HR357
Employee Reward
Nick Creaby-Attwood
What is reward?
Week 1 – What is reward?
Week 2 – Introducing FastCat and
reward strategy
Week 3 – Alignment
Week 4 – Job-based vs. personbased alignment
Week 5 – Enhancement Week:
Internal alignment – job-based
Week 6 – Internal alignment –
person-based
Week 7 – Competitiveness
Week 8 – External
competitiveness for FastCat
Week 10 – Employee contributions
Week 9 – Integrate internal and
external structures
Week 11 – Recognising
performance
Week 12 - Administration
Assessment
Group assignment – design a reward system
Proposals must be based upon the current state of knowledge about reward
Evidence of the practical implications of proposals will be required
Independent study
Online quizzes, directed reading, consideration of reward
practices within own organisation, familiarisation with
software
Lab-based, student led sessions
Learning sets will provide an opportunity to develop skills
and share knowledge. Learning sets will be able to ‘meet’
virtually via Blackboard.
Directed study
Lecture-based, tutor led sessions
Forms of
reward
Total returns
Relational returns
Total compensation
(transactional returns)
Benefits
Cash
compensation
Recognition
Learning
and status
opportunities
Employment Challenging
work
security
Forms of
reward
Total returns
Relational returns
Total compensation
(transactional returns)
Benefits
Cash
compensation
Base pay
Merit/cost
of living
Long-term
incentives
Short-term
incentives
Recognition
Learning
and status
opportunities
Employment Challenging
work
security
Forms of
reward
Total returns
Relational returns
Total compensation
(transactional returns)
Benefits
Recognition
Learning
and status
opportunities
Employment Challenging
work
security
Cash
compensation
Base pay
Merit/cost
of living
CHOICE
Income
CHOICE
‘CAFETERIA STYLE’
Allowances
protection
‘CAFETERIA
STYLE’
Work/life
Long-term
balance
incentives???
Short-term
incentives
Adapted from Milkovich and Newman: 2002, 8
TRANSACTIONAL
LOW TO HIGH
Aspects of the reward
‘deal’
HIGH PAY – LOW COMMITMENT
HIGH PAY – HIGH COMMITMENT
Hired Guns
(Stockbrokers)
Cult-like
(Microsoft)
LOW PAY – LOW COMMITMENT
Workers as Commodity
(Employers of low-skill
immigrant labour)
LOW PAY – HIGH COMMITMENT
LOW TO HIGH
RELATIONAL
Family
(Starbucks)
(Adapted from Milkovich and
Newman, 2002: 49)
The pay model
STRATEGIC
POLICIES
INTERNAL
ALIGNMENT
Work
analysis
EXTERNAL
Market
COMPETITIVENESS definitions
EMPLOYEE
CONTRIBUTIONS
ADMINISTRATION
STRATEGIC
OBJECTIVES
TECHNIQUES
Seniority
based
Planning
Descriptions
Surveys
Performance
based
Budgeting
Evaluation/
Certification
INTERNAL
STRUCTURE
Policy lines
PAY
STRUCTURE
Merit
guidelines
INCENTIVE
PROGRAMMES
Communication EVALUATION
SUPPORTING THE
WORKFLOW
• Performance
• Quality
• Flexibility and
change
• Costs
FAIRNESS TO
EMPLOYEES
COMPLIANCE
(Adapted from Milkovich and Newman, 2002: 13)
How do we make reward
strategic?
BEST-FIT
(CONTINGENCY)
APPROACHES
THE NEW
PAY
HIGH
COMMITMENT
BEST-PRACTICE
APPROACHES
Best-fit approach to reward
What business
should we be in?
Corporate objectives
Business unit strategies
How do we win?
How should HR help us win?
How should reward
help us win?
Environment
HR strategies
Strategic reward decisions
Reward systems
Employee attitudes and
behaviours
Competitive advantage
Milkovich and Newman: 2002, 30
Ideal type strategies
STRATEGY
BUSINESS
RESPONSE
HR
ALIGNMENT
COMPENSATION
SYSTEMS
INNOVATOR:
increase product
complexity and
shorten product life
cycle
•Product leadership
•Shift to mass
customisation and
innovation
•Cycle time
Committed to
agile, risk
taking,
innovative
people
•Reward innovation in
products and processes
•Market based pay
•Flexible – generic job
descriptions
COST CUTTER:
focus on efficiency
•Operational
excellence
•Pursue costeffective solutions
Do more with
less
•Focus on competitors’
labour costs
•Increase variable pay
•Emphasise productivity
•Focus on system control
and work specifications
CUSTOMER
FOCUSSED:
increase customer
expectations
•Customer intimacy
•Deliver solutions to
customers
•Speed to market
•Delight
customer,
exceed
expectations
•Customer satisfaction
incentives
•Value of job and skills
based on customer
contact
Milkovich and Newman: 2002, 31
Four steps to
formulate a
best-fit
strategy
Assess total compensation
implications
Competitive dynamics
Core culture and values
Social and political context
Employee/Union needs
Other HR systems
Four steps to
formulate a
best-fit
strategy
Assess total compensation
implications
Competitive dynamics
Core culture and values
Social and political context
Employee/Union needs
Other HR systems
Fit policy decisions to
strategy
Objectives
• Alignment
• Competitiveness
• Contributions
• Administration
Four steps to
formulate a
best-fit
strategy
Assess total compensation
implications
Competitive dynamics
Core culture and values
Social and political context
Employee/Union needs
Other HR systems
Reassess the fit
Realign as conditions change
Realign as strategy changes
Fit policy decisions to
strategy
Objectives
• Alignment
• Competitiveness
• Contributions
• Administration
Implement strategy
Design system to translate strategy into action
Choose techniques to fit strategy
Milkovich and Newman 2002, 34
How do we know what
our objectives are?
Importance of consultation and communication
Senior managers don’t have all the answers
The debate of different viewpoints provides a balanced understanding of corporate
objectives.
Management will learn about the variables that are associated with performance
improvement
Management will learn about what motivates employees
People will understand and become committed to the strategy
Best-fit or best practice?
Environment
Strategy
Reward system
Success
Environment
Reward system
Strategy
Success


Success is not derived from a clever strategy
determined at the top – but by having rewards that
attract and retain the best human resources
available
It is the people that are the source of competitive
advantage – and the basis of good strategies
High commitment
management and reward



Emphasises the need for a ‘moral commitment’ to
organisations
This is about the perceived mutuality of interests
between employees and their employers
This can be achieved through adopting reward
practices which foster high trust relationships and
intrinsic work satisfaction – sharing success but
protecting from failure
The New Pay



Pay levels driven by market forces rather than
internal comparison
Pay rises driven by performance
Reward set in the context of a psychological
contract characterised by ‘risk sharing’ between
employer and employee:
– More pay dependent on performance
– More emphasis on ‘employability than ‘job security’
What do we mean by ‘Best
practice’ – and does it work?


Performance bonuses and share options are
important (Becker and Huselid: 1997)
Bundles of high performance work systems
(gainsharing, competitive pay levels, training,
team working, and participation) are more
effective than isolated initiatives (MacDuffie:
1995; Arthur: 1994; Ichniowski et al: 1998)