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Chapter 12
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• Organizational reward system• Concerned with selection of types of rewards to be used
by organization
• Organizational rewards
• Rewards that result from employment the organization;includes all types of rewards, both intrinsic and extrinsic
• Intrinsic rewards – Internal to individual and are normallyderived from involvement in certain activities or tass
• !xamples – "ob satisfaction and feelings ofaccomplishment
• !xtrinsic rewards – #irectly controlled and distributed byorganization and more tangible than intrinsic rewards
• !xamples – $ay and hospitalization bene%ts
• <hough di'ering, intrinsic and extrinsic rewards are closelyrelated
• Often an extrinsic reward provides recipient with intrinsicrewards
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• (anagement must recognize what employeesperceive as meaningful rewards
• $ay is usually the %rst, and sometimes the only,reward most people thin about
•)owever, rewards should be viewed in the largerperspective as anything employees value
• (ay include things such as
• O*ce location
• &llocation of certain pieces of e+uipment
• &ssignment of preferred wor tass
• Informal recognition
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• Returns bene%ting organization throughdistribution of awards can be realized onlyif desires of employees are nown
• Organizations should learn what employees
perceive as meaningful rewards, which isnot necessarily what managementperceives
• raditionally, managers have assumed they arefully capable of deciding -ust what rewardsemployees need and want
• .nfortunately, this is often not true
• /tudies have shown that employees tend to ranlac of recognition as the most probable reasongood employees +uit their -obs
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• ¬her false assumption is exempli%ed by fact thatmost organizations o'er same mix of rewards to allemployees
• /tudies show that many variables can in0uenceemployee preferences for certain rewards1 hey
include• &ge
• 2ender
• (arital status
• 3umber of dependents• 4ears of service
• 5or example, older employees are usually muchmore concerned with pension and retirementbene%ts than are younger employees
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• 6hen selecting types of rewards to o'er, intrinsicbene%ts that might accrue as a result of therewards need to be considered
• (anagers and employees alie consider onlytangible bene%ts associated with a reward
• !xternal factors that place limitations on anorganization7s reward system also exist
• hese factors 8usually beyond the control of theorganization9 include such things as
• Organization7s size
• !nvironmental conditions
• /tage in product life cycle
• :abor maret
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• 5ree enterprise system is based on the premise thatrewards should depend on performance
• $erformance–reward relationship is desirable at
• Organizational or corporate level
• Individual level• !mployees will be motivated when they believe such
motivation will lead to desired rewards
• (any formal rewards provided by organizations arenot related to performance
• hese rewards are almost always determined byorganizational membership and seniority; theyinclude
• $aid vacations
• Insurance plans
• $aid holidays12-8
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• Other rewards, such as promotion, can and should berelated to performance
• Opportunities for promotion may occur only rarely
• 6hen available, higher positions may be %lled
• On basis of seniority
• y someone outside the organization
• $rimary organizational variable used to reward employeesand reinforce performance is pay
• !ven though many .1/1 companies have some type ofpay
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• 6hy is the practice not more widespread=
• 3ot easy to do; much easier to give everybodythe same thing, as evidenced by the ever
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• rust in management
• If employees are septical of management, it isdi*cult to mae a pay
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• &n employee7s general attitude toward the -ob
• Organizational reward system often has a signi%cant impact onlevel of employee -ob satisfaction
• (anner in which extrinsic rewards are dispersed can a'ectintrinsic rewards 8and satisfaction9 of recipients
• here are %ve ma-or components of -ob satisfaction>
• &ttitude toward the wor group
• &ttitude toward the company
• &ttitude toward management
• 2eneral woring conditions
• (onetary bene%ts
• Other components include
• !mployee7s state of mind about the wor itself
• :ife in general
• )ealth, age
• :evel of aspiration, social status, and political and social
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• "/ is not synonymous with Organizationalmorale – !mployee7s feeling of beingaccepted by and belonging to a group ofemployees
• hrough common goals• Con%dence in desirability of those goals
• #esire to progress toward the goals
• (orale is the by
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• ?he path of least resistance@ – &ttempts to explainbelief that a satis%ed employee is necessarily a goodemployee
• If a performance problem exists, increasing anemployee7s happiness is far more pleasant than
discussing with the employee his or her failure tomeet standards
• <hough happiness eventually results from satisfaction,the latter goes much deeper and is far less tenuous thanhappiness
• wo propositions concerning the satisfaction
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• $erformance leads to rewards that result in acertain level of satisfaction
• Rewards constitute a necessary interveningvariable in the relationship
• ¬her position considers both satisfaction andperformance to be functions of rewards
• /atisfaction results from rewards, but currentperformance also a'ects subse+uentperformance if rewards are based on currentperformance
• Research evidence generally re-ects the morepopular view that satisfaction leads to performance
• It does provide moderate support for the viewthat performance leads to satisfaction
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• !vidence also strongly indicates that
• Rewards constitute a more direct cause ofsatisfaction than does performance
• Rewards based on current performance enhance
subse+uent performance
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• It has been clearly established that -ob satisfaction doeshave a positive impact on
• urnover
• &bsenteeism
• ardiness
• &ccidents
• 2rievances
• /tries
• !xperience, gender, and performance can have amoderating e'ect on these relationships
• Organizations prefer satis%ed employees simplybecause they mae the wor environment morepleasant
• <hough a satis%ed employee is not necessarily a highperformer, there are numerous reasons for cultivatingemployee satisfaction
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• 6ide range of both internal and external factors a'ect anemployee7s level of satisfaction
• /urveys have found that the top drivers of employee -obsatisfaction were
• $ay, and bene%ts
• "ob security, and feeling safe in the wor environment
• 5lexibility to balance wor and life
• "ob satisfaction and motivation are not synonymous
• (otivation is a drive to perform
• Organizational reward systems can in0uence both -obsatisfaction and employee motivation
• It a'ects -ob satisfaction by maing the employee moreor less comfortable as a result of the rewards received
• It in0uences motivation primarily through the perceivedvalue of the rewards and their contingency onperformance
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• Compensation
• &ll extrinsic rewards that employees receive inexchange for their wor
• Composed of base wage or salary, any incentives orbonuses, and any bene%ts
• ase wage or salary – )ourly, weely, or monthlypay employees receive for their wor
• Incentives – Rewards o'ered in addition to the basewage or salary and are usually directly related toperformance
• ene%ts – Rewards employees receive as a result of
their employment and position with the organization8!xamples> $aid vacations, health insurance, andretirement plans9
• $ay
• Refers only to actual dollars employees receive inexchange for wor
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• Organizations must also mae decisionsconcerning
• )ow much money will go into pay increases forthe next year
• 6ho will recommend them• )ow raises will generally be determined
• ¬her important decision concernswhether pay information will be ept secretor made public
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• (any organizations have a policy of not disclosing pay<related information
• Information about pay system as well as individual payreceived
• "usti%cation for pay secrecy
•
o avoid any discontent that might result from employees7nowing what everybody else is being paid
• (any employees, especially high achievers, feel verystrongly that their pay is nobody else7s business
• #rawbacs of pay secrecy
• #i*cult for employees to determine whether pay is
related to performance and does not eliminate paycomparisons
• (ay cause employees to overestimate pay of their peersand underestimate pay of their supervisors
• Can create feelings of dissatisfaction
• !mployees may become suspicious
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• /ome companies actually forbade employees todiscuss andAor disclose their pay
• In BD, the 3ational :abor Relations oard83:R9 ruled that forbidding employees to discusstheir pay constitutes a violation of the 3ational:abor Relations &ct
• 6omen7s groups in .1/1 and .E have begun tochallenge pay
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• heory holds that while true worth of -obs toemployer may be similar, some -obs 8especiallythose held by women9 are often paid a lower ratethan other -obs 8often held by men9
• #rawbac
•#etermining worth of the -obs in +uestion isdi*cult
• )ow should -ob worth be established=
• .1/1 courts have generally re-ected cases based oncomparable worth claims
• <hough comparable worth has generally0oundered in court, it has received considerableattention
• &t the collective bargaining table
• In the political arena
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• :ittle doubt exists that inade+uate pay can have a verynegative impact on an organization
• $ay dissatisfaction can in0uence employees7 feelingsabout their -obs in two ways>
• Can increase desire for more money
• Can lower attractiveness of the -ob
• &n employee who desires more money is liely to engagein actions that can increase pay
• hese actions might include
• "oining a union• :ooing for another -ob
• $erforming better
• 5iling a grievance
• 2oing on strie12-34
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• &ll of the conse+uences 8except performing better9are generally undesirable by management
• etter performance results only in those caseswhere pay is perceived as being directly related toperformance
• 6hen -ob decreases in attractiveness, the employeeis more liely
• o be absent or tardy
• o +uit
•
o become dissatis%ed with the -ob itself
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• !+uity theory of motivation holds that
• !mployees have a strong need to maintain abalance between what they perceive as theirinputs to their -obs and what they receive fromtheir -obs in the form of rewards
• !mployees who perceive ine+uities will taeaction to eliminate or reduce them
• $ay e+uity concerns whether employees believethey are being fairly paid
• 5or example, if an employee believes he or she
is underpaid, that employee will liely reduceexpended e'ort by woring more slowly,taing o' early, or being absent
• /imilarly, if an employee believes she or he isbeing overpaid, that employee is liely to worharder or for longer hours
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• /everal dimensions of e+uity to be consideredwhen looing at pay e+uity
• Internal e+uity – &ddresses what an employeeis being paid for doing a -ob compared towhat other employees in the same
organization are being paid to do their -obs• !xternal e+uity – &ddresses what employees
in other organizations are being paid forperforming similar -obs
• Individual e+uity – &ddresses issue of
rewarding individual contributions; is veryclosely related to the pay
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• !mployee interpretations of pay e+uity are basedon their perceptions
• Organizations should mae these perceptions asaccurate as possible
• &n employee can also feel good about one or more
e+uity dimensions and feel bad about others• 5or example, an employee may feel good about
his or her pay in comparison to what friendsworing in other organizations are maing
• /he or he may also believe the company pro%ts
are fairly distributed within the company• )owever, this same person may be very unhappy
about his or her pay relative to several otherpeople in the same organization
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• Role of human resource manager in overallorganizational reward system is to assist in itsdesign and to administer the system
• &dministering the system – Carries responsibilityof ensuring that system is fair to all employees
and that it is clearly communicated to allemployees
• !nsuring that the system is fair places burden ofminimizing reward ine+uities and employee7sperceptions of reward ine+uities s+uarely on thehuman resources manager
• :ittle doubt exists that organizations need to do abetter -ob of explaining and communicating theircompensation system to employees
• (any tools and techni+ues are available to assisthuman resource managers in designing andadministering compensation systems