PERFORMANCE MANAGEMENT
REWARD SYSTEMS
AND LEGAL ISSUE
Herman Aguinis
OUTLINE
1 . Traditional and Contingent Pay Plans
2. Reasons for Introducing Contingent Pay Plans
3. Possible Problems Associated with Contingent Pay Plans
4. Selecting a Contingent Pay Plans
5. Putting Pay in Context
6. Pay Structure
7. Performance Management and The Law
8. Some legal Principles Affecting Performance Management
9. Laws Affecting Performance Management
TRADITIONAL Tradisional approach in implementing reward
& system to employees for the position they fill
as their job description.
CONTINGENT
PAY PLAN #$ Employees are rewarded for filing a specific slot in the
organization hierarchy
#$ One's job determine pay and indirectly determine
benefits and incentive received.
#$ The pay range that determine minimum, midpoint and
maximum rates for each job.
TRADITIONAL Contigent pay called pay for performance means
& that individual are rewarded based how well
they perform on the job
CONTIGENT
PAY PLAN #$ Contingent pay plan only used for top management
#$ The increase be added to employees base salary or a
one time bonuses
#$ When increase are not added to an employee's base
salary as in the case of time-bonuses, they are call
variable pay
#$ Variable pay are bonuses, commission, cash reward,
lump sum that are directly to the performance
REASONS FOR INTRODUCING CONTINGENT PAY
*Performance management is more effective when rewards are tied to results
*Contingent Pay plans force organization to :
$# Clearly define effective performance
$# Determine what factors are necessary
*Supervisors and employees are better able to understand what really matters
*Contingent Pay plans enhance employee motivation to accomplish goals that match
organizational needs.
*CP plans help to recruit and retain top performers
*CP plans projects good corporate image
CONTINGENT PAY PLANS HELP
IMPROVE MOTIVATION WHEN:
EXPECTANCY
INSTRUMENTALITY
VALENCE
*Motivation : expectancy x
instrumentality x valence
PROBLEM ASSOCIATED WITH
CONTINGENT PAY PLAN
SELECTING CONTINGENT
PAY PLAN
Contingent pay plan are powerful tools that solodify the current
culture and that can be used to create a new type of culture
T R A D I TI O N A L INVOLVEMENT
CULTURE CULTURE
#$ Piece Rate #$ Profit & Sharing
#$ Sales Commissions #$ Skill-Based Pay
#$ Group Incentives
Strategic Business Contingent Pay Plan
Objective
> Employees development Skill based pay
> Customer service Competency-based pay, gain sharing
> Productivity : Individual Piece rate ,sales commission,
> Productivity: group Gain Sharing, Group incentives
> Teamwork Team sales commissions, gain sharing ,
competency based pay
> Overall profits Executive pay, Profit or stock sharing
PLAN RECOMMENDED FOR VARIOUS
STRATEGIC BUSINESS OBJECTIVE
PUTTING
PAY IN CONTEXT
A reward
increases the chance that:
Employee will engage in new behaviour and produce
better results
Increase the frequency of an employee action
If the pay raises are not producing better results,
they should not be viewed as rewards
DEFINE MAKE
AND MEASURE PERFORMANCE REWARDS REVERSIBLE
FIRST, THEN ALLOCATE
REWARDS
USE USE
ONLY REWARDS THAT ARE AVAILABLE NONFINANCIAL REWARDS
MAKE
SURE THAT ALL EMPLOYEES ARE
ELIGIBLE
MAKE RECOMMENDATION
REWARDS VISIBLE HOW TO MAKE
REWARDS WORK
MAKE
REWARDS CONTINGENT
MAKE
REWARDS TIMELY
PAY STRUCTURE
Job evaluation
•Ranking method
•Classificationmethod
•Point method
Broad banding
•Collapse job classes
into fewer categories
PERFORMANCE MANAGEMENT AND
LAW
LEGAL PRICIPLES EFFECTING
PERFORMANCE MANAGEMENT
EMPLOYMENT AT WILL
NEGLIGENCE
DEFAMATION
MISREPRESENTATION
ADVERSE IMPACT
ILLEGAL DISCRIMINATION
Laws Affecting Performance
Management
During past few decades, several countries have passed
laws prohibiting discrimination based on:
\Race or Ethnicity
\Sex
\Religion
\National region
\Disability Status
\Sexual Orientation
LAW PM MALAYSIA
The National Wages Consultative Council Act 2011 (Act 732)
International Labour Organisation (ILO) convention on
equal remuneration in 1997
LAW IN UNITED KINGDOM
Equal Pay Act of 1970
Race relations Act of 1976
Sex Discrimination Act of 1975