Recap

1. International HRM: 2018Strategic Reward Management:- What is being rewarded? - How can differentials be fair? - Should the job or person be rewarded?

2. Recap

4. Motivation: equity theory

5. Engaging intrinsically through job design

6. Reward

7. Reward and employment • The effort --- reward balance is at the heart of the employment relationship … • Scientific management theorists in the early C20 assumed: • Firm owners / managers want more effort for less reward • Employees want minimal effort for most reward • Essentially the same tension holds today but the emphasis has switched from controllingeffort to engendering engagement, commitment and rewarding outcomes • Terms:“pay & benefits”, “compensation”, “remuneration”, “reward”

8. Reward management to ensure … • Attendance at work • Commitment to work • Effective performance of required tasks –productivity(low rewards = low costs but low productivity) • Loyalty to the firm – retention • Problem solving and creativity to develop the firm’s business(contrast “paying peanuts …”)

9. Basic approaches to reward • Service philosophy: emphasises the acquisition of experience -length of service is rewarded • Fairness philosophy:emphasises the right reward for: • the demands of the job • the performance of the individual

10. Types of payment scheme A: Time rate • Time rates (service philosophy) • 75% of all employees are on time rates • Hourly rate, weekly or monthly wage, annual salary • Either: • Flat rate • Incremental increases (based on length of service) • Advantages and Disadvantages?

11. Types of payment scheme B: PBR Payment by results (fairness philosophy) • e.g. “piece work” pay / commission pay • Can apply to whole or, more usually, part, of employees’ pay (top-up to basic pay) • Can involve: • payment varying according to output … or • payment of a fixed sum upon the achievement of a particular level of output

12. Types of payment scheme C: PRP • From PBR (quantity) to PRP (quality) • Widespread moves in the last decade towards individual Performance Related Pay …(examined later)

13. Equal value work = equal pay legal requirement • European Union Equal Pay legislation • Historical and continuing earnings gap between men and women doing similarly skilled work (still in 2017 women earn on average 17% less than men in similarly skilled but different jobs)

14. Equal value work = equal pay legal requirement • Legal requirement for equal pay and conditions for: • Original (1970) legal requirement for equal pay for‘the same or broadly similar work’:But continued gender segmentation – men’s jobs / women’s jobs e.g. within a UK bus company: drivers (£9.64 ph) and cashiers (£8.26 ph) plus drivers can claim a range of “allowances” (extra pay) • Now the legal requirement is for equal pay for‘work of equal value’(e.g. equal skills, training period, physical or mental effort) within the same organisation:Examples: - Cooks and carpenters - Speech therapists and clinical psychologists - Kitchen assistants and refuse workers • However, equal is not necessarily “fair”

15. Fairness in reward? • The reward gap between chief executives and average production or front-line workers reveals a growing ratio: • In the USA the ratios were:1996: 210 : 12000: 300 : 12011: 431 : 12018: 476:1 • How can it be scientifically established that the average CEO is worth 476 times the pay of the average production worker in the same company?

16. Job evaluation – systematic reward • The aim of job evaluation is to provide systematic and consistent approach to defining the relative worth of jobswithin a workplace .... it is a process whereby jobs are placed in a rank order according to overall demands placed upon the job holder .... it provides for a fair and orderly grading system • Establishes the relative position of jobs within a hierarchy ... (job focus v. person focus) • Enabling a salary structure so that the rewards for the job are felt to be fair in comparison with other jobs in the organisation • Systematic rather than scientific

17. Job evaluation - approaches • Two approaches .... • Non-analytical • Whole job ranking (based on job title / JD) • most common in SMEs • Job classification • Paired comparisons • Analytical • points rating • most common in large organisations

18. Job evaluation – ranking • The following 28 jobs can all be found in a medium-sized travel business: • Rank these jobs in terms of the salary they should receive (from most $ to least $): • marketing director; janitor; IT specialist; managing director; tele-sales operator; customer support supervisor; over-seas representative (USA); overseas-representative (China); overseas-representative (Russia); payroll administrator; tea-lady; business development manager; accounts administrator; accounts clerk; HR adviser; tours coordinator (Europe and Russia); tours coordinator (North & South America); web-designer; interim finance controller, brochure designer; flight bookings manager; accounts team-leader; PA to the managing director; secretary; clerical assistant; customer service trainer, market analyst, purchase-ledger clerk

19. Job evaluation – ranking • Working now in groups of three people compare and contrast your ranking and produce an agreed list of the top 6 jobs and the lowest 3 jobs • How easy or difficult was it to reach agreement regarding the ranking of the jobs? And why was it easy / difficult to agree a ranking? • What criteria were you using to agree your ranking (e.g. responsibility for people)?

20. Job evaluation – non-analytical

21. Time-span of autonomy approach • Eliot Jaques:Organisational hierarchies (and pay scales) have, for millennia been based on the "time span of autonomy or discretion" [this has become a common JE criteria] that is the time between making a decision and its results being clear (in other words, how long would elapse before a mistake was obvious) and a six layer hierarchy (or six reward levels) is commonplace: • Operators: 1 hour to 3 months • Line management: 3 months to 1 year • Departmental leaders: 1 year to 2 years • General managers: 2 years to 5 years • Division heads: 5 years to 10 years • CEOs: 10 years to 20 years • Does this reflect the number of levels in hierarchies and reward systems with which you are familiar?

22. Job evaluation - analytical • Points rating • Jobs broken down into factors • Factors awarded points based on a scale • Points total determines rank position • Factors .... examples ... • Qualification level required for the job • Contact with customers and clients • Physical effort / mental effort • Work conditions • Responsibility for people • Responsibility for finance • Responsibility for generating new work / business • ..... and many others

23. Job evaluation - analytical • Points .... example .... • Each job could be scored on each factor on a scale of 1-5 • Weightings • Not all factors are equal – some will have higher weighting / some lower • Issues in:defining the factors / allocating points / deciding on weightings

24. From job evaluation to actual pay levels • Evaluate the jobs in the organisation and get a ranking for them • Decide which jobs are similar in terms of the job evaluation exercise and group them together • Decide what pay to attach to these jobs on the basis of • labour market conditions (demand and supply) • information from salary / conditions surveys • information from recruitment – quantity and quality of candidates attracted • information from exit interviews – why are people leaving? • organisational strategy + ‘brand’ as employer • EVP: Employee Value Proposition cultivated by the firm

25. Reward challenges in MNEs: 1 Problems arise in the MNE when international comparisons are made: Essentially the same jobs may attract very different reward levels because of: - differences in the cost-of-living * (purchasing power / SoL equivalence – a “balance sheet” approach is typically taken by MNEs) - differences in the status of the particular job - differences in trade-union effectiveness - differences in tax-take - cultural differences favouring either performance or tenure in determining reward - differences in the salary-benefit ratios (e.g. in some geographies the firm has to provide health insurance which in other geographies are provided by the State)

26. * CoL differences: world’s most expensive cities Web-sites comparing the cost of living:http://www.expatistan.com/cost-of-living

27. Reward challenges in MNEs: 2 • Should JE factors (and possibly weightings for these factors) be included in the JE for international assignments undertaken by PCNs or TCNs such that additional reward is paid to compensate or even incentivise work in certain locations? • Should “demand-driven” international assignments (knowledge transfer assignments) attract additional reward whereas “learning-driven” international assignments (learning for individuals or the organisation) should not?

