Reward Management

Based on Human Resource Management (4th Edition) by Alan Price - published by Cengage

Objectives

The purpose of this section is to:

• Investigate the relationship between the human resource function and payroll administration
• Outline the rationale behind different compensation packages
• Evaluate the link between pay and performance

Pay and compensation

Pay is an important feature of human resource management - after all, it is the main reason why people work. It is a sensitive and controversial area that has been extensively debated at both practical and theoretical levels. In the US the term 'compensation' is used to encompass everything received by an employed individual in return for work. For example, Milcovich et al (2001: 6) state that:

"Employees may see compensation as a return in exchange between their employer and themselves, as an entitlement for being an employee of the company, or as a reward for a job well done" (original emphases).

The reward or compensation people receive for their contribution to an organisation includes monetary and non-monetary components. Remuneration does not simply compensate employees for their efforts - it also has an impact on the recruitment and retention of talented people.

The term 'reward management' covers both the strategy and the practice of pay systems. Traditionally, human resource or personnel sections have been concerned with levels and schemes of payment whereas the process of paying employees - the payroll function - has been the responsibility of finance departments. There is a trend towards integrating the two, driven by new computerised packages offering a range of facilities. These are described later in this chapter.

There are two basic types of pay schemes, although many organisations have systems which include elements of both:

• Fixed levels of pay. Wages or salaries which do not vary from one period to the next except by defined pay increases, generally on annual basis. There may be scales of payments determined by age, responsibility or seniority. Most 'white-collar' jobs were paid in this way until recently.
• Reward linked to performance. The link may be daily, weekly, monthly or annualised. Payment for any one period varies from that for any other period, depending on quantity or quality of work. Sales functions are commonly paid on the basis of turnover; manual and production workers may be paid according to work completed or items produced. Catering staff typically rely on direct payment from satisfied customers in the form of service charges or tips (gratuities).

Both methods work smoothly, provided that scales are easy to understand and the methods of measuring completed work are overt, accurate and fair. However, there has been considerable dissatisfaction with the management of pay on both sides of the employment relationship. In recent years, attempts have been made to remedy the situation through new systems and a greater reliance on performance-related pay.

HR and payroll administration

Technology and the pay unit

Pay evaluation

Market-driven criteria

Motivation and performance

Pay and performance

Flavour of the (last) month?

Criticisms of PRP

Summary

Pay is a key element in the management of people. The importance of pay begins with pay administration that deals accurately and swiftly with payroll-related matters. Much of the information used by pay administrators is shared with the human resource function. Pay evaluation systems also impinge on human resource territory. Free market organizations are particularly concerned with performance-related pay as a motivating factor but this trend appears to be ideological rather than rational since practical PRP schemes that deliver the results intended are extremely difficult to construct. Current evidence shows that performance pay is likely to demotivate more people than it motivates.

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