A Behavioral Framework for Compensation

Chapter 3

References:Strategic Compensation in Canada (4th Edition), Richard J. Long, Nelson Education Ltd.

Resource Person: Furqan-ul-haq Siddiqui

Types of Reward Problems

1. Failure to produce desired behavior When reward system simply has no impact on

behavior In some cases reward system not only fails to

produce the desired behavior, but also produces undesirable behavior, or behaviors that leads to negative consequences

2. Production of desired behavior and undesirable consequences

A consumer goods company set the following rewards Marketing to increase sales R&D to secure more patents Production to minimize cost This reward system did: motivate marketing to increase sales Production department did minimize cost but did so by

using poor quality materials or by over simplifying R&D department did secure many patents , most of

these products had either no market or difficult to produce.

By rewarding mutually incompatible goals in situation where interdependence is high and cooperation is essential, the company is guaranteeing failure.

A reward system that looks reasonable when viewed in a narrow (departmental) context may in fact be very damaging.

A slightly different variation of reward problem occurs when the reward system does generate the rewarded behavior with no obvious negative consequence but serves to suppress other desirable behavior that are not measured or rewarded

If sales staff is are paid only on the basis of their individual sales, why would they want to spend time training possible competitor?

3. Production of Reward Dissatisfaction When employees believe that the rewards they

receive: are not consistent with the contribution they are

making to the organization, Are unfair. Reward dissatisfaction can result in a variety of

negative consequences such as: Poor work performance High turnover Poor customer service dishonesty

Desired Reward Outcomesa. What outcomes should the reward system produce?

b. How can we produce them? Three Key Employee Behaviors

1. Membership Behavior When employee decides to join and remain with

the firm.

2. Task Behavior When employees produce the specific task that an

organization has assigned to them

3. Organizational Citizenship Behavior When an employee voluntarily undertake special

behaviors beneficial to the organization that go beyond simple membership and task behavior such as:

Extra efforts High cooperation with others High initiative High innovativeness Organizational citizenship is also known as

contextual performance in contrast to task performance

How to create reward system that create these behaviors?

Reward system does not affect human behavior directly. it:

i. Affects employee perception and attitudes,ii. Which drive their behavior. Three Key attitudes 1. Job satisfaction: The attitude one holds towards one’s job and work

place either positive or negative.2. Work Motivation: The attitude one holds towards good job performance

either positive or negative It is an strength of an employee’s desire to perform his

or her duties well

3. Organizational Identification• Organizational Identification (OID) is the sense of

oneness individuals have with an organization and the degree to which individuals define themselves as organization members.

Consists of three interrelated elementsi. A sense of shared goals and values with the

organizationii. A sense of membership or belongingness iii. An intention to remain a member of the

organization. This element is sometimes known as “organization Commitment”

Causes of Reward Dissatisfaction

Violation of Psychological

Contract

Perceived Inequity

Relative Deprivation

Lack of organizational justice

Reward Dissatisfaction

Causes of Reward Dissatisfaction1. Violation of the Psychological Contract Expectations about the rewards offered by a given job

and the contributions necessary to perform the job Research has shown that violation of psychological

contract can cause employees to have: Less trust on their employers Decreased job satisfaction Reduced citizenship behavior Decreased work performance Increased turnover, theft Even sabotage

2. Perceived Inequity Individuals use at-least two perceptual screens

i. An internal calculus, based on their own variations and the rewards received and contributions made

ii. Comparison with rewards/ contribution ratio of relevant others

The essence of equity theory is simple: people make comparison s between the ratio contributions they make and the rewards they receive and the ratios of relevant others.

3. Relative Deprivation Employees experience dissatisfaction with their pay

level under six conditions, whenI. There is a discrepancy between the outcome they want

and what actually they receiveII. They see that a comparison ”other” receives more than

they doIII. Past experience has led them to expect more than they

now receiveIV. Future expectancies for achieving better outcomes are

lowV. They feel they are entitled for moreVI. They absolve themselves of personal responsibility for

the lack of better outcomes

4. Lack of Organizational Justice Organizational justice has two main components

a. Distributive justice The perception that overall reward outcomes are

fair, which is what equity theory is all about

b. Procedural justice The perception that the process through which

rewards are determined is fair Unless people believe that both of these are fair,

they will not feel that the reward is fair

Copyright (c) 2010 by Nelson Education Ltd15

Consequences of Reward Dissatisfaction:Employees have two main options to redress the imbalance

1. Attempt to increase the rewards they receive

Copyright (c) 2010 by Nelson Education Ltd16

2. Attempt to Reduce Contributions

Understanding Membership Behavior Why do people work? People accept employment I. They have unsatisfied needsII. If employment is seen the best vehicle to satisfy these needsIII.If they are able and willing to do things that the employment

require Put another way people accept a job if the inducements or

rewards associated with the job exceed the costs of contributions they have to make to secure and retain the job

People can value the same rewards, contribution differently, depending on their personal characteristics and circumstances

Causes of Membership Behavior Factors that determine whether an employee is

going to stay with an employer on long term basis. Two job attitudes play an important role in causing

membership behavior.

1. Job Satisfaction

2. Organizational Commitment

It occurs when one’s important needs are satisfied through job.

there are five dimensions of job satisfaction

I. Satisfaction with pay

II. Satisfaction with Promotion

III.Satisfaction with supervision

IV.Satisfaction with coworkers

V. Satisfaction with the Job

1. Job Satisfaction

The strength of individual attachment to his or her organization

There are three main types of commitmenta. Affective Commitment Attachment to the organization based on positive feeling towards

the organizationb. Normative Commitment Commitment to a organization based on an ideology or a sense of

obligation. For example, the organization may have invested resources in training an employee who then feels a 'moral' obligation to put forth effort on the job and stay with the organization to 'repay the debt. It may also reflect an internalized norm, developed before the person joins the organization through family or other socialization processes, that one should be loyal to one's organization. The employee stays with the organization because he/she "ought to".

2. Organizational Commitment

c. Continuance Commitment Attachment to the organization based on perceived

lack of better alternatives Continuance commitment implies nothing about an

employee’s level of emotional attachment or that of employees level of job satisfaction

It is simply a hardheaded calculation that, “ I have no better alternative available to me.”

It is even possible that an employee might have high continuance commitment but extremely low levels of job satisfaction and affective commitment

The role reward system can play in generating job satisfaction and organizational commitment

Since rewards is any thing provided by the organization that satisfies person’s needs

Reward has a direct impact on job satisfaction To generate organizational commitment the key issue is

the relationship between employees and the organization as whole.

Psychological contract, trust, and organizational justice – especially procedural justice play a major role organizational commitment

Job security has also been found to relate to both job satisfaction and affective commitment.

Rewards, Satisfaction, and Commitment

Money as a Motivator Human behavior is driven by needs, money itself is not

technically a need, but rather a generalized resource that can be exchanged for things that will satisfy needs

For those persons whose underlying needs are satisfied , money might not be much of a motivator, at least in its instrumental role as a vehicle for satisfaction of underlying need.

In its role a generalized resource gives them control over their needs will be satisfied. This sense of control is in fact an important intrinsic human need.

Money also has symbolic value and represent status and accomplishment to many people.

Money can also be seen as a source of social comparison where it is the relative amount, not absolute amount that is important to people.