chapter 10 reward systems and legal issues 10-1 copyright © 2013 pearson education, inc. publishing...

Chapter 10Chapter 10

Reward Systems Reward Systems and Legal Issuesand Legal Issues

10-10-11Copyright © 2013 Pearson Education, Inc. publishing as Prentice HallCopyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

OverviewOverview

Reward SystemsReward Systems Legal IssuesLegal Issues

Copyright © 2013 Pearson Education, Inc. publishing as Prentice HallCopyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10-10-22

Reward Systems: OverviewReward Systems: Overview Traditional and Contingent Pay Traditional and Contingent Pay

(CP) Plans(CP) Plans• Reasons for Introducing CP PlansReasons for Introducing CP Plans• Possible Problems Associated with Possible Problems Associated with

CPCP• Selecting a CP PlanSelecting a CP Plan

Putting Pay in ContextPutting Pay in Context Pay StructuresPay Structures


Traditional PayTraditional Pay Salary and salary increases Salary and salary increases

are based onare based on• PositionPosition• SenioritySeniority


Contingent Pay (CP)Contingent Pay (CP) Salary and salary increases are Salary and salary increases are

based on:based on:• Job performanceJob performance

Also called: Also called: Pay for Pay for PerformancePerformance

If not added to base pay, called:If not added to base pay, called:• Variable payVariable pay


Reasons for Introducing CP (1)Reasons for Introducing CP (1) Performance management is Performance management is

more effective when rewards more effective when rewards are tied to results.are tied to results.

CP Plans force organizations to:CP Plans force organizations to:• Clearly define effective Clearly define effective

performanceperformance• Determine what factors are Determine what factors are

necessarynecessary


Reasons for Introducing CP (2)Reasons for Introducing CP (2) Supervisors and employees Supervisors and employees

are better able to understand are better able to understand what really matters.what really matters.

CP plans enhance employee CP plans enhance employee motivation to accomplish motivation to accomplish goals that match goals that match organizational needs.organizational needs.


Reasons for Introducing CP (3)Reasons for Introducing CP (3) CP plans help to recruit and CP plans help to recruit and

retain top performers.retain top performers. CP plans projects good CP plans projects good

corporate image.corporate image.


CP Plans Help Improve Motivation CP Plans Help Improve Motivation When:When:

• Employees see clear link between their Employees see clear link between their efforts and resulting performance. efforts and resulting performance. ((ExpectancyExpectancy))

• Employees see clear link between their Employees see clear link between their performance level and rewards received. performance level and rewards received. ((InstrumentalityInstrumentality))

• Employees value the rewards available. Employees value the rewards available. ((ValenceValence))

motivation motivation == expectancy expectancy xx instrumentality instrumentality xx valence valence


Possible Problems Associated with Possible Problems Associated with CPCP

Poor performance management Poor performance management systemsystem

Rewarding counterproductive behaviorRewarding counterproductive behavior(Rewarding A while hoping for B)(Rewarding A while hoping for B)

Rewards are not considered significantRewards are not considered significant Managers are not accountableManagers are not accountable

(The reward becomes the driver)(The reward becomes the driver) Extrinsic vs. intrinsic motivationExtrinsic vs. intrinsic motivation Disproportionately large rewards for Disproportionately large rewards for

executivesexecutives


Selecting a CP Plan: Issues to Selecting a CP Plan: Issues to ConsiderConsider

Culture of organizationCulture of organization Strategic direction of Strategic direction of

organizationorganization


Culture of Organization: Types of Culture of Organization: Types of OrganizationsOrganizations

TraditionalTraditional• Top-down decision makingTop-down decision making• Vertical communicationVertical communication• Jobs that are clearly definedJobs that are clearly defined

InvolvementInvolvement• Shared decision makingShared decision making• Lateral communicationsLateral communications• Loosely defined rolesLoosely defined roles


CP Systems for Different CP Systems for Different Organizational CulturesOrganizational Cultures

Traditional organizationsTraditional organizations• Piece ratePiece rate• Sales commissionsSales commissions• Group incentivesGroup incentives

Involvement organizationsInvolvement organizations• Profit sharingProfit sharing• Skill-based paySkill-based pay


CP Plans to Enhance CP Plans to Enhance Strategic DirectionsStrategic Directions

Employee developmentEmployee development• Skill-based paySkill-based pay

Customer serviceCustomer service• Competency-based payCompetency-based pay• GainsharingGainsharing

Overall profitOverall profit• Executive payExecutive pay• Profit or stock sharingProfit or stock sharing


