Organizational Context: Reward Systems |  |
Chapter SummaryThis chapter examines reward systems as an important part of the organizational context for organizational behavior. For most organizations, pay dominates the organizational reward system. There is considerable evidence that pay is vital not only for hiring
and retaining talented employees, but also if properly administered can have a positive impact on desirable outcomes such as productivity, quality, and customer service. In particular, pay provides employees with the opportunity to meet both lower-level maintenance and upper-level growth and achievement needs. The challenge for managers is to administer rewards properly. In particular, this means setting up pay systems that allow employees to know the outcomes that are to be rewarded, being able to measure these outcomes as fairly and objectively as possible, and tying monetary incentives directly to the results.
Pay administration takes several forms. Traditional methods include base salary and merit pay. Both of these, however, are often insufficient for retaining talented people. Organizations have to offer incentives for desirable outcomes. As a result, pay-for-performance systems are in place in many firms. These include both individual and group incentive plans. Common examples of individual incentives include commissions based directly on sales or work output, bonuses, and stock options. Group incentives
include gainsharing, profit sharing, and employee stock ownership plans.
In recent years many organizations have realized that they must develop new pay approaches. One example is the use of commissions that go beyond sales such as cus-tomer service. Others include skill pay that is based on employees demonstrating completion of training and competency in particular job-related skills, competency pay that is based on rewarding people for abstract knowledge or competencies related to things such as technology or leadership, and broadbanding in which salary levels are collapsed into a small number of salary grades with broad pay ranges.
Another important but often overlooked component of organizational reward systems is recognition. In contrast to money, recognition is easier to control by the manager
and can be easily altered to meet the individual employee needs. Social recognition is provided by managers/supervisors contingent on performing desirable behaviors and is given more detailed attention in Chapter 16 on behavioral performance management.
As part of the organizational reward system discussed in this chapter, formal recognition systems can innovatively provide awards for desirable outcomes, and many actual examples were provided.
Benefits are the third major component of organizational reward systems. Some of these benefits are mandated by the federal government (e.g., Social Security and
workers’ compensation). However, numerous other benefits are received by today’s permanent employees (not by temps, and this is a major problem for them). Examples include paid vacations, days off for religious holidays, personal leave, life and health in-surance, and pensions. In addition there are benefits that have emerged in recent years that are proving quite popular. Examples include wellness programs, child care benefits, employee assistance programs (EAPs), tuition assistance, and prepaid legal expenses. In recent years the value of benefits as part of the reward system has increased, but so has the cost. The challenge for today’s management is to make sure there is a favorable
cost-benefit ratio and go beyond what is required by law to contribute to desired outcomes such as retention and performance. |
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2002 McGraw-Hill Higher Education