Reward Systems and Legal Issues Overview

1. Reward Systems and Legal IssuesOverview • Reward Systems • Legal Issues

2. Reward Systems: Overview • Traditional and Contingent Pay (CP) Plans • Reasons for Introducing CP Plans • Possible Problems Associated with CP • Selecting a CP Plan • Putting Pay in Context • Pay Structures

3. Traditional Pay • Salary and salary increases are based on • Position • Seniority

4. Contingent Pay (CP) • Salary and salary increases are based on • Job performance • Also called: Pay for Performance • If not added to base pay, called: • Variable pay

5. Reasons for Introducing CP (1) • Performance management is more effective when rewards are tied to results • CP Plans force organizations to: • Clearly define effective performance • Determine what factors are necessary

6. Reasons for Introducing CP (2) • Supervisors and employees are better able to understand what really matters • CP plans enhance employee motivation to accomplish goals that match organizational needs

7. Reasons for Introducing CP (3) • CP plans help to recruit and retain top performers • CP plans project good corporate image

8. CP plans help improve motivation when: • Employees see clear link between their efforts and resulting performance (Expectancy) • Employees see clear link between their performance level and rewards received (Instrumentality) • Employees value the rewards available (Valence) motivation = expectancy x instrumentality x valence

9. Possible Problems Associated with CP • Poor performance management system • Rewarding counterproductive behavior (Rewarding A while hoping for B) • Rewards are not considered significant • Managers are not accountable (The reward becomes the driver) • Extrinsic vs. intrinsic motivation • Disproportionately large rewards for executives

10. Selecting a CP Plan: Issues to consider • Culture of organization • Strategic direction of organization

11. A. Culture of organization: Types of organizations • Traditional • Top-down decision making • Vertical communication • Jobs that are clearly defined • Involvement • Shared decision making • Lateral communications • Loosely defined roles

12. Traditional organizations Piece rate Sales commissions Group incentives Involvement organizations Profit sharing Skill-based pay CP systems for different organizational cultures:

13. Employee development Skill-based pay Customer service Competency-based pay Gainsharing Overall profit Executive pay Profit or stock sharing B. CP Plans to enhance Strategic Directions:(1)

14. Productivity Individual Piece rate Sales commissions Teamwork Team sales commissions Gainsharing Competency based pay Group Gainsharing Group incentives B. CP Plans to enhance Strategic Directions:(2)

15. Putting Pay in Context A reward increases the chance that • Specific behaviors and results will be repeated, or • Employee will engage in new behavior and produce better results

16. Pay Recognition Public Private Status Time Trust & Respect Challenge Responsibility Freedom Relationships Rewards can include:

17. How to Make Rewards Work • Define and measure performance first and then allocate rewards • Only use rewards that are available • Make sure all employees are eligible • Rewards should be both • Financial • Non-financial (continued)

18. How to Make Rewards Work (continued) • Rewards should be: • Visible • Contingent • Timely • Reversible

19. Pay Structures • Job Evaluation • Broad-banding

20. Pay Structures An organization’s pay structure • Classifies jobs • Into categories • Based on their relative worth • Is designed by job evaluation methods

21. Job Evaluation • Method of data collection • Determine the worth of various jobs • Create a pay structure • Consideration of • KSAs required for each job • Value of job for organization • How much other organizations pay

22. Types of job evaluation methods: • Ranking • Classification • Point

23. Job evaluation methods: Ranking • Create job descriptions • Compare job descriptions • Rank jobs

24. Advantages of using Ranking method • Requires little time • Minimal effort needed for administration

25. Disadvantages of using Ranking method • Criteria for ranking may not be clear: • Distances between each rank may not be equal

26. Job evaluation methods: Classification • A series of classes or grades are created • Each job is placed within a job class

27. Advantages of using Classification method • Jobs can be quickly slotted into structure • Employees accept method because it seems valid

28. Disadvantages of using Classification method • Requires extensive time and effort for administration • Differences between classification levels may not be equal

29. Job evaluation methods: Point method • Identify compensable factors (job characteristics) • Scale factors (e.g. on a scale of 1 – 5) • Assign a weight to each factor so the sum of the weights for all factors = 100%

30. Advantages of using Point method • Establish worth of each job relative to all other jobs within organization • Comprehensive measurement of relative worth of each job in organization • Easy to rank jobs when total points are known for each job

31. Disadvantages of using Point method • Requires extensive administrative • Time • Effort

32. Does job evaluation method matter? • Fairness • Evaluators • Impartial • Objective

33. Compensation surveys • Information on • Base pay • All other types of compensation • Conducted in-house or by consultants, such as: www.salary.comor www.haypaynet.com

34. Broad-banding • Most commonly used pay structure • Pay structure collapses job classes into fewer (≤ 5) categories

35. Advantages of Broad-banding • Provides flexibility in rewarding people • Reflects changes in organization structure • Provides better base for rewarding growth in competence • Gives more responsibility for pay decisions to managers • Provides better basis for rewarding career progression

36. Reward Systems: Summary • Traditional and Contingent Pay (CP) Plans • Reasons for Introducing CP Plans • Possible Problems Associated with CP • Selecting a CP Plan • Putting Pay in Context • Pay Structures

37. Legal Issues: Overview • Performance Management and the Law • Some Legal Principles Affecting PM • Laws Affecting PM

38. Performance Management and the Law • Performance management systems are legally sound, if they are fair: • Procedures are standardized • Same procedures are used with all employees

39. Some Legal Principles Affecting PM:Overview • Employment-at-will • Negligence • Defamation • Misrepresentation • Adverse Impact • Illegal Discrimination

40. Employment-at-will • Employment relationship can be ended at any time by • Employer • Employee • Exceptions • Implied contract • Possible violation of legal rights

41. Negligence • If organization documents describe a system and • It is Not implemented as described, • Employee can challenge evaluation, charging negligence

42. Defamation • Disclosure of performance information that is • Untrue and • Unfavorable

43. Misrepresentation • Disclosure of performance information that is • Untrue and • Favorable

44. Adverse Impact / Unintentional Discrimination • PM system has unintentional impact on a protected class • Organization must demonstrate: • Specific KSA is a business requirement for the job • All affected employees are evaluated in the same way • Organization should review ongoing performance score data by protected class to implement corrective action as necessary

45. Illegal Discrimination or Disparate Treatment • Raters assign different scores to employees based on factors that are NOT related to performance • Employees receive different treatment as result of such ratings • Employees can claim they were intentionally and illegally treated differently due to their status

46. Employee claim of illegal discrimination: • Direct evidence of discrimination, or • Evidence regarding the following: • Membership in protected class • Adverse employment decision • Performance level deserved reward/different treatment • How others were treated (not in protected class)

47. Employer response to claim of illegal discrimination • Legitimate and non-discriminatory reason for action • Related to performance Note: Good performance management system and subsequent performance-related decision, used consistently with all employees, provides defense

48. Difference between legal and illegal discrimination • LEGAL discrimination discriminates among employees based on their level of performance • ILLEGAL discrimination is based on variables that should not usually be related to performance

49. During past few decades, several countries have passed laws prohibiting discrimination based on: Race or Ethnicity Sex Religion National Origin Age Disability status Sexual orientation Laws Affecting PM:

50. Equal Pay Act of 1970 Race Relations Act of 1976 Sex Discrimination Act of 1975 Disability Discrimination Act of 1995 Employment Equality (Sexual Orientation) Regulations 2003 Employment Equality (Religion or Belief) Regulations 2003 Laws in the United Kingdom: