CHAPTER

THE REWARD SYSTEM

Compensation andN oncompensation

Dimension.s

Learning Objectives In t his chapter you will learn about:

Oppo rtunities available to en1ployers to stio1ulate the productive e (forts of each

employee.
me dimensions of a cornpensation systen1.
The dimensions of a noncompensation system.
The need to combine skillfully the compensation and noncompensation dimensions
into an effective reward system.

COMPENSATION S"(RATEGY

Recognize a nd group compensation components so that they influe nce employee

motivation in a positive manner and lead to improved organizational performance
and profitabili ty.

eople gain satlsfaction from their work, but the kinds and the strengths of satis-

P faction have been difficult to identify, define, and measure with any degree of
precision. Furthermore, an individual performer might attain p ne set of satis-
factions from ,vork efforts, whereas the group ,vith which the same individual identi-
fies attains another. Meanwhile, as the individual a nd the group coordinate their
needs and efforts, a third set of satisfactions develops. These satisfactions are the ones
gained b y the leaders or employers of the group- those who receive and offer some
form of reward for th e services provided by the individual and the group.
- This book focuses on the rewards members of an organization receive from their
employers. Specifically, it focuses on n1onetary re,vards paid either directly (base pay
or cash incentives) or indirectly (employee benefits paid for by an employer). These
rewards may be paid in the short term (within l year) or in the long term (beyond
1 year). Employers use their reward systems to attract and retain those who not only
have the desired kno:wledge and skills. but who also have the interest and are wi lling

14

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 CHAPTER 2 11,e Reward Syste111 15

to put forth the effort needed to link their knowledge and skills to the accomplish-
ment of organizational goals and objectives.

.-li-lE REWARD SYSTEM

An organization is formed to accon1plish a speci.fi.c mission. To do this. it must attract and
hire people who have certain kno,vledge, skills, aptitudes, and attitudes. To attract and retain
such people, the organization provides re,vards. An organization designs and imple1nents a
reward system to focus ,vorkcr atte_ntion on the specific behaviors the organization consid-
ers necessary to achieve its des(red objectives and goals. The behaviors range from sin1ply
arriving al ,vork at the scheduled tin1e to meeting specified perfom1ance standards and pro-
viding innovative contributions that lead to improved productivity. If rewards are to be 1.1se-
ful in stimulating desired behaviors. they must meet the demands of the employees ,,.,hose
behaviors they are intended to innuence.
Understanding ho,v rewards affect motivation or n1odify behavior has been the aim of
behavioral scientists. Motivational theorists have been most successful ,vhen designing mod-
els that explain behavior in general. lney have been far less successful in developing models
that predict the behavior of a specific individual. One great di(ficulty they face is that the
value an individual attaches to a specific reward or reward package ,nay vary significantly
over ti1ne, and the time span need not be too long. Furthennore, the ,vorth of a reward is
greatly affected by any factor tbat influences the lifestyle of an individual. Because -of the
almost endless variety of human qualities, \vorkplace requirements, and situational den1ands.
the task of designing and managing a reward system so that it \Viii benefit the organization is
a difficult and complex undertaking. ,
The reward system of an organization includes anything that an ernployee may value
and desire and that the employer is able or.willing to offer in exchange for employee contri-
buttons. A rather broad classification scheme that facilitates the identification of the various
kinds and qualities of rewards provided by employers is to separate the con1pensa_tion com-
ponents from the noncompensation component~ That is to say, all rewards that can be clas-
sified as monetary payments and in-kind payments constjtute the compensation system of
an organization. Monetary payments can be in the form of coins or paper money, or in the
less tangible form of checks or credit cards. They have value in use, and they simplify
exchange transactions. In-kind payments are goods or services that are used in lieu of money
and that provide an equivalent value for what has been offered or received. All other
rewards constitute the noncompensation system.

