REWARD SYSTEMS AND LEGAL ISSUES

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