Rewards and

remuneration
Rewards management

Process of developing and

implementing strategies, policies
and systems which help the
organisation to achieve its
objectives by obtaining and
keeping the people it needs and by
increasing their motivation and
commitment
- Armstrong & Murlis
Performance-rewards exchange
 Employment contract
 Extrinsic rewards
 Provided by the organisation and other people
 Include recognition, promotion, pay, benefits

 Psychological contract
 Intrinsic rewards
 Come from within
 Feelings of accomplishment and self-worth
 Include interesting work, growth, responsibility
Rewards and remuneration
 Should support achievement of
business and other objectives
 Should provide rewards for past
performance
 Should provide incentives for
future performance
Range of rewards

Tangible Intangible
 wages and salaries  job itself
 bonus, commission or  job enrichment
incentive payments  job enlargement
 performance pay  interpersonal and work
 paid holidays group relationships
 company cars  growth of skills and
 superannuation abilities
schemes  opportunities to use
 medical insurance talents and make a
 other ‘perks’ contribution
Approaches to rewards
 Stick and carrot
 provide performance and behaviour
incentives and rewards
 Deferred gratification
 promise of future rewards in return for
present efforts and achievement
 Prerogatives
 rewards or increments paid to
employees as of right
The ‘new’ pay
 Concept, not a set of practices
 Reward strategies and policies should be based
on organisation’s goals, strategies, values and
culture
 Pay can be used to influence employees’
behaviour
 More pay ‘at risk’
 No risk
 Some risk
 Moderate risk
 Total risk
Pay policies: internal
influences
 Organisation’s mission and strategies
 Type of organisation
 Organisational culture
 Bargaining strength of individuals and
groups
 Employee attitudes
 Organisation’s ability to pay
 Existing rewards system
Pay policies: external
influences
 Labour markets and market relativities
 Economic and industrial change
 Labour force changes
 Decline in union power, but stronger
bargaining power for other groups
 Government policies
 Simplicity versus complexity
 Pay differentials and harmonisation
Pay policies: traditional aims
 Attract and retain employees
 Increase employee commitment
 Encourage performance and
development
 Reward long service
 Avoid anomalies
 ‘Fair day’s pay for a fair day’s work’
Pay policies: changing aims

Reward employees
 for customer service and quality
 for business productivity gains
 for innovation and creativity
Trends in remuneration and
rewards
 Increasing proportion of variable pay
 More pay at risk
 Finding ways to share success with employees
 Performance pay
 Paying for team performance
 Contingent workers
 Paying the person not the job
 Increased use of market comparisons
 Increasing harmonisation
 More decision power for line managers
Base pay
 Time
 Job size
 Service
 Skills or knowledge
 Competencies
 Career development
Variable pay
 Assume behaviour and
performance can be influenced by
financial benefits
 Individual bonus schemes
 Output-based collective bonuses
 Profit-based collective bonuses
 Merit or performance pay
Performance pay

Improve performance by converting

the paybill from an indiscriminate
machine to a more finely tuned
mechanism, sensitive and
responsive to the needs of a
company and its employees.
Performance pay
 Focuses effort where organisation wants it
 Supports performance culture
 Emphasises individual performance or
teamwork as appropriate
 Strengthens performance planning process
 Rewards right people
 Motivates all the people
 Shares success
 Employees identify with organisation
Making performance pay work
 Management tool, not a quick fix
 Introduce for right reasons
 Management commitment
 Employees trust management
 Part of overall rewards strategy
 Meets organisation's specific needs
 Clear performance criteria with clear link to
performance pay
 Significant rewards must be significant
 Communication, information and review
Performance-pay link problems
 Weak and unreliable performance
appraisals
 People are paid for more than performance
 Performance planning and review focuses
on areas for improvement
 Timing issues
 Budget constraints
 Do stars really get rewarded?
Performance pay criticisms
 Performance is very difficult to
measure
 Money is not a good motivator
 Performance pay schemes are not
a substitute for good management
 Expensive to design, implement
and maintain
 Has no effect on performance!!