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1. Hemalathah JeevaJaya Simman
2. Omega Euodia Chrisnes
3. Bernardinus Realino Gavin C
 CHAPTER 12
the organizational
reward system
 Defining the System
‐ Organizational reward system
‐ Concerned with selection of types of rewards to be used by organization
‐ Organizational rewards
‐ Rewards that result from employment the organization; includes all types
of rewards, both intrinsic and extrinsic
‐ Intrinsic rewards – Internal to individual and are normally derived from
involvement in certain activities or tasks
‐ Examples – Job satisfaction and feelings of accomplishment
‐ Extrinsic rewards – Directly controlled and distributed by organization and more
tangible than intrinsic rewards
‐ Examples – Pay and hospitalization benefits
‐ Although differing, intrinsic and extrinsic rewards are closely related
‐ Often an extrinsic reward provides recipient with intrinsic rewards

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Intrinsic versus Extrinsic Rewards

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 Selection of Rewards

‐ Management must recognize what employees perceive as

meaningful rewards
‐ Pay is usually the first, and sometimes the only, reward most
people think about
‐ However, rewards should be viewed in the larger perspective
as anything employees value
‐ May include things such as
‐ Office location
‐ Allocation of certain pieces of equipment
‐ Assignment of preferred work tasks
‐ Informal recognition
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 Selection of Rewards

‐ Returns benefiting organization through distribution of awards

can be realized only if desires of employees are known
‐ Organizations should learn what employees perceive as
meaningful rewards, which is not necessarily what management
perceives
‐ Traditionally, managers have assumed they are fully capable of
deciding just what rewards employees need and want
‐ Unfortunately, this is often not true
‐ Studies have shown that employees tend to rank lack of recognition
as the most probable reason good employees quit their jobs

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 Selection of Rewards
‐ Another false assumption is exemplified by fact that most
organizations offer same mix of rewards to all employees
‐ Studies show that many variables can influence employee
preferences for certain rewards. They include
‐ Age
‐ Sex
‐ Marital status
‐ Number of dependents
‐ Years of service
‐ For example, older employees are usually much more
concerned with pension and retirement benefits than are
younger employees
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 Selection of Rewards

‐ When selecting types of rewards to offer, intrinsic benefits that might

accrue as a result of the rewards need to be considered
‐ Managers and employees alike consider only tangible benefits
associated with a reward
‐ External factors that place limitations on an organization’s reward
system also exist
‐ These factors (usually beyond the control of the organization) include
such things as
‐ Organization’s size
‐ Environmental conditions
‐ Stage in product life cycle
‐ Labor market
12-8
 Relating Rewards to Performance
‐ Free enterprise system is based on the premise that rewards should depend on
performance

‐ Performance–reward relationship is desirable at

‐ Organizational or corporate level

‐ Individual level

‐ Employees will be motivated when they believe such motivation will lead to desired
rewards

‐ Many formal rewards provided by organizations are not related to performance

‐ These rewards are almost always determined by organizational membership and

seniority; they include

‐ Paid vacations

‐ Insurance plans

‐ Paid holidays 12-9

 Relating Rewards to Performance

‐ Other rewards, such as promotion, can and should be related to performance

‐ Opportunities for promotion may occur only rarely
‐ When available, higher positions may be filled
‐ On basis of seniority
‐ By someone outside the organization
‐ Primary organizational variable used to reward employees and reinforce
performance is pay
‐ Even though many U.S. companies have some type of pay-for-
performance program, most do a poor job of relating the two
‐ Surveys repeatedly show that employees do not have much confidence
about a positive relationship exists between the two
‐ Evidence shows that paying for performance is working at the highest
levels in many companies

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 Relating Rewards to Performance

‐ Why is the practice not more widespread?

