Reward management by Jayadeva de Silva
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This document discusses reward management and salary/wage administration. It covers several key points: 1. Salaries and wages are an important part of compensation that motivate workers by providing a means to earn a living. Employers must pay reasonable salaries on time and uniformly. 2. Salary administration involves classifying jobs, evaluating compensation, and ensuring pay is appropriate within the organization and market. Elements include periodic payroll and ongoing monitoring and evaluation. 3. Several motivation theories are described, including Maslow's hierarchy of needs, ERG theory, equity theory, goal-setting theory, and McGregor's Theory X and Y. Money plays multiple motivational roles as a reinforcer, incentive, anxiety reducer,
Reward management by Jayadeva de Silva
- 1. Reward Management –Jayadevade Silva Wages and salaries administration These activities we get ourselves involved in, is what is referred to as of today, as employment. Where employment scenario occur, there must be an employer – one who engage the services of another and the employee - one who his /her services is engaged. Sales of Goods Act establishes the fact that for there to be a valid contract of sales there must be, among other things, what is referred to as consideration which could otherwise be referred to as the price or value of the transaction(s). The employment related law, as well, established that for a valid employment contract there must be a price to be paid by the employer to the employee at the end of a fixed period monthly, forth nightly, weekly or daily. This is what we otherwise called wages and/or salary. This is the compensation paid to individual for engaging their services or rather a return for their sweat. However, the issue of what constitute a fair day’s pay has plagued managers/employers for decades coupled with the fact that most employer of labour are capitalist who want to part with little or nothing as cost to generate huge profit. Therefore, employees require and must be provided with adequate and equitable rewards for their contributions to organisational goals. This is valid because the compensation employees are paid is the most tangible measure they have for their worth to the organisation. Compensation includes all rewards, individual receive as a result of their employment. As such, it is more than monetary income. The reward may be one or a combination of the following: Pay – the money that a person is paid for performing jobs, that is, direct financial compensation. Benefits – additional financial benefits other than the basic pay such as paid holidays, medical insurance and many more. Non-financial – non-monetary rewards that an employee may receive such as enjoyment of the work performed and a pleasant working environment and prestige. All the above types of compensation comprise a total compensation (rewards) programme. Naturally, financial compensation, both direct and indirect, comprises the heart of such system. In designing a total compensation programme which will attract, retain and motivate employees, all types of rewards should be considered. It is, therefore, pertinent to emphasize that among all these compensation, wages and/or salaries form the major part of compensation. Salaries and wages is one of the most important motivational factors, as we had been told from the time immemorial that we shall eat from our sweat. The main reason why workers get involved in paid jobs is to earn a living which is salary or wage. Reasonable salaries must
- 2. Reward Management –Jayadevade Silva be paid on time, that is, it must be paid as at when due and promptly, as well. The workers should be able determine the time such salaries will be paid by the organization. Again, there must be a relative uniformity in the mode and manner such salaries and wages will be paid to the workers. While fixing salaries, the organization must consider factors such as the cost of living, company ability to pay, capability of company to pay, etc Salary and wage administration is the process of compensating an organisation’s employees in accordance with accepted policy and procedures. An important component of a successful organizations’ salary and wage administration policy is monitoring and evaluating all employee’s compensation to ensure that they are being paid appropriately, both with respect to others in the same organization and to the marketplace as a whole. Salary and wage administration is often an integral function of the organisation’s human resources department, but in general, the larger the organization, the more likely it is that it will be handled by a separate department. Elements of Salary and Wage Administration The first element of salary and wage administration is the periodic payroll which is a critical component of any functioning organisation. If the payroll is incompetently processed, the employer itself could conceivably collapse. Employees’ personal budgets and plans are contingent upon getting paid regularly, and if compensation is late, short, or missing even a single time, morale is severely affected and also, the confidence in the employer’s stability. Whether an employer utilizes the services of a third-party payroll service or handles all payroll functions internally, it will usually devote significant resources to making sure that employees are paid the right amount on time. The second element of salary and wage administration is monitoring and evaluating employees’ compensation and it is an ongoing function. This includes evaluating the elements of each job in the organization and classifying it according to a number of different criteria, including the nature of the work itself, the amount of supervision necessary, the physical exertion normally associated with the job, and the amount of training necessary to do the job proficiently. The underlying idea is to determine, as nearly as possible, the value of each job to the employer, and compensate results of this monitoring and evaluation process which will result in adjustments being made to wages and salaries. In a collective bargaining environment, these evaluations will be important in determining any such adjustments, although other considerations may affect adjustments to wages and salaries. In the United States, jobs are also evaluated as to whether or not they are exempt from wage-and-hour laws relative to overtime pay. Most production and clerical jobs, for example, are considered non-exempt; that is, even if pay is administered on a weekly basis and called salary, from a legal point of view, the jobs are considered to be hourly. When a non-exempt (non executive) worker works in excess of the statutory requirements, usually 40 hours in a calendar week, they must be paid a premium in addition to their regular