COMPENSATION SYSTEM
The compensation systen1 results from the allocation, conversion. and transfer of a portion
of the income of an organization to its employees for their monetary and in-kind claims on
goods and services.
Monetary claims on goods and services are wages or salaries paid to an employee in the
form of money, or a form that is quickly and easily transferable to money at the discretion of
the employee. As a medium of exchange. money enables an employee to purchase certain
kinds and amounts of a wide variety of goods and services available in the marketplace. The
actual kinds and quantity of purchases n1ade depend on tbe individual mechanisms that
motivate choice behavior. Wages and salaries in the forn1 of money rnay be subdivided fur-
ther into payn1ents earned and acquired at the present time and payments earned but not
acquired until some future time-deferred payments.
In-kind claims are claims on goods and services made available and paid for either
totally or in some percentage by the employer. E.mployees often have little or no oppor-
tunity for in1mediate monetary gain Crom an in-kind payment. Many employer-provided
in-kind payments, however, replace monetary payments of some amount of the employ-
ees' income should the employees obtain similar goods and services elsewhere.
Organizations purchase these required and usually desired goods and services for their
members to take advantage of (1) economies of scale available through group purchasing,

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16 PART I A1ncroeco110111ic Co111pe11satio11 Co11ceprs

Compensation
. System

Pay for Disability Deferred

Work and Income Income Heal1h, Accident,
Performance Continuation Liability Protection

Pay forTlme Loss-of.Job Spouse (Family) Income Equivalent

NotWo,ked Income Income Payments
Continuation Continuation

(2) the benefits available through tax la,vs and regulations, and (3) government laws requir-
ing certain services.
The value of any in-kind payment to a specific employee depends directly on the
employee's perception of its ,vorth. Individual perception relates to a range of demographic
characteristics (age, gender. marital status. education, n umber and age of dependents, length
of service. level in the organization, current ,veal th. other income), as ,veil as to the physical
and emotional state of the e,nploycc.
'f!1e total compensation package n1ay be described in many ,vays. but the classification
schen1e used in this book is based on eight dimensions. Each dimension has a number of
compensation components. Each con1ponent has a variety of features. Because of different
features, one component may relate to more than one dimension. The structuring of featu res.
components. and dimensions into a compensation system is a job for the compensation spe-
cialis1. Figure 2-l models the eight dimensions of a co,npensation system.
This book will discuss in detail the processes and practices related to the first compensa-
tion din1ension, '"hich provides for current spendable income. The other seven dimensions
,,,ill t,>e discussed briefly. An analysis of each compensation dimension 1nust include a discus-
sion of the many components in that dimension. T.ible 2-1 presents a list of the major com-
pensation components included ,vi thin each dimension. Of course, .this list can be expanded
as innovative reward syste1n.designers and employees ,vith insatiable reward appetites iden-
tify new and more desirable compensation co1nponents that ,vill promote or stin1ulate
acceptable and desired ,vorkplace behaviors. Changes in legislation and court rulings also
will influence the design of compensation programs.

COMPENSATION DIMENSIONS
A brief.description of the eight compensation din1ensions and some of their components ,viii
help the reader understand and appreciate the complexity o{ a compensation systen1 in a
1nodern organization.

Pay for Work and Performance

Pay for work and perfom1ance includes money that is provided in the short term (weekly,
monthly, and annual bonuses/awards) and that permits e mployees to pay for and c~ract
for the payn1ent of desired goods and services. The amount of money payments provi$ctto
employees normally depends on specified job requirements; outputs that meet or exceed
quantity, quality, or time liness standards; innovations that might lead to improved produc-
tivity: depe ndability; loyalty; a nd some combination of these items. Typical components
-
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 CHAPTER 2 The Reward Sys1e111 17
within this dimension are base pay, premiums and differentials. short-term bonuses, merit
pay, aod certain allo,vances. "

Pay for lime Not Worked

Over the years, the number of hours ,vorked per week and the number of days ,vorked per
year have decreased. Duriug the past 40 years, ,vorkers have enjoyed more day~ off ,vith pay
for holidays, longer paid vacatjons, and paid time off for a ,vide variety of personal reasons.
These components of pay for rime not worked significantly increase labor costs and also
enhance quality-of-,vork-Jife opportunities for n1ost employees._
Loss-of-Job Income Continuation
Job security is and ahvays has been the primary consideration for most ,vorkers. They ,vant
assurance that 'their jobs and the income derived fron1 worktng will continue until 1hey arc
ready to re1irc. Workers also kno,v that fe,v jobs are guaran1eed to continue to retiren1ent.
Not only could accident and sickness problems occur, but personal performance or inter-
personal dyna,nics problems might cause a temporary layoff or termination of employ-
men t. Changes in econon1ic conditions and technology might restrict or even eliminate the
need or demand for the product of the employer, resulting in the decline or demise of the
firm. A variety of components such a.s unemployment insurance, supplemental unemploy-
ment benefits (SUBs), and severance pay help unemployed ,vorkers subsist until new
employment opportunities arise.
Disability Income Continuation
The possibility always exists that a worker will incur health or accident disabili ty. Because of
these disabilities, employees are frequently unable to perfor111 their normal assignrnents.
Even so, individual and family living expenses continue. and niedical, hospital, and surgical
bills create additional burdens. Social Security, ,vorkers' compensation, sick leave, and sho.rt-
and long-term disability plans are examples of components that provide funds for employ-
ees ,vho are unable to ,vork for health-related reasons.
Deferred Income
Most employees depend on some kind of employerprovided program for incon1e continua-.
tion after retirement. These programs are provided for two basic reasons. first. rnost employ-
ees do not have sufficient savings at retirement to continue.the lifestyles they enjoyed while
working. Various kinds of programs, such as Social Security. employer-provided pension
plans. savings and thrift plans, annuities. and supplemental income plans provide inco,nc
after retirement. Second, tax laws and regulations make deferred income plans n1ore appeal-
ing to n1an.y employees. Because of tax regulations, employers can often take immediate
deductions and employees can defer tax obligations until incon1e true rates arc possibly more