CP Plans to Enhance Strategic CP Plans to Enhance Strategic Directions (1)Directions (1)

ProductivityProductivity• IndividualIndividual

Piece ratePiece rate Sales commissionsSales commissions

• GroupGroup GainsharingGainsharing Group incentivesGroup incentives


CP Plans to Enhance Strategic CP Plans to Enhance Strategic Directions (2)Directions (2)

TeamworkTeamwork• Team sales commissionsTeam sales commissions• GainsharingGainsharing• Competency-based payCompetency-based pay


Putting Pay in ContextPutting Pay in Context

A reward increases the chance A reward increases the chance that:that:

Specific behaviors and results will be Specific behaviors and results will be repeated, orrepeated, or

Employee will engage in new Employee will engage in new behavior and produce better results.behavior and produce better results.


Rewards Can Include:Rewards Can Include:

PayPay RecognitionRecognition

• PublicPublic• PrivatePrivate

StatusStatus TimeTime SabbaticalsSabbaticals

Trust and Trust and RespectRespect

ChallengeChallenge ResponsibilityResponsibility FreedomFreedom RelationshipsRelationships


How to Make Rewards WorkHow to Make Rewards Work Define and measure Define and measure

performance first and then performance first and then allocate rewards.allocate rewards.

Only use rewards that are Only use rewards that are available.available.

Make sure all employees are Make sure all employees are eligible.eligible.

Rewards should be bothRewards should be both• FinancialFinancial• NonfinancialNonfinancial


How to Make Rewards Work How to Make Rewards Work (Continued)(Continued)

Rewards should be:Rewards should be:• VisibleVisible• ContingentContingent• TimelyTimely• ReversibleReversible


Pay StructuresPay Structures Job EvaluationJob Evaluation Broad-bandingBroad-banding


Pay StructuresPay Structures

An organization’s pay structureAn organization’s pay structure Classifies jobsClassifies jobs

Into categoriesInto categoriesBased on their relative worthBased on their relative worth

Is designed by job evaluation Is designed by job evaluation methodsmethods


Job EvaluationJob Evaluation

Method of data collectionMethod of data collection• Determine the worth of various jobs Determine the worth of various jobs • Create a pay structureCreate a pay structure

Consideration of Consideration of • KSAs required for each jobKSAs required for each job• Value of job for organizationValue of job for organization• How much other organizations payHow much other organizations pay


Types of Job Evaluation MethodsTypes of Job Evaluation Methods

RankingRanking ClassificationClassification PointPoint


RankingRanking Create job descriptionsCreate job descriptions Compare job descriptions Compare job descriptions Rank jobsRank jobs


Advantages of Using Ranking MethodAdvantages of Using Ranking Method

Requires little timeRequires little time Minimal effort needed for Minimal effort needed for

administrationadministration


Disadvantages of Using Ranking Disadvantages of Using Ranking MethodMethod

Criteria for ranking may not Criteria for ranking may not be clear.be clear.

Distances between each Distances between each rank may not be equal.rank may not be equal.


ClassificationClassification A series of classes or grades A series of classes or grades

are created.are created. Each job is placed within a job Each job is placed within a job

class.class.


Advantages of Using Classification Advantages of Using Classification MethodMethod

Jobs can be quickly slotted into Jobs can be quickly slotted into structurestructure

Employees accept method because Employees accept method because it seems valid.it seems valid.


Disadvantages of Using Disadvantages of Using Classification MethodClassification Method

Requires extensive time and Requires extensive time and effort for administrationeffort for administration

Differences between Differences between classification levels may not be classification levels may not be equal equal


Point MethodPoint Method Identify compensable factors (job Identify compensable factors (job

characteristics)characteristics) Scale factors (e.g. on a scale of 1 Scale factors (e.g. on a scale of 1

through 5)through 5) Assign a weight to each factor so Assign a weight to each factor so

the sum of the weights for all the sum of the weights for all factors = 100 percentfactors = 100 percent


Advantages of Using Point MethodAdvantages of Using Point Method Establishes worth of each job Establishes worth of each job

relative to all other jobsrelative to all other jobs within within organizationorganization

Comprehensive measurement of Comprehensive measurement of relative worth of each job in relative worth of each job in organizationorganization

Easy to rank jobs when total points Easy to rank jobs when total points are known for each jobare known for each job


Disadvantages of Using Point Disadvantages of Using Point MethodMethod

Requires extensive Requires extensive administrativeadministrative• TimeTime• EffortEffort


Does Job Evaluation Method Does Job Evaluation Method Matter?Matter?

