Chapter 10 Reward Systems and Legal Issues Copyright

Chapter 10 Reward Systems and Legal Issues Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -1

Overview Reward Systems n Legal Issues n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -2

Reward Systems: Overview n Traditional and Contingent Pay (CP) Plans • Reasons for Introducing CP Plans • Possible Problems Associated with CP • Selecting a CP Plan n n Putting Pay in Context Pay Structures Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -3

Traditional Pay n Salary and salary increases are based on • Position • Seniority Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -4

Contingent Pay (CP) n Salary and salary increases are based on: • Job performance n n Also called: Pay for Performance If not added to base pay, called: • Variable pay Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -5

Reasons for Introducing CP (1) Performance management is more effective when rewards are tied to results. n CP Plans force organizations to: n • Clearly define effective performance • Determine what factors are necessary Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -6

Reasons for Introducing CP (2) Supervisors and employees are better able to understand what really matters. n CP plans enhance employee motivation to accomplish goals that match organizational needs. n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -7

Reasons for Introducing CP (3) CP plans help to recruit and retain top performers. n CP plans projects good corporate image. n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -8

CP Plans Help Improve Motivation When: • Employees see clear link between their efforts and resulting performance. (Expectancy) • Employees see clear link between their performance level and rewards received. (Instrumentality) • Employees value the rewards available. (Valence) motivation = expectancy x instrumentality x valence Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -9

Possible Problems Associated with CP n n n Poor performance management system Rewarding counterproductive behavior (Rewarding A while hoping for B) Rewards are not considered significant Managers are not accountable (The reward becomes the driver) Extrinsic vs. intrinsic motivation Disproportionately large rewards for executives Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -10

Selecting a CP Plan: Issues to Consider § § Culture of organization Strategic direction of organization Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -11

Culture of Organization: Types of Organizations n Traditional • Top-down decision making • Vertical communication • Jobs that are clearly defined n Involvement • Shared decision making • Lateral communications • Loosely defined roles Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -12

CP Systems for Different Organizational Cultures n Traditional organizations • Piece rate • Sales commissions • Group incentives n Involvement organizations • Profit sharing • Skill-based pay Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -13

CP Plans to Enhance Strategic Directions n Employee development • Skill-based pay n Customer service • Competency-based pay • Gainsharing n Overall profit • Executive pay • Profit or stock sharing Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -14

CP Plans to Enhance Strategic Directions (1) n Productivity • Individual Piece rate n Sales commissions n • Group Gainsharing n Group incentives n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -15

CP Plans to Enhance Strategic Directions (2) n Teamwork • Team sales commissions • Gainsharing • Competency-based pay Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -16

Putting Pay in Context A reward increases the chance that: n n Specific behaviors and results will be repeated, or Employee will engage in new behavior and produce better results. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -17

Rewards Can Include: n n Pay Recognition • Public • Private n n n Status Time Sabbaticals n n n Trust and Respect Challenge Responsibility Freedom Relationships Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -18

How to Make Rewards Work Define and measure performance first and then allocate rewards. n Only use rewards that are available. n Make sure all employees are eligible. n Rewards should be both n • Financial • Nonfinancial Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -19

How to Make Rewards Work (Continued) n Rewards should be: • Visible • Contingent • Timely • Reversible Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -20

Pay Structures Job Evaluation n Broad-banding n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -21

Pay Structures An organization’s pay structure Ø Classifies jobs ØInto categories ØBased on their relative worth Ø Is designed by job evaluation methods Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -22

Job Evaluation n Method of data collection • Determine the worth of various jobs • Create a pay structure n Consideration of • KSAs required for each job • Value of job for organization • How much other organizations pay Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -23

Types of Job Evaluation Methods Ranking n Classification n Point n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -24

Ranking n n n Create job descriptions Compare job descriptions Rank jobs Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -25

Advantages of Using Ranking Method n n Requires little time Minimal effort needed for administration Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -26

Disadvantages of Using Ranking Method n n Criteria for ranking may not be clear. Distances between each rank may not be equal. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -27

Classification n n A series of classes or grades are created. Each job is placed within a job class. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -28

Advantages of Using Classification Method n n Jobs can be quickly slotted into structure Employees accept method because it seems valid. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -29

Disadvantages of Using Classification Method n n Requires extensive time and effort for administration Differences between classification levels may not be equal Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -30

Point Method n n n Identify compensable factors (job characteristics) Scale factors (e. g. on a scale of 1 through 5) Assign a weight to each factor so the sum of the weights for all factors = 100 percent Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -31

Advantages of Using Point Method n n n Establishes worth of each job relative to all other jobs within organization Comprehensive measurement of relative worth of each job in organization Easy to rank jobs when total points are known for each job Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -32

