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REWARD SYSTEMS AND LEGAL ISSUES - Coggle Diagram
REWARD SYSTEMS AND LEGAL ISSUES
TRADITIONAL AND CONTIGENT PAY PLANS
Contingent pay (CP), also called pay for performance, means that individuals are rewarded based on how well they perform on the job.
These increases can either be added to an employee’s base salary or be a one-time bonus.
When increases are not added to an employee’s base salary, as in the case of one-time bonuses, they are called variable pay.
CP plans were used only for top management.
Gradually, the use of CP plans extended to sales jobs.
Currently, CP plans are more pervasive.
A traditional approach is indicated by their job descriptions & not necessarily by how do work.
In such traditional pay systems, one’s job directly determines pay and indirectly determines benefits and incentives received.
Typically, there is a pay range that determines minimum, midpoint, and maximum rates for each job.
PAY STRUCTURES
Job Evaluation
The ranking method is the fastest and simplest to implement.
First, a job description is created for each job
Second, job descriptions are compared to each other in terms of how valuable each job is for the organization.
The classification method also consists of two steps
First, a series of classes or job families are created.
Second, each job is placed within a job class
Job evaluation includes considering the skills, knowledge, and abilities required for each job.
The point method is the most time-consuming of the three
The first step includes identifying compensable factors
Second, factors are scaled
Broad Banding
Each of these broader pay categories is called a
band
.
One band may include all five teaching categories.
Many organizations have chosen to collapse job classes into fewer categories, usually about five.
Other bands within the university pay structure could include administrators and staff.
POSSIBLE PROBLEMS ASSOCIATED WITH CONTINGENT PAY PLANS
Reasons why Contingent Pay Plans fail:
Managers are not accountable.
There exists extrinsic motivation at the expense of intrinsic motivation.
Rewards are not considered significant.
Rewards for executives are disproportionately large compared to rewards for everyone else.
There is the folly of rewarding A while hoping for B.
A poor performance management system is in place.
Examples:
General Mills' Green Giant bonus plan, requiring employees to remove insects from vegetables, led to employee disengagement, as managers discovered they were bringing insects home.
Sears' California automotive division overcharged customers for unnecessary repairs, with half of its 72 centers overcharging and undercover agents billing for uncompleted work, following an 18-month investigation.
Not all CP plans work as intended.
SELECTING A CONTINGENT PAY PLAN
Traditional cultures, characterized by top-down decision-making, vertical communication, and clearly defined jobs, can benefit from implementing performance-based pay systems.
The implementation of a compensation plan requires careful consideration of the organization's culture, including individual performance, teamwork, and role models, as it can either solidify or create a new culture.
These systems reward specific, observable performance measures, directly linked to pay.
Sales commissions
Group Incentives
Piece rate
Involvement culture differs from traditional culture, characterized by shared decision-making, lateral communication, and loosely defined roles.
Profit sharing: Large law firms frequently employ a system where employees are paid based on group performance and financial achievement.
Skill-based pay: Employees are compensated based on the acquisition of beneficial knowledge and skills, typically in knowledge-based organizations like software development companies.
The strategic direction of an organization is crucial in designing both a performance management system and a CP plan.
Gain sharing is a strategy where individuals and teams in an organization are rewarded based on the organization's overall profitability.
Profit sharing is short-term and focused on organizational goals, while stock sharing and executive pay are more long-term.
Stock sharing, a reward system where executives receive reduced company stock, has gained media attention.
REASONS FOR INTRODUCING CONTIGENT PAY PLANS
Make clear what is expected of employees, what specific behaviors or results will be rewarded, and how employees can achieve these behaviors or results.
An organization’s ability to retain its top performers is obviously crucial if an organization wants to win the talent war and have a people-based competitive advantage.
PM system has a direct relationship with the reward system, performance measurement & performance improvement are taken more seriously.
CP plans can serve as a good tool to recruit and retain top performers as a result of the sorting effect, which, in turn, can lead to greater productivity.
CP plans can project a good corporate image because the organization has implemented a system of rewards that is fair and based on clearly communicated expectations and standards.
Employees see a clear link between their performance level and the rewards received (instrumentality).
Employees value the rewards available (valence)
Motivation = Expectancy x Instrumentality x Valence
Employees see a clear link between their efforts and the resulting performance (expectancy).
PUTTING PAY IN CONTEXT
What can we do to make rewards work?
Make rewards visible
Make rewards contingent
Make rewards reversible
Make rewards timely
Make sure that all employees are eligible
Use only available rewards
Use nonfinancial rewards
Define and measure performance first, then allocate rewards.
(1) defines performance and performance expectations
(2) measures performance well.
Is pay the main motivating factor driving people?
Many organizations underestimate the impact of nonfinancial rewards
Status indicators, such as a new and enhanced job title, larger work area, improved office decoration (e.g., prints, flowers), promotion, ability to supervise more people, and newer or more equipment
Time, such as taking a longer break, leaving work earlier, and getting time off with or without pay
Public recognition, including praise, certificate
A more challenging work environment, responsibility, and freedom
Private, informal recognition for jobs well done
Favorable mention in company publications
Formal commendations and awards
Sabbaticals (i.e., paid time off work to devote to job-related growth and development activities such as learning new skills or traveling abroad)
PERFORMANCE MANAGEMENT AND THE LAW
A basic principle that guides the design of a fair system is the application of standardized procedures to all employees.
The performance management system can be minimized by applying this basic principle
Performance management systems that are fair and acceptable to employees are also legally sound.
Treat everyone in the same way
SOME LEGAL PRINCIPLES AFFECTING PERFORMANCE MANAGEMENT
Misrepresentation
. Defamation involves sharing false information, while misrepresentation involves disclosing false positive performance, posing risk or harm to others.
Negligence.
Many organizations outline a performance management system in their employee manual, employment contract, or other materials.
Adverse impact
also called unintentional discrimination, occurs when the performance management system has an unintentional impact on a protected class.
Employment at will.
In employment at will, the employer or employee can end the employment relationship at any time.
Illegal discrimination
, or disparate treatment, involves raters assigning scores based on non-performance-related factors like race, nationality, color, or ethnic and national origin.
Defamation.
Defamation is the disclosure of untrue, unfavorable performance information that damages an employee’s reputation.
LAWS AFFECTING PERFORMANCE MANAGEMENT
Laws have been passed in the UK
Sex Discrimination Act of 1975
. Makes it illegal to discriminate on the grounds of sex, marital status, and gender reassignment in a limited manner.
Disability Discrimination Act of 1995
. Makes it illegal to discriminate on the grounds of disability status
Race Relations Act of 1976
. Makes it illegal to discriminate against someone on the grounds of color, race, nationality, or ethnic or national origin
Employment Equality (Sexual Orientation) Regulations 2003
. Makes it illegal to discriminate on the grounds of sexual orientation.
Equal Pay Act of 1970
. Aims to give individuals the right to the same contractual pay and benefits as a person of the opposite sex in the same employment.
Employment Equality
(Religion or Belief) Regulations 2003. Makes it illegal to discriminate on the grounds of religion and belief.
Laws have been passed in the US
Civil Rights Act of 1964
(as amended by the Equal Employment Opportunity Act of 1972). Prohibits discrimination based on race, color, religion, sex, or national origin.
Age Discrimination in Employment Act of 1967
(as amended in 1986). Prohibits discrimination based on age.
Equal Pay Act of 1963
. Prohibits sex discrimination in the payment of wages.
Americans with Disabilities Act of 1990
. Makes it illegal to discriminate against people with disabilities.