28. Job evaluation – analytical

29. Pay Bands + PRP • Widespread moves in the last decade towards individual Performance Related Pay • 3 Levels: • 1) Individual • 2) group • 3) business unit …Long-term PRP: employee share ownership

30. PRP • Top-up to standard annual, inflationary, pay increase at differential rates (e.g. +2%, +4%, +8%) to reflect the individual’s personal performance • Inflationary pay increase might itself be performance related …. i.e. possibility of pay cuts • Quotas established for each increase band: e.g. only 5% of employees will qualify for the 8% rise • PRP – using qualitative judgements … • Clear, measurable, criteria needed • Consistent / fair judgements …. with appeals procedure

31. PRP advantages & disadvantages • Purcell (2016): • “Most people in receipt of individual performance related pay are in the middle range of performance. We can expect 10% of staff to be in the top performing bracket and 5% to be in the poor performer category. The rest, all 85% of them, will get average awards that are similar to the going rate. Most of them have no prospect of getting into the top bracket next year, so the incentive is minimal. We could live with this if the outcome of this pay system was neutral, but often it is negative, costing more than any benefit achieved” • Key problem: “The line of sight problem” - seeing the links between individual effort and organisational outcomes So …. • Is it worth it … advantages and disadvantages …

32. PRP advantages & disadvantages

33. PRP’s many disadvantages • Habituation – addiction - effect • People compare their income with what they themselves have got used to. When they are asked how much income they need, richer people always say they need more than poorer people  • Recipients of PRP very quickly habituate to the extra income: at first the extra standard of living gives a little extra pleasure but we very quickly adapt to it and our happiness quickly returns to its former level. The short-lived happiness gain is largely associated with the change in income rather than its new level • The "hedonic treadmill" whereby people very quickly habituate to a new level of income ... income is addictive : if my income and spending rise this year, next year I will need more income still in order to achieve a given level of happiness

34. PRP’s many disadvantages • If there is PRP and everyone is ranked publicly against their colleagues, this makes people conscious of comparisons for most of the time and focuses their effort on simply increasing the distance between themselves and their co-workers regardless of whether or not what they are actually doing is worthwhile in itself. • PRP undermines the pleasure that a person derives from doing his or her job well for its own sake: excessive focus on financial rewards can undermine professional pride ... and it can also reduce happiness because the people who care most about money are less happy with a given amount of it than other people are ….

35. PRP’s many disadvantages • Participants in a series of problem solving experiments were “primed” with money: • Primes were subtle, including the presence of an irrelevant money-related object in the background, such as a stack of Monopoly money on a table, or a computer with a screen saver of dollar bills floating in water • Results: • Money-primed people become more independent than they would be without the associative trigger. They persevered almost twice as long in trying to solve a very difficult problem before they asked the experimenter for help, a clear demonstration of increased self-reliance • Money-primed people are also more selfish: they were much less willing to spend time helping another student who pretended to be confused about an experimental task. When an experimenter clumsily dropped a bunch of pencils on the floor, the participants with money (unconsciously) on their mind picked up fewer pencils • Thus, economic / market norms were found to replace social norms • Kahneman, Daniel (2012). Thinking, Fast and Slow (p. 55). Penguin UK. Kindle Edition.

36. PRP’s many disadvantages • In many jobs there is no objective measure of performance: people must in effect be evaluated against their peers: • Thus a lot of self-respect (and often very little pay) is being attached to an uncertain ranking process, which fundamentally alters the relationship of co-operation between an employee and his boss, and between an employee and his peers

37. PRP’s many disadvantages • In a famous study, psychologist Edward Deci gave puzzles to two groups of students: an experimental group and a control group. One group he paid for each correct solution, the other group he did not. After the allotted time was up, both groups were allowed to keep on working. The unpaid group did much more extra work owing to their intrinsic interest in the exercise. But for the group that had been paid, the external motivation had reduced the internal motivation that would otherwise have existed. They did half as much additional work on the puzzles

38. PRP’s many disadvantages • In Switzerland in 1993, two communities had been selected as potential storage sites for radioactive waste. An economist, Bruno Frey, arranged a survey of the inhabitants. One community was asked "would you be willing to have the repository here?" Some 50% said yes. The second community was asked, "if you were offered a certain amount of compensation [a generous amount] would you be willing to have the repository here?" To this second question, under 25% said yes. Focusing on financial rewards reduced people's willingness to act on the merits of the case.

39. PRP’s many disadvantages • By upping the financial incentives we diminish a person's internal incentives to give of his or her best and to live up to the name of her or his profession • If you pay people for something they stop feeling that you automatically expect it of them. In consequence they may work even less • Far better is to provide proper pay for each job and stress the importance of the job and of professional norms and professional competence • If we want better work outputs we should teach people that job satisfaction comes from work well done and not simply from "getting ahead"

40. PRP’s many disadvantages • The argument against pay-cuts which are almost an inevitable in PRP schemes where a recipient one year may fail to achieve a PRP increase the next year: on average if someone loses £100 his or her mood worsens twice as much as it would improve if he or she gained £100. That is why people are so averse to risky investments unless the financial gain from taking on the risk is likely to be substantial. • In a classic experiment, one group was shown a coffee mug and asked how much they would be willing to pay for it. They replied $3.50 on average. Members of a second group were are each given the same type of mug as a free gift and then shortly afterwards they are asked how much they would need to be paid to give it back. The answer was a remarkable $7 on average. • J.M.Keynes: "we have been trained too long to strive and not to enjoy"

41. The PRP debate EdExL are an Indian based educational company that run international high-schools in a number of major cities around the world, teaching through the medium of English to the IB standards. The average school has 1,000 students and 75 teachers and offers a broad and rich curriculum with strong pastoral support. EdExL always attempt to established a “best practice” HRM approach to employment regardless of local conditions. The company is planning a new school in Zurich. EdExL are results orientated, ensuring that pupils achieve high grades to gain entry to top universities. However, EdExL also emphasise development of the “whole child” and recognise that some pupils will be more able to achieve their potential through sports, music, arts etc. than through the mainstream academic curriculum. The company believes that both pupil results and holistic development arise from having a well motivated but stable body of teachers who are committed to their school and who achieve the highest professional standards. In line with the company’s “best practice” approach to HRM, the plan is to reward teachers at the Zurich school through a system of PRP (but avoiding a crude PBR system).

42. The PRP debate Management Team: prepare a presentation detailing a suitable PRP system for the teachers and making a well argued and evidenced case in favour of PRP and drawin gupon cultural and institutional understandings. Pose 3 questions to the opposing team and audience to open up debate and check that your plans are robust. Federation of CH Teachers’ Team: prepare a presentation detailing a suitable non-PRP based reward system for the teachers and making a well argued and evidenced case against PRP and drawing upon cultural and institutional understandings. Pose 3 questions to the opposing team and audience to open up debate and check that your suggestions are robust. Method: Each team will have 7 minutes to present their case and the appointed chairperson will then select questions from those prepared by the team to start the debate

43. Payment systems: benefits • Reward typically combines Pay with Benefits: The EVP: employee value proposition • Extrinsic benefits include: • flexible hours, paid holidays, expenses, travel subsidies, subsidised catering, car-parking, pension [defined benefit or defined contribution], private health-care, uniform or work-wear, child-care vouchers, product or service discounts [firm’s own product or service or third party discounts] … (further examples?). • A “cafeteria” approach to reward allows employees to select and “trade” benefits to achieve their own preferred mix of benefits:What benefits would particularly motivate you and why? • Some argue that firms should simply pay salaries and wages and avoid being encumbered with a complex array of benefits:What strategic advantages do firms gain by offering extrinsic benefits to their employees?

44. Harmonisation and Flexibilisation • Traditionally benefits differed significantly between salary-bands and were fixed by the organisation • Current trends … • Harmonisation or “single status”: • the only differentiator being actual pay levels • Flexibilisation • Employees chose from a “cafeteria” / menu of rewards … individuals allowed to compile their own package of costed benefits up to a total value • Recognition of the differing value of rewards to different individuals