‐ Not easy to do; much easier to give everybody the same thing,
as evidenced by the ever-popular across-the-board pay
increase
‐ Relating rewards to performance requires that
performance be accurately measured, and this is
often not easily accomplished
‐ Requires discipline to actually relate rewards to
performance
‐ Many union contracts require that certain rewards be based on
totally objective variables, such as seniority
‐ No one successful formula for implementing a pay-for-performance
program has yet been developed
12-11
 Relating Reward to Performence

Precondition for implementing a pay for performance program:

1. Trust management
2. Absence of peformance constraints
3. Trained supervisors and managers
4. Good measurement systems
5. Ability to pay
6. Clear distinction among of living, senioriry, merit
7. Well communicated total pay policy
8. Flexible reward schedule
 Job Satisfaction and Rewards
‐ An employee’s general attitude toward the job
‐ Organizational reward system often has a significant impact on level of employee
job satisfaction
‐ Manner in which extrinsic rewards are dispersed can affect intrinsic rewards (and
satisfaction) of recipients
‐ There are five major components of job satisfaction:
‐ Attitude toward the work group
‐ General working conditions
‐ Attitude toward the company
‐ Monetary benefits
‐ Attitude toward management
‐ Other components include
‐ Employee’s state of mind about the work itself
‐ Life in general
‐ Health, age
‐ Level of aspiration, social status, and political and social activities
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 Job Satisfaction and Rewards

‐ Organizational morale – Employee’s feeling of being

accepted by and belonging to a group of employees
‐ Through common goals
‐ Confidence in desirability of those goals
‐ Desire to progress toward the goals
‐ Morale is the by-product of a group
‐ Job satisfaction is more an individual state of mind
‐ Two concepts are interrelated in that job satisfaction
can contribute to morale and morale can contribute to
job satisfaction

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 The Satisfaction–Performance Controversy

‐ “The path of least resistance” – Attempts to explain belief that a

satisfied employee is necessarily a good employee
‐ If a performance problem exists, increasing an employee’s
happiness is far more pleasant than discussing with the
employee his or her failure to meet standards
‐ Although happiness eventually results from satisfaction, the latter
goes much deeper and is far less tenuous than happiness
‐ Two propositions concerning the satisfaction-performance theory
exist
‐ Traditional view is that satisfaction causes performance
‐ Satisfaction is the effect rather than the cause of performance
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 The Satisfaction–Performance Controversy

‐ Performance leads to rewards that result in a certain level of

satisfaction
‐ Rewards constitute a necessary intervening variable in the
relationship
‐ Another position considers both satisfaction and performance to be
functions of rewards
‐ Satisfaction results from rewards, but current performance also
affects subsequent performance if rewards are based on current
performance
‐ Research evidence generally rejects the more popular view that
satisfaction leads to performance
‐ It does provide moderate support for the view that performance
leads to satisfaction
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 Other Factors Affecting Job Satisfaction

‐ Wide range of both internal and external factors affect an employee’s level of
satisfaction
‐ Surveys have found that the top drivers of employee job satisfaction were
‐ Pay, and benefits
‐ Job security, and feeling safe in the work environment
‐ Flexibility to balance work and life
‐ Job satisfaction and motivation are not synonymous
‐ Motivation is a drive to perform
‐ Organizational reward systems can influence both job satisfaction and
employee motivation
‐ It affects job satisfaction by making the employee more or less
comfortable as a result of the rewards received
‐ It influences motivation primarily through the perceived value of the
rewards and their contingency on performance
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Determinants of Employee Satisfaction and Dissatisfaction

12-18
 Employee Compensation
‐ Compensation
‐ All extrinsic rewards that employees receive in exchange for their
work
‐ Composed of base wage or salary, any incentives or bonuses, and
any benefits
‐ Base wage or salary – Hourly, weekly, or monthly pay
employees receive for their work
‐ Incentives – Rewards offered in addition to the base wage or
salary and are usually directly related to performance
‐ Benefits – Rewards employees receive as a result of their
employment and position with the organization (Examples: Paid
vacations, health insurance, and retirement plans)
‐ Pay
‐ Refers only to actual dollars employees receive in exchange for work

12-19
Components of Employee Compensation

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 Compensation Policies

‐ Policies must deal with following issues:

‐ Minimum and maximum levels of pay – Taking into consideration
‐ Worth of job to organization
‐ Organization’s ability to pay
‐ Government regulations
‐ Union influences
‐ Market pressures
‐ General relationships among levels of pay (e.g., between senior
management and operating management, operative employees, and
supervisors)
‐ Division of total compensation dollar (i.e., what portion goes into base
pay, incentive programs, and benefits)

