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Topic 7: Remuneration and Rewards. Dr Johanna Macneil. T opic o verview. Definitions Objectives Determining pay Pay and Equity Designing a remuneration and rewards system – “the money is the message ”. 2. Readings. Required reading:

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t opic o verview
Topic overview

Definitions

Objectives

Determining pay

Pay and Equity

Designing a remuneration and rewards system –

“the money is the message”

2

readings
Readings

Required reading:

  • Stone, R. (2014). Human Resource Management, 8th ed., Wiley: Sydney, Ch 12, pp. 466-497, on remuneration
  • Mitra, T, Gupta, N, and Shaw, J (2010). A comparative examination of traditional and skill-based pay plans, Journal of Managerial Psychology, 26(4), pp. 278-296, on pay systems

Recommended readings:

  • Ellis, V and Taylor, M (2011) Banks, bailouts and bonuses: a personal account of working in Halifax Bank, Work, Employment and Society, 24(4): 803–812
  • Hendry, C, Woodward, S, Bradley, P and Perkins, S (2000) Performance and rewards: cleaning out the stables, Human Resource Management Journal 10(3): 46-62

www.newcastle.edu.au

definitions
Definitions

Cash remuneration : pay

Total Remuneration

    • All remuneration that employees receive in exchange for their work, which includes pay but also other benefits

Remuneration policy

  • reflects the organisation’s strategic business objectives and culture

Rewards

  • Total remuneration AND any intrinsic and/or psychological benefits that an organisation provides for its employees in exchange for their work
warehouse workers
Warehouse workers
  • Coles Breakthrough: Dispute is over at the Coles distribution centre in Somerton as its workers had a meeting with the union and accepted the pay deal which will see them get 11%25 pay rise over three years. [online]. National Nine News (NINE Melbourne); Time: 18:03; Broadcast Date: Monday, 23rd July 2012; Duration: 1 min., 1 sec. Availability: [cited 18 Mar 13].
politicians
Politicians
  • To cite this article: Pay Rise: Federal politicians are under fire over their latest pay rise, with some admitting it puts them on the nose with voters more than ever [online]. Ten 5pm News (TEN Melbourne); Time: 17:09; Broadcast Date: Wednesday, 4th July 2012; Duration: 1 min., 51 sec. Availability: [cited 18 Mar 13].
executives private sector
Executives – private sector
  • To cite this article: Not Expected: The former Barclays chief executive, Bob Diamond isn't going to get quite the golden-handshake he was expecting [online]. World News Australia (SBS Melbourne); Time: 18:54; Broadcast Date: Wednesday, 11th July 2012; Duration: 2 min., 40 sec. Availability: [cited 18 Mar 13].
organisational objectives for remuneration and rewards systems
Organisational objectives for remuneration and rewards systems
  • Attract and keep desired quality/mix of employees
  • Ensure equitable treatment
  • Motivate employees to improve their performance
  • Reinforce organisation’s key values, desired culture
  • Drive and reinforce desired employee behaviour
  • Ensure remuneration is maintained at the desired competitive level
  • Control remuneration costs
  • Ensure optimum value for each remuneration dollar spent
  • Comply with legal requirements.
employee objectives for remuneration and rewards systems
Employee objectives for remuneration and rewards systems
  • Ensure equitable treatment
  • Accurately measure and appropriately reward performance and contribution to the achievement of the organisation’s strategic business objectives
  • Provide appropriate remuneration changes based on performance, promotion, transfer or changing conditions
  • Provide regular remuneration and performance reviews.
determining pay
Determining pay
  • Relies very heavily on job evaluation
    • The systematic determination of the relative worth of jobs within an organisation.
    • Concerned with ‘how big’ or ‘how small’ a job is.
    • Aim is to ensure that jobs of different sizes or relative worth attract the appropriate pay differentials.
    • Basis for establishing the organisation’s job hierarchy and associated pay structure.
  • Frequently conducted by external specialists, using ‘point systems’, and making judgements on requirements for education, experience, responsibility, mental and physical demands, working conditions
  • Needs good /current job descriptions!
determining pay1
Determining pay
  • Pay structure
    • Presents all pay ranges over the whole spectrum of job sizes
    • The standard range: most generally accepted pay range for professionals and managerial position is plus or minus 20 from the midpoint pay.
  • Pay line
    • Graphically depicts the remuneration currently being paid for jobs, related to job size
    • Used to inform decisions based on market posture ie above, at, below market rates
types of variable pay system
Types of variable pay system
  • Skill-based pay
    • A system that compensates employees on the basis of job-related skills and the knowledge they possess.
    • Employees are paid for the skills, competencies and knowledge they are capable of using and not for the job they are performing, their job title or seniority.
  • Individual Incentive based pay
    • Guaranteed vs. at-risk remuneration (bonuses, stock options)
    • Bonuses: paid for achieving performance targets.
    • Options: An option to buy shares at some future date (usually, but not always, if certain performance targets are met).
  • Group performance-based pay
    • Gain sharing
    • Profit sharing
the importance of equity or justice
The importance of equity (or justice)
  • Distributive justice : the actual allocation (distribution) of rewards or punishments is fair
  • Procedural justice : the rules (procedures) for determining rewards or punishments is fair
slide14
Outputsp

