Rewards

REWARDS
1. All form of payment going to employees and raising from their
employment are included direct and indirect ones can
considered as reward
 The direct payments consist of base pays such as wages,
salaries and incentives in terms of stock options,
commissions and bonuses.
 The indirect payment includes both legally requirements
like social security, compensations, or medical cares and
financial benefits like insurances, pensions, paid time off,
or flexible work schedules.
2. The reasons of pursuing reward system are to appraise the
past performance and to motivate the future performance of
employees.
 In addition, more rational is the objective of paying rates
that are sufficiently competitive to sustain the
employment of the right numbers of appropriately
qualified and experienced employees to staff the
organisation.
 Overtime is a method of employer control of
compensation budget through making available or
withholding additional payment prospects
 Furthermore, the company uses rewards to maintain
salary equity among the employees as well as to match
the employee’s future performance with the
organizational goals.
3. The employees and employers themselves also have their own
objectives of reward system.
 Firstly, employers apply reward system for reasons as
attracting, retaining, motivating, and driving the staffs.
Moreover, the corporate reputation and the affordability
also are considered.
o In terms of attracting, the reward package must be
sufficiently attractive vis-à-vis that of an
organization’s labour market competitor to ensure
that it is able to secure the service of the staffs it
needs.
o Retaining effective performers is a central aim of
reward strategy in many organizations, particular

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those competing in knowledge incentives industry
where highly qualified people are short supplied.
It is necessary that the reward package they are
given serves to motivate positively
Pay can be used specifically as one of a range of
tools underpinning change management processes.
Pay works far more effectively than simple
exhortation because it provides a material incentive
to those whose natural inclination is to resist
change
Organizations are increasingly concerned to
establish a positive corporate reputation more
generally. For some notion of “prestige” is
something they aim for as part of business strategy,
paying poorly or having unfair policies undermine
any reputation gained for being a prestigious
organization.
When considering affordability, it is important to
remember that pay can be as much an investment
in human capital as a cost to business. It results in
attraction, retention, and motivation of strong
performers who are willing to demonstrate
discretionary effort, can mean that productivity
increases and fewer people in total are required.

 In fact for most employees aims are more diverse and
more subtle, particularly a full range of elements make
up a total reward package are taken into account
o Because of the purchasing power, the absolute level
of weekly or monthly earnings determines the
standard of living of the recipients; therefore be the
most important consideration for most employees.
o Elliott Jacques (1962) averred that every employee
had a strong feeling about the level of payment that
was fair for the job. In most cases this is a rough,
personalized evaluation of what is appropriate
o A different aspect of relative income is that
concerned with the rights of the employee to a
particular share of the company’s profits or the
nation’s wealth.
o Most people have an objective for their payment
arrangements, that their personal contribution is

recognised. This is partly seeking reassurance, but
also a way in which people can mould their
behaviour and their career thinking to produce
progress and satisfaction.
o The growing complexity and sophistication of
payment arrangements raises all sorts of questions
about pay composition
4. Strategic compensation planning is the compensation of
employees in ways that enhance motivation and growth while,
at the same time, aligning their efforts with the objectives,
philosophies, and culture of the organization
 It is a significant part of human resource management
and it represents the major cost to employees as
compensation affects how they live
 Therefore, all organization should have formal
compensation policy to explaining the objectives of the
program and how it should be administered
 The strategic compensation planning has certain
important aspects
o Firstly, it helps linking the compensation to
organization objectives through the attempts of link
employee rewards to specific organization goals
 An outcome of today's dynamic business
environment is that managers have needed to
change their pay philosophies from paying for
a specific position or job title to rewarding
employees on the basis of their individual
competencies or group contributions to
organizational success
 Planning should facilitate the effective use of
employees; therefore, compensations program
must be flexible and tailored to meet the
needs of both employees and organization.
o Secondly, it has the pay-for-performance standard,
which provides a wide range of compensation
options including merit pay, cash bonuses and
incentive pay
 It refers to pay strategy where evaluations of
individual and/or organizational performance

