IN THE NAME OFALLAH

ALMIGHTY,
THE COMPASSIONATE,
THE MERCIFUL
 Part Four
Compensating
Human Resources

12.The Organizational Reward System

13.Base Wage and Salary System
14.Incentive pay System
Chapter Twelve
The Organizational
Reward System
Group Members

26 Hafiza kainat
31Summiyya Akram
18 Faiza Baloch
27 Shaheen Kousar
Chapter Overview
 Define Organizational Rewards
 Selection of Rewards
 Relating Rewards to Performance
 Job Satisfaction &Rewards
 Employee Compensation
 The Role of the Human Resource Manager in the
Reward system
 Summary of Learning Objectives
Organizational Reward System
Organizational reward system concerned with the
selection of the types of rewards to be to used by
the organization.
Organizational Rewards
Rewards that result from employment with the
organization; includes all types of rewards, both
intrinsic and extrinsic.
Intrinsic Rewards
Rewards internal to the individual
and normally derived from involvement in
certain activities or task.
Extrinsic Rewards
Rewards that are controlled and distributed
directly by the organization and are of a
tangible nature.
Selection Of Rewards
 Pay is usually the first, and sometimes the only, reward
most people think about
 Organizations should learn what employees perceive as
meaningful rewards, which is not necessarily what
management perceives
 Studies show that many variables can influence
employee preferences for certain rewards. They include
 Age

 Sex

 Marital status

 Number of dependents

 Years of service
 Relating Rewards to Performance
 Free enterprise system is based on the premise that
rewards should depend on performance
 Performance reward relationship is desirable at
 Organizational & corporate level

 Individual level

 Employees will be motivated when they believe such

motivation will lead to desired rewards
 Many formal rewards provided by organizations

are not related to performance

 These rewards are almost always determined by
organizational membership and seniority; they include
 Paid vacations
 Insurance plans

 Paid holidays

 Other rewards, such as promotion, can and should be

related to performance
 Opportunities for promotion may occur only rarely

When available, higher positions may be filled

 on basis ofseniority
 By someone outside the organization
Preconditions for implementing pay-for-
performance program
 Trust in management
 Absence of performance constraints
 Trained supervisors and managers
 Good measurement systems
 Ability to pay
 Clear distinction among cost of living , seniority and
merit
 Well communicated total pay policy
 Flexible reward schedule
 Job Satisfaction and Rewards
 An employees general attitude towards the job
 Organizational reward system often has a
significant impact on level of employee job
satisfaction .
There are five major components of jobsatisfaction:
 Attitude towards the work group
 General working condition
 Attitude towards the company
 Monetary benefits
 Attitude towards the management
Other components include:
 Employees state of mind about the work itself
 Life in general
 Health, Age
 Level of Aspiration, social status & political & social
activities
Organizational Morale
 An employees feeling of being accepted & belonging to
a group of employees
 Through common goals
 Confidence in desirability

of those goals
 Desire to progress toward

the goal
 Morale is the product of a group
 Job satisfaction is more an individual state of mind
 Two concepts are interrelated in that job
satisfaction can contribute to morale and
morale can contribute to job satisfaction.
The Satisfaction-Performance Controversy
 “The path of least Resistance” Attempts to explain
belief that a satisfied employee is necessarily a good
employee
 Although happiness eventually results from
satisfaction .
 Two propositions concerning the satisfaction
performance RELATIONSHIP
 Traditional view is that satisfaction causes
performance
 Satisfaction is the effect rather than the cause of
performance
The Satisfaction-performance controversy
 Performance leads to rewards that result in a certain
level of satisfaction.
 Another positions consider both satisfaction and
performance to be functions of rewards.
 Research evidence generally rejects the more popular
view that satisfaction leads to performance.
 Evidence also strongly indicates that
 Rewards constitute a more direct cause of
satisfaction than does performance.
 Rewards based on current performance enhance
subsequent performance.
 Lay people often tend to believe strongly that satisfied
employees are more productive at work.
 It has been clearly established that job satisfaction
does have a positive impact on
 Turnover
 Absenteeism

 Tardiness

 Accidents

 Grievances

 Strikes

Experience, gender & performance can have a

moderating effect on these relationship .
Other Factors Affecting JobSatisfaction
 Wide range of both external & internal factors affect
an employees level of satisfaction
 Surveys have found that the top drivers of employee
job satisfaction were
 Pay and Benefits
 Job security and feeling safe in the work environment

 Flexibility to work and life

Refers only to the actual dollars employees receive in
exchange for their work

All the extrinsic rewards that employees receive in

exchange for their work
Composed of the base wage or salary, any incentives or
bonuses and any benefits
Compensation Policies
 Compensation must deal with following issues:
Minimum and maximum level of pay
General relationshipsamong levels of pay
Division of total compensation dollar
ORGANIZATION must also make decisions concerning
 How much money will go into pay increases for the next
years
Who will recommend them
How raises will generally be determined
ANOTHER IMPORTANT decision concerns whether pay
information will be kept secret or made public
 PAYSECRECY

 Many organization have a policy of not disclosing pay-

related information
 Information about pay system as well as individual pay
received.
 Justification for paysecrecy
 To avoid any discontent that might result from employees
knowing what everybody else is being paid
 Many employees, especially high achievers ,feel very strongly
that their pay is nobody else’s business
Drawbacks of pay secrecy