• FairnessFairness• EvaluatorsEvaluators

ImpartialImpartial ObjectiveObjective


Compensation SurveysCompensation Surveys Information onInformation on

• Base payBase pay• All other types of All other types of

compensationcompensation

Conducted in-house or by Conducted in-house or by consultants, such as:consultants, such as:

www.salary.comwww.salary.com or or www.haypaynet.comwww.haypaynet.com


Broad-Banding Broad-Banding Most commonly used pay Most commonly used pay

structurestructure Pay structure collapses job Pay structure collapses job

classes into fewer (less than classes into fewer (less than five) categoriesfive) categories


Advantages of Broad-BandingAdvantages of Broad-Banding Provides flexibility in rewarding Provides flexibility in rewarding

peoplepeople Reflects changes in organization Reflects changes in organization

structurestructure Provides better base for rewarding Provides better base for rewarding

growth in competencegrowth in competence Gives more responsibility for pay Gives more responsibility for pay

decisions to managersdecisions to managers Provides better basis for rewarding Provides better basis for rewarding

career progressioncareer progressionCopyright © 2013 Pearson Education, Inc. publishing as Prentice HallCopyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10-10-3737

Reward Systems: SummaryReward Systems: Summary

Traditional and Contingent Pay Traditional and Contingent Pay (CP) Plans(CP) Plans• Reasons for Introducing CP PlansReasons for Introducing CP Plans• Possible Problems Associated with Possible Problems Associated with

CPCP• Selecting a CP PlanSelecting a CP Plan

Putting Pay in ContextPutting Pay in Context Pay StructuresPay Structures


Legal Issues: OverviewLegal Issues: Overview

Performance Management and Performance Management and the Lawthe Law

Some Legal Principles Affecting Some Legal Principles Affecting PMPM

Laws Affecting PMLaws Affecting PM


Performance Management and the Performance Management and the LawLaw

Performance management Performance management systems are usually legally systems are usually legally sound if…sound if…• Procedures are standardizedProcedures are standardized• Same procedures are used with all Same procedures are used with all

employeesemployees


Some Legal Principles Affecting Some Legal Principles Affecting PM: OverviewPM: Overview

Employment-at-willEmployment-at-will NegligenceNegligence DefamationDefamation MisrepresentationMisrepresentation Adverse ImpactAdverse Impact Illegal DiscriminationIllegal Discrimination


Employment-at-WillEmployment-at-Will Employment relationship can Employment relationship can

be ended at any time by:be ended at any time by:• EmployerEmployer• EmployeeEmployee

Exceptions:Exceptions:• Implied contractImplied contract• Possible violation of legal rightsPossible violation of legal rights


NegligenceNegligence

If organization documents If organization documents describe a systemdescribe a system

andand It is It is notnot implemented as implemented as

described,described,

Employee can challenge Employee can challenge evaluation, charging negligence.evaluation, charging negligence.


DefamationDefamation Disclosure of performance Disclosure of performance

information that isinformation that is•Untrue Untrue andand•UnfavorableUnfavorable


MisrepresentationMisrepresentation Disclosure of Disclosure of

performance information performance information that isthat is•Untrue Untrue andand•FavorableFavorable


Adverse Impact / Unintentional Adverse Impact / Unintentional DiscriminationDiscrimination

PM system has unintentional impact on PM system has unintentional impact on a protected class.a protected class.

Organization must demonstrate:Organization must demonstrate:• A specific KSA is a business requirement for A specific KSA is a business requirement for

the jobthe job• All affected employees are evaluated in the All affected employees are evaluated in the

same waysame way Organization should review ongoing Organization should review ongoing

performance score data by protected performance score data by protected class to implement corrective action as class to implement corrective action as necessary.necessary.


Illegal Discrimination or Disparate Illegal Discrimination or Disparate TreatmentTreatment

Raters assign different scores to Raters assign different scores to employees based on factors that employees based on factors that are NOT related to performance.are NOT related to performance.

Employees receive different Employees receive different treatment as result of such ratings.treatment as result of such ratings.

Employees can claim they were Employees can claim they were intentionally and illegally treated intentionally and illegally treated differently due to their status.differently due to their status.


