t01 overview of reward management

8/3/2019 T01 Overview of Reward Management

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OVERVIEW OF REWARD MANAGEMENT

The session will cover:

• The characteristics of reward management

• The aims of reward management

• The concepts of reward management

Key concepts and terms

In addition, definitions will be provided of the following concepts and terms:

• Best fit • Instrumentality theory

• Best practice • Integrated reward management

• Cognitive evaluation theory (CET) • Internal integration

• Content (needs) motivation theory • Motivation

• Distributive justice • Principal agent theory

• Equity theory • Procedural justice

• Evidence-based reward management • Process theory

• Expectancy theory • Psychological contract

• Goal theory • Resource-based view

• Horizontal integration • Reward system

• Human capital advantage • Strategic integration

• Human capital management • Strategic reward

• Human process advantage • Total reward

• Incentive alignment • Vertical integration

Learning outcomes of the session



This resource is part of a range offered free to academics and/or students using Armstrong’s Handbook of Reward Management Practice, 3rd edition , as part of their course. For more academic resources and other FREEmaterial, please visit www.koganpage.com/resources and then click on Academic Resources.

Overview of reward management

The reward management framework

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• Motivation theory

• Principal agent theory

• The psychologicalcontract

Practices

Practices

Pay level conceptsFundamental conceptsPrimary aims:

• Support achievement of business goals

• Reward people fairly according to thevalue they create

• Align reward practices with employeeneeds

Value people:

• Motivate

• Engage

• Enhancecommitment

Value jobs:

• Internallyequitable

• Externallycompetitive

• Resource-based view

• Human capitalmanagement

• HR process advantage

• Economic theories of pay

• Principal agency theory

• Efficiency wage theory

• Human capital theory

• The effort bargain

• Tournament theory

• Equitable pay

Financial rewards

• Contingent pay

• Benefits

Total reward

Non-financialrewards:

•

Recognition

• Learninganddevelopment

• Work

environment

High performancework system

Performance management

• Job evaluation

• Market rate analysis

• Grade and paystructure

Strategic reward

Contextual factorsInternal: culture, sector, technology, people, business strategyExternal: globalization, market pay, legislation, trade unions

Manage rewards:

• Plan

• Evaluate

• Control

• Vertical integration (with business strategy)

• Horizontal integration (with other HR strategies for talent management, learning and development,

employee well-being etc)• Internal integration (of reward practices)

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Concepts

Reward management is based on the following concepts:

• The resource-based view that the resources in an organization, including its

human resources, produce its unique character and create competitive

advantage.

• Human capital management – the development of human potential to achieve

high performance.

• Human process advantage, which results from the establishment of difficult-to-

imitate, highly evolved processes within the firm.

• Motivation – the force that energizes, directs and sustains behaviour.

• Motivation theory, which explains the factors that affect the strength and direction

of people’s behaviour. The main theories are instrumentality, content (needs) and

process. The latter (expectancy, goal and equity) are particularly significant.

• Principal agency theory, which explains that the principals (owners) do not have

complete control over their agents (managers). The latter may therefore act in

ways that conflict with what the principals want.

• The psychological contract, which is a set of unwritten expectations that exist

between individual employees and their employers.

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Key concepts and terms

Best fit – Reward strategies should be congruent with the context and circumstances of

the organization.

Best practice – The assumption that there is a set of best reward practices and that

adopting them will inevitably lead to superior organizational performance.

Cognitive evaluation theory (CET) – This theory argues that placing strong emphasis on

monetary rewards decreases people’s interest in the work itself, thus dampening a

powerful alternative source of motivation. In other words, extrinsic rewards erode

intrinsic interest.

Content (needs) motivation theory – A theory that states that an unsatisfied need creates

tension and a state of disequilibrium. To restore the balance a goal is identified that

will satisfy the need, and a behaviour pathway is selected that will lead to the

achievement of the goal and the satisfaction of the need.

Distributive justice – Refers to how rewards are distributed. People will feel that they

have been treated fairly if they believe that their rewards are appropriate in relation to

their contribution, if they receive what was promised to them and if they get what

they need.

Equity theory – Refers to the perceptions people have about how they are being treated

as compared with others. To be dealt with equitably is to be treated fairly in

comparison with another group of people (a reference group) or a relevant other

person.

Evidence-based reward management – The process of improving the effectiveness of

reward policies and practices by basing them on evidence obtained from research,

measurement, analysis and evaluation to indicate which are most likely to work well

and how well they actually work.

Expectancy theory – The theory that motivation will be high when people know what they

have to do to get a reward, expect that they will be able to get it and expect that it will

be worthwhile.

Goal theory – This states that motivation and performance are higher when individuals

are set specific goals, when goals are difficult but accepted, and when there is

feedback on performance.

Horizontal integration – Linking different HR practices together (also known as bundling).

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reciprocal but unwritten expectations that exist between individual employees and

their employers.

Resource-based view – The view that it is the range of resources in an organization,

including its human resources, that produces its unique character and creates

competitive advantage. HRM delivers added value and helps to achieve sustainable

competitive advantage through the strategic development of the organization’s rare,

hard-to-imitate and hard-to-substitute human resources.

Reward system – The interrelated processes and activities that combine to ensure that

reward management is carried out effectively to the benefit of the organization and

the people who work there.

Strategic integration – The ability of the organization to integrate HRM and reward

issues into its strategic plans, ensure that the various aspects of HRM and reward

management cohere, and provide for line managers to incorporate an HRM

perspective into their decision-making.

Strategic reward – An approach to the development and implementation of reward

strategies that ensures that they are integrated with and support the business

strategy and other HR strategies and that the different reward strategies cohere. It

takes account of both business and individual needs.

Total reward – The combination of financial and non-financial rewards available to

employees. All the aspects of reward – namely base pay, contingent pay, employee

benefits and non-financial rewards, which include intrinsic rewards from the work

itself – are linked together and treated as an integrated and coherent whole.

Vertical integration – Aligning reward strategy with the business strategy.

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