Human Resource Management

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Rewarding Employees Total Marks: 30 ASSESSMENT # 6 1. Give short answers to the following questions: i. ii. iii. (15) What is the link between motivation and performance? How do team-based rewards work? ‘Rewarding is essential for motivation.’ Which types of incentives would be most suitable for the following workers? a. A cleaner b. A salesperson c. A nurse d. A shop assistant Q.2. Q.3. Outline the principles of setting up a reward system. Explain the different methods used for developing a pay structure. HRM Level 4 Brentwood Open Learning College (7) (8) Page: 1
HUMAN RESOURCE MANAGEMENT UNIT-6 3 Rewarding Employees Learning Outcomes By the end of this unit the learner will be able to:  Identify the motivational aspects of the reward system  Explore the reward system  Identify types of rewards and employee ownership P a g e 1 | 15 HUMAN RESOURCE MANAGEMENT Unit 6 Rewarding Employees Introduction Reward systems have been studied intensely and appeared in literature on economics, psychology, and sociology in particular. Other disciplines have also conducted studies on the reward systems and the role they play in business. This is because reward systems have such an impact throughout organisations. The design and context in which reward systems operate decides what impact the systems will have. One must focus on the characteristics of an organisation and the pay system it has in place, in order to understand the pay system. Whenever there is a change in business practices or the business itself, a new approach to reward systems is necessary because often the old ones will not be sufficient in a changing environment. An organisation must strive to ensure the reward system is fair across-the- board so that all departments have rewards that suit their workloads. Motivational Aspects The development, implementation, and evaluation of the reward system, is part of reward management. There is a lot of literature that describes the relationship between reward systems and how participative management is practiced. This is the type of management that involves workers in the decision - making process. Reward systems operate for a number of reasons. Motivation is one of the major ones. Allowing the organisation to ‘humanise’ work for employees is another one and it enables the employees to feel more satisfied in their work. Part of this is that there is an assumption that organisations have a moral duty to make work as satisfying and enjoyable as possible. It is understood that if employees are happier at work, their motivation and productivity will be higher. Another reason regards management and its ability to control behaviour of subordinates more successfully. With these systems in place and the workforce appropriately motivated, management can then more easily secure the achievement of organisational goals. What is Motivation? Motivation in business is a reason for producing or behaving in a particular way. It is about motives. They are the internal drivers of employees that direct their behaviour towards certain outcomes. For example, achieving higher performance at work may be because the employee wants a new car or because he/she wants to have a feeling of achievement. Needs are usually more physiological. For example: “I’m tired P a g e 2 | 15 HUMAN RESOURCE MANAGEMENT and I need rest,” or “I need the company of others and social connections.” Another motivator could be self-esteem; an employee needing the respect of his/her peers. The most important elements to designing a reward system are:      Pinpointing the strategic elements of rewards and how they connect to other aspects of human resources. Assessing and revising the elements that make up the reward package. Creating basic pay structures through job evaluation systems, market tracking and competence assessments. Determining which aspects of pay for performance schemes should be used and under which conditions. Constructing a benefits package which suits the needs of both the organisation and the employees. The Influence of Motivation Theory Money is a major motivator for most people most of the time, but it is not so for everybody all of the time. Money can also be used to motivate people but only to a certain level and this differs for every person. In private enterprise especially, the aim is to motivate most of the employees through pay for performance schemes using their achievement of goals as the motivator. Within the public and voluntary sector, motivation is oftentimes linked with satisfaction related to the job. Here, the physiological needs are more prominent. In order to have a motivated and loyal workforce, organisations must put into place competitive compensation and benefits schemes. An effective compensation scheme should include a pay philosophy that relates closely to the company’s business strategy and reflect the company’s culture and long-term goals. Deciding whether or not your organisation wants to set salary types on the same level as other competitors in the field or establish yourselves as top-notch employers who pay for good talent, is something your company must decide early on. If an organisation isn’t able to compete on salaries alone, it can come up with other benefits, more unusual but effective, that will distinguish it from