favorable. In addition, funds invested in many of these deferred plans dra,v tax-free interest .
significantly increasing t he antount of 1noney available upon retirement. Stock purchase.
option, and grant plans are con1ponents commonly used to achieve lax deduction, estate
building, and deferral goals.
Spouse (Family) Income Continuation
Most en1ployees with fan1ily obligations are concerned ,vith "'hat n1ight happen if they arc
no longer able to provide money that will enable their families to maintain a particular
standard of lhing. Certain pl:111s are designed to provide dependents ,vith income when an
employee dies or is unable to ,vork because of total and pem1anent disability. Specific fea-
tures within life insurance plans. pension plans. Social Security. ,,,orkers co1np.:nsation.
and other related plans provide income for the-families of en1ployees ,vhen these condi-
tions arise.
He11llh, Accident, and Li11blllty Protection
When a health problcn1.occurs. employees must be concerned not only ,vith income continu-
ation. but also \\ith payzncnt for the goods and services required in ovcrc::oming the illness c,r
disability. Organizations provide a ,vide variety of insurance plans to assist in paying for
these goods and services. Jn recent years. the cost of medical-related goods and services has

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 18 PART I Macroeco11omic Con1pensa1io11 Concepts
Pay fo r lJ'ork
and Performance
Base p i1y
Base pay add-ons
Length of service
Long service
Market adjustment
Cost-of-li\ing adjusttnent Military duty
Geographic differentials
Overtime prerniums
Shift differentials
Ro1atinl!
work schedules
Weekend p remiurns
Holiday pre1niun1s
Reporting pay
Call-back pay
Standby or idle-time pay
Cleanup and clothes
change pay
Dangerous and
distressing assignn1ents
Isolation
Pay for results (short term)
Meri t pay adjustment
Short-tern, perfom1ance Health (stay-well)
awards
Front-end bonus
Professional achit:vc:n1en1
pay
Skill pay
Proficiency pay
Educational incc:ntivc pay
(tuitio n reimbursement)
Safety pay
Suggestion awards
Patent awards
Salary advance payn1enL~
Travel expenses
Car n:in1bursernent
Tolls and parking
Food and entertainn1c::n1
reirnbursc1nent
Clothing reimburse n1enlf
allowance
Pay for Time Disability Income Loss-of-Job Income
.1\/01 Jforked Continualion Conti11uatlon
Holidays Short-term disabil ity, Unemployment
Vacations sickness and accident insurance
Jury duty (S&A) Short-time con1pensation
Election officia l Long-term disability (work-shar ing
(LTD) une1nployn1enl)
Witness in court
\Vorkers compensation Supplemental
unemplo}'ntent
Funeral leave Supplemental workers
compensation benefit insurance
Paternity leave (SUB)
Social Security
l\llatc rnil)' leave Guaranteed annual
State temporary disability incon,c
Sick leave
Nonoccupational disability Severance pay
\Vcllness leave
1ravcl accident insurance (golden. tin. silver,
lirnc off to vote
Sick leave platinun, pariichutes)
Blood donation
Supple.mental disabil ity Job contract
Grievance and contract tnsurance
negotiation lndi"idual account plan
Accidental death and
Lunch and rest periods Trade adjustment
dismemberment assistance.
Personal leave Group life insurance Undere'mployment
Earned time off 1btal permaneut benefits
Family leave disability (TPD)
Tool rei,nbursement/ Disability features within
allowance various kinds of
Relocation expcn~s retirement plans
payments
Components and con,ponc nt features will differ for the following groups of
employees:
Exempt
Executives j
Senior managers Senior managco1e11t
Top-level operating managers }
Midlevel operating nianagers Operati ng 1uanagement
Lower-level operating managers
Professionals
Administrators
Sales personnel
Nonexempt
Salaried Rqular Co111lng~n1-l'emporary
Hourly (nonunion) Full-time Full-time
Hourly (union) Part-tin1e Part-time
Contract employees
Special Groups
Employees in foreign work sites
Board of directors
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 CHAP I ER 2 The Reward System 19

