occasion of specifically organized public events, is also correlated to other two mental
processes called by Jeffrey (2003) evaluability and justifiability. The concept of
evaluability is linked to the value which different individuals can associate with a non-
financial or para-financial award which, in some circumstances, might also be perceived
as higher than the real purchasing cost of the item or service provided by the
organization. The idea of justifiability is instead associated with the circumstance that,
even though individuals could have bought by themselves the articles they receive from
their employer as a “thank you”, they do not in that might consider those items or
services particularly costly and in some ways not necessary for themselves and their
families (or anyway not worth the sacrifice necessary to buy these). This, however, does
not really entails by any means that they do not appreciate and justify, receiving them
from their employers.
Para-financial rewards will be even more welcomed and appreciated by individuals
whether these have been chosen by an employer having in mind the beneficiary
expectations and wants. This will unquestionably proof that the employer has dedicated
time and thoughts to the individual and that its efforts were focused on providing the
employee something he/she would have genuinely appreciated. This case is remarkably
different from the case in which as employer would award the employee with something,
maybe even cheap and outmoded, just for the sake of giving something (Rose, 2011).
Reward managers and specialists have to be extremely careful when designing and,
above all, managing these schemes and need to do whatever they can in order to avert
the disadvantages usually associated with the implementation of these programmes,
which can trigger dissatisfaction and discontent amongst the individuals not receiving
any form of award (Armstrong, 2010).
As maintained by Rose (2011) it is somewhat ludicrous that employers spend much
more than half of their overall annual budgets in reward and employees neither
appreciate their worthiness nor “understand what it is about.” The real true is that in
many cases employers too have not totally clear how and why they offer rewards to their
employees. This is certainly causing confusion amongst individuals but also amongst
business leaders and managers. If rewards are intended as the sum of pay and
incentives and recognition schemes as a means to say “thank you” to individuals,
managers need to be aware that in order to award a specific achievement is not a salary
178
Reward and Recognition
increase that they have to ask for to the employer. Similarly, whether they want to
acknowledge the regular and sustained outstanding performance of a direct report it is
not a flat-screen colour TV that they have to propose for the individual concerned. The
mechanism of these rules have to be clearly identified from the outset and hence shared
within the entire organization’s management in order to avert triggering potentially
dangerous drawbacks, unintended negative outcomes and indirectly foster undesirable
behaviour.
The BA model distinguishing fixed salary from incentives and recognition schemes, can
reveal to be clearer to understand and hence to explain and execute. Indeed, this
scheme enable both managers and employees to associate specific reasons with each
element of reward: fixed salary – paid according to the salary grade system, incentives –
to award outstanding, sustained performance and results, and recognition – to thanks
employees for specific achievements and behaviour.
Recognition does not actually represent an additional form of reward, but rather a
further and effectual way to implement reward practices and, to some degree, an
additional tool enabling reward managers and specialists to put the organization reward
system in order, assigning to each form of reward a specific and clear purpose and
objective. Like all of the other tools, however, its effectiveness is essentially relying on
its use; managers need to know the mechanism of the system and being able to
consistently execute it in practice.
179
References
American Productivity and Quality Center, (2002), Rewards and Recognition in
Knowledge Management; Houston: APQC.
Armstrong, M. , (2010), Armstrong’s handbook of reward management – Improving
performance through reward, 3rd Edition; London: Kogan Page.
Limaye, A. and Sharma, R. , (2012), Rewards and recognition: Make a difference to the
talent in your organization; Mumbai: Great Place to Work Institute India.
Jeffrey, S. , (2003), The benefits of tangible non-monetary incentives – Executive white
paper, The SITE Foundation.
Juran, J. , (2003), Juran on leadership for quality; New York: Simon and Schuster.
Longo, R. , (2010), Reward Management and Philosophy – What you need to define
before formulating your policy, HR Professionals.
Oxford Corpus, (2005), Oxford Dictionary of English, 2nd Edition; Oxford: Oxford
University Press.
Rose, M. , (2011), Using non-cash reward: recognition, incentives and reward,
Developing Reward Strategies, January 2011, Pages 19-22.
Silverman, M. , (2004), Non-financial recognition. The most effective of rewards? ;
Brighton: Institute for Employment Studies.
Stewart, N. , (2011), Making it meaningful: Recognizing and Rewarding Employees in
Canadian Organization – Report April 2011; Ottawa: the Conference Board of Canada.
Torrington, D., Hall, L. and Taylor, S. , (2008), Human Resource Management, 7th
Edition; London: Prentice Hall.
Workspan, (2006), Leveraging recognition: non-cash incentives to improve
performance, November 2006.