 Difficult for employees to determine whether pay is

related to performance and does not eliminate pay
comparisons
 Many cause employees to overestimate pay of their
peers and underestimate pay of their supervisors
 Can create feelings of dissatisfaction
 Employees may become suspicious
 A compromise on issue of pay secrecy is to
disclose pay ranges for various job levels within
the organization.
 Government Acts
 Fair Labor standard Act
 Davis-Bacon Act
 Walsh-Healey Public contractsAct
 Federal Wage Garnishment Law
 Equal pay Act
 Union Contracts
Fair Labor Standard Act (FLSA)
 Commonly called Wage and Hour Act
 Primary requirements are that
 Individuals employed in interstate commerce or in
organizations producing goods for interstate commerce
must be paid a certain minimum wage
 They be paid time-and-a-half for hours over 40 worked in
one week
 Possible exemptions
 Amendments to law have reduced number of exemptions,
but careful study is necessary to determine an
organization’s obligations
Discussions of compensation systems often use the terms
exempt and nonexempt personnel

 Nonexempt employees are covered by the FLSA;

they must be paid overtime and are subject to
minimum wage

 Exempt employees are not covered by the FLSA

and include executive, administrative, and
professional employees
 Requires that contractors and subcontractors on
federal construction contracts in excess of $2,000 pay
prevailing wage rates for locality of project
 Prevailing wage rate is determined by secretary of
labor
 Has normally been the same as prevailing union rate
for the area
 Overtime of time-and-a-half – For more than 40 hours
per week
Walsh-Healey Public Contracts Act

 Requires that organizations manufacturing materials,

supplies, articles, or equipment in excess of $10,000 to
the federal government pay at least the minimum wage
for the industry as determined by the secretary of
labor
 Defense Authorization Act of 1986 stipulated overtime
as being hours worked over 40 in a week
Federal Wage Garnishment Law
 Garnishment – A legal procedure by which an
employer is empowered to withhold wages for
payment of an employee’s debt to a creditor
 Law limits amount of an employee’s disposable
earnings that can be garnished in any one week and
protects employee from discharge because of
garnishment
 Equal Pay Act

 Illegal to pay different wages to men and women for

jobs that require equal skill, effort, and responsibility
and are performed under similar conditions
 Does not prohibit payment of wage differentials based
on seniority systems, merit systems that measure
earnings by quantity and quality of production, or
systems based on any factor other than sex
Union Contracts
 If an organization is unionized, the wage structure is
usually largely determined through collective
bargaining process
 Because wages are a primary concern of unions,
current union contracts must be considered in
formulating compensation policies
Impact of ComparableWorth
 Theory holds that while true worth of jobs to employer may
be similar, some jobs (especially those held by women) are
often paid a lower rate than other jobs (often held by men)
 Drawback
 Determining worth of the jobs in question is difficult
 How should job worth be established?
 U.S. courts have generally rejected cases based on
comparable worth claims
 Although comparable worth has generally floundered in
court, it has received considerable attention
 At the collective bargaining table
 In the political arena
The Importance of FairPay
 Little doubt exists that inadequate pay can have a very negative
impact on an organization
 Pay dissatisfaction can influence employees’ feelings about their
jobs in two ways:
 Can increase desire for more money
 Can lower attractiveness of the job
 An employee who desires more money is likely to engage in
actions that can increase pay
 These actions might include
 Joining a union
 Looking for another job
 Performing better
 Filing a grievance
 Going on strike
The Importance of FairPay
 Better performance results only in those cases where
pay is perceived as being directly related to
performance
 All of the consequences (except performing better) are
generally undesirable by management
 When job decreases in attractiveness, the employee is
more likely
 To be absent or tardy

 To quit

 To become dissatisfied with the job itself

 PAYEQUITY

 Equity theory of motivation holds that

 Employees have a strong need to maintain a balance
between what they perceive as their inputs to their
jobs and what they receive from their jobs in the
form of rewards
 Employees who perceive inequities will take action
to eliminate or reduce them
PAYEQUITY
 Several dimensions of equity to be considered when
looking at pay equity
 Internal equity – Addresses what an employee is being
paid for doing a job compared to what other employees
in the same organization are being paid to do their jobs
 External equity – Addresses what employees in other
organizations are being paid for performing similar jobs
 Individual equity – Addresses issue of rewarding
individual contributions; is very closely related to the
pay-for-performance question
 Organizational equity – Addresses how profits are
divided up within the organizations
PAYSATISFACTION

 Based on the idea that employees will be satisfied with

their pay when their perception of what their pay is
and of what they think it should be agree

 Present pay is a primary factor influencing an

employee’s perception ofequity
 These factors account for the fact that two people may view
the same level ofpay in a very different manner
 An employee’s perception of what pay should be
depends on several other factors, including
 Job inputs
 The perceived inputs and outcomes of friends and
peers
 Nonmonetary outcomes
 It makes allowances for employees who believe their
pay exceeds what they think it should be
The Role of HRManager in the Reward System
 Role of human resource manager in overall organizational
reward system is to assist in its design and to administer
the system
 Administering the system – Carries responsibility of ensuring
that system is fair to all employees and that it is clearly
communicated to allemployees
 Ensuring that the system is fair places burden of minimizing
reward inequities and employee’s perceptions of reward
inequities squarely on the human resources manager
Summary of Learning Objectives
 Define organizational rewards
 Distinguish between intrinsic and extrinsic rewards
 List several desirable preconditions for implementing a
pay-for-performance program
 Define job satisfaction and list its five major components
 Summarize the satisfaction–performance relationship
 Define compensation, pay, incentives, and benefits
 List several pieces of government legislation that have had
a significant impact on organizational compensation
 Explain the equity theory of motivation
 Discuss internal, external, individual, and organizational
equity