Spouse (Fam j/:,) llta/111, Acc:idenl,

l11comc Llabllir:,
Deferrrd Income Con1inua1ion Proltction Income Equivalnu Paymmts
Social Securi1y Pension plan Medical, hospital. Tax free Tax favored
Pension plans Social Security and surgica I Charitable contributions ?vfedical expense
Profil sharing (long 1erm) Life insurance insurance (self Giving of gift (less than $25) reimbursement
and dependen1s) Chauffeur-driven
Savings and thrift plans Workers' EAP ( employee assistance
compensation Major medical programs) car/bodyguard
Keogh plans
Group life Health mai.n tenance Counseling Company car,
Individual retiren1en1 organizalion
accounts (IRAs and insurance Financial plane. yacht
(HMO) Company-provided
SEPs) Total and Legal
permanent Postretiremcnt facilities and
Stock purchase plans medical plan Psychiatric/psychologica l
disability diversions
Stock option plans Postrctircmcnt Outplacement
Features within Personal use of
Stock grants phys[cal Retirement credit cards
various kinds
Phantom stock plans of retirement Hospital services f-amily Vacation acco1n
Tax-sheltered annui1ies plans Comprehensive Tax preparation modations
Tax-sheltered purchases Travel-accident health plan Child adoption Special loan
Investment trus1s insurance Social Security Child/dependent care/elderly arrangements
S1Jppleinental income Funeral (Medicare) care ( no interest and
plans . arrangemen1s Workers Subsidized food service low interest)
Supplemen1al executive Postretiremenl compensation Discounts or no cost on Club membership
relirement plans life insurance Denial care merchandise Athletic club
(SERPs) Vision care Country club
Long-term performance Physical awareness and
awards Heari ng aid fitness programs Luncheon club
Job contrac1s Prescription dr ugs A th le tic leagues Concierge services
(e.mploymcn l contracts) In-house medical Parking
Zero net worth limited services Transportation to and fron1
partnerships Visiting nurse work (commuting
Postre lirement Group legal assislance)
consulting con1ract Group automobile Fly first class
Annuilies (insurance Group house Professional licenses and
based) Group u1nbrella certificates
40l(k) "Salary reduction liability Professional mc1nberships
plan'' Employee liability Professional meetings
403(1.>) Nonprofit Fidelity bond Professional journals .Ind
organiza lion insurance newspapers
Postrctiremcnt income Hospice services Special moving and relocation
adjustment (long-term care) allowances
Travel insu{anee Pay for spouse on business
trips
Home utility allowance
Home entertainment
allowance
Home office equipment
Home servants allowance
(domestic staff)
Season tickets to
entertainment events ,
Use or assistant for
personal services
Kidnap/ransom protection
Security escort service
Mobile phone (cellular or
car telephone)
Executive dining room

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 CHAP I ER 2 The Reward System 19

