Chapter Four Organizational Context: Reward Systems McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc All rights reserved Learning Objectives • Discuss the theoretical background on money as a reward • Present the latest research on the effectiveness of pay • Describe some of the traditional methods of administering pay • Relate some of the latest forms of “new” pay and their value in helping attract and retain talented employees • Explain how recognition is used as an organizational reward • Discuss the role of benefits as organizational rewards Introduction • Reward systems as a part of the organizational context – Consequences and contingencies play an important role in organizational behavior – Emphasize the emerging importance of human capital – to sustain and leverage it • Reward system is recognized as a vital dimension of the organizational environment Pay: Dominant Organizational Reward • Rewards are provided with the objective: – Of motivation which affects performance – To encourage loyalty and retention • Theoretical background on money as a reward – Money can explain behavior • Achievement and recognition, status and respect – Agency theory • Aligning diverse interests and goals with rewards Pay: Dominant Organizational Reward Continued • Research on the effectiveness of pay – three considerations: – Outcomes that an organization seeks – Measurement of these results – Tie rewards to these outcomes • Traditional methods of administrating pay – Base pay approach: market conditions – Merit pay approach: predetermined criteria Pay: Dominant Organizational Reward Continued • Pay for performance – Individual incentive pay plans • Use of bonuses: upper-level managers • Use of stock options: senior-level managers • Potential limitations: excesses and ethical breakdowns, encourage narrow range of behavior, and may cause conflicts among individuals Pay: Dominant Organizational Reward Continued • Pay for performance – Group incentive pay plans • Gain sharing plan: net gain from productivity • Profit sharing: profit sharing pool distributed to employees • Employee stock ownership plan (ESOP) • Potential limitations: equal distribution among the group, late or regular payments Pay: Dominant Organizational Reward Continued • New pay techniques – Commissions beyond sales to customers – Rewarding leadership effectiveness – Rewarding new goals – Pay for knowledge workers in teams – Skill pay – Competency pay – Broadbanding Recognition as an Organizational Reward • Recognition versus money – Frequent nonfinancial rewards that have a big impact on employee productivity and quality service behaviors – They can take many different forms, can be given in small or large amounts, and in many instances are controllable by the manager – Recognizing creativity is becoming increasingly necessary for competitive advantage Recognition as an Organizational Reward Continued • Steps needed to be set up to effectively manage a formal and informal recognition program: – – – – – – – – Effective communication of the program and procedures Appropriate education to the managers Make recognition part of performance management process Conduct recognition ceremonies, featured regularly Publicize the best practices Communicate steps involved in the program Continuous review and changes for effectiveness Solicit recognition ideas from both employees and managers Recognition as an Organizational Reward Continued • Examples of effective formal recognition systems – Dierbergs Family Market: “extra step” program – Hotel Sofitel Minneapolis: “Sofitel Service Champions” – Fremont Hotel & Casino: “Personality with a Hustle” Benefits as Organizational Rewards • Traditionally offered benefits – Federal government-mandated benefits • Social security • Medicare benefits – Life, disability, and health insurance – Pension benefits • Private pension plan – Time-off benefit • Paid vacation, religious holiday, and sick leave Benefits as Organizational Rewards Continued • Newer types of benefits – Wellness programs • Coping with stress – Life cycle benefits • Child care and elder care benefits – Other benefits • Concierge services • Tuition assistance • Noninsured benefit programs – Flexible, cafeteria-style benefits • Employees put together their own package of benefits Questions ... Explain how recognition is used as an organizational reward • Discuss the role of benefits as organizational rewards Introduction • Reward systems as a part of the organizational context – Consequences... important role in organizational behavior – Emphasize the emerging importance of human capital – to sustain and leverage it • Reward system is recognized as a vital dimension of the organizational. .. reward – Money can explain behavior • Achievement and recognition, status and respect – Agency theory • Aligning diverse interests and goals with rewards Pay: Dominant Organizational Reward Continued