International reward system

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Overview of rewards

Definitions
Rewards, total rewards and reward management

Importance of rewards Reward management strategies and models Strategic design of rewards Case Study 1&2

Rewards
Employee rewards refer to all forms of financial returns, tangible services and benefits employees receive as part of an employment relationship.
(Bratton and Gold 1999)

Types of rewards
A motivational point of view
Intrinsic rewards: Inner satisfaction by doing the job. Extrinsic rewards: Pay (wages, salary, commissions, etc.,) Benefits (pension, medical care, health care, housing, unemployment pension) A total reward point of view Money, benefits, work and development (Rowley, 2003)

What is a total reward?

Base pay
Recognition
Responsibility

Contingent pay
Nonfinancial rewards those arising from the work itself and the work environme nt

Meaningful work

Financial rewards and benefits

Variable pay (cash bonuses)

Autonomy Opportunity to use and develop skills

Total Remuneration

Total reward

Share ownership

Career opportunities
Quality of working life

Benefits
Work/life balances

Transactional rewards

Relational rewards

Source: Armstrong & Murlis (1998)

Framework for analysing different Deals

HIGH PAY LOW COMMITMENT

Hired Guns (Stockbrokers)

HIGH PAY HIGH COMMITMENT

Cult-like (Microsoft)

High Low TRANSACTIONAL

LOW PAY LOW COMMITMENT

Workers as Commodity (Employers of Migrant Farm Workers)

LOW PAY HIGH COMMITMENT

Family (Starbucks)

Low
Source: Milkovich & Newman (2002)

High
RELATIONAL
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Employee benefits
Can benefits become strategic? If so, how?

One way is to make sure that the benefits available are attractive to high potential applicants and high performers. A second way is developing a benefit specifically to attract a desired set of employees. E.g. day care centres, tuition reimbursement programmes. Most benefits are future or need care oriented, it is difficult to make linkage between performance and benefits.

Non-monetary rewards
1. Other titles: recognition awards, low cost/no cost awards, hugs and mugs etc.
2. The great strength of non-monetary rewards is their immediacy.

3. The change in recent years has not been so much the increase in the number of awards or the amount of individual awards, but the rationalisation of non-monetary rewards programmes and their integration into the rest of the rewards system. 4. Different forms
Perquisites Special eating areas, first class travel, club memberships etc. Recognition awards Top sales, travel awards, gift certificates etc. Psychic pay special parking, lunch with the CEO etc. worksite policies Casual dress codes, break areas, etc. Family friendly policies - Flexible working hours etc.

What is reward management?

Reward management Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organisation. (Milkovich & Newman 2002)

Principle objectives of RM: Attract and retain suitable employees Maintain or improve levels of employee performance Comply with employment legislation and regulations.
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Non-financial rewards

Build capability

Employee benefits

Market analysis

Business/ HR strategy

Reward strategy

Grade and Pay structure policy

Grade and pay structure (base pay)

Total Remuneration

Total reward

Improved Performance

Job evaluation

Contingent pay
Performance management Learning and development 9

Components of reward management

Source: Armstrong and Murlis (2004)

Importance of reward management

Reward systems can influence a number of HR processes and practices which in turn have an impact on organisational performance. E.g.. Recruitment and retention Employees see reward systems as signalling the importance the employer places on various activities or behaviours.

The way in which employees are rewarded has a major influence on corporate culture.
The reward system can help to define the status hierarchy and decisionmaking structure. Cost & form large part of business & method of competing. Attention-attracts public, institutional & governments attention. Varied internationally
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Strategic design of reward systems

Internal alignment Determining the structure Internal equity refers to the pay relationships between the jobs/skills/competences within a single organisation. The relationships form a pay structure that can support the workflow, is fair to employees, and directs their behaviour toward organisation objectives.

External competitiveness Determining the pay level External competitiveness refers to the pay relationships among organisations the organisations pay relative to its competitor.

Factors that shape internal structure Strategic choices in designing structure Job-based or person based

Factors that shape external competitiveness Designing pay levels, pay mix etc. Balancing the internal and external pressures
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External factors: Economic pressures Government policies, laws/ regulations Stakeholders Cultures and customs

Internal alignment

Organisational factors: Strategy, technology, human capital, HR policy, employee acceptance, cost implications

Internal structure: Levels Differentials criteria

Job based
Job analysis Job evaluation Job based structure

Person based

Skills
Skill analysis

Competencies Competency sets

Person based structure

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Labour market factors: Nature of demand Nature of supply

Product market factors: Degree of competition Level of product demand

External competitiveness

Set policy
Organisational factors: Industry, strategy, size, individual manager / owner

Define market
Conduct survey Merge internal & external pressures Competitive pay levels, mix and structures
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Approaches to international rewards (1)

Should reward packages be based on (1) the salary level of the home country or (2) the salary level of the host country? Two main approaches: The going rate approach The balance sheet approach

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Approaches to international rewards (2)

The going rate approach

Based on local market rates

Relies on survey comparisons among: local nationals (HCNs), expatriates of same nationality and expatriates of all nationalities Compensation based on the selected survey comparison

Base pay and benefits may be supplemented by additional payments for low-pay countries

(Source: Dowling and Welch, 2004:145)

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Approaches to international rewards (3)

The going rate approach Advantages:

Disadvantages:

Equality with local nationals Simplicity Identification with host country Equity amongst different nationalities

Variation between assignments for same employee Variation between expatriates of same nationality in different countries
Potential re-entry problems

(Source: Dowling and Welch, 2004:145)

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Approaches to international rewards (4)

The balance sheet approach (the most widely used)

Based on home-country pay and benefits Adjustments to home package to balance additional expenditure in host country

Financial incentives (expatriate/hardship premium) added to make the package attractive

(Source: Dowling and Welch, 2004:146)

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Approaches to international rewards (5)

The balance sheet approach

Advantages:

Disadvantages:

Equity --between assignments for the same employee --between expatriates of the same nationality Facilitates expatriate re-entry Easy to communicate to employees

Can result in great inequality --between expatriates of different nationalities --between expatriates and local nationals Can be complex to administer

(Source: Dowling and Welch, 2004:148)

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Case study 1: Strategic employee rewards at Richer Sounds

How is Richer Sounds business strategy reflected in its rewards? What other considered? types of rewards might be

How might the type be influenced by its business strategy?

Source: From Marchington and Wilkinson, 2002

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Case study 2 Pay under scrutiny as recession bites

To what extent is cutting pay a good idea for employers in an economic downturn? How would you motivate and retain good performers in the current economic situation?
Source: The Times July 17th, 2008

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References

Rowley The management of people: HRM in context (2003) Spiro Business Guide Marchington and Wilkinson People management and development: HRM at work 2nd (2002) CIPD Brown and Armstrong Paying for contribution: Real PRP strategies (1999) Kogan Page Thorpe & Homan Strategic reward systems (2000)Pearson Milkovich & Newman Compensation (2002) 7th McGrawHill Reilly New reward II: Issues in developing a modern remuneration system (2003) IES Armstrong & Murlis Reward management: A handbook of remuneration strategy and practice (2004) 5th Kogan Page

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