others. Reward Systems The ability to reward members is an important attribute of work organisation, the most important of these rewards being pay increases, promotions, fringe benefits and increased status. The ways rewards are allocated have a deep effect on the quality of work life for employees and the effectiveness of organisations. Reward systems are mostly effective in four ways. P a g e 3 | 15 HUMAN RESOURCE MANAGEMENT They: 1) 2) 3) 4) Motivate employees to perform effectively Motivate potential candidates to apply to join the organisation Motivate employees to come to work, and Motivate individuals by clearly showing their position in the organisation’s structure. Setting up an effective reward system relies on several principles:       Giving value to the reward system. Employees usually prefer certain types of rewards and these can differ. Many employees prefer cash rewards. Some employees like to see their names in the company newsletter while others prefer public recognition and award ceremonies. Making the reward system simple to understand. Too many complicated procedures for evaluating performance, including forms, and reviews by several levels of management, will lead to confusion. The system must be easy to understand. This is the only way it will be effective. Decide on performance standards within the control of the team. Ensure the reward system is fair and effective. Ensure participation in the reward system. Involve people in the reward process. Different types of rewards are used by different organisations. These types include recognition, money, plaques, citations, special assignments or parties, and celebrations. There are also other types of rewards. Many companies use pay, incentives and awards. Most people prefer bonuses in salary or wages. This pay system has rewards for the company as well as it usually (but, not always) comes with an increase in employee motivation. Companies also use incentives and awards. However, it is not only money that motivates people. Studies show that there are other things important to achieve satisfying rewards. They are mentioned below: 1) Satisfaction with reward is not only related to how much is received but how much the individual feels should be received. If less than expected is received, individuals usually feel dissatisfied. In some cases, when they receive more than what they expect, they may feel guilty and/or uncomfortable. 2) Comparison plays a big part and people’s feelings of satisfaction can be influenced by comparisons with what happens to others. These comparisons are made both inside and outside the organisations they work in, and are usually made with people in similar jobs. 3) As well as the obvious outer rewards employees receive (e.g. pay, promotion, and status symbols) they also usually experience inner feelings that are rewarding to them. Feelings of competence, achievement, personal growth, and self-esteem are among them. Overall, job satisfaction is determined by both how people feel about their intrinsic rewards and how they feel about their outer rewards. P a g e 4 | 15 HUMAN RESOURCE MANAGEMENT 4) The rewards people want and how important rewards are to them differ from person to person. Some feel money is the most important, while others feel interesting work and job content is important. People are often able to find examples to support their point of view. 5) Usually, the outer rewards such as pay and awards are important and satisfying because they will most likely lead to other rewards, or because to some people the symbolic value is of importance. In order to be effective, reward systems must relate to performance. The criteria for getting rewards must be very clear and it is necessary for employees to know if they are on track to receiving rewards. The perception of rewards as being fair is also a must. Those employees who work harder should receive greater rewards than poor performers. Furthermore, for any company to attract, motivate, and keep qualified and competent staff, they must offer rewards comparable to their competitors. Types of Incentives and Rewards Incentives and rewards are different. Incentives are forward-looking, so to speak, while rewards are more reflective. Financial incentives provide direct motivation which equates to: “do this and you will get that.” They are tangible rewards and will continue to work as long as employees know that further excellent performance will bring more rewards. In some cases a team-based sum will be available. This is only when the team involved has worked co-operatively to achieve the target. Competence-Related Pay A way of rewarding people based on their competency level in carrying out their work can be defined as competence-related pay. This definition can be viewed in two ways: a) Pay is linked to competence, and b) Employees can be rewarded according to their level of competence. Competence related pay is not about the acquiring the specific competence, it is about how the use of the competence produces added value. This type of pay relies upon assessing the competence levels. Skill Based Pay Skill-based pay is connected to the level of skills employees use while doing their jobs. It also includes the use of any additional skills learnt by the employee. Skill-based pay is different to competence-related pay. Skill-based pay usually refers to manual skills such as fitters and turners, machine operators and welders. Competence-related pay refers to attitudes and behaviours an employee must have and use to perform a particular role effectively. These employees are then assessed on the competency and the skill. The pay schemes should be reviewed and/or changed as necessary because they may not be useful after a period of time if other changes have occurred. They must also be cost effective. P a g e 5 | 15 HUMAN RESOURCE MANAGEMENT Team-Based Rewards Members of a team (that is formally chosen and recognised by the organisation) may receive teambased rewards when their performance has achieved the desired goals set by the organisation. These rewards would then be shared between all the members of the team. Rewards for individuals within the team can also be used in order to recognise especially good performance by certain members. An understanding of the nature of teamwork and how teams function is necessary in order to develop and manage team-based rewards. Profit Sharing Profit sharing is better known and is practiced more than gain sharing. Profit sharing is a system whereby the employees receive a direct share of company profits. It is a group based system. Basic objectives of profit sharing are: a) using methods that inspire employees to identify more closely with the company by building a common concern for its progress; b) to encourage more interest among employees in the concerns of the company as a whole; c) to better boost co-operation between management and employees. The rationale behind profit sharing has two main purposes: Firstly, it is a way of fostering a closer relationship between employees and their company. This is because staff will begin to think more like owners or at the very least, have concern for the organisation’s success. Secondly, labour costs will change according to the ability of the company to pay. In Japan this system is widely used. Companies can also use the profit sharing plans to educate or train employees in the financial performance of their business. Gain Sharing Gain sharing is a system whereby all employees of an organisation are eligible for a share of the company’s profits or payments. It is a system of management that encourages better performance by involving the employees and allowing them to participate. As the company’s performance increases, employees will share in the financial gains, as well. Success will depend upon producing a feeling of ownership of the plan and the operations. This way, employees begin to identify more with the company and their commitment is usually increased. There are many potential benefits of gain sharing. It helps employees focus their attention on the main issues which affect performance and enlists the support of all employees towards this. It encourages teamwork and co-operation on all levels. Gain sharing is different to profit sharing in at least three main ways. First, rewards are based on a productivity measure rather than profits under the gain sharing system. The aim is to link pay to performance outcomes as this is something employees can control. Second, gain sharing plans generally distribute bonus payments with greater frequency. For example, P a g e 6 | 15 HUMAN RESOURCE MANAGEMENT they can be distributed monthly or quarterly instead of annually. Third, gain sharing plans distribute payments during the current payment period. Here it is different as profit sharing is usually deferred. Lawler (1971, 1990) has made a summary of the most common results that have been found in research studies of gain sharing plans:          Coordination, teamwork, and the sharing of knowledge are boosted at lower levels. Participation and reinforcement of group behaviour is done as social needs are recognised. The focus is on cost saving, not just quantity of production. There is a greater acceptance of change due to technology, market, and new methods because higher efficiency leads to bonuses. Changes in attitudes occur among workers, and they require more efficient management, better planning, and good performance from their co-workers. Employees try to reduce overtime and the goal is to work smarter not more. Employees come up ideas as well as effort. When unions are present, more flexible administration of union-management relations occur. When unions support the plan, they are strengthened because of better work situations and higher pay results. Gain sharing plans do have certain limitation, however. The most important limitation is differentially attracting and keeping the best performers. The problem here is that, since gain sharing plans don’t pay more for better performance, they are not a good motivator for certain employees to stay with an organisation. Bonuses are paid even if the organisation is not making a profit (which is different to profit sharing). Gain sharing plans also don’t fit in well with every situation. Stock Options Stock options are the most popular long-term incentives. A stock option is the right to buy a specific number of shares of a company’s stock at a specific price during a period of time. The employee can buy the stock when it’s equal to the market price at the time the stock option was given. The employee’s gain would be equal to the market value at the time it is exercised, less than grant price. The belief here is that the price of the stock will increase or at the very least stay the same rather than decreasing. There have been a few trends that have improved the attractiveness of stock options as long-term incentives and also as a retention tool. Profit sharing plans are similar to stock options in a lot of ways. The pay-outs are based on organisational performance on the stock market. There are a few very important aims of the plan and they are: a) The need to motivate employees to act in the best interest of the organisation b) To increase employee identification with the organisation, and c) To have labour costs change with the organisational performance. P a g e 7 | 15 HUMAN RESOURCE MANAGEMENT Stock options have been a common programme for executives for a very long time now, and today many companies, like Pepsi-Cola and Hewlett-Packard, grant them to all employees. The evidence shows that this approach is becoming more common. Merit Pay Merit pay is the approach for paying performance which is used the most. Merit pay schemes tend to give salary increases to employees based on their supervisor’s appraisal of their performance. The reason behind merit pay is to increase motivation and to keep the best performers by clearly establishing a performance reward relationship. Evidence suggests that most organisations’ performance appraisal is not done well, and therefore, are not accurate. This results in measures of individual performance becoming non-existent. Employee Ownership Employee ownership plans comprise of stock option plans, stock purchase plans, and Employee Stock Ownership Plans (ESOPs). In smaller organisations where participative management is practiced, the chances of increasing organisational performance are good. In large organisations which often have very little employee ownership, it is possible to positively affect the structure by integrating across the whole organisation if, of course, all employees are included in the ownership plan. Ownership often has a more positive effect on attraction and retention than profit sharing. Employee ownership is useful, however, it is likely to be highly situational. An example of this would be in small organisations where they might make profit sharing and gain sharing unnecessary. If joined with a suitable approach to employee involvement, they can contribute greatly to employee motivation. In large organisations they may add to the integration of the organisation and to a positive culture. Employee Benefits Employee benefits are parts of remuneration that are given in addition to several forms of cash pay. They deliver a measurable value for individual employees. This may be deferred or contingent as in the case of a pension scheme, insurance cover or sick pay, or it can provide an immediate benefit such as a company car. Elements that are not strictly remuneration, such as annual holidays, are also included. Generally speaking, benefits do not exist in isolation but instead are part of a comprehensive compensation package offered by the organisation. Below are the objectives of employee benefits: a) b) c) d) To improve the employees’ commitment to the organisation To show that the company cares for its employees’ needs To ensure the personal security and personal needs of all employees, and To guarantee that benefits are cost-effective in terms of commitment and improvement in recruitment and retention rates. P a g e 8 | 15 HUMAN RESOURCE MANAGEMENT Benefits represent a bulky share of total compensation and, therefore, they have huge potential to influence the employees, the unit, and the organisational outcome variables. The literature shows that benefits do have effects on employee attitudes, on retention, and sometimes on job choice. It also seems to be the case that individual preferences may play a very important role in establishing employee reactions to benefits. As a result, many organisations have implemented benefit plans that allow some degree of employees’ choices in the hope that a better match between preferences and benefits will be obtained, and perhaps even at a lower total cost to the company. Statutory and Voluntary Benefits Employee benefits may be placed into two categories: statutory and voluntary. Statutory benefits are to be given to the employees by the organisation irrespective of whether it wants to or not. Examples of this would be things like sick pay and maternity leave. The amount of voluntary benefits which employers offer to employees is quite astonishing and come with significant cost to the employer. The main voluntary benefits are: vacations, holidays, special leave, sick leave, health insurance, educational assistance, employee discounts, medical benefits, facilities for recreation, subsidised meals in canteens, credit cards, and mobile telephones. Flexible Benefits There are considerable individual differences in benefit preferences. These individual differences lend more weight to the need for offering employees a choice in the design of their benefits package. A flexible benefits plan will control costs and improve employee satisfaction. When employers consider offering benefits to employees, one of the foremost considerations is to keep costs down. In the past, employers tried to do that by offering a slate of benefits to their employees regardless of their need or use. Organisationsrealised, in due course, that these benefits which they offered did not motivate their employees much at all, nor did they provide an incentive to be more productive. Employees perceived benefits as “given.” This, as well as the rising costs of benefits and a wish to allow employees to choose what they want, led employers to look for more flexible benefits. The term ‘flexible benefits’ refers to a system whereby employees are given a set of benefits and are asked to choose, within monetary limits imposed, the benefits they want. The goal of flexible benefits programmes is to grant particular advantages to both the employer and the employee. The employees are free to choose benefits that are tailored to their exact needs. It can motivate employees and lead to increased morale in some cases. It assists employers to decide the nature and extent of benefits, and to manage the costs more effectively. Also, it assists to attract and retain quality employees. There are some disadvantages of flexible benefits and they are: a) selection of wrong benefits in some cases b) keeping up with changing benefit needs of employees, and c) the administrative complexities in actual operation. P a g e 9 | 15 HUMAN RESOURCE MANAGEMENT Trends in Employee Benefits        Less attention to tax avoidance Simplifying the benefits packages Individual needs receiving more attention More emphasis on individual choice A move towards cash rather than benefits in kind More concentration on assessing the cost/effectiveness of total benefit package More attention to communicating the benefits package. Reward Strategies Reward strategies are mostly about aligning the company’s payment arrangements and wider reward systems with its business objectives. This means developing systems which improve the chances that all employees will attempt to contribute to the achievement of its goals. If an improved quality of service is the main business aim then it should be reflected in a payment system which rewards front-line staff who are the ones that provide the best standards of service to customers. A ‘statement of intention’ is one of the first steps that is needed. It must set out what the reward strategy of the organisation is aimed at achieving and which reward initiatives have been selected so as to attain those core aims. The next step is to expand these ideas to a more detailed basis which clarifies the aims in more depth and demonstrates how the elements of the company’s reward policy supports the attainment of those goals. What it is really is a statement of the business case that reinforces the strategy. Therefore, the clarification must include a list of benefits that will accrue and indications of how it will be used to assess its success. The third step is an explanation of the guiding values that are being used to develop the initiatives and will be used to modify them in the future. The last element is to implement a plan and set out exactly what initiatives are being introduced and when, who is responsible for their introduction and what the costs will be. Employer Objectives Reward strategies and the initiatives developed as part of those strategies are best rated according to how exactly they meet certain core objectives and to what extent. Attracting Staff Reward packages should be adequately attractive. In this way they are able to obtain the specific services of the staff they need. More applications will be received from candidates for an attractive package and in this way the organisation will have more choice when filling any vacancies. The more attractive the package, the more high-calibre people will become available. This, obviously, would not be the case for mediocre of poorly communicated packages. It is important to note here that different P a g e 10 | 15 HUMAN RESOURCE MANAGEMENT packages are considered attractive depending on the type of labour market. Therefore, it is necessary to determine what the target market values are and then tailor a suitable package. Retaining Staff The cost of recruiting and developing/training people, as well as the growing importance of specialist organisational knowledge in creating value and preserving competitive advantage, means that keeping effective performers is a main aim of reward strategy in an organisation, especially those competing in knowledge intensive industries where highly qualified people are scarce. Here, a package which is attractive enough to stop people becoming dissatisfied and looking elsewhere for career development opportunities is absolutely needed. Developing policies that reward seniority and therefore, provide an incentive for the staff to stay when they might otherwise consider looking for alternative work, is also involved. Motivating Staff Motivating staff is important for recruiting and retaining the most effective performers in an organisation. The reward package must also do this, ie positively motivate rather than de-motivate valued employees. Occupational psychologists have long debated whether money can positively motivate, many of them accepting that the power of monetary rewards is limited in how much they motivate, particularly over the long term. In contrast, there is no doubt about the power of poorly designed or poorly implemented reward practices to de-motivate people, especially if employees view them as inequitable in some way. The ultimate goal, of course, is to design a reward package which actually rewards people and creates the conditions in which employees are ready to work hard to assist in achieving the employer’s goals and also to show how much effort they put in of their own accord. It is safe to say that employers would like their workforces to be positively engaged with their work and to be willing participants in any improvement programmes as well as working beyond what their contracts oblige them to. Since this is the case, employers must offer reward packages which, as much as is possible, motivate the staff positively. So, the total reward concept mentioned above has a lot to offer, combining motivators that are intrinsic as well as those that are extrinsic. Driving Change Using pay as a tool which underpins change management processes can be done. The method is one of tying higher base pay, bonuses and/or promotion to the expansion and improvement of new behaviours, skills or attitudes shown by employees. Simply appealing to people to improve is not enough. Pay can work though because it offers a material incentive to people who have a natural tendency to resist change. It is also a powerful tool for employers to use as it is a clear display of how serious they (employers) are in their intentions with regards proposed changes. P a g e 11 | 15 HUMAN RESOURCE MANAGEMENT Corporate Reputation Establishing a very positive corporate reputation is in general, what many organisations are concerned with. They must also maintain this reputation as a good employer. In many cases, prestige is something to aim for as part of a business strategy that intends to produce high quality and innovative goods and services. For other companies, maintaining their reputation as being ethical in order to appeal to and retain a strong customer base is important. An example of this would be companies that don’t test on animals. No matter which of the above is the most important to an organisation it is the delivery that is connected in part to the company’s reputation as an employer. If an organisation doesn’t pay well or is perceived to have unfair policies then its reputation will be undermined even if it is seen as being prestigious or ethically or socially responsible. Affordability The abovementioned objectives are attractive for companies and their reward strategies are based on them. However, in the HR area there are restrictions in terms of affordability which can limit what can be done or offered at any time. How affordable a particular objective is often varies over time and is also unpredictable because a lot depends on the current financial performance of the company. If money were no object, companies would be able to create and offer ideal reward packages which pay above market rates. This way the best people would be recruited and retained and when linking pay to individual and collective achievement performance and effort would be maximised. Employee Objectives The common belief is that employees’ one and only aim regarding rewards is to earn as much as they possibly can. Some theorists believe that employees are especially interested in maximising the amounts they earn while also putting in a minimal effort to achieve those earnings. Wage Structures The Basic or Flat Rate This refers to the amount of money paid for an hour’s work and sometimes, it is called the ‘hourly rate.’ Time rates are predetermined rates per hour which are paid at the end of the week or month. Payment by Results Systems Payment by results systems are either of the following: 1. Straight Piecework: is a system which means the employee is being paid according to output. The process works by either agreeing on a fixed amount of money for the production of each item, or to allow a specific period of time for making the item. In the latter, which is also referred to as the ‘time allowed’ system, if the employee finishes the work in less time than planned, he/she is still paid for the original time and therefore is able to increase earnings by finishing more of the pieces. The bonus P a g e 12 | 15 HUMAN RESOURCE MANAGEMENT is calculated based on the difference between the time allowed and the actual time expressed as a percentage of his/her wage. 2. Differential piecework: is similar to the ‘time allowed’ system of piecework, the difference being that the amount of the bonus earned (which comes from the time saved) is shared between the company and the individual employee, the wage cost is adjusted with output, and the company takes a proportion of the bonus as production increases. These types of schemes are also known as ‘premium bonus schemes.’ The employee has a choice with piecework on the level of output he/she wishes to achieve. 3. Measured Day Work: is a system where the employee’s pay is fixed on the understanding that he/she will maintain a specified level of performance. This level of performance, known as the ‘incentive level’ is calculated in advance, and the employee is under obligation to try to achieve the level specified, as his/her pay does not vary in the short term. There are individual rates and bonus systems. In addition, there are bonus schemes that aim to provide a group incentive, to a work group or factory or unit-wide. 4. Small group incentive schemes: Usually, a bonus is given to group members when their output targets are achieved or exceeded. There are a large number of schemes which vary according to the timescale adopted for measuring output, the group’s size, and the intergroup competitiveness that they encourage. The actual bonus payment can be either equal among the group’s members, or proportionate to an individual’s earnings or status. Developing Pay Structures When the job evaluation is done, the data received becomes that basis for developing the organisation’s pay structure. This means that pay rates are compatible to rank, classification or points received though job evaluation. The way in which the company structures its compensation packages is mostly a matter of company philosophy but of course, market trends are important here. There are several options that the company can choose from. One of these options is the single rate structure whereby all employees do the same work and get the same pay. Or, it can choose the tenure - based method which goes by how long an individual employee has been with the company. There can also be a blend of seniority and tenure based plans. Sometimes the pay is connected to productivity or performance. The job evaluation methods give the input for developing an overall pay structure for the organisation. Other sources of information can be used for the purposes mentioned above. They are:     To conduct surveys To write reports Pay commissions reports Reports of the wage boards P a g e 13 | 15 HUMAN RESOURCE MANAGEMENT   Reports of the employee and employer Trade union journals etc. Choice of the Structures 1) The nature (type) of organization which includes things like size, complexity, culture and tradition. 2) Formal organisational structures and internal relativities. 3) Degree of knowledge of workers. 4) Degree of formalities. 5) Degree of growth of the company. Standard Salary Structure The standard salary structure delivers fixed salary ranges for every different type of position for staff who are performing standard duties. Allowing for variations is necessary and therefore a setting up of minimum and maximum levels within pay ranges will account for these variations in skills and experience levels. It is helpful for companies to determine where their organisation sits within their own industry when determining the base pay structure. It is also helpful to check competing industries which may have job opportunities available. This way companies can get an overall picture of salaries and be able to organise pay levels in a competitive way. If this is not done then they risk losing valued employees to other companies and sometimes other industries. The Internet is a great place to search for industry standard salary levels for certain jobs in certain geographical areas. Once a company’s base pay structure is in place, a merit pay programme is set up that will take the employee through the salary range for their particular position at a performance-driven speed. This will be important when managers perform their annual employee performance reviews. In one sense, employees may begin to think it certain that they will get a salary increase, and this is a downside because if this occurs then motivation to perform better is decreased. Because of this many organisations are using a reward based compensation method which is also referred to as IncentiveCompensation. Incentive Compensation It is more and more common for organisations to used incentive-based compensation. This is because there is more emphasis on performance and competition for talent. Employees are motivated to perform better by this type of compensation structure. Hiring bonuses are also in place today, including work opportunities for new graduates. It is better to set a specific time period before the employees collect their bonuses because of the risk of employees leaving the company after receiving their first bonus. This would, of course, be costly in terms of all the money spent for recruitment, interviewing, training etc. It may be the case that incentive compensation is a good way to go, in particular if the organisation is in an industry where competition is high to get P a g e 14 | 15 HUMAN RESOURCE MANAGEMENT good employees. Both base pay and incentive-based programmes require the same amount of research into the particular industries that companies are in. Base pay levels will still be determined, but they may be a little lower and there would be a need to build the annual (or quarterly) bonuses, commissions, or shared cash compensation into that base. Further Reading:  John Stredwick, (2013), An Introduction to Human Resource Management  Nick Wilton, (2011), An Introduction to Human Resource Management  Michael Armstrong, (2006), A Handbook of Human Resource Management Practice P a g e 15 | 15

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Nicholas I
School: UT Austin

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Rewarding and motivation of employees
Motivation is directly linked to the performance of workers in an organization.
Motivation to workers in an organization leads workers to produce or influence their behavior
towards the group. Motivation act as internal drivers of employees that guide their practices
leading to desired outcomes. Motivation may make workers work hard to receive a reward or to
feel a sense of achievement. One thing that motivates workers is self...

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