Spouse (Fam j/:,) llta/111, Acc:idenl,

l11comc Llabllir:,
Deferrrd Income Con1inua1ion Proltction Income Equivalnu Paymmts
Social Securi1y Pension plan Medical, hospital. Tax free Tax favored
Pension plans Social Security and surgica I Charitable contributions ?vfedical expense
Profil sharing (long 1erm) Life insurance insurance (self Giving of gift (less than $25) reimbursement
and dependen1s) Chauffeur-driven
Savings and thrift plans Workers' EAP ( employee assistance
compensation Major medical programs) car/bodyguard
Keogh plans
Group life Health mai.n tenance Counseling Company car,
Individual retiren1en1 organizalion
accounts (IRAs and insurance Financial plane. yacht
(HMO) Company-provided
SEPs) Total and Legal
permanent Postretiremcnt facilities and
Stock purchase plans medical plan Psychiatric/psychologica l
disability diversions
Stock option plans Postrctircmcnt Outplacement
Features within Personal use of
Stock grants phys[cal Retirement credit cards
various kinds
Phantom stock plans of retirement Hospital services f-amily Vacation acco1n
Tax-sheltered annui1ies plans Comprehensive Tax preparation modations
Tax-sheltered purchases Travel-accident health plan Child adoption Special loan
Investment trus1s insurance Social Security Child/dependent care/elderly arrangements
S1Jppleinental income Funeral (Medicare) care ( no interest and
plans . arrangemen1s Workers Subsidized food service low interest)
Supplemen1al executive Postretiremenl compensation Discounts or no cost on Club membership
relirement plans life insurance Denial care merchandise Athletic club
(SERPs) Vision care Country club
Long-term performance Physical awareness and
awards Heari ng aid fitness programs Luncheon club
Job contrac1s Prescription dr ugs A th le tic leagues Concierge services
(e.mploymcn l contracts) In-house medical Parking
Zero net worth limited services Transportation to and fron1
partnerships Visiting nurse work (commuting
Postre lirement Group legal assislance)
consulting con1ract Group automobile Fly first class
Annuilies (insurance Group house Professional licenses and
based) Group u1nbrella certificates
40l(k) "Salary reduction liability Professional mc1nberships
plan'' Employee liability Professional meetings
403(1.>) Nonprofit Fidelity bond Professional journals .Ind
organiza lion insurance newspapers
Postrctiremcnt income Hospice services Special moving and relocation
adjustment (long-term care) allowances
Travel insu{anee Pay for spouse on business
trips
Home utility allowance
Home entertainment
allowance
Home office equipment
Home servants allowance
(domestic staff)
Season tickets to
entertainment events ,
Use or assistant for
personal services
Kidnap/ransom protection
Security escort service
Mobile phone (cellular or
car telephone)
Executive dining room

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20 P,-\RT I Nt acrnecono,11ic Co111pensario11 Co11cep1s

increased at a greater rate than aln1ost any other good or service desired or req ui red by
e1nployces. tvledical. hospital. and surgical insurance plans and 1najor n1edical. dental, and
vision insurance are only a re,v of the numerous con1pensatio11 con,ponents designed to pro-
vide such protection for ,vorkers.
Because of savings available through group purchasing, organiza1ions arc no,v providing
,,arious kinds o( liability-rela1ed insurance plans for their en1ployees. These plans i11clude
group legal, group automobile, group umbrella liability, employee liability, and other insur-
ance plans.
lnco,ne Equivalent Payn1ents
A final set or con1pensation cooiponents may be grouped under the title of income equiva-
lent pay1ncnts. Many of these cornponents are frequen tly called perquisites, or .. perks."
Employees usually find thcn1 highly desirable. and botb employers and employees find cer-
tain tax beneri1s in them. Some perks are tax free to en1ployees and tax deductible to
e1nployers. ln recent years. the Internal R evenue Service ([RS) has required that employer
' be considered earned income to employees. In
costs for a specific portion o[ ceriain perks
rnost cases when !his occ1trs, the earned income charge to en1ployees is significantly less than
the amount employees ,vould have been required to pay if they had purchased the good or
service in the 1narketplace. Some of the more desirable perks are the use of a cornpany car or
a cornpany credit card. payrnent for expenses 10 professional meetings, subsidized food scr-
"ices, and child care services.