have significant influences on the amount of
pay increase given to each employees
 The aim of this standard is to tie the employee
compensation to the employee effort and job
performance
 Employers hope that employees will be
motivated to perform greater effort thereby
lowering employee wage cost
 The pay for performance system function
properly when
 The outstanding performers will receive
the greatest reward to acknowledge their
superior contributions and to motivate
them to continue high performance
 The average performers will receive
substantial smaller raises, which
encourages them to work harder to
archive higher performance
 The poor performers will not receive any
increases, which intended to persuade
them to improve their performance or
shall they leave.
 In order for pay for performance become
attractive, the agencies must need certain
requirements
 The organizations must have a culture
that support pay for performance and
they have rigorous performance
evaluation system
 They also need to have effective and fair
supervisors and appropriate training for
supervisors and employees.
 An adequate funding and a system of
checks and balances to ensure the
fairness are also required
 In addition, the system evaluation must
be an on-going process
o Thirdly, it helps motivating the value of
compensation

 Expectancy Theory and Pay predicts that
employee's level of motivation depends on the
level of attractiveness of the reward received
on job completion the probability of obtaining
those reward
 When the employees value the reward
received and they have high expectation
of receiving these rewards as they
believe that good performance is valued
by their employer. Therefore, their
motivation to exert greater work effort
will increase
 It has the relationship between pay-forperformance and the expectancy theory
of motivation. The model predicts, first,
that high effort will lead to high
performance and high expectancy of
receiving high rewards received. Second,
high performance should result in
rewards that are appreciated
 Pay equity embraces the perception of fairness
that compensation received is equal to the
value of the work performed
 Equity theory is a motivation theory, It
states that individuals form a ratio of
their inputs (abilities, skills, experiences)
in a situation to their outcomes (salary.,
benefits) in that situation.
 They then compare the value of
that ratio with the value of the
input/output ratio for other
individuals in a similar class of jobs
either internal or external to the
organization.
 Employees have high sense of
individual inequity when perceiving
that the ratios are not equal.
 If the value of their ratio equals the
value of another's, they perceive
the situation as equitable and no
tension exists. However, if they
perceive their input/output ratio as

inequitable relative to others; this
creates tension and motivates
them to eliminate or reduce the
inequity.
 Misperceptions by employees concerning the
equity of their pay and its relationship to
performance can be created by secrecy about
the pay that others receive.
 Normally the organization is very
secretive about their compensation
policy, how salaries for employee are
determined and what employees make.
 Employees who are not supposed to
know what others are being paid have no
objective base for pursuing complaints
about their own pay.
 Secrecy also serves to cover up
inequities existing within the internal pay
structure
 It leads employees to believe that there
is no direct relationship between pay and
performance.
 There is reason to believe that secrecy
can generate distrust towards the
compensation system, reduce employee
motivation, and inhibit organizational
effectiveness
o Finally, the strategic compensation planning
includes the bases for compensation
 In order to determine the compensation, the
organization can apply the wage mix approach
 The wage mix is a combination of
internal and external factors that
influence what jobs will be paid
 Employee can be paid on an hourly,
daily, monthly, yearly or incentive basis
 The internal factors consist of employer’s
compensation strategy, worth of a job,
the employee’s relative worth and
employer’s ability to pay

 The employer’s compensation
strategy illustrates that some
employers will wish to be the wage
leader in the area or industry while
others may desire to pay average
wages or to be a wage follower
 Organizations without a formal
compensation program generally
base the worth of jobs on the
subjective opinions of people
familiar with the jobs. In such
instances, pay rates may be
influenced heavily by the labour
market or by collective bargaining.
Organizations with formal
compensation programs, however,
are more likely to rely on a system
of job evaluation. Since some jobs
are worth to organization than
other jobs, the more important the
jobs are, the more they should be
paid.
 The employee’s relative worth is
determined when employees can
improve their worth by working
smarter and harder or by acquiring
advanced skills and job knowledge.
When this occurs, they receive
merit raises based on their based
on their performance appraisal
 National or regional economic
conditions, competition from
domestic and foreign competitors,
strong or poor managerial policies
and practices can influence the
employers ability to pay
 External factors consists of labour
market conditions, area wage rate, cost
of living and collective bargaining
 The labour market conditions are
the forces of supply and demand
for employees having specific skills,

