HR357 Employee Reward Nick Creaby-Attwood

1. HR357Employee Reward Nick Creaby-Attwood What is reward?

2. Lecture-based, tutor led sessions Lab-based, student led sessions Week 1 – What is reward? Week 2 – Introducing FastCat and reward strategy Week 3 – Alignment Week 4 – Job-based vs. person-based alignment Week 5 – Enhancement Week: Internal alignment – job-based Directed study Online quizzes, directed reading, consideration of reward practices within own organisation, familiarisation with software Independent study Learning sets will provide an opportunity to develop skills and share knowledge. Learning sets will be able to ‘meet’ virtually via Blackboard. Week 6 – Internal alignment – person-based Week 7 – Competitiveness Week 8 – External competitiveness for FastCat Week 9 – Integrate internal and external structures Week 10 – Employee contributions Week 11 – Recognising performance Week 12 - Administration Assessment Group assignment – design a reward system Proposals must be based upon the current state of knowledge about reward Evidence of the practical implications of proposals will be required

3. Forms of reward Total returns Relational returns Total compensation (transactional returns) Recognition and status Learning opportunities Challenging work Employment security Benefits Cash compensation

4. Forms of reward Total returns Relational returns Total compensation (transactional returns) Recognition and status Learning opportunities Challenging work Employment security Benefits Cash compensation Long-term incentives Base pay Merit/cost of living Short-term incentives

5. Forms of reward Total returns Relational returns Total compensation (transactional returns) Recognition and status Learning opportunities CHOICE ‘CAFETERIA STYLE’ ??? Challenging work Employment security CHOICE ‘CAFETERIA STYLE’ Benefits Cash compensation Income protection Allowances Work/life balance Long-term incentives Base pay Merit/cost of living Short-term incentives Adapted from Milkovich and Newman: 2002, 8

6. Aspects of the reward ‘deal’ TRANSACTIONAL LOW TO HIGH (Adapted from Milkovich and Newman, 2002: 49) LOW TO HIGH RELATIONAL

7. The pay model STRATEGIC POLICIES TECHNIQUES STRATEGIC OBJECTIVES • SUPPORTING THE WORKFLOW • Performance • Quality • Flexibility and change • Costs • FAIRNESS TO EMPLOYEES • COMPLIANCE INTERNAL STRUCTURE INTERNAL ALIGNMENT Evaluation/ Certification Work analysis Descriptions PAY STRUCTURE EXTERNAL COMPETITIVENESS Market definitions Surveys Policy lines INCENTIVE PROGRAMMES EMPLOYEE CONTRIBUTIONS Performance based Merit guidelines Seniority based ADMINISTRATION Planning Budgeting Communication EVALUATION (Adapted from Milkovich and Newman, 2002: 13)

8. How do we make reward strategic? THE NEW PAY HIGH COMMITMENT BEST-FIT (CONTINGENCY) APPROACHES BEST-PRACTICE APPROACHES

9. Best-fit approach to reward What business should we be in? Corporate objectives Business unit strategies How do we win? HR strategies How should HR help us win? How should reward help us win? Environment Strategic reward decisions Reward systems Employee attitudes and behaviours Competitive advantage Milkovich and Newman: 2002, 30

10. Ideal type strategies BUSINESS RESPONSE HR ALIGNMENT COMPENSATION SYSTEMS STRATEGY Committed to agile, risk taking, innovative people • Reward innovation in products and processes • Market based pay • Flexible – generic job descriptions INNOVATOR: increase product complexity and shorten product life cycle • Product leadership • Shift to mass customisation and innovation • Cycle time COST CUTTER: focus on efficiency • Operational excellence • Pursue cost-effective solutions Do more with less • Focus on competitors’ labour costs • Increase variable pay • Emphasise productivity • Focus on system control and work specifications • Customer satisfaction incentives • Value of job and skills based on customer contact CUSTOMER FOCUSSED: increase customer expectations • Customer intimacy • Deliver solutions to customers • Speed to market • Delight customer, exceed expectations Milkovich and Newman: 2002, 31

11. Four steps to formulate a best-fit strategy Assess total compensation implications Competitive dynamics Core culture and values Social and political context Employee/Union needs Other HR systems

12. Four steps to formulate a best-fit strategy Assess total compensation implications Competitive dynamics Core culture and values Social and political context Employee/Union needs Other HR systems • Fit policy decisions to strategy • Objectives • Alignment • Competitiveness • Contributions • Administration

13. Four steps to formulate a best-fit strategy Assess total compensation implications Competitive dynamics Core culture and values Social and political context Employee/Union needs Other HR systems • Fit policy decisions to strategy • Objectives • Alignment • Competitiveness • Contributions • Administration Reassess the fit Realign as conditions change Realign as strategy changes Implement strategy Design system to translate strategy into action Choose techniques to fit strategy Milkovich and Newman 2002, 34

14. How do we know what our objectives are? Importance of consultation and communication Senior managers don’t have all the answers The debate of different viewpoints provides a balanced understanding of corporate objectives. Management will learn about the variables that are associated with performance improvement Management will learn about what motivates employees People will understand and become committed to the strategy

15. Best-fit or best practice? Reward system Success Environment Strategy • Success is not derived from a clever strategy determined at the top – but by having rewards that attract and retain the best human resources available • It is the people that are the source of competitive advantage – and the basis of good strategies Environment Reward system Strategy Success

16. High commitment management and reward • Emphasises the need for a ‘moral commitment’ to organisations • This is about the perceived mutuality of interests between employees and their employers • This can be achieved through adopting reward practices which foster high trust relationships and intrinsic work satisfaction – sharing success but protecting from failure

17. The New Pay • Pay levels driven by market forces rather than internal comparison • Pay rises driven by performance • Reward set in the context of a psychological contract characterised by ‘risk sharing’ between employer and employee: • More pay dependent on performance • More emphasis on ‘employability than ‘job security’

18. What do we mean by ‘Best practice’ – and does it work? • Performance bonuses and share options are important (Becker and Huselid: 1997) • Bundles of high performance work systems (gainsharing, competitive pay levels, training, team working, and participation) are more effective than isolated initiatives (MacDuffie: 1995; Arthur: 1994; Ichniowski et al: 1998)