CHAPTER 1

Folly of Rewarding “A” while hoping for “B” – Giving the employees rewards for hoping more work is done.

Intrinsic/Relational – satisfy higher level needs for self-esteem and development. Recognition & status, employment security, challenging work, learning opportunities

Extrinsic/Transactional – Satisfy basic needs for survival and security. Benefits include income protection, allowances, and work/life focus. Cash compensation includes long-term incentives, short-term incentives, and merit costs of living.

Before a company starts developing its compensation system, it needs to establish a reward strategy. This is a mix of rewards both extrinsic and intrinsic, that the organizations intend to provide. It is the blue print for creating the reward system.

Compensation system has 3 main components: 1) Base pay – the foundation pay component for most employees and is generally based on some unit of time. (Per hour, week, month) 2) Performance Pay – relates employee monetary rewards to some measure of individual, group or organizational performance. 3) Indirect Pay – noncash items or services that satisfy a variety of specific employee needs such as health protection.

The first step in a compensation strategy is to determine the role that compensation will play in the reward system. Since most organizations want to minimize compensation costs wherever possible, you have to identify what other rewards are being provided and determine if these alone are sufficient to get certain behaviour from the members.

Optimal reward system – adds the most value to the organization, considering all of its costs.

Pay policies – base pay, cost-of-living adjustments, merit pay, incentive pay, skill based or competency based pay.
Internal alignment – comparisons among jobs or skill levels inside a single organization
External