180
Section IX
Getting ready for designing
and developing a reward
system
The importance of an equitable and fair approach to reward
management
Sage old Chinese people use to say that all men’s troubles derive from their mouths:
namely from what they say and what they eat. Financial reward risks playing the same
role for companies. Unfair, inequitable and unjust financial rewards systems in fact risk
seriously jeopardizing organizational success, social relationships and the correct and
regular unfolding of the daily working activities within an organization.
Whatever the reward philosophies and strategies pursued by a company, employers
should never neglect nor underestimate the importance of money. Organizations should
pay extra care to cash, as a crucial component of the reward packages they offer, not
only for its hygiene attribute, but also for the equitable and fair image and
representation of the overall reward and management system it can and should
contribute to foster and promote within the business (Longo, 2012).
Inasmuch as fairness and equitableness are crucially important general values, which
should characterize each aspect and process within every workplace, these features
become even more important when associated with reward management. As contended
by Armstrong (2009), fairness, equitableness and consistency should be put at the basis,
as the founding pillars, of every reward management approach. Reward strategies, the
philosophies underpinning these and the practices by means of which strategies are
executed, together with HR strategy and practices, should therefore also strongly
contribute to promote fairness and equitableness within every organization. This process
will in turn help employers to reinforce organizational values and shared beliefs and to
foster integrity and the desired behaviour in the workplace (Longo, 2012).
181
Getting ready for designing and developing a Reward System
According to the ACAS (2005), salary has a remarkable impact on working relationships;
employers should consequently develop pay schemes capable of fairly rewarding
individuals according to the results they actually produce. Reward can and should be
used by employers as the most effective, practical means to provide their employees
tangible evidence of integrity and consistency within the workplace. As maintained by
Armstrong (2009), reward practices should thus be used by employers to treat
individuals fairly and not as something which could even reveal to be harmful for
organizations.
Table 27 – Reward contribution to organizational fairness
182
Getting ready for designing and developing a Reward System
Bankers’ bonus schemes misuse is a good, or rather, a bad example of how reward
practices can turn to be detrimental for an organization. Unfortunately, the banking and
financial industry is not the only example of bad reward practices design and
implementation. Just a very few years ago general public in the UK was appalled at
learning that civil executives were receiving a staggering £47 million in bonuses,
whereas there were soldiers receiving annual salaries worth less than £17,000. The
circumstance that, in the UK, some hospitality organizations included tips in staff’s
salaries in order to meet the national minimum wage requirements set by the existing
provisions definitely represented another dreadful example of very bad and unfair
reward practices (Keefe, 2010). Although it must be observed that, with reference to this
particular deplorable case like in others, the UK legal system promptly took action and as
a consequence of that from October 2009 bars and restaurants owners are no longer
permitted to consider gratuities as part of employee salaries (Keefe, 2010).
In general, employers can decide to have recourse to a variety of different approaches in
order to set pay levels and individuals’ reward packages composition, but, irrespective of
the approach they might choose to implement, what matters the most is that the
method they have selected could actually enable them to let employees perceive and
consider the existing reward system as both fair and equitable (Torrington et al, 2008).
Although this phenomenon has captured a wider interest and attention in the mid to late
2000s by reason of the bankers’ bonuses scandal and of the likely domino effect these
produced, in that deemed by many to have triggered the international financial crisis,
this is not really an occurrence typical of recent times only. As discussed in section one,
the negative impact on individual motivation and satisfaction caused by a reward system
perceived as inequitable and unfair by individuals had in fact already been thoroughly
investigated by John Stacey Adams back in the mid-1960s.
Whenever individuals feel that their output, which they deem equal or even superior to
that produced by their colleagues, is not rewarded accordingly, they feel and consider
breached their psychological contract. In other words, in such circumstances employees
believe that the employer treat them neither fairly nor equitably. Individuals show, by
extension, signs of dissatisfaction which will be practically manifested in a series of
actions such as increased absenteeism, desire to leave the organization, poor
performance and lack of trust on the company employee relations practices (Torrington
et al, 2008). As suggested by Robertson (Keefe, 2010), the problem is not that much
associated with the level of reward in general, which could also be lower vis-à-vis that
available for the same roles in the external environment, but rather with the internal
inequalities, which can also “destabilise” a business. Such bad practices are actually
likely to directly and indirectly have remarkable effects upon an organization budget. On
the one hand sickness and higher employee turnover rate would clearly account for
additional considerable costs; on the other hand repercussions of employee resentment
will also be reflected in poor customer service, which could in turn provoke a negative
impact on customers’ appreciation of the firm and of its products and services (Cotton,
2010).
183
Getting ready for designing and developing a Reward System
Fair and equitable, however, is not the same as and has not to be confused with equal.
People do not tend to criticise and judge as inappropriate disparity in reward per se.
Even considerable differences in treatment, both at pay and benefits levels, could be
accepted by individuals when these are perceived and deemed as justified by objectives
circumstances (Kessler, 2010). Individuals would certainly accept high bonuses for
executives and senior management positions, provided that these are reasonable,
justified and, most of all, “proportionate to the need” (Keefe, 2010). More in details,
Reilly (Keefe, 2010) explains that these differences are accepted when these are directly
linked to reasonable factors, namely “working hard, helping others, contributing more
and working longer hours.”
This clearly is also a matter of culture, the approach to reward management should
definitely be consistent and coherent with the culture an organization is aiming to foster
and promote. Before going towards a direction, whatever it might be, employers should
be sure that their decisions will be clearly understood and accepted by everybody,
differently this could produce a series of drawbacks, negative effects and ultimately
divisiveness within the business.
Line Managers should clearly be bright and prepared to identify and assess these cases
as soon as they arise. When a big negative change in individuals behaviour should be
identified, as for instance could be the case of an unusually increasing trend of the
“throw a sickie” phenomenon, line managers should try to analyse and determine
whether recent events associated with salary or grade increases granted to other
members of staff could be at the basis of that behaviour. What matters is not what the
employer, even conscientiously, has decided to do, but how that decision is perceived
and felt by individuals.
Employee participation and contribution to the pay determination process can
unquestionably contribute to make the implementation procedure easier, as well as can
communication and the explanation to the entire workforce of the mechanism and
reasons which have accounted for the identification of that particular method.
Notwithstanding, communication is clearly pointless whether it is not strictly coupled
with transparency and clarity. Employers and reward specialists should also make some
efforts in order to ensure that the pay determination approach and the way it will be
executed is clearly understood and learned by all of the individuals concerned
(Torrington et al, 2008).
A similar approach should also be used by businesses when planning to introduce
changes in the current pay schemes. As stressed by the ACAS (2005), in order to avoid
legal actions to be taken by staff, employers should agree with employees and their
representatives the planned changes on pay schemes before these are implemented.
This approach will clearly help organizations to ensure that the new system is accepted
and perceived as fair by staff.
184
Getting ready for designing and developing a Reward System
There is actually another area which might represent, especially in the years to come, a
cause for employers concerns. As pointed out by Keefe (2010), employers could soon be
confronted with staff complaints of unfair and unequal treatment as for what concerns
the changes in the pension schemes they have introduced and implemented within their
organizations. During the very last few years many employers have, and many
processes are indeed still underway, changed their pension schemes switching from the
defined benefit (DB) to the defined contribution (DC) scheme. Although all or part of
these schemes’ changes have possibly been agreed with trade unions and employees
representatives, it cannot either be neglected nor excluded that, as warned by Biggs
(2010), these differences could give raise to tensions within organizations during the
next years.
When developing pay systems, it might reveal to be particularly difficult for employers
make sure that these are perceived as fair by everybody, notwithstanding employers
who introduce equitable procedures will be the most likely to attain the most appreciable
and effective results (Torrington et al, 2008).
Businesses should also care about the felt-fair aspect of the reward packages they offer.
The circumstance that “ensuring that reward is internally fair” is an issue which has
regularly emerged in the CIPD Reward Management Surveys (CIPD, 2010 - 2011) is
clearly self-explanatory.
What must be known before starting
Inasmuch as devising fair and equitable reward systems is crucially important for
employers to attain their intended strategies and objectives, there are a number of
factors and concepts, theories included, which have to be necessary known by reward
professionals and practitioners in order to design and develop effective and consistent
reward schemes appropriately fitting both individuals and employers wants and
expectations.
Relevant theories
Efficiency wage theory
Also known as “economy of high wages theory”, this theory is based on the tenet that
paying higher-than-market rate salaries will enable organizations to attract, retain and
motivate staff. This theory is also aimed at curbing labour turnover and persuading staff
that they are treated fairly.
Employers have usually recourse to this approach when they want to be considered
market leaders and branding themselves as above-the-average employers.
Human capital theory
This theory aims at building on the staff education and skills to generate productive
capital and leading to a win-win situation for both employers and employees. Individuals
investing in order to enhance their personal skills and capabilities can be expected to
185
Getting ready for designing and developing a Reward System
receive better levels of pay and capitalize on these increased qualities to ensure job
security, whereas employers can expect from employees a better return on investment
in terms of both performance, productivity and, most of all, innovation.
Agency theory
According to this theory the owners/principals of an organization are considered
separated from the employees/agents, this is likely to generate “agency costs” in that
agents are not genuinely interested in the business as owners are. Consequently
principals are expected that agents will not be as productive as they would be and need
hence to find persuasive ways to motivate and engage these.
Employers, who decide to develop their businesses reward practices having recourse to
the agency theory, require to set out effective incentive schemes based on paying
individuals according to measureable results. This is considered the only option available
for employers to induce managers to effectively and genuinely do whatever they can in
order to pursue the employers’ interest.
<