BMG346J2 Human Resource management

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BMG346J2 Human Resource management

• Week 10
• Employee remuneration and motivation

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Objectives

• Understand basic trends in pay setting in the UK
• Articulate the differences between payment by
  results, performance related pay (PRP), profit
  sharing
• Be aware of the advantages and disadvantages of
  PRP

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Reward management defined

• Reward management is concerned with the
  formulation and implementation of strategies and
  policies the purposes of which are to reward
  people fairly, equitably and consistently in
  accordance with their value to the organisation
  and to help the organisation to achieve its
  strategic goals
• Armstrong and Stephens (20053)

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The importance of reward management

• It constitutes an economic exchange
• Reward is important in forming an employees
  notion of fairness
• What employees believe is expected from them and
  what they expect in return
• Reward systems teach employees what is valued
• For example by incentivizing particular types of
  performance eg increased sales

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Reward policy addressing the issues

• Level of reward which may depend on
• Levels of performance
• Competition
• Employee benefits
• External competition versus internal equity
• Job evaluation may be used to determine internal
  equity
• Will market supplements be paid in addition?
• Achieving equal pay
• Is it necessary to undertake an equal pay review?

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Reward policy addressing the issues (2)

• Approach to total reward
• Scope for contingent rewards related to
  performance, competence, contribution or skill
• Role of line managers
• To what extent is responsibility for reward
  devolved?
• Transparency
• To what extent is pay secret?
• Ref Armstrong and Stephens (2005)

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Selection of pay system should be based on 3
questions below

• What are the organisations pay objectives?
• Organisational commitment through profit sharing?
• Team ethos through group bonuses?
• Individual performance through merit pay?
• What pay system furthers these objectives?
• Is the payment system right for the
  organisation?
• Technology
• Nature of work
• Organisation culture

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Pressures on reward systems

• Competitive product markets dictating greater
  need for cost control
• Need to reward customer focused behaviours
• Flatter organisation structures resulting in
  fewer opportunities for promotion
• Tight labour market where employers have to
  design reward systems to attract and retain key
  employees

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Rewarding individual and team contributions

• Individual payment by results
• Collective payment by results
• Performance related pay
• Profit sharing and share options
• Employee benefits

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Individual payment by results

• Positive impact of linking financial reward to
  quality and/or quantity is recognised by many
  motivational theories
• Arguments in favour
• Increase in management control?
• Less supervision needed?
• Opportunities to achieve high earnings
• Create a joint appreciation of the need to
  increase profit for mutual benefit

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Criticisms of payment by results

• Relationship between effort and reward is
  portrayed too simplistically
• Workers can develop routines of resistance
• Changes in working practices may be resisted if
  bonuses are threatened

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Collective payment by results

• Collective schemes seem to be most effective
  when
• Groupings are stable and mature
• Identifiable as a performing unit
• Autonomous
• Composed of people who are interdependent
• Made up of people who are flexible, multi-skilled
  and good team players

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Problems with collective PBR

• Demotivation of high performers
• Resistance to transfers out of high-performing
  teams
• Resistance to change from an individualistic
  culture

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Performance related pay

• Individual performance related pay relates pay
  progression to the assessed performance of
  individuals(Armstrong, 2003)
• Torrington, Hall and Taylor divide PRP schemes
  into
• Merit based schemes based on performance
  appraisal
• Goal based schemes based on achievement of
  objectives

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Individual performance related pay- reasons for
introducing PRP

• To increase the motivation of employees
• To encourage certain behaviours
• To help in recruitment and retention
• To facilitate change in organisational culture
• To encourage the internalisation of performance
  norms
• To weaken trade union power
• Increased control of line manager
• Moral justification

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Possible problems with PRP

• Motivation is influenced by factors other than
  pay
• Employees may focus only on certain objectives
• Cohesion of the work group may be undermined
• Financial constraints may limit PRP increases
• See article by Lewis (1998)on financial services,
  Marsden and Richardson (1994) on Inland Revenue,
  Brown (2001) on public sector

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Questions to be answered before installing PRP
(Armstrong, 2003)

• Will the proposed scheme motivate people?
• Is there an effective performance management
  process in place?
• Can managers be trained to rate performance
  fairly and equitably?
• Will there be enough money available to provide
  worthwhile rewards?

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Employee share schemes

• Share Incentive Plans (SIP) where companies can
  give shares to each employee
• Savings Related Share Option Schemes (SAYE) where
  participants can save on a monthly to acquire
  shares
• Motivation is involvement/giving a stake in the
  company
• See www.hmrc.gov.uk/shareschemes for further
  information

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Flexible benefits

• Offering benefits on a job for life assumption
  is unrealistic
• How do employees perceive benefits?
• Are benefits valued and appropriate to company
  and employee needs?
• Offer choice within and between benefits
• Options
• Increase some benefits and decrease others
• Use pay to buy new benefits
• Decrease benefits and take cash released

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Flexible benefits

• Advantages
• Addresses needs of different sections of the
  workforce
• Spend money on benefits perceived to be valuable
• Employees gain appreciation of the value of the
  benefit package

• Disadvantages
• Benefits must be accurately costed
• Administration problems
• Individuals may make wrong choices

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Evidence of take up of performance-related and
new practices (CIPD Reward Management Survey
2006)

• Team based bonuses
• Approx 25 usage
• Share ownership schemes
• Approx 39 usage (private sector)
• Flexible benefits
• 25 of respondents planning to introduce a
  voluntary or flexible scheme

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IPRP evidence from CIPD (2006) survey

• Pay progression wholly based on individual
  performance used by
• 15 of respondents for senior managers
• 13 for middle/first line managers
• 13 for technical and professional employees
• Individual performance combined with other
  factors more common
• 58 used for senior managers, 53 for middle
  managers, 52 for technical and professional
  employees
• Factors include competency, market rates,
  organisational performance, length of service

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Conclusions from CIPD (2006) survey

• A minority of employers (35) have a reward
  strategy
• Relevance for public sector?
• Many employers do link pay progression, pay and
  bonuses to performance
• New benefits are being introduced by many
  employers to aid recruitment and retention

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References

• Armstrong, M.(2003) A handbook of Human Resource
  Management Practice. Kogan Page, London
• Armstrong,M. and Stephens,T. (2005) A handbook of
  reward management and practice, Kogan Page,
  London
• Brown,M. (2001) Merit pay preferences among
  public sector employees, Human Resource
  Management Journal, Vol 11, No 4, pp38-54
• CIPD (2006) Reward Management Survey, CIPD,
  London
• Lewis,P. (1998) Managing performance related pay
  based on evidence from the financial services
  sector, Human Resource Management Journal, Vol 8,
  No 2, pp66-77
• Marsden,D. and Richardson,R. (1994) Performing
  for pay? The effects of merit pay on motivation
  in a public service, British Journal of
  Industrial Relations, Vol 32, no 2, pp243-261