Outputso

<, >, or =

Inputsp

Inputso

Evaluating equity in relation to PAY

Equity Theory: People evaluate the fairness of their situations by comparing them with those of other people.

If you feel the ratio of Outputs:Inputsis equal to that of the person to your reference person, you will perceive that as equitable.

If you feel there is a discrepancy in your favour, or in favour of your reference person, you will see that as inequitable.

NB. See pp. 447-8 in Stone 2014

evaluating pay equity based on different reference people groups
Evaluating pay equity based on different reference people/groups
  • Individual equity
    • Evaluating differences between individual people
    • Heavily influenced by an individual’s perceptions about relative skills, work, position, relationships
  • Group equity
    • Evaluating differences relative to other groups eg. comparable occupations or professions, male v. female dominated work
    • Heavily influenced by social history, changes in social norms
  • Internal equity
    • Evaluating pay differentials within the organisation
    • Determined by job analysis and evaluation, value put on outcomes
  • External equity
    • Evaluating pay relative to ‘the market’
    • Determined by salary surveys, industry knowledge, job offers
issues in relation to equitable pay
Issues in relation to equitable pay

Gender pay gap: Many possible causes of gender discrimination in pay rates

issues in relation to equitable pay1
Issues in relation to equitable pay

Gender pay gap: Biased job evaluation as one cause of the gender pay gap

the money and the message
The money and the message

Base pay

+

Base pay progression

Variable pay

=

Total pay

+

Benefits

+

Intrinsic rewards

=

Total rewards

+

TYPICAL DELIVERY MECHANISMS

  • Hourly/ weekly wage
  • salary
  • Step rates
  • Merit pay
  • Pay for skills
  • bands
  • Goal sharing
  • Profit sharing
  • Ind. bonuses
  • Commissions
  • piecework
  • Various leave
  • Reimbursing self-education
  • Flexible hours
  • Job design
  • Decision-making
  • Performance management
  • HRD

$

MESSAGE THAT IS COMMUNICATED

Gaining experience & skill improves your value

You are paid what the market or the law requires

You deserve a share in the value you create

OR You’re only as good as your output

We meet your needs in a broader way than just money

We provide opportunities for you to develop

recap remuneration and rewards
RecapRemuneration and Rewards
    • Rewards refers to total remuneration (pay plus benefits) AND any intrinsic and/or psychological benefits that an organisation provides for its employees in exchange for their work
  • Remuneration and rewards are influenced by many factors–
    • the person, the job, the organisation
    • the industry, product and labour market conditions, the region/country
    • other ‘rules’ and ‘norms’ – professional, historical, self-interest
  • Employee remuneration is a critical part of strategic HRM.
    • From the employees’ perspective, perceptions of equity/fairness strongly influence whether pay/rewards strategy is successful
    • Money must match the message.
exercise designing a skill based pay system for the cumberland beverage company cbc
Exercise: Designing a skill-based pay system for the Cumberland Beverage Company (CBC)

In your groups, begin by reviewing what you already know … then answer the following questions:

  • What types of pay-for-skills design would you propose for CBC? In your design, please describe:
    • skill areas (tasks/skills to be learned/grouped together)
    • skill levels
    • minimum effectiveness level (if appropriate)
  • What concerns do you have about the pay-for-skills concept?
  • How might pay-for-skills help meet the needs of the business? The needs of the employees?
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