1. The
Selecting
Employees
Organizational
Reward System
Chapter 12
Chapter 7

2. Learning Objectives
1. Define organizational rewards.
2. Distinguish between intrinsic and extrinsic rewards.
3. List several desirable preconditions for
implementing a pay-for-performance program.
4. Define job satisfaction and list its five major
components.
5. Summarize the satisfaction–performance
relationship.
12-2

3. Learning Objectives (cont.)
6. Define compensation, pay, incentives, and
benefits.
7. List several pieces of government legislation that
have had a significant impact on organizational
compensation.
8. Explain the equity theory of motivation.
9. Discuss internal, external, individual, and
organizational equity.
12-3

4. Defining the System
Organizational reward system
└ Organizational system concerned with the
selection of the types of rewards to be used by
the organization.
12-4

5. Defining the System
Organizational rewards
└ Rewards that result from employment with the
organization
└ includes all types of rewards, both intrinsic and
extrinsic.
12-5

6. Selection of Rewards
 Intrinsic rewards
└ Rewards internal to
the individual and
normally derived from
involvement in certain
activities or tasks.
 Extrinsic rewards
└ Rewards that are
controlled and
distributed directly by
the organization and
are of a tangible
nature.
12-6

7. Intrinsic versus Extrinsic
Rewards
12-7
Table 12.1

8. Selection of Rewards
Management must recognize what employees
perceive as meaningful rewards
Pay is usually the first, and sometimes the only,
reward most people think about
May include office location, allocation of certain
pieces of equipment, assignment of preferred
work tasks, and informal recognition
12-8

9. Selection of Rewards
External factors that place limitations on an
organization’s reward system also exist
These factors (usually beyond the control of
the organization) include such things as
└ Organization’s size
└ Environmental conditions
└ Stage in product life cycle
└ Labor market
12-9

10. Relating Rewards to Performance
Primary organizational variable used to reward
employees and reinforce performance is pay
Even though many U.S. companies have some
type of pay-for-performance program, most
do a poor job of relating the two
12-10

11. Relating Rewards to Performance
Surveys repeatedly show that employees do
not have much confidence that a positive
relationship exists between the two
Evidence shows that paying for performance is
working at the highest levels in many
companies
12-11

12. Preconditions for Implementing
Pay-for-Performance Program
1. Trust in management
2. Absence of performance constraints
3. Trained supervisors and managers
4. Good measurement systems
5. Ability to pay
6. Clear distinction among cost of living, seniority, and
merit
7. Well-communicated total pay policy
8. Flexible reward schedule
12-12

13. Job Satisfaction and Rewards
Job satisfaction
└ An employee’s general attitude toward the job
Organizational morale
└ An employee’s feeling of being accepted by and
belonging to a group of employees through
common goals, confidence in the desirability of
those goals, and the desire to progress toward the
goals.
12-13

14. Five Major Components of Job
Satisfaction
12-14
Attitude toward the work group
General working conditions
Attitude toward the company
Monetary benefits
Attitude toward management

15. Other Components of Job
Satisfaction
12-15
Employee’s state of mind about the work
itself
Life in general
Health, age
Level of aspiration, social status
Political and social activities

16. The Satisfaction–Performance
Controversy
Two propositions concerning the satisfaction-performance
theory exist
1. Satisfaction causes performance
2. Satisfaction is the effect rather than the
cause of performance
12-16

17. The Satisfaction–Performance
Controversy
Rewards constitute a more direct cause of
satisfaction than does performance
Rewards based on current performance
enhance subsequent performance
12-17

18. Determinants of Employee
Satisfaction and Dissatisfaction
12-18
Figure 12.1

19. Employee Compensation
Compensation
└ All the extrinsic rewards that employees receive
in exchange for their work
└ base wage or salary, any incentives or bonuses,
and any benefits.
Pay
└ Refers only to the actual dollars employees
receive in exchange for their work.
12-19

20. Employee Compensation
Base wage or salary
└ Hourly, weekly, or monthly pay that employees
receive for their work.
Incentives
└ Rewards offered in addition to the base wage or
salary and usually directly related to performance.
12-20

21. Employee Compensation
Benefits
└ Rewards employees
receive as a result of
their employment and
position with the
organization.
12-21

22. Components of Employee
Compensation
12-22
Table 12.2

23. Compensation Policies
1. Minimum and maximum levels of pay
└ taking into consideration the worth of the job to
the organization
└ the organization’s ability to pay
└ government regulations
└ union influences
└ market pressures
12-23

24. Compensation Policies
2. General relationships among levels of pay
└ between senior management and operating
management, operative employees, and
supervisors
3. The division of the total compensation
dollar
└ what portion goes into base pay, incentive
programs, and benefits
12-24

25. Compensation Policies
Organizations must also make decisions
concerning
└ How much money will go into pay increases for
the next year
└ Who will recommend them
└ How raises will generally be determined
Also whether pay information will be kept
secret or made public
12-25

26. Pay Secrecy
Justification for pay secrecy
To avoid any discontent that might result from
employees’ knowing what everybody else is
being paid
Many employees feel very strongly that their
pay is nobody else’s business
12-26

27. Pay Secrecy
Drawbacks of pay secrecy
└ Difficult for employees to determine whether pay
is related to performance and does not eliminate
pay comparisons
└ May cause employees to overestimate pay of
their peers and underestimate pay of their
supervisors
└ Can create feelings of dissatisfaction
└ Employees may become suspicious
12-27