- 3. Reward Management –Jayadevade Silva hourly pay. Most executive and supervisory workers, and some higher-level clerical staff, are considered exempt, which means that they are paid a flat rate every pay period regardless of the actual number of hours worked. In general, exempt employees are paid more than non-exempt. The US Department of Labour has specific tests employers can apply to every job to determine if it is properly classified as exempt or non-exempt. Classification of jobs is only one element of the ongoing evaluation process that is an important component of salary and wage administration. Employers need to maintain a competitive edge in the marketplace, and one way to do so is to employ the very best people. Academic staff employers will strive to maintain a competitive edge with respect to compensation because they understand that their employees are constantly on the alert for better opportunities, and the total compensation package is one of the most important elements of an employee retention strategy. Employee retention, in turn, is an important responsibility of those responsible for salary and wage administration. Generally, every organisation consists of these tangible and intangible elements: the environment, vision and mission; values, objectives, strategy, authority, work, people and other resources (land, labour, capital, entrepreneurship and technology, especially, ICT). The only things among these elements are the human beings, who have entered into contractual relationships with the organisation to offer their human endowments in exchange for some forms of rewards. The people in the organisation thus become the most critical factors of production because they coordinate other resources and they have the will and discretion in deciding if, when and how to work. The concern of managers’ right from days of industrial revolution and emergence of formal organisations has been how to ensure that workers put in their best and that their best is good enough. In effect, there are two major challenges: how to ensure that the workers are committed to organisational goals and are working towards those goals to the best of their abilities. These two challenges are complicated by the fact that the workers have different needs, which also vary with time Theories of Motivation Theories of motivation have been traditionally grouped into those that try to identify what motivates people (Content Theories) and those that concentrate on how motivational choices are made (Process Theories). Emerging theories include Control Theories (concerned with the motivational impact of the degree to which workers perceive themselves to be in charge of their lives or jobs) and the Agency Theories (which are concerned with the motivational value of the divergence or convergence of interest between the principals - the firm - and their agents - the workers). Some of these theories are discussed hereunder. HIERARCHY OF NEEDS THEORY (MASLOW, A. H, 1943) posits that human needs are arranged in hierarchical order, that each is operational at a given time and that a satisfied need does not motivate. These needs are Physiological, Safety and Love as well as the need for Self Actualisation, the need become everything that one is capable of becoming. Two
- 4. Reward Management –Jayadevade Silva additional needs which even Maslow gave relatively little attention are the Cognitive Needs (the desire to know and the desire to understand) and the Aesthetic Needs (a craving for beauty in ones surroundings). Maslow divided these needs into deficiency and growth needs, with self-actualisation being the key growth need which is never fully satisfied and thus, a permanent source of motivation. The potency of these needs may shift forth and back under different circumstances. For instance, during bad economic times, physiological and safety needs tend to dominate individual behaviour while in good economic exceptions: some people may prefer self-esteemto love and for others higher-order needs may become operational before the satisfaction of basic needs while some may have lost the urge for the higher needs ERG THEORY (ALDERFER CLAYTON) is a major modification of Maslow’s Theory which categorized the needs into three: Existence; Relatedness and Growth and that these needs are not hierarchically arranged; any need could become operational at any time. The three major variables in Equity Theory (ADAMS, J. S., 1961) are Inputs, Outcome and the Reference Person. He argues that inequity exists when a person’s input/outcome ratio is significantly different from that of a reference source while equity on the other hand exists when the two ratios are equal. Inequity (whether positive or negative), results in dissatisfaction in the form of anger (under-reward) or guilt (over-reward). GOAL-SETTING THEORY (LOCKE, 1996) focuses on how goal-setting and related factors (participation, acceptance and difficulty) affect performance. It holds that goal setting is positively related to performance, that goal specificity, difficulty and feedback enhance performance. Goal content and intensity exert directive, influence, regulate energy expenditure, and influence the level/direction of effort and that goal achievement leads to satisfaction while failure leads to dissatisfaction. In THEORY X AND Y (DOUGLAS MCGREGOR, 1957 & 1960), McGregor argues that management assumptions about the control of human resources determine the quality of the enterprise and that existing assumptions were counterproductive. Those existing assumptions (Theory X) are that people dislike work and prefer to be directed. This mindset is more appropriate for children and is counterproductive to the realization of human potentials. He argues for a new set of assumptions and practices attuned to the higher order needs. This is Theory Y which holds that work is natural, that coercion is not only way to induce performance, that commensurate reward leads to commitment and that people can accept and even seek responsibility when the conditions are right. Theory Y is a new paradigm of respect and dignity for the worker and proposes integration of organisational and personal goals, participative management and a relationship between the manager and his subordinate under the envisaged culture that is one of a teacher, professional helper, colleague and consultant (McGregor).
