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Organizational behavior 7e by luthans chap004

Chapter Four

Context: Reward


© 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives
• Discuss the theoretical background on money as a
• Present the latest research on the effectiveness of
• Describe some of the traditional methods of
administering pay.
• Relate some of the latest forms of “new” pay and their
value in helping attract and retain talented employees.
• Explain how recognition is used as an organizational

• Discuss the role of benefits as organizational rewards.

• Reward systems as a part of the
organizational context.
– Consequences and contingencies play an
important role in organizational behavior.
– Emphasize the emerging importance of
human capital – to sustain and leverage it

• Reward system is recognized as a vital
dimension of the organizational

Pay: Dominant Organizational
• Rewards are provided with the objective:
– Of motivation which affects performance
– To encourage loyalty and retention

• Theoretical background on money as a
– Money can explain behavior
• Achievement and recognition, status and respect

– Agency theory
• Aligning diverse interests and goals with rewards

Pay: Dominant Organizational
Reward Continued
• Research on the effectiveness of pay –
three considerations:
– Outcomes that an organization seeks
– Measurement of these results
– Tie rewards to these outcomes

• Traditional methods of administrating pay
– Base pay approach: market conditions
– Merit pay approach: predetermined criteria

Pay: Dominant Organizational
Reward Continued
• Pay for performance
– Individual incentive pay plans
• Use of bonuses: upper-level managers
• Use of stock options: senior-level managers
• Potential limitations: excesses and ethical
breakdowns, encourage narrow range of behavior,
and may cause conflicts among individuals

Pay: Dominant Organizational
Reward Continued
• Pay for performance
– Group incentive pay plans
• Gain sharing plan: net gain from productivity
• Profit sharing: profit sharing pool distributed to
• Employee stock ownership plan (ESOP)
• Potential limitations: equal distribution among the
group, late or regular payments

Pay: Dominant Organizational
Reward Continued
• New pay techniques
– Commissions beyond sales to customers
– Rewarding leadership effectiveness
– Rewarding new goals
– Pay for knowledge workers in teams
– Skill pay
– Competency pay
– Broadbanding

Recognition as an Organizational
• Recognition versus money
– Frequent nonfinancial rewards that have a big
impact on employee productivity and quality
service behaviors.
– They can take many different forms, can be
given in small or large amounts, and in many
instances are controllable by the manager.
– Recognizing creativity is becoming
increasingly necessary for competitive

Recognition as an Organizational
Reward Continued
• Steps needed to be set up to effectively manage a formal
and informal recognition program:

Effective communication of the program and procedures
Appropriate education to the managers
Make recognition part of performance management process
Conduct recognition ceremonies, featured regularly
Publicize the best practices
Communicate steps involved in the program
Continuous review and changes for effectiveness
Solicit recognition ideas from both employees and managers

Recognition as an Organizational
Reward Continued
• Examples of effective formal recognition
– Dierbergs Family Market: “extra step” program
– Hotel Sofitel Minneapolis: “Sofitel Service
– Fremont Hotel & Casino: “Personality with a

Benefits as Organizational
• Traditionally offered benefits
– Federal government-mandated benefits
• Social security
• Medicare benefits

– Life, disability, and health insurance
– Pension benefits
• Private pension plan

– Time-off benefit
• Paid vacation, religious holiday, and sick leave

Benefits as Organizational
Rewards Continued
• Newer types of benefits
– Wellness programs
• Coping with stress

– Life cycle benefits
• Child care and elder care benefits

– Other benefits
• Concierge services
• Tuition assistance
• Noninsured benefit programs

– Flexible, cafeteria-style benefits
• Employees put together their own package of benefits


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