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Lecture 12:
Remuneration, Rewards and
Performance-Based Pay
Introduction
Recap
Shields:
Technically demanding: difficult to do well, easy to do badly
Signs of reward mismanagement: perceived inequity; reduced
commitment; poor engagement
Constructively critical, non-managerialist, pluralist approach
Introduction
1. Rewards: Nature and Purpose
Types and typologies of rewards: Direct vs Indirect,
Extrinsic vs Intrinsic
2. Base Pay
Job-based, person based
3. Performance-related reward
Individual vs collective (short & long term)
4. Critical Considerations
Dangers of PBP > Importance of communication and
involvement
vTo attract (or buy) the right people at the right time for
the right jobs, tasks or roles.
vTo retain the best people by satisfying their work-related
needs and aspirations, and recognizing and rewarding
their contribution.
vTo develop (or build) the required workforce capabilities
by recognizing and rewarding employees actions to
enhance their knowledge, skill and ability.
vTo motivate employees to contribute to the best of their
capability by recognizing and rewarding high individual
and group contributions towards meeting the
organizations strategic objectives.
financial rewards
developmental rewards
social rewards.
Ie Process theories of motivation
Financial Rewards
Base pay the fixed component of total remuneration
Benefits like the employer contribution to
superannuation, workers compensation insurance
Performance-related pay, including incentives which
vary with measured performance.
Aka variable pay, at risk pay
The greater the component of at risk, the more
Motivating?
Effective as an employee control system?
Potentially disruptive to the employees life?
Motivation theories
Content Process and Equity as discussed
Agency theory
Potential conflict of interests between
principles (owners) and agents (managers)
PBP = best way of aligning interests of agents and
principles when outcomes are linked to remuneration
But this can go wrong when agents capture the
remuneration process, and pay themselves exhorbitant
bonuses issue of executive pay
rewarded themselves often at expense of shareholders
and customers GFC
Job Evaluation
The systematic determination of the relative worth of
jobs within an organisation : how big or how small a
job is.
Basis for establishing the organisations job hierarchy and
associated pay structure.
Outcome of process = Job Grading or Classification
Two approaches: whole job (qualitative) and job
factors (quantitative)
Dangers:
What counts for points (what is compensable)?
Individual
Performance Pay (merit)
Shields and Stone call them merit based pay systems
Problematic, cf lean payment systems in Japan in 1980s
Merit bonuses
NOT rolled into base pay has to be re-earned each
year
Piece rates, commissions, goal-based bonuses
Even in kind or vouchers
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Conclusion: (Shields)
Can work in certain cultures and contexts if not in
others
Effectiveness and felt fairness depend on:
Link between pay and performance how the perf
criteria are designed
How well the link is explained and communicated
And conforms to procedural and distributive justice
Reward Communication
To sharpen the line of sight between perf and pay
(me) Appeal Mechanism is important
But this probably makes it unwieldy!
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