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 Pay Secrecy
‐ Many organizations have a policy of not disclosing pay-related information
‐ Information about pay system as well as individual pay received
‐ Justification for pay secrecy
‐ To avoid any discontent that might result from employees’ knowing
what everybody else is being paid
‐ Many employees, especially high achievers, feel very strongly that their
pay is nobody else’s business
‐ Drawbacks of pay secrecy
‐ Difficult for employees to determine whether pay is related to
performance and does not eliminate pay comparisons
‐ May cause employees to overestimate pay of their peers and
underestimate pay of their supervisors
‐ Can create feelings of dissatisfaction
‐ Employees may become suspicious
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 Government and union influence

‐ Davis Bacon Act

‐ Walsh-Healey Public Contracts Act
‐ Fair Labor Standards Act
‐ Equal Pay Act
‐ Federal Wage Garnishment Law
‐ Lilly Ledbetter Fair Pay Act of 2009
‐ Union Contracts
Model of the Consequences of Pay Dissatisfaction

12-24
Model of the Determinants of Pay Satisfaction

12-25
 CHAPTER 14
INCENTIVE PAY SYSTEM
 coIncentive or variable pay plans

- Pay plans designed to relate pay directly to

performance or productivity, often used in conjunction
with a base wage and salary system.
 REQUIREMENTS OF INCENTIVE PLANs

‐ There are two basic requirements for an effective

incentive plan .
‐ The first concerns the procedure and methods use to
appraise employee performances.
‐ The second requirement is that the incentive must be
based on performance
 Individuals incentive
‐ While there are many types of individual incentive
plan, all are tied in some measure to the
performance of the individual.
‐ The primary advantage of the individual incentive
system is that the employees can readily see the
relationship between what they do and what they
get.
 Piece rate plans
‐ Are the simplest and most common type of incentive
plan. The employer pays an employee a certain
amount for every unit he or she produces .
 PLANS BASED ON TIME SAVED
‐ Standard hour plans are similar to piece rate plans
except that a standard time is set in terms of the
time it should take to complete a particular job .
‐ It also gives employee a bonus for reaching a given
level of production or output in less than the
standard time .
 Plan based on commission
- Primarily applicable to production type jobs.
However, other incentive plans apply to different
type of jobs .
- One of the most prevalent types is based on
commission.
 Individual bonuses
‐ A bonus reward that is offered on a one time basis
for high performances.
‐ Married pay increase is a reward that is based on
performance but it is also perpetuated year after
year .
 Suggestion system

‐ System that usually offer cash incentive for

employee suggestion that result in either increase
profit or reduce cost .
 Incentive for managerial personal
Incentive for managerial personal generally take the
form of annual bonuses, long term performance plans,
or some type of stock option.
 Annual bonus
‐ Most common type of incentive for managerial
employee is the annual cash bonus

LONG TERM PERFORMANCE PLAN

GENERALLY KNOWN AS PERFORMANCE SHARE PLAN , AN INCENTIVE
PLAN THAT AWARDS TOP EXECUTIVE A SET NUMBER OF
PERFORMANCE UNITS AT THE BEGINNING OF THE PERFORMANCE
PERIOD
 A stock grants an option for managerial personal

‐ Stock grants occur when a company gives stock to

managers as part of their normal compensation .
Stock option incentive Incentive Stock Stock for Stocks swap
plans that gives Option Allows option to be
managers and Form of qualified stock exercise which shares
employees an option to option plan in which the of previously purchase
buy stocks at manager does not have company stock in liea of
predetermined fixed to pay any tax until the cash
price. stock is sold
 Group incentive

‐ Incentive that are based on group rather than

individual performances .

Organisation wide incentive

‐ Incentive that reward all member of the organisation
based on the performance of the entire organisation.
 Employees stock ownership plan
‐ Form of stock option plan in which the organisation
provides for employee purchase of its stock at a set
price for a set period based on the employees length
of service and salary and the profits of the
organisation
 Making incentive plan work
‐ If an incentive plan is to function as intended and
generate higher performance among employees, it
must be clearly communicated to employees, must
be viewed as being fair, and must be related
performance.
 CHAPTER 15
EMPLOYEE BENEFITS
 INTRODUCTION
‐ Employee benefits, sometimes called
fringe benefits, are those rewards that
employees receive for being members
of the organization and for their
positions in the organization
‐ Unlike wages, salaries, and incentives,
benefits are usually not related to
employee performance
‐ In general, for an organization,
employee benefits can be grouped into
five general categories, which are not
mutually exclusive : legally required,
retirement related, insurance related,
payment for time not worked, and
other
 GROWTH IN EMPLOYEE BENEFITS

