REWARD MANAGEMENT: BHRM 3117 (42 LECTURE HOURS)

Course Purpose

To equip students with the necessary skills to appreciate the role of effective reward
management in attracting and maintaining competent employees.

Expected Learning Outcomes

This course unit aims at enabling the students to:

1. Define reward and compensation;
2. Explain the meaning of compensation;
3. Explain the importance of compensation in the management of human resources;
4. Discuss the factors affecting levels of pay; and
5. Examine the compensation management strategies and policies and how these are
related to organization strategies and policies.

Course content

1. Define reward and compensation; Forms of pay; Aims of compensation;

Determinants of compensation;
2. Compensation policies; compensation management activities;
3. Benefits and incentives.
4. Reward policy; The Reward policy of the organization, content of reward policy
statement,
5. Reward management.
6. Job evaluation; meaning and scope of job evaluation, Purpose of job evaluation,
methods, factors to consider when selecting appropriate method, and
implementation of job evaluation results.
7. Salary survey; Purpose and scope of salary survey, Techniques of salary survey,
meaning of competitive market rates.

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 8. Remuneration package; Meaning and scope, components of a remuneration
package, and factors influencing the remuneration package. Pay grades and
structure;
9. Salary administration; preparation of salary budgets,
10. General and individual salary reviews,
11. Determining salary levels on joining or promotion. Performance-related pay;
Meaning, importance, and types.
12. Wage payment systems;
13. Factors affecting wage rates, approaches to job evaluation for unionsable positions,
and criteria for revising individual and group wage payments.
14. Benefits, total wage package, merit, and demerits.
15. Emerging trends in Reward Management.

Teaching Methodology: Lecturers, group/class discussions, case studies & presentations,

Instruction Materials/Equipment: Overhead projector, LCDs, whiteboard, flip charts,

television and videos

Course Assessment
CATs/Assignment/Presentation 30%
End of Semester Examination 70%
Total 100%

Course Text Books

1. Manuel., M and Rabindra, K (2013). Compensation- Effective Reward
Management. (2nd edition) John Wiley and Sons. ISSN:047164143X
2. Michael, A (2013) Handbook of Reward Management Practice for Improving
performance Through Reward. (4th Edition).Kogan page. ISBN: 978-0-74966473
3. Michael, A and Helen, M (2012). Reward Management: A Handbook of
Remuneration Strategy and Practice. (5th Edition). Kogan page. ISSN: 978-074-
9449865

Reference Text Books

1. Stephen, S (2012). Labour Economics. Routledge. ISSN: 978-0415259866
2. Orley, A and David, C (2011). Handbook of Labour Economics. (1st edition).ISSN:
978-0444534521
3. Benjamin, D and Craign, R (2012) Labour Market Economics. McGraw-Hill. ISBN:
978-0070740204

Course Journals
1. Human Resource Management Journal. ISSN: 1748-8583
2. The International Journal of Human Resource Management. ISSN: 1466-4399
3. The Journal of Human Capital. ISSN: 1932-8864

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Reference Journals

1. International Journal of Business and Management ISSN: 1833-3850

2. Asian Journal of Management Research ISSN:2229-3795
3. Global Advanced Research Journal of Management and Business ISSN:2315-5086

42 LECTURE HOURS

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 TOPIC 1: INTRODUCTION TO REWARD MANAGEMENT

OBJECTIVE
To provide the learner with a broad understanding of the following concepts about reward
Management;

This chapter deals with:

KEY DEFINITIONS
1. Reward
(English Dictionary) A reward is something given or done in return for good (or, more
rarely, evil).

A reward is something you get for a job well done.

White (2011)“reward” describes an event that produces a pleasant or positive affective

experience.

Something that is given in return for good done or received or that is offered or given for
some service or attainment.

2. Reward Management
Reward management deals with the strategies, policies and practices required to ensure
that the value of people and the contribution they make to achieving organizational,
departmental and team goals is not only recognized, but also rewarded.

Reward management is concerned with formulating and implementing strategies and

policies to reward people fairly, equitably, and consistently under their value to the
organization.

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It deals with developing reward strategies and designing, implementing, and maintaining
reward systems (reward processes, practices, and procedures) that aim to meet the needs
of the organization and its stakeholders.

Reward can be regarded as the fundamental expression of the employment

relationship(Armstrong).

Reward management deals with the strategies, policies, and processes required to ensure
that the contribution of people to the organization is recognized by both financial and
non-financial rewards.

Important questions
1. How can a company value people? and
2. How can it ensure they are rewarded according to that value?

3. Total Rewards
Total rewards consist of everything compensation does – base pay, bonuses, equity,
benefits, etc. – and then some.

The rewards could be tangible – such as those offered by compensation – and even
intangible.

4. Compensation
Everything that an employee gets in return for their work at an organization is usually
called compensation. It includes money, benefits, and perks they are eligible for.
Compensation is the term used to define all the resources available to an employee to
motivate them to work at an organization.

Compensation is part of total rewards.

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Compensation is just one component of total rewards, an umbrella term for everything
one gets from working in an organization.

5. Benefits
Benefits are sometimes included in compensation and other times considered part of the
wider total rewards program. These include insurance packages and other value-added
benefits such as discounts, assistance, and health-incentive programs.

6. Total remuneration
Total remuneration is the value of all cash payments (total earnings) and benefits received
by employees.

Total Reward
Total Reward is a system that rewards employees based on their performance, which in
turn helps your company by ensuring that you have people who are motivated to do their
best.

Reward Management
Reward management deals with the strategies, policies, and practices required to ensure
that the value of people and the contribution they make to achieving organizational,
departmental and team goals is not only recognized, but also rewarded.

Aims of Reward Management

1. Reward people according to what the organization values and intends to pay for.
2. Reward people for the value they create within the organization.
3. Reward the right things to convey the right message about what is important regarding
behaviors and outcomes.
4. Develop a high-performance culture.
5. Motivate people and obtain their commitment and engagement.
6. Attract and retain the high-quality people the organization needs.

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7. Develop a positive employment relationship and psychological contract.
8. Align reward practices with both business goals and employee values;
9. Apply equitably – people are rewarded appropriately with others within the
organization, relativities between jobs are measured as objectively as possible, and
equal pay is provided for work of equal value.
10. Function consistently – pay decisions do not vary arbitrarily and without due cause
between people or at different times.
11. Operate transparently – people understand how reward processes operate and how
they affect them.

Level of rewards
The policy on the level of rewards indicates whether the company is a high payer, median
payer or pays average rates of pay, or even, exceptionally, accepts that it has to pay below
the average.
Policies on pay levels will also refer to differentials and the number of steps or grades that
should exist in the pay hierarchy.

Reward system
A reward system consists of several interrelated processes and activities that combine to
ensure that reward management is carried out effectively to the benefit of the organization
and the people who work there.

These are described below.

Reward strategy
Reward strategy sets out what the organization intends to do in the longer term to develop
and implement reward policies, practices and processes which will further the achievement
of its business goals.

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Reward policies
Reward policies address the following broad issues:
1. The level of rewards taking into account ‘market stance’ – how internal rates of pay
2. Should compare with market rates, eg aligned to the median or the upper quartile
3. Rate;
4. Achieving equal pay;
5. The relative importance attached to external competitiveness and internal equity;
6. The approach to total reward;
7. The scope for the use of contingent rewards related to performance, competence,
contribution or skill;
8. The role of line managers;
9. Transparency – the publication of information on reward structures and processes
to Employees.

What is Compensation?
1. Compensation refers to any payment given by an employer to an employee during
their period of employment. In return, the employee will provide their time, labor,
and skills.

2. Compensation is the remuneration awarded to an employee in exchange for their

services or individual contributions to your business. The contributions can be their
time, knowledge, skills, abilities, and commitment to your company or a project.

3. Everything an employee gets in return for their work at an organization is usually

called compensation and will usually include the money, benefits, and perks they
are eligible for. Compensation is the term used to define all the resources available
to an employee to motivate them to work at an organization.

4. In simpler words, compensation is the money received by an employee from an

employer as a salary or wages.

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 5. Compensation can be in the form of a salary, wage, benefits, bonuses, paid leave,
pension funds, and stock options, and more. Compensation is also sometimes
referred to as remuneration

Employee compensation packages aren’t just about the salary. They include several other
things as well.

Types of Compensation
Compensation doesn’t mean only a paycheck, although that’s part of it. Compensation
comprises several different elements which may be cash and non-cash payments.
the salary we earn for work.

Compensation will usually consist of the following:

1. Basic salary.
2. Bonuses or commissions.
3. Stocks and equity
4. Health and life insurance
5. Pension plans/retirement fund contributions
6. Any additional benefits (internet services, company discounts, car services, phone
services, etc.)
7. Commissions
8. Overtime Pay, shift differentials, and longevity pay
9. Bonus
10. Profit Sharing distributions
11. Merit Pay or recognition
12. Workers compensation or Workman’s comp
13. Incentive plan or achievement award
14. Tip Income
15. Benefits include Dental, insurance, medical, vacation, leaves, retirement, etc.

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 16. Stock options
17. Travel/Meal/Housing Allowance
18. Child care and tuition assistance
19. Gym memberships and free lunches
20. Employee assistance programs that provide counseling, legal advice, and other
services.
21. Health and wellness benefits
22. Other non-cash benefits such as Non-monetary compensation
23. Non-monetary compensation includes benefits like:
a. Paid or non-paid time off
b. Flexi-time
c. Learning and development opportunities
d. Parental leave
e. Childcare
f. Company cars
g. Phones or laptops,
h. And meals.

Factors that affect Reward and Compensation

1. Worker Productivity & Value to The Organization

The main reason that different jobs have different pay rates is that certain workers
are more necessary than others to achieve the organization's goals. Productivity
refers to how much additional value employees provide to the organization by
doing their job. A more productive individual in a more productive role will have
an overall higher pay rate.

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2. Employer's Ability to Pay
This refers to how much an employer can actually pay. An employer can only pay
what they can afford. If an employer cannot pay the employee what they can get
elsewhere, the employee will work elsewhere.

3. Labor Union Requirements

Labor union representatives negotiate on behalf of their members to agree to a fair
rate of pay. Employers that hire members of unions may be required to pay the rate
set by the union. These rates may depend on many factors, such as seniority and
location.
4. Prevailing Wage Rates
Prevailing wage refers to the going rate of labor for a given profession in a given
geographical area. In some cases, prevailing wages are set by various legislation,
such as the National or the County Government.
5. Cost of Living
Every location has a different cost of living. If a worker cannot sustain themselves
working a job, they are likely not to work. Some areas have higher average wages
because their living costs are so high.
6. Labor Supply and Labor Demand
Workers may leave jobs in specific industries for other jobs that pay better and offer
better benefits. As a result, jobs in those industries have to increase their
compensation.
7. Government Controls
Several different pieces of legislation can affect how much a company must pay its
employees. The most relevant for many companies is the minimum wage, however,
some laws require additional pay for various reasons.
8. Globalization
Globalization and the Internet have made it possible for companies to get work
done in other countries where the cost of living and labor costs are much lower.
Globalization impacts compensation in many ways. First, it causes jobs that can

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 easily be outsourced to be compensated at a lower rate locally. Second, it changes
local labor demands, as some labor cannot be outsourced.
9. Job requirements
10. Managerial attitudes
11. Psychological and sociological factors.

The Overall objective

The overall objective is to reward people fairly, equitably, and consistently by their value
to the organization in order to further the achievement of the organization’s strategic goals.

Reward management is not just about pay and employee benefits. It is equally concerned
with non-financial rewards such as recognition, learning and development opportunities,
and increased job responsibility.

If organizations aim to reward their employees fairly, they need to understand different
types of compensation and how to create attractive compensation packages for their
employees.

Value of the person

Individuals are valued by organizations for several reasons:
1. The contribution they make to organizational success,
2. Their competencies and skills and
3. The experience they bring to their jobs.

People also have their own value in the marketplace – their market worth – which has to
be taken into account by employers in setting their rates of pay.

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Reward Compensation Policies and Objectives
The compensation statement aims to set down the company’s policy with regard to
salary. It is the responsibility of all concerned to implement the compensation policies
and to explain the same fully to their subordinates.

The compensation policy should aim:

1. To recognize the value of all jobs in relation to each other within the company.
2. To take account of wage rates paid by companies of similar size, product and
philosophy.
3. To ensure stable earnings.
4. To enable individuals to reach their full earning potential as far as is
5. reasonably practicable.
6. To ensure employees‟ share in the company’s prosperity as a result of increasing
efficiency.

The objectives of any compensation system are numerous and might include the
following:
1. To enable the employee to earn a good and reasonable salary or wage.
2. To pay equitable sums to different individuals, avoiding anomalies.
3. To reward and encourage high-quality work and output.
4. To encourage employees to develop better methods of working and their
acceptance.
5. To discourage wastage of materials or equipment.
6. To encourage employees to use their initiative and discretion.
7. To discourage overtime work unless it is very essential.

Principles for a Reward System

There are several principles for setting up an effective reward system in an organization:
1. Give value to the reward system. Employees must have a preference for the types
of rewards being offered. Many employees prefer cash awards and plaques. Some

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 employees like to see their name in the company newsletter. Others like the public
recognition surrounding award ceremonies.
2. Make the reward system simple to understand. The system must be easy to
understand if it is to be used effectively.
3. Lay down performance standards within the control of the team.
4. Make the reward system fair and effective.
5. Ensure participation in the reward system.
6. Involve people in the reward process and empower them to do the needful.

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Reflection:
Can you remember of a time when you were really happy about how you had been
rewarded for an achievement? If you can, why did you feel that
way?................................................................................................................................

Self-Assessment Questions
1. What are the basic principles of compensation?
2. “An organization cannot attract and retain competent employees today without
a good benefit package.” Do you agree or disagree with this statement? Why?
3. In future, the compensation policies, programmes, and practices of an
organization will revolve around newer reward systems and benefits. Discuss.

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CAT 1(To be submitted during the next lesson)
1. In what circumstances, if any, can recruiting someone at a considerably higher salary
than existing staff in jobs of a similar level be justified? (10 Marks).

2. If an organization pays a higher salary to an employee than existing staff in jobs:

a. How would it explain it to existing staff (10 Marks)?
b. What should it do, if anything, to reduce the inequity (10 Marks)?

3. Strategic reward is a means of enhancing company performance and securing

competitive advantage. Discuss the statement citing relevant examples (20 Marks).

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