OVERVIEW OF REWARD MANAGEMENT

Learning outcomes of the session 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

Overview of reward management

Session outline
Reward management defined
Reward management is: an integrated process that deals with the strategies, policies and practices required to ensure that the value and contribution people make to achieving organizational, departmental and team goals is recognized and rewarded; about the design, implementation and maintenance of reward systems (interrelated reward processes, practices and procedures) that aim to satisfy the needs of both the organization and its stakeholders and to operate fairly, equitably and consistently; not just about pay and employee benefits it is equally concerned with nonfinancial rewards such as recognition, learning and development opportunities and increased job responsibility.

Characteristics of reward management

Reward management is integrated, strategic and evidence-based.

Aims of reward management

The aims of reward management are to: support the achievement of business goals; reward people according to the value they create; align reward practices with employee needs; reward the right things to convey the right message about what is important in terms of behaviours and outcomes; reward people according to what the organization values and wants to pay for; help to attract and retain the high-quality people the organization needs; motivate people and obtain their engagement and commitment; develop a high performance culture.

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

Overview of reward management

The reward management framework

Fundamental concepts Primary aims: Support achievement of business goals Reward people fairly according to the value they create Align reward practices with employee needs Pay level concepts

Resource-based view Human capital management HR process advantage Motivation theory Principal agent theory The psychological contract

Value people: Motivate Engage Enhance commitment

Value jobs: Internally equitable Externally competitive

Economic theories of pay Principal agency theory Efficiency wage theory Human capital theory The effort bargain Tournament theory Equitable pay

Practices Total reward Practices Non-financial rewards: Recognition Learning and development Work environment Job evaluation Market rate analysis Grade and pay structure

Financial rewards Contingent pay Benefits

High performance work system

Performance management

Manage rewards: Plan Evaluate Control

Strategic reward 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)

Contextual factors Internal: culture, sector, technology, people, business strategy External: globalization, market pay, legislation, trade unions

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

Overview of reward management

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-toimitate, 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 peoples 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.

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

Overview of reward management

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 peoples 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).

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

Overview of reward management

Human capital advantage The achievement of competitive advantage by employing people with valuable knowledge and skills that cannot be imitated or substituted by business rivals. Human capital management The process of obtaining, analysing and reporting on data relating to employees that inform HRM decisions. Human process advantage The achievement of competitive advantage by establishing difficult-to-imitate, highly evolved HR processes within the firm. Incentive alignment Paying people for measurable results deemed to be in the best interests of the owners. Instrumentality theory People will be motivated to work if rewards and penalties are tied directly to their performance. Integrated reward management An approach to reward management that provides for reward policies and practices to be treated as a coherent whole in which the parts contribute in conjunction with one another to ensure that the value and contribution people make to achieving organizational, departmental and team goals are recognized and rewarded. Internal integration The integration of different reward practices with one another to create a coherent whole. Motivation The strength and direction of behaviour and the factors that influence people to behave in certain ways. Principal agent theory The role of the managers of a business is to act on behalf of the owners of the business as their agents. But there is a separation between the owners (the principals) and the agents (the managers) and the principals may not have complete control over their agents. The latter may therefore act in ways that are against the interests of those principals. Procedural justice People will feel that they have been treated justly if managements reward decisions are fair, consistent, transparent and non-discriminatory and properly consider the views and needs of employees. Process theory This explains motivation as a function of psychological processes or forces as well as of basic needs (also known as cognitive theory). Process theories include expectancy, goal and equity theories (QV). Psychological contract The combination of beliefs held by an individual and his or her employer about what they expect of one another. It can be described as the set of

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

Overview of reward management

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 organizations 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.

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