abilities and educational levels
influence the wage rate of the jobs
 The area wage rate implies that the
wages paid to jobs in different
organization can influence an
individual organization’s wage rates
 Cost of living adjustments are
made periodically by employers to
help employees maintain the
purchasing power. There are
various ways to grant pay
increases, a fat dollar amount,
wage increases as a percentage of
base salary.
 The collective bargaining can have
major influence on the power of
wage mix. The high wages of some
occupations are attributed to the
union’s power to demand high
wages.
 The process of compensation structure
includes for 5 phases
 Firstly, the wage and salary surveys are
surveys paid by employers in an
organization's relevant labour market-local, regional, or national, depending on
the job
 permits an organization to maintain
external equity, that is, to pay its
employees’ wages equivalent to
the wages similar employees earn
in other establishments.
 Secondly, the relationship between the
relative worth of jobs and their wage
rates can be represented by means of a
wage curve. This curve may indicate the
rates currently paid for jobs within an
organization, the new rates resulting
from job evaluation, or the raw for
similar jobs currently being paid by other
organizations within the labor market.

 Thirdly, pay grades are groups of jobs
within a particular class that are paid the
same rate
 Fourthly, rate ranges constructed on the
latter basis provide a greater incentive
for employees to accept a promotion to a
.job in a higher grade
 The most frequently cited benefits of
competence-based pay include greater
productivity, increased employee
learning and commitment to work,
improved staffing flexibility to meet
production or service demands, and the
reduced effects of absenteeism and
turnover, since managers can assign
employees where and when needed.
Competence-based pay also encourages
employees to acquire training when new
or updated skills are needed by an
organization
 There are new perspective of executive compensation
o It has a significant relationship between
organizational strategy and executive compensation
o Firms size continues to be the major determinant of
executive compensation
o Earnings per share is significant predictors of shortterm executive compensation earned as annual
bonuses
o Predictors of long-term executive compensation
earned through stock option exercise which includes
the stock price growth, returns on stock, and market
measures of firm performance.
 New thinking for new millennium that helps strategic
approaches to make compensation systems more
effective
o Paying for individual worth ( knowledge, skills,
competences ) rather than the value of job they
perform
o Reward through the base for performance
compensation that establish clear relationship

between significant amount of pay and attainment
of organizational objectives
o Organization should give employee the choices of
how they are rewarded and what rewards they
receive.
5. Benefits are major expense ( about 1/3 of wages and salaries)
for employers
 Most full time employees in US receive benefits
 Visually, 99% employers offer some health insurance
coverage and the employees do seem to understand the
value of health benefits
 Benefits are very important to employees since it
o Helps improve employee work satisfaction as well
as meet the employee health and security
requirements
o It also attracts and motivates employees and
reduces turnover
o Furthermore, it maintains a favourable competition
position and environment in the organization
 The employees must know their benefits clearly and prefer the
organization’s benefits to those offer by other organizations
o Employees must perceive the organization’s benefits as
satisfying more of their needs than competing
employers’ benefits would
o Employees must see them as a strongly preferred end
and perceive that by performing better they can increase
the benefits
 Family-Friendly Benefits
o On-site or subsidized child care
o Elder care
o Fitness and medical facilities
o Food services
o Flexible work scheduling
o Educational subsidies
o Sabbaticals
o Loan programs for home office equipment
o Stock options
o Concierge services
o Trauma counselling

 Executive Perquisites
o Management loans
o Golden parachutes
o Financial counselling
o Relocation benefits
o Sabbaticals
o Severance pay
o Outplacement assistance
o Company planes and yachts
o Executive dining rooms
o Physical fitness programs
o Legal services
o Tax assistance
o Expense accounts
o Club memberships
o Season tickets
o Credit cards
o Children’s education