Disadvantages of Using Point Method n Requires extensive administrative • Time • Effort Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -33

Does Job Evaluation Method Matter? • Fairness • Evaluators Impartial n Objective n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -34

Compensation Surveys n Information on • Base pay • All other types of compensation n Conducted in-house or by consultants, such as: www. salary. com or www. haypaynet. com Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -35

Broad-Banding n n Most commonly used pay structure Pay structure collapses job classes into fewer (less than five) categories Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -36

Advantages of Broad-Banding n n n Provides flexibility in rewarding people Reflects changes in organization structure Provides better base for rewarding growth in competence Gives more responsibility for pay decisions to managers Provides better basis for rewarding career progression Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -37

Reward Systems: Summary n Traditional and Contingent Pay (CP) Plans • Reasons for Introducing CP Plans • Possible Problems Associated with CP • Selecting a CP Plan n n Putting Pay in Context Pay Structures Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -38

Legal Issues: Overview Performance Management and the Law n Some Legal Principles Affecting PM n Laws Affecting PM n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -39

Performance Management and the Law n Performance management systems are usually legally sound if… • Procedures are standardized • Same procedures are used with all employees Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -40

Some Legal Principles Affecting PM: Overview Employment-at-will n Negligence n Defamation n Misrepresentation n Adverse Impact n Illegal Discrimination n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -41

Employment-at-Will n Employment relationship can be ended at any time by: • Employer • Employee n Exceptions: • Implied contract • Possible violation of legal rights Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -42

Negligence n n n If organization documents describe a system and It is not implemented as described, Employee can challenge evaluation, charging negligence. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -43

Defamation n Disclosure of performance information that is • Untrue and • Unfavorable Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -44

Misrepresentation n Disclosure of performance information that is • Untrue and • Favorable Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -45

Adverse Impact / Unintentional Discrimination n n PM system has unintentional impact on a protected class. Organization must demonstrate: • A specific KSA is a business requirement for the job • All affected employees are evaluated in the same way n Organization should review ongoing performance score data by protected class to implement corrective action as necessary. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -46

Illegal Discrimination or Disparate Treatment n n n Raters assign different scores to employees based on factors that are NOT related to performance. Employees receive different treatment as result of such ratings. Employees can claim they were intentionally and illegally treated differently due to their status. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -47

Employee Claim of Illegal Discrimination n n Direct evidence of discrimination, or Evidence regarding the following: • Membership in protected class • Adverse employment decision • Performance level deserved reward/different treatment • How others were treated (not in protected class) Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -48

Employer Response to Claim of Illegal Discrimination n n Legitimate and nondiscriminatory reason for action Related to performance Note: Good performance management system and subsequent performance-related decision, used consistently with all employees, provide defense Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -49

Difference Between Legal and Illegal Discrimination n n LEGAL discrimination discriminates among employees based on their level of performance. ILLEGAL discrimination is based on variables that should not usually be related to performance. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -50

Laws Affecting PM During past few decades, several countries have passed laws prohibiting discrimination based on: Race or Ethnicity n Sex n Religion n National Origin n Age n Disability status n. Sexual orientation n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -51

Laws in the United Kingdom n n n Equal Pay Act of 1970 Race Relations Act of 1976 Sex Discrimination Act of 1975 Disability Discrimination Act of 1995 Employment Equality (Sexual Orientation) Regulations 2003 Employment Equality (Religion or Belief) Regulations 2003 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -52

Laws in the United States of America n n Equal Pay Act of 1963 Civil Rights Act of 1964 Age Discrimination in Employment Act of 1967 (as amended in 1986) Americans with Disabilities Act of 1990 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -53

Characteristics of Legally Sound PM Systems n Organization: • The system is formally explained and communicated to all employees. • The system includes a formal appeals process. • Procedures are standardized and uniform for all employees within a job group. • The system includes procedures to detect potentially discriminatory effects or biases and abuses in the system. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -54

Characteristics of Legally Sound PM Systems n Management • Supervisors are provided with formal training and information on how to manage the performance of their employees. • Performance information is gathered from multiple, diverse, and unbiased raters. • The system includes thorough and consistent documentation including specific examples of performance based on first-hand knowledge. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -55

Characteristics of Legally Sound PM Systems n Employees • Performance dimensions and standards are: n Clearly defined and explained to the employee, Job-related, and n Within the control of the employee. n • Employees are given n n Timely information on performance deficiencies and Opportunities to correct them. • Employees are given a voice in the review process and treated with courtesy and civility throughout the process. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -56

Legal Issues: Summary Performance Management and the Law n Some Legal Principles Affecting PM n Laws Affecting PM n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -57

Quick Review Reward Systems n Legal Issues n Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -58

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 10 -59