Prior to the passage of the Social Security Act in 1935, employee

benefits were not widespread. Not only did the act mandate certain
benefits, but also its implementation greatly increased the general
public’s awareness of employee benefits. By this time, unions had
grown in strength and had begun to demand more benefits in their
contracts. Thus, the 1930s are generally viewed as the birth years
for employee benefits. As productivity continued to increase
throughout and after World War II, more and more employee
benefits came into existence, although the categories used differ
slightly from those described earlier. Benefits as a percentage of
total compensation peaked at almost 40 percent in 1990s. Since
then, the percentage has slowly declined.
 LEGALLY REQUIRED BENEFITS

The law mandates certain benefits, there are three

benefits in this category :
1. Social Security
2. Unemployment
3. Worker’s compensation benefits
 SOCIAL SECURITY
‐ Social security is a federally administrated insurance system. Under current federal
laws, both employer and employee must pay into the system, and a certain percentage
of the employee’s salary is paid up to a maximum limit.
‐ With few exceptions, social security is mandatory for employees and employers. Self-
employed persons are required to contribute both the employer and employee portions.
The payments distributed under social security can be grouped into three major
categories :
1. Retirement benefits under social security : To be eligible for periodic payments, a
person must have reached at least age 62, and be fully insured under the system. To
be fully insured a person must have 40 credits. The size of the retirement benefit varies
according to the individual’s average earnings under covered employment
2. Disability benefits : Pensions may be granted under social security to eligible
employees who have a disability that is expected to last at least 12 months or to result
in death
3. Health insurance : Or commonly known as Medicare, provides partial hospital and
medical reimbursement for persons over 65.
 Part A : Hospital insurance, is financed through the regular social security
funds. Most inpatient hospital expenses, skilled nursing care, hospice care,
and other related expenses are covered by this Part
Part B : Medical insurance, help a participant pay for a number of different
medical procedures and supplies that are completely separate from hospital
care
Part C : Medical advantage, plans allow the user to choose to receive all of
their health care services through a provider organization, under this Part,
may help lower the costs of medical services and it may result in extra
benefits for an additional monthly fee
Part D : A person has to opt in by filling out a form and enrolling in an
approved plan
‐ Problems faced by Social Security : is fewer and fewer people are and will be
working to support more and more retirees as the “baby boom” generation
reaches retirement age
 UNEMPLOYMENT COMPENSATION
‐ Unemployment compensation is designed to provide funds to employees who
have lost their jobs through no fault of their own and who are seeking other
jobs
‐ To receive unemployment compensation, an individual must submit an
application through the state employment office and must meet three
eligibility requirements : The individual must (1) have been covered by social
security for a minimum number of weeks, (2) have been laid off, and (3) be
willing to accept any suitable employment offered through the state’s
unemployment compensation commision. Many disputes have arisen
regarding “suitable employment.” Employees fired for misconduct are not
eligible
‐ Unemployment compensation is usually funded through taxes paid by
employers; however, in some states, employees also pay a portion of the tax
 WORKERS’ COMPENSATION
Workers’ compensation is meant to protect employees from loss of income and to cover extra
expenses associated with job-related injuries or illness. There are certain features are
common to virtually all programs :
1. The laws generally provide for replacement of lost income, medical expense payments,
rehabilitation of some sort, death benefits to survivors, and lump-sum disability payments
2. The employee does not have to sue the employer to get compensation
3. The compensation is normally paid through an insurance program financed through
premiums paid by employers
4. Worker’s compensation insurance premiums are based on the accident and illness record of
the organization
5. An element of coinsurance exists in the worker’s compensation coverage
6. Medical expenses, on the other hand, are usually covered in full under worker’s
compensation laws
7. It is no-fault system ; all job-related injuries and illnesses are covered regardless of where the
fault for the disability is placed
 RETIREMENT-RELATED BENEFITS

