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1. Theories of Remuneration

2. Module 10

3. Theory 1 Reinforcement and Expectancy theories Reinforcement Theory The implication for remuneration is that high employee performance followed by a reward will make future employee performance more likely. By the same token, a high performance not followed by a reward will make its recurrence unlikely in future. The theory emphasizes the importance of a person actually experiencing the reward.

4. Expectancy Theory Vroom’s expectancy theory focuses on the link between rewards and behavior. Motivation, according to this theory, is the product of valence, instrumentality and expectancy. Remunerating systems differ according to their impact on these motivational components. Valence = Instrumentality = Expectancy =

5. Theory 2 Equity Theory Adam’s equity theory posits that an employee who perceives inequity in his or her rewards seeks to restore equity. Employee’s perception of how they are being treated by their firm is of prime importance to them. The dictum ‘a fair day work for fair day pay’ denotes a sense of equity by employees. When employees perceive inequity, it can result in lower productivity, higher absenteeism or increase in turnover.

6. Theory 3 Agency Theory The agency theory focuses on the divergent interests and goals of the organization’s stakeholders and the way that employee remuneration can be used to align these interests and goals. Employers and employees are the 2 stakeholders of a business unit, Employer= Principal & Employee = Agent The agency theory says that the principal must choose a contracting scheme that helps align the interest of the agents with the principal’s own interests. These contracts can be classified as either behavior-oriented (e.g. merit pay) or outcome-oriented (e.g. stock options schemes, profit sharing, and commissions)

7. Devising a Remuneration Plan

8. Essential features of a Remuneration Plan Remuneration plan Workable Understandable Acceptable

9. Steps for devising a Remuneration Plan Job Description Job Evaluation Job Hierarchy Pay Survey Pricing Jobs

10. Wage trend line X axis – Point values Y axis – Wages or salaries Key job A Key job B 4 5 7 8 6 20 10 30 50 40 60 Wage trend line

11. Impact of job classes on the wage trend line Broadbanding : collapsing salary grades and ranges into a few wide levels called bands Each band contains a wide range of jobs and salary levels P rovides greater flexibility for employee compensation Facilitates moving employees slightly up or down along the pay scale without accompanying promotional raises or emotional pay cuts 4 5 7 8 6 21 -30 10- 20 31-40 51-60 41-50 61-70

12. Challenges of Remuneration Skill-based pay : employees are based on the basis of the number of jobs they are capable of doing, or on the depth of their knowledge Salary Reviews : The frequency at which the salary is reviewed Pay Secrecy : Secrecy maintained to avoid salary comparisons Comparable Worth : Equal pay for equal work (2 individuals will be paid the same if their merit and seniority match) Employee participation : If employees are involved in designing a remuneration plan, they are likely to exhibit less resistance while accepting it

13. Continuum of Compensation Philosophies

14. Skill Based and Job Based Pay Factors Job-Based Skill Based Pay Structure Job Performance Ability to perform Employer’s focus Job carries wage; Employees are linked to job Employee carries wage ; Employee linked to skills. Employee Focus Job promotion to earn greater wage Skill acquisition to earn greater pay Procedure required Assess job content ; Value jobs Assess skills ; Value skills Advantages Pay based on value of work performed Flexibility ; Reduced workforce Disadvantages Potential personnel bureaucracy ; inflexibility Potential personnel bureaucracy ; Cost control

15. Definitions Parent country nationals (PCNs) or expatriates People working for a company from their native country but in another country Third country nationals (TCNs) People working for a company with ownership and at a location which is different than their own country Host country nationals (HCNs) Local citizens working for a foreign company

16. Balance sheet approach System designed to equalize the purchasing power Considers differences between countries in the cost of goods and services, housing, income taxes, and other elements

17. Typical Components of Expatriate Compensation

18. Market Competitiveness and Compensation Lead the Market Lag the Market Meet the Market Paying for higher qualified, more productive workers. Attempting to balance employer costs and the need to attract and retain employees. Paying all that the firm can afford. Taking advantage of the abundant supply of potential employees in a loose labor market.

19. What is Recognition Rewards, awards, recognition…. Acknowledgement of some achievement Predetermined or unplanned It promotes behavior you want repeated Individual or teams

20. Why Bother?

21. Benefits of well designed Recognition Reinforces the strategies/goals of the organization Promotes repeatable behaviors Improves morale Can promote teaming, communities, etc. Can be positioned as a part of a total compensation package

22. Types of Recognition Organization wide programs Anniversaries Suggestion programs Top achievers Management discretion/ nominated Employee of Month Best when at discretion of manager Peer to peer Usually many restrictions

23. Key Components Targeted Timely Public Appropriate

24. Targeted Support strategies and goals Specific behaviors Clearly communicated

25. Framing of Recognition Who Individuals Teams Various organizational subsets When Daily, monthly, quarterly, annually As behavior occurs Specific events How – Always Public

26. Timely and Public

27. Appropriate Last decision to make when designing a reward process Review all other forms of recognition within organization Determine least method for most gain Cash or Non-monetary?

28. Role of Management Not to be immobilized out of “fairness” Ensure timeliness Fully utilize management programs Be guardian of process Constantly seek prospects and opportunities Promote peer programs Seek assistance in presentation skills as needed

29. Pitfalls to Avoid

30. Pitfalls Rewarding wrong behavior Too little Too late Too much Out of sync with other reward structures

31. Team Awards

32. Team Awards Divided equally among team members Divided proportionally to contribution determined by management Divided proportionally to contribution determined by the team