28. Pay Secrecy
A compromise on issue of pay secrecy is to
disclose pay ranges for various job levels
within the organization
Clearly communicates general ranges of pay
for different jobs, but it does not disclose
exactly what any particular employee is
making
12-28

29. Davis–Bacon Act
Davis–Beacon Act
└ Requires that contractors and subcontractors on
federal construction contracts in excess of $2,000
pay prevailing wage rates for locality of project
└ Prevailing wage rate is determined by secretary of
labor
└ Overtime of time-and-a-half – For more than 40
hours per week
12-29
12-29

30. Walsh–Healey Public Contracts Act
Walsh–Healey Public Contracts Act
└ Requires that organizations manufacturing or
furnishing materials, supplies, articles, or
equipment in excess of $10,000 to the federal
government pay at least the minimum wage for
the industry as determined by the secretary of
labor
└ Defense Authorization Act of 1986 stipulated
overtime as being hours worked over 40 in a week
12-30

31. Fair Labor Standards Act (FLSA)
Fair Labor Standards Act
└ primary requirements are that individuals
employed in interstate commerce or in
organizations producing goods for interstate
commerce must be paid a certain minimum wage
and be paid time-and-a-half for hours over 40
worked in one week
└ places restrictions on the employment of
individuals between ages 14 and 18
12-31

32. History of Minimum Wage Rates
12-32

33. Equal Pay Act
Equal Pay Act
└ Illegal to pay different wages to men and women
for jobs that require equal skill, effort, and
responsibility and are performed under similar
conditions
└ Does not prohibit payment of wage differentials
based on seniority systems, merit systems that
measure earnings by quantity and quality of
production, or systems based on any factor other
than sex
12-33

34. Federal Wage Garnishment Law
Federal Wage Garnishment Law
└ Law limits amount of an employee’s disposable
earnings that can be garnished in any one week
and protects employee from discharge because of
garnishment
Garnishment
└ A legal procedure by which an employer is
empowered to withhold wages for payment of an
employee’s debt to a creditor
12-34

35. Lilly Ledbetter Fair Pay Act of 2009
 Lilly Ledbetter Fair
Pay Act of 2009
└ addresses a Supreme
Court ruling by
eliminating any time
limitations for pay
discrimination claims
12-35

36. Union Contracts
 If an organization is
unionized, the wage
structure is usually
largely determined
through collective
bargaining process
Because wages are a
primary concern of
unions, current union
contracts must be
considered in
formulating
compensation policies
12-36

37. Impact of Comparable Worth
 Theory holds that while true worth of jobs to
employer may be similar, some jobs (especially those
held by women) are often paid a lower rate than
other jobs (often held by men)
 Drawback
└ Determining worth of the jobs in question is
difficult
└ How should job worth be established?
 U.S. courts have generally rejected cases based on
comparable worth claims
12-37

38. The Importance of Fair Pay
Inadequate pay can have a very negative
impact on an organization
Pay dissatisfaction can influence employees’
feelings about their jobs in two ways:
└ Can increase desire for more money
└ Can lower attractiveness of the job
12-38

39. The Importance of Fair Pay
An employee who desires more money is
likely to engage in actions that can increase
pay
These actions might include
└ Joining a union
└ Looking for another job
└ Performing better
└ Filing a grievance
└ Going on strike
12-39

40. Model of the Consequences of Pay
Dissatisfaction
Figure 12.2
12-40

41. Pay Equity
Equity theory of motivation
└ Employees have a strong need to maintain a
balance between what they perceive as their
inputs to their jobs and what they receive from
their jobs in the form of rewards
└ Employees who perceive inequities will take
action to eliminate or reduce them
└ Pay equity concerns whether employees believe
they are being fairly paid
12-41

42. Pay Equity
Internal equity
└ Addresses what an employee is being paid for
doing a job compared to what other employees in
the same organization are being paid to do their
jobs.
External equity
└ Addresses what employees in an organization are
being paid compared to employees in other
organizations performing similar jobs.
12-42

43. Pay Equity
Individual equity
└ Addresses the rewarding of individual
contributions; is very closely related to the pay-for-
performance question.
Organizational equity
└ Addresses how profits are divided up within the
organizations.
12-43

44. Pay Satisfaction Model
Based on the idea that employees will be
satisfied with their pay when their perception
of what their pay is and of what they think it
should be agree
Happens when employees feel good about
internal and external equity of their pay
12-44

45. Pay Satisfaction Model
An employee’s perception of what pay should be
depends on several factors:
Job inputs
└ Includes all the experience, skills, and abilities an
employee brings to the job in addition to the
effort the employee
puts into it
12-45

46. Pay Satisfaction Model
The perceived inputs and outcomes of friends
and peers
└ Refer to the individual’s perception of what
friends and peers put into their jobs and what
kind of pay they get in return
Nonmonetary outcomes
└ Refer to the fact that certain nonmonetary
rewards can sometimes substitute for pay, at least
up to a point
12-46

47. Model of the Determinants of Pay
Satisfaction
Figure 12.3
12-47

48. The Role of the Human Resource
Manager in the Reward System
Role of human resource manager in overall
organizational reward system is to assist in its
design and to administer the system
Administering the system – Carries
responsibility of ensuring that system is fair to
all employees and that it is clearly
communicated to all employees
12-48