NONCOMPENSATION SYSTEM
TI1e olher major part of the re,vard syste1n consists of noncompensation rewards. These
re"ards arc ,nuch more difficult to classify and their components are far more complex than
is the case for compensatjon re,vards and cornponcnts. Nonco1npensation re,vards are all the
situation-related rewards not included in the compensation package.1liese rewards have an
alrnost-infinite number of con1ponents rhnt relate to the ,vork situation and to the physical
and psychological ,veil-being o( each ,vorker. In fact. any activity that has an impact on the
intellectua.1, en,otional, and physical ,veil-being of the employee and is not specifically cov-
ered by the compensation system is part or the noncompensation reward system. Figure 2.-2
models the noncompensation system.
l11e nonco1npensa1ion sysrern C()ntains n1any of the reward components that behavioral
scientists have been describing ror the past 50 years as critical for in1proving workplace r er-
forma ncc. An in-depth analysis of the seven noncornpensation din1ensions identified in
Figure 2-2 reveals a close interrelation bel\veen compensation and noncompensarion
re\vards. The line between lhe~e 1,vo major reward categories 1nigb1 at ~rsl glance appear to
be sharply defined. but it soon blurs as they interact and blend together.
Enhance Dignity and Satisfaction fron1 Work Perfor1ned
Possibly the least costly and one of the n1ost po,verful re,vards an organization can offer to
an employee is to recognize the person as a useful and valuable contribut<Jr. lnis kind of
recognition leads to en,ployec feelings ofself-,vorrh and pride in niaking a contribution.Few
people want _simply to be given something. TI1cy ,vould much prefer to kno\v that through
their own efforts, they have earned and deserved rc,vards. Every cornpensati.on and non-
compensation re\\ard con1ponent should carry ,vith it the n1essage, "We need you and appre-
ciate your efforts."
.
Enhance Physiological l:lealth, Intellectual Gronth,
and Emotional Maturity
Considering the number of hours a person spends on the job, on travel to and from the ,vork
site, and off the job in attempting to resolve job-related problems, ,vork obviousl y has a great
effect on the health of ernployees. Health-related problems frequently receive n1inimal atten-
tion until a serious proble1n occurs. Once this happens, however, it overrides all other
ern ployee concerns and acti vities. Modern he11lth practices recognize the direct relationslt1p
bt:1ween the physiological health and'inl.:llcctu.il and c111otional ,veil-being of each individual

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I

CHAPTER 2 The Reward Systen, 21

'

Noncompensation
System .

Enhance Dignity Promote Constructive Allocate Sufficient Offer Supportive

and Satisfaction Social Relationships Resources to Perform leadership and
from Work Performed with Coworkers Work Assignments ' Management

Enhance Physiological Design Joos That Grant Sufficient

Health, Intellectual Growth. Require Adequate Control ove< the Job
and Emotional Attention and Effort to Meet Personal

Maturity Demands

A safe worki ng environment has ahvays been a thorny issue between employers and
employees. Provision of safe equipment; a work environment that is as risk free as possible;
minimization of noxious fumes; avoidance of extreme heat, cold. and humidity conditions;
and elimination of contact with radiation, carcinogens, and other disease-related n1ateriaJs
and substances-these conditions are expected by all employees. With the extended- use of
the keyboard by e1nployees at all levels in all kinds of jobs, ergono1nic problems have
become a major health-related issue. The clean workstation, the cheerfully decorated walls
and floors, and the reduction of noise to a tolerable level all provide an enjoyable work envi-
ronment that enhances en1ployee health.
As important as these physical conditions are, more and more attention is being focused
on the emotional strains that result from the extreme specialization of work assignments and
the complex interactions caused by this specialization. Additional stress is caused by techno-
logical advancements that require rapid changes in the kno,vledge and skills of ,vorke.rs.
Demands for a greater share of the limited resources of organizations and society as a whole
result in further disharmonies that cause additional psychological and emotional problems
for workers.
'
Although these universal problems arc almost impossible to overcome, ,nanagement
can recognize their existence a.nd can take action to limit their negative ioOuence on the per-
fonnance of each employee. Lening employees know what the organization can provide to
help them maintain a secure and stable lifestyle will help minimize job-induced stress.
Training employees to perform current jobs in an acceptable manner and offerin~ 1.t.:.vclop-
ment opportunities that wiJI help employees attain their potential are noncompensation
components that can influence this health-related di1ncnsion in a positive manner.
Promote Constructive Social Relationships with Coworkers
An old adage states that "One man is no man." Although there are constant reminders of
what one dedicated person can achieve, there are even more reminders that one human
alone is weak. liowever, ,vith concerted action, people can accomplish almost anything. In
this world of extreme specialization, people need and rely on other people more than ever.
One of the most valued rewards gained from working is the opportunity to interact in :1
socially constructive manner with other people-to enjoy the camaraderie of ,vorkplacc
associates..

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 22 PART I !.lacroeto110111ic Co111pr11sario11

Concepts

The cbance,to con1n1unicate a nd interact. with others is an inexpensive but valuable

rc,vard. A ,vorkplace environn1en1 ,vhere trust. fcllo,vship, loyalty, and love e n1anate tron1
the t'op le,cl o[ n1anage n1cnt to the lo\\'est levels of the organization pro1uotcs the kinds of
social interaction 1nost people need in order to thrive. All parts of the reward system can
enhance the cs1ablishmcn1 of a trusting \\'Ork place environment. or they can provide barriers
,vhcrc suspicion.jealousy. and intrigu.: can destroy any opportunity to develop productivity-
pron1oting social relationships. The mo,,e toward 1ean1-based operations is an exan1ple of
'"hat organizations arc doing to in1prove social interactions among employees.