- 5. Reward Management –Jayadevade Silva Other theories include McClelland’s Achievement Theory which states that people are propelled by the need for achievement (n’Ach) power affiliation and fear of failure. Those who have high n’Ach are characterized by moderate risk-taking, need for immediate achievement, and satisfaction with accomplishment in itself, amongst others. The VIE (expectancy) Theory championed by Victor Vroom, holds that motivation occurs when a staff believes that efforts would lead to performance (expectancy), and that performance would lead to valued rewards (instrumentality and valence). Herzberg’s Two- Factor Theory proposes that there are hygienic factors, related to the job context which do not motivate but can cause disaffection if not properly handled (salary, working conditions, and relationship with peers, etc). The second groups of factors, which actually motivate include achievement, recognition, work itself. He, therefore, suggested job enrichment as a strategy for increasing the motivators at work as against the hygienic Kick in the Arse (KITA) elements (Herzberg,). Money, Motivation and Behavioural Consequences of Compensation Right from the days of Taylor and his scientific management mentality, money has always been seen as the greatest motivator for workers. Of course, this has to be so in a situation where money is the only means to acquire whatever one wanted/wants. The motivational value of money is invariably high in countries like ours because of the circumstances - mass poverty, lack of basic amenities which turns everyone into his government, and corruption has assumed unprecedented proportions. Although many talk about a so called free education (No payment by beneficiaries but all the people pay for it through taxes), most of the parents spend around 40% of their salaries for tuition. Same is true of the so called free health services. Government is riddled with a huge debt and they rely on taxing the people heavily in order to service these debts by paying at least the interest dues. Likewise many employees too are in debt. Situation seems to be deteriorating further due to large scale corruption in all sectors at all levels. Judiciary and Police have been politicized which makes future prospects unimaginable. The motivational roles of money as follows: Money is a Generalized Conditioned Rein forcer because it is usually paired with primary rein forcers; a Conditioned Incentive because the repeated pairing of money with primary incentives establish a new learned drive for money; an Anxiety Reducer because people become anxious in the absence of money; a Hygiene Factor because it serves as a potential dissatisfaction if not sufficiently available and an Instrument for Gaining Desired Outcomes because it helps to acquire other desired outcomes and while it has no value in itself, but it symbolizes intangible goals. They also argued that compensation policies, schedules of pay, secret pay policies and pay curves have motivational impacts depending on how they are applied. They conclude that personal characteristics of workers – preferences, opinions,
- 6. Reward Management –Jayadevade Silva perceptions – influence the workers response to the compensation package, which in turn lead to variations in these characteristics. Money is thus a critical motivational variable. This is due to its five general roles already discussed. In addition to these generic roles, the features of the pay policies, the type of job, the personality of the individual workers and their preferences and perceptions also intervene in the motivational value of monetary compensation. In effect, the pay itself, how it is administered and the peculiarities of the staff are all critical in determining the motivational roles of money. Other factors that would affect the extent to which money motivates include salary level, cost of living, and level of education, family/personal background and future expectations Exam type questions 1 What are objectives of pay for the employer? 2 What are the objectives of pay for the employee? 3 Explain the role of money as a motivator? 4 Explain how motivational theories relate to pay administration in SriLanka 5 What is meant by total reward management? --------------------------------------------------------------------- *This learning resources has been compiled by Jayadeva de Silva for post graduate students of National School of Business Management