‐ In addition to the benefits required by law under

social security, many organizations provide
additional retirement benefits. These benefits are in
the form of private retirement and pension plans
 COMPANY-SPONSORED RETIREMENT PLANS

‐ Retirement and pension plans, which provide a source of income to people

who have retired, represent money paid for past services.
‐ Private plans can be funded entirely by the organization or jointly by the
organization and the employee during the time of employment. Plans
requiring employment contributions are called contributory plans. Those that
do not are called noncontributory plans
‐ Funded pension plans are financed by money that has been set aside
previously for that specific purpose. Nonfunded plans make payment to
recipients out of current contributions to the fund. One popular form of
pension plan is the defined-benefit plan. Under a defined-benefit plan, the
employer pledges to provide a benefit determined by a definite formula at the
employee’s retirement date.
‐ The other major type of retirement plan is the defined-contribution plan,
which calls for a fixed or known annual contribution instead of a known
benefit
‐ Pension Rights : an inherent promise of security in some
form exists in every retirement and pension plan. However,
if the pension benefits are too low or the plan is seriously
underfunded, this promise of security is breached, and
employees who have spent most of their working lives with
companies that have pension plans do not receive an
adequate pension. Another problem involves the vested
rights of employees. Vesting refers to the rights of
employees to receive the dollars paid into a pension or
retirement fund by their employer if they leave the
organization prior to retirement
‐ Defined-benefit plans : have a specified formula for calculating
benefits. The most popular approach has been the final-average-
pay plan, in which the retirement benefit is based on average
earnings in the years, generally two or five, immediately
preceding retirement. In another common approach, the flat-
benefit plan, all participants who meet the eligibility requirements
receive a fixed benefit regardless of their earnings.
‐ Plans affecting salaried employees usually use the final-average-
pay plan. Plans limited to hourly paid employees have
traditionally used the flat-benefit plan
‐ Cash-Balance plans : is a hybrid of the traditional defined-benefit
plan
Defined-contribution plans
1. Noncontributing plan : if only the employer contributes
2. Contributing plan : when both the employee and the
employer contribute
‐ With a defined-contribution plan, the contributed money is
invested and projections are made as to expected
retirement income
‐ Preretirement planning : a recently evolved benefit is
preretirement planning. The purpose of such planning
program is to help employees prepare for retirement, both
financially and psychologically. At the most basic level,
preretirement planning provides employees with
information about the financial benefits they will receive
upon retirement. The subjects include social security,
pensions, employee stock ownership, and health, life
insurance coverage, and many more
 INSURANCE-RELATED BENEFITS

‐ Health Insurance : Insurance that covers the whole or a part of the risk of a
person incurring medical expenses, spreading the risk over a large number of
persons
‐ Dental Insurance : A form of health insurance designed to pay a portion of
the costs associated with dental care
‐ Life Insurance : A contract between an insurance policy holder and an insurer
or assurer, where the insurer promises to pay a designated beneficiary a sum
of benefit in exchange for a premium, upon the death of an insured person
‐ Accident and Disability Insurance : insurance for disabilities people and had a
tragedic injury
 PAYMENT FOR TIME NOT WORKED

‐ It is now standard practice for organizations to pay

employees for certain times when they do not work.
Rest periods, lunch breaks, and wash up times
represent times not worked that are almost always
taken for granted as part of the job
‐ Examples : paid holidays and paid vacations, and
the other
 EMPLOYEE PREFERENCES AMONG BENEFITS

‐ If an organization expects to get the maximum return from

its benefit package in terms of such factors as retention,
motivation, satisfaction, low turnover, and good relations
with unions, the benefits should be those its employees
most prefer.
‐ Organizations that provide benefits without input from
their employees assume management always knows
what it best for the employees and that all employees
need and desire the same benefit
 Flexible-Benefit Plans

‐ Individual employees have some choice as to specific

benefits each will actually receive. Usually
employees select from among several options how
they want their direct compensation and benefits to
be distributed
 THE BENEFIT PACKAGE

‐ Many benefit packages are thrown together

piecemeal and are poorly balanced. The major
problem is that companies often add or delete new
benefits without examining their impact on the total
package.
‐ Beside that, the organization must learn how to
communicating employees benefits effectively.
Thank you
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