Design Jobs 'That Require Adequate Attention and Effort

Over the past 40 years. organizational scientists ha\'e discussed at len_gth the problen1s aris-
ing from borcdorn related to ,vork. Specific attention has been (ocused on scientific n1anage-
ment efforts to specialize work assign1nen1s that ,vt:re developed in the last q uarter of the
nine teenth century. Jobs ,vere de$ignecl so that workers could be taught quickly ho,v 10 per-
for111 a fe,v highly repetiti ve tasks. \Vorkers then ,vere required to perform these fe,v tasks
for as long as they remained on the joh. \Vhat first appeared to be an efficient ,vay of n1eld-
ing hun1an resources with n1achine technology proved to have serious drawbacks.
I Many e rnployces soon becan1e bored and dissatisfied. Work-rela1cd anxieties and frus-
tration produced cn1ployec behavior that led 10 declining perforn1ance. Employee turnover,

absenteeism, tardiness. n1ini111al concern for quality o r productivity. ,vasle of physic:il
resources. and even theft and n1alicious damage ,vere behaviors attributed to unacceptable
,vorkplace ~nd job design.
Recognizing lhesc problen1s, behavioral scientists a nd n1anagers at all levels have been
searching. for and iinple1ne111 ing ne,v approaches 10 in1prove the quality of ,vork life. On an
indi,idual nnd 1ean1 o r group basis. e n1ployees arc being given 111ore opportunity to have a
voice in ho,v rheir jobs should be performed. Restructuring of job tasks and job responsibil-
ities is receiving top attention. Flexibility in job requirements is being provided by rotating
\\'Ork assignrnents and by giving ernployces n1orc opportunity to sched ule ,vorkdays and
work,vecks. Managers are being. taugh1 to instruct ,vorkers to do l11eir jobs and then to leave
thcn1 alon<: to perforn1 their assign1ne n1s in their o,vn ,vays. TI1is does noi mean that man-
agers must abdicate supervisory responsibilities. Ra the r. they 1nus1 learn to recognize when
to provide needed support. wbcn to tell cn1ployees ,vhat they are doing right. and ,vhen to
assist 1he111 in correcting their errors.
~

Allocate Sufficient Resources to Perform Work Assignments

Requiring e1nployees to perforn1 assignn1ents for ,vhich they have neither the knowledge
nor the skills opens the door for problen1s. Not only is the organization likely 10 suffer
because of.outcon1e failures. bul employee job-related interest and satisfaction are apt to
break dl)wn because of the likelihood or inevitability of failure. Most employees seek a sense
of acco1nplishment fro1n their ,vork.171ey want son1e degree of challenge. but they also want
to feel reasonablv
~ . sure that lhev. can succeed. .
111 11ddition, ,vhcn cn1ployecs arc told they n1usLproduce certain kinds and quantities of
output ,vithin a specified time, they ,vant to kno,v that resources are available to help them
1nee1 these dc111ands. Possibly the most critical resource is sufficient time to accoruplish an
assignn1c111. Docs the cn1ploycc h:ivc the time to perforn1 the assignment? Arc other assign-
ments 1naking de1nands on the eu1ployees time that preclude or jeopardize successful job
perforn1ancc? Has the organization assisted or enabled the employee to gain the knowledge
and skills necessary to perform the assignn1ent? Are the necessary human, technical, or
physical resources available to support and aid the en1ployee in accomplishing the assign-
ment? TI1ese and many other questions rnust be ans,vercd by supervisors as they analyze
assignments and review pe rformance.
To make ,vork a satisfying. even c xhilaraling experience. employees must not be placed
in a no-,vin situation. TI1is docsn 1 1ncan that an employee should not be expected to stretch
and put forth sufficient effort 10 meet ,vorkplace obligations. It docs mean. ho,vever, that
with the proper interested effort. success is likely. l11e o rganization must do everything pos-
sible to assisl the en1ployec in con1pleiini n,issions successfully.

