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Compensation mangt 12 session.rewarding and reviewing contribution and performance

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Jalil Thebo
Jalil Thebo

1. The document discusses different types of individual contingent pay schemes including performance-related pay, contribution-related pay, competence-related pay, and skill-based pay. 2. It provides arguments for and against contingent pay schemes, noting that while they aim to reward better performance, the requirements for success are difficult and money alone does not create sustained motivation. 3. Key criteria for effective contingent pay schemes include having a clear line of sight between employee efforts and rewards, fair and consistent performance measurement, and employee ability to influence performance.

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Session on 12 MBA Topic: Rewarding and reviewing contribution and performance
Compensation mangt 12 session.rewarding and reviewing contribution and performance
Compensation mangt 12 session.rewarding and reviewing contribution and performance
Individual contingent pay Individual contingent pay is the term used to describe schemes for providing financial rewards that are related to individual performance, competency, contribution or skill. Contingent pay may be made available in the form of consolidated increases to base rates or by cash bonuses (variable pay or ‘pay at risk’) or a combination of the two
This chapter deals with contingent pay under the following headings: 1. Individual Contingent Pay Defined; 2. The Incidence Of Contingent Pay; 3. Contingent Pay As A Motivator; 4. Arguments For And Against Contingent Pay; 5. Criteria For Success; 6. Performance-related pay; 7. Competency-related pay; 8. Contribution-related pay; 9. Skill-based pay; 10. Service-related pay; 11. Choice of approach; 12. Readiness for contribution pay; 13. Developing and implementing contingent pay.
Compensation mangt 12 session.rewarding and reviewing contribution and performance
INDIVIDUAL CONTINGENT PAY DEFINED Individual contingent pay schemes other than service- related systems are based on processes for relating pay to performance, competence, contribution or skill.
THE INCIDENCE OF CONTINGENT PAY The e-reward 2004 Survey of Contingent Pay (1) established that 189 schemes were used by the 100 respondents in the following proportions: 1. performance-related pay – 65 per cent; 2. contribution-related pay – 33 per cent; 3. service-related pay – 15 per cent; 4. competence-related pay – 8 per cent.
CONTINGENT PAY AS A MOTIVATOR • HOW CONTINGENT PAY IS AS A MOTIVATOR?
CONTINGENT PAY AS A MOTIVATOR Many people see contingent pay as the best way to motivate people. But it is simplistic to assume that it is only the extrinsic motivators in the form of pay that create long-term motivation. Incentives and rewards Financial incentives Financial rewards
Financial incentives Financial incentives are designed to provide direct motivation. They tell people how much money they will get in the future if they perform well – ‘Do this and you will get that.’ A shop floor payment-by-result scheme and sales representative’s commission system are examples of financial incentives.
Financial rewards • Financial rewards act as indirect motivators because they provide a tangible means of recognizing achievements, as long as people expect that what they do in the future will produce something worthwhile. • ‘You have achieved this, therefore we will pay you that.’
ARGUMENTS FOR AND AGAINST CONTINGENT PAY Arguments for The most powerful argument for contingent pay is that those who contribute more should be paid more. It is right and proper to recognize achievement with a financial and therefore tangible reward. • to recognize and reward better performance; • to attract and retain high-quality people; • to improve organizational performance; • to focus attention on key results and values; • to deliver a message about the importance of performance; • to motivate people; • to influence behaviour; • to support cultural change.
The main arguments against contingent pay are that: • the extent to which contingent pay schemes motivate is questionable – the amounts available for distribution are usually so small that they cannot act as an incentive; • the requirements for success are exacting and difficult to achieve; • money by itself will not result in sustained motivation – as Kohn (3) points out, money rarely acts in a crude, behaviourist, Pavlov’s dog manner; • numbers who are motivated; Arguments against
people react in widely different ways to any form of motivation – it cannot be assumed that money will motivate all people equally yet that is the premise on which contribution pay schemes are based; financial rewards may possibly motivate those who receive them but they can demotivate those who don’t, and the numbers who are demotivated could be much higher than the
employees can be suspicious of schemes because they fear that performance bars will be continuously raised; a scheme may therefore only operate successfully for a limited period; schemes depend on the existence of accurate and reliable methods of measuring performance, competence, contribution or skill, which might not exist;
contingent pay decisions depend on the judgement of managers, which in the absence of reliable criteria could be partial, prejudiced, inconsistent or ill informed; the concept of contingent pay is based on the assumption that performance is completely under the control of individuals when, in fact, it is affected by the system in which they work;
contingent pay, especially performance-related pay schemes, can militate against quality and teamwork.
CRITERIA FOR SUCCESS Individuals should have a clear line of sight between what they do and what they will get for doing it. Rewards are worth having. Fair and consistent means are available for measuring or assessing performance, competence, contribution or skill. Five criterion for effective contingent pay
People must be able to influence their performance by changing their behaviour and developing their competences and skills. The reward should follow as closely as possible the accomplishment that generated it.
1.Effort 2.Perform ance 3.Results 4.Measur es 5. Pay-out Line-of-sight model
1. Agreed Outcomes (targets) 2. Performa nce measures 3. Performan ce 4. Rating 5. Formula 6. Performan ce pay PERFORMANCE- RELATED PAY
CONTRIBUTION-RELATED PAY Contribution-related pay is a process, taking into account all aspects of a person’s performance . ‘Performance means both behaviours and results.
WHAT IS SKILL-BASED PAY?
SKILL-BASED PAY Skill-based pay provides employees with a direct link between their pay progression and the skills they have acquired and can use effectively. It focuses on what skills the business wants to pay for and what employees must do to demonstrate them.
WHAT IS SERVICE- RELATED PAY?
SERVICE-RELATED PAY Service-related pay provides fixed increments that are usually paid annually to people on the basis of continued service either in a job or a grade in a pay spine structure.
Compensation mangt 12 session.rewarding and reviewing contribution and performance

