to what competitors are paying o 3) a policy of rewarding employee performance o 4) administrative decisions concerning elements of pay system  eg. Overtime premium, payment periods, short- or long-term incentives Worth of a Job • organizations without formal compensation program o base worth of jobs on subjective opinions of people familiar with jobs o pay rates influenced heavily by labour market or by collective bargaining for unionized employees •
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