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 CHAPTER 2 The Reward Sys1e111 23

Grant Sufficient Control over the Job to Meet Personal Demands

From the 1950s to the presen t time, behavioral scientists have discussed the need to grant
employees greater opportunity to participate in organizational decision-1naking processes.
One problem ,villi this participation concept is that organizations are composed of all kinds
of people ,vith all kinds of decision-making desires. So,n{ people si,nply ,vant to be told what
to do, to be shown what is an acceptable level of performance, and then to be left alone to do
their jobs. A few people in every organization ,vant to tell top managen1cnt ho,v to run the
o rganization. Bet,veen these t~vo extremes is a ,vide variety of demands for a greater voice in
determining how to perforn1 assignments.
One of the most important decisions being made by more and more ,vorkers is that of
scheduling work activitjes and. in some cases. of choosing the location of assignments. Over
the past two decades. flexible ,vork schedules have been implemented that range from com-
pressed ,vork,veeks (for cxa1nple. 4-day. 40-hour sched ules) to the flextime programs in
,vhich ,vorkers can work a 71 / 2 - to 8-hour dav.. ,vithin a 12 to 14-hour interval. With the
advent of the personal computer and nel\vorking, more employees are allowed to work at
hon1e or at a work site of their choice.
Another advancen1ent in this area enables t,vo part-time employees to share one full-
time job. Each of th e l\VO n1ay work only .15 to 25 hours per week, but together they share
and perform all job responsibilities. Like many other nonconipensation rewards, t he benefits
gained by granting such scheduling pi-i,1 ileges frequently oul\veigh the costs of having an
additional employee on th e payroll.
Another change to make life easier is the casual dress day. With this option. employees
are granted the opportunity to "dress do,vn" or ,vear clothing of a more relaxed or casual
styl e. In n1ost cases, the organization provides guidelines regarding clothing to be worn.

Offer Supportive Leadership and l\1anagement

This dimension is difficult to separate from all other noncompensation re,vards, but it is so
important that it must be recognized as a unique dimension of the noncompensa tion
rewards and not just a component of the other factors.
Practically all people lcok to certain individuals for guidance and support. They have a
need to recognize and respect those ,vho can he lp them achieve goals. ll1ey look lo man-
agers ,vho have influence and can bring about desired changes. Followers must have faith in
and abide by the actions taken by their leaders. and the leade rs must heed the requests of
their followers.
Employee faith and trust in ,nanage,nent assist in establishing a ,vorkplace environ-
ment ,vhere job security becomes accepted, \\'here social inte raction thrives, and \\here
,vork satisfaction is possible. Supportive leadership is den1on stratcd in n1any ,vays: skill and
inte rest in coaching and counseling. praise for a job well done. and constructive feedback
leading to improve n1ent of job perforn1ance. Leaders n1ust be sufficiently flexible ,vit h poli-
cies, rules, and regulati ons so that an employee can n1eet job and nonjob resppnsibilities
,vithou! infringing on th e rights and the opportunities or other employces.1l1e selection ,
training. and pron101ion o f individuals ,vho \viii later become effective leaders and man-
agers arc the cost components of this din1ension. Here again. t he costs are minimal com-
pared to the benefits.

Summary
As Albert Camus. the French philosopher. stated: "\Vithout ,vork all life goes rotten. But
,vhen ,vork is soulless lire stifles and dies." For the great majority of people, ,vork is a neces-
sity. As the result of ,vorking, people obtain compensation rewards that provide money to
purchase a ,vide variety of goods and services or receive in-kind payn1ents of goods and ser-
vices that ,vould have reql/ired the expenditure of money had they not been provided by the
employer. Noncornpensation re,vards are almost infini te in variety. These rewards satisfy
emotional and intellectual den1ands. 'fhey make people feel good about then1selves, permit
them to make full use of their talents. and promote interactions ,vith others in a supportive
man ner.

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24 PART I l\,l acroeco1101nic Co111pensa1ion Concepts

Through ,vork , employees have the opportunity to improve their lifestyles. The analy-
sis of lifestyle de mands and th e opportunity for main t ain ing a current lifestyle and
improving it in the future underscore the importance of job-earned compensation. It isno
,vonde r that a major union leader ,nadc this statement: 'A job is a job; if yo u don ' t pay
enough. it is a lousy job:' Another union leader has stated: "The most sensiti ve a rtery in
the hutnan body is the one going from the heart to the pocketbook."

Review Questions
l. Why should managers be concerned about developing a reward system?
2. What is the reward system of an organization?
3. What is meant by compensation?
4. Distinguish between monetary and in-kind payments.
5. Describe the relationship between the compensation and noncompensation subsystems of the
reward syste m.

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