Employee Claim of Illegal Employee Claim of Illegal DiscriminationDiscrimination

Direct evidence of Direct evidence of discrimination, ordiscrimination, or

Evidence regarding the Evidence regarding the following:following:• Membership in protected classMembership in protected class• Adverse employment decisionAdverse employment decision• Performance level deserved Performance level deserved

reward/different treatmentreward/different treatment• How others were treated (not in How others were treated (not in

protected class)protected class)Copyright © 2013 Pearson Education, Inc. publishing as Prentice HallCopyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10-10-4848

Employer Response to Claim of Employer Response to Claim of Illegal DiscriminationIllegal Discrimination

Legitimate and nondiscriminatory Legitimate and nondiscriminatory reason for actionreason for action

Related to performanceRelated to performance

Note: Good performance Note: Good performance management system and management system and subsequent performance-related subsequent performance-related decision, used consistently with all decision, used consistently with all employees, provide defenseemployees, provide defense


Difference Between Difference Between Legal and Illegal DiscriminationLegal and Illegal Discrimination

LEGAL discrimination discriminates LEGAL discrimination discriminates among employees based on their among employees based on their level of performance.level of performance.

ILLEGAL discrimination is based on ILLEGAL discrimination is based on variables that should not usually be variables that should not usually be related to performance.related to performance.


Laws Affecting PMLaws Affecting PMDuring past few decades, several During past few decades, several countries have passed laws countries have passed laws prohibiting discrimination based prohibiting discrimination based on:on: Race or EthnicityRace or Ethnicity SexSex ReligionReligion National OriginNational Origin AgeAge Disability statusDisability statusSexual orientationSexual orientation


Laws in the United KingdomLaws in the United Kingdom Equal Pay Act of 1970Equal Pay Act of 1970 Race Relations Act of 1976Race Relations Act of 1976 Sex Discrimination Act of 1975Sex Discrimination Act of 1975 Disability Discrimination Act of 1995Disability Discrimination Act of 1995 Employment Equality (Sexual Employment Equality (Sexual

Orientation) Regulations 2003Orientation) Regulations 2003 Employment Equality (Religion or Employment Equality (Religion or

Belief) Regulations 2003Belief) Regulations 2003


Laws in the United States of Laws in the United States of AmericaAmerica

Equal Pay Act of 1963Equal Pay Act of 1963 Civil Rights Act of 1964Civil Rights Act of 1964 Age Discrimination in Employment Age Discrimination in Employment

Act of 1967 (as amended in 1986)Act of 1967 (as amended in 1986) Americans with Disabilities Act of Americans with Disabilities Act of

19901990


Characteristics of Legally Sound Characteristics of Legally Sound PM SystemsPM Systems

Organization:Organization:• The system is formally explained and The system is formally explained and

communicated to all employees.communicated to all employees.• The system includes a formal appeals process.The system includes a formal appeals process. • Procedures are standardized and uniform for all Procedures are standardized and uniform for all

employees within a job group.employees within a job group. • The system includes procedures to detect The system includes procedures to detect

potentially discriminatory effects or biases and potentially discriminatory effects or biases and abuses in the system. abuses in the system.



ManagementManagement• Supervisors are provided with formal training Supervisors are provided with formal training

and information on how to manage the and information on how to manage the performance of their employees.performance of their employees.

• Performance information is gathered from Performance information is gathered from multiple, diverse, and unbiased raters.multiple, diverse, and unbiased raters.

• The system includes thorough and consistent The system includes thorough and consistent documentation including specific examples of documentation including specific examples of performance based on first-hand knowledge.performance based on first-hand knowledge.



EmployeesEmployees• Performance dimensions and standards are:Performance dimensions and standards are:

Clearly defined and explained to the employee, Clearly defined and explained to the employee, Job-related, and Job-related, and Within the control of the employeeWithin the control of the employee..

• Employees are given Employees are given Timely information on performance deficiencies and Timely information on performance deficiencies and Opportunities to correct them.Opportunities to correct them.

• Employees are given a voice in the review Employees are given a voice in the review process and treated with courtesy and civility process and treated with courtesy and civility throughout the process.throughout the process.


Legal Issues: SummaryLegal Issues: Summary Performance Management Performance Management

and the Lawand the Law Some Legal Principles Some Legal Principles

Affecting PMAffecting PM Laws Affecting PMLaws Affecting PM


Quick ReviewQuick Review Reward SystemsReward Systems Legal IssuesLegal Issues


All rights reserved. No part of this publication may be All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in reproduced, stored in a retrieval system, or transmitted, in

any form or by any means, electronic, mechanical, any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United written permission of the publisher. Printed in the United

States of America.States of America.

Copyright © 2013 Pearson Education, Inc. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hallpublishing as Prentice Hall


chapter 10 reward systems and legal issues 10-1 copyright © 2013 pearson education, inc. publishing...

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