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Compensation mangt 12 session.rewarding and reviewing contribution and performance

  • 1. Session on 12 MBA Topic: Rewarding and reviewing contribution and performance
  • 4. Individual contingent pay Individual contingent pay is the term used to describe schemes for providing financial rewards that are related to individual performance, competency, contribution or skill. Contingent pay may be made available in the form of consolidated increases to base rates or by cash bonuses (variable pay or ‘pay at risk’) or a combination of the two
  • 5. This chapter deals with contingent pay under the following headings: 1. Individual Contingent Pay Defined; 2. The Incidence Of Contingent Pay; 3. Contingent Pay As A Motivator; 4. Arguments For And Against Contingent Pay; 5. Criteria For Success; 6. Performance-related pay; 7. Competency-related pay; 8. Contribution-related pay; 9. Skill-based pay; 10. Service-related pay; 11. Choice of approach; 12. Readiness for contribution pay; 13. Developing and implementing contingent pay.
  • 7. INDIVIDUAL CONTINGENT PAY DEFINED Individual contingent pay schemes other than service- related systems are based on processes for relating pay to performance, competence, contribution or skill.
  • 8. THE INCIDENCE OF CONTINGENT PAY The e-reward 2004 Survey of Contingent Pay (1) established that 189 schemes were used by the 100 respondents in the following proportions: 1. performance-related pay – 65 per cent; 2. contribution-related pay – 33 per cent; 3. service-related pay – 15 per cent; 4. competence-related pay – 8 per cent.
  • 9. CONTINGENT PAY AS A MOTIVATOR • HOW CONTINGENT PAY IS AS A MOTIVATOR?
  • 10. CONTINGENT PAY AS A MOTIVATOR Many people see contingent pay as the best way to motivate people. But it is simplistic to assume that it is only the extrinsic motivators in the form of pay that create long-term motivation. Incentives and rewards Financial incentives Financial rewards
  • 11. Financial incentives Financial incentives are designed to provide direct motivation. They tell people how much money they will get in the future if they perform well – ‘Do this and you will get that.’ A shop floor payment-by-result scheme and sales representative’s commission system are examples of financial incentives.
  • 12. Financial rewards • Financial rewards act as indirect motivators because they provide a tangible means of recognizing achievements, as long as people expect that what they do in the future will produce something worthwhile. • ‘You have achieved this, therefore we will pay you that.’
  • 13. ARGUMENTS FOR AND AGAINST CONTINGENT PAY Arguments for The most powerful argument for contingent pay is that those who contribute more should be paid more. It is right and proper to recognize achievement with a financial and therefore tangible reward. • to recognize and reward better performance; • to attract and retain high-quality people; • to improve organizational performance; • to focus attention on key results and values; • to deliver a message about the importance of performance; • to motivate people; • to influence behaviour; • to support cultural change.
  • 14. The main arguments against contingent pay are that: • the extent to which contingent pay schemes motivate is questionable – the amounts available for distribution are usually so small that they cannot act as an incentive; • the requirements for success are exacting and difficult to achieve; • money by itself will not result in sustained motivation – as Kohn (3) points out, money rarely acts in a crude, behaviourist, Pavlov’s dog manner; • numbers who are motivated; Arguments against
  • 15. people react in widely different ways to any form of motivation – it cannot be assumed that money will motivate all people equally yet that is the premise on which contribution pay schemes are based; financial rewards may possibly motivate those who receive them but they can demotivate those who don’t, and the numbers who are demotivated could be much higher than the
  • 16. employees can be suspicious of schemes because they fear that performance bars will be continuously raised; a scheme may therefore only operate successfully for a limited period; schemes depend on the existence of accurate and reliable methods of measuring performance, competence, contribution or skill, which might not exist;
  • 17. contingent pay decisions depend on the judgement of managers, which in the absence of reliable criteria could be partial, prejudiced, inconsistent or ill informed; the concept of contingent pay is based on the assumption that performance is completely under the control of individuals when, in fact, it is affected by the system in which they work;
  • 18. contingent pay, especially performance-related pay schemes, can militate against quality and teamwork.
  • 19. CRITERIA FOR SUCCESS Individuals should have a clear line of sight between what they do and what they will get for doing it. Rewards are worth having. Fair and consistent means are available for measuring or assessing performance, competence, contribution or skill. Five criterion for effective contingent pay
  • 20. People must be able to influence their performance by changing their behaviour and developing their competences and skills. The reward should follow as closely as possible the accomplishment that generated it.
  • 23. CONTRIBUTION-RELATED PAY Contribution-related pay is a process, taking into account all aspects of a person’s performance . ‘Performance means both behaviours and results.
  • 25. SKILL-BASED PAY Skill-based pay provides employees with a direct link between their pay progression and the skills they have acquired and can use effectively. It focuses on what skills the business wants to pay for and what employees must do to demonstrate them.
  • 27. SERVICE-RELATED PAY Service-related pay provides fixed increments that are usually paid annually to people on the basis of continued service either in a job or a grade in a pay spine structure.