employee reward management and practice

561 Pages·2012·4.1 MB·English

Employee reward man AW:Layout 1 21/6/07 09:45 Page 1
A Handbook of
A Handbook of Employee Reward Management and Practice is the definitive guide for practitioners M E
involved in developing and managing reward strategies, policies and procedures, and for students
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of employee reward. Aligned with the Chartered Institute of Personnel and Development’s A
professional standards for employee reward, this book is an essential aid for students and N P
lecturers as well as a practical guide for human resource and reward management professionals. L
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Covering the conceptual framework of reward management and its practical application, the G
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book is packed with essential information on key theories and best practice for employee E
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reward. Written in a highly readable style and containing many checklists, diagrams and
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summaries, it includes: E

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• the fundamentals of reward management and its conceptual framework;
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• establishing job values and relativities; E
• grade and pay structures; T W
2ND EDITION
• contingent rewards; A Handbook of
• reward management for special groups; A A
• employee benefits and pensions; N R
• reward management procedures and cases. EMPLOYEE REWARD
D D
This new edition contains new research conducted by e-reward, as well as over 30 new best
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practice case examples, up-to-date guidance on current legislation, and brand new coverage of
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key topics such as engagement and commitment, bonus schemes and rewarding knowledge MANAGEMENT
workers. A Handbook of Employee Reward Management and Practice is also an essential guide for A
CIPD students of employee reward as it is based on the unique experience of its author as C
former CIPD Chief Examiner in employee reward.
T AND PRACTICE
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FREE CD ROM FOR LECTURERS C
Michael Armstrong has created a unique CD ROM containing lecture presentation slides.
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This CD is available from the publisher on request.
2ND
Michael Armstrong is an independent management consultant, Joint Managing Partner of
e-reward, and former Chief Examiner for the Chartered Institute of Personnel and Development EDITION
(CIPD). He is the author of many internationally best-selling titles published by Kogan Page
includingA Handbook of Human Resource Management Practice, Strategic Human Resource
Management, A Handbook of Management Techniques, Reward Management (with Helen Murlis), A
Human Capital Management (with Angela Baron) and A Handbook of Management and r
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Leadership (with Tina Stephens). s
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£29.99
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US $60.00 g
Michael Armstrong
ISBN-10: 0-7494-4962-4
Kogan Page Kogan Page US ISBN-13: 978-0-7494-4962-9
120 Pentonville Road 525 South 4th Street, #241
London N1 9JN Philadelphia PA 19147
United Kingdom USA
www.kogan-page.co.uk Human resource management
A Handbook of
EMPLOYEE REWARD
MANAGEMENT
AND PRACTICE
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ii
A Handbook of
EMPLOYEE REWARD
MANAGEMENT
AND PRACTICE
2ND EDITION
Michael Armstrong
London and Philadelphia
Publisher’s note
Every possible effort has been made to ensure that the information contained in this book is
accurate at the time of going to press, and the publishers and author cannot accept responsibility
for any errors or omissions, however caused. No responsibility for loss or damage occasioned
to any person acting, or refraining from action, as a result of the material in this publication can
be accepted by the editor, the publisher or any of the authors.
First published in Great Britain and the United States in 2005 by Kogan Page Limited
Second edition 2007
Apart from any fair dealing for the purposes of research or private study, or criticism or review,
as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be
reproduced, stored or transmitted, in any form or by any means, with the prior permission in
writing of the publishers, or in the case of reprographic reproduction in accordance with the
terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms
should be sent to the publishers at the undermentioned addresses:

120 Pentonville Road 525 South 4th Street, #241
London N1 9JN Philadelphia PA 19147
United Kingdom USA
www.kogan-page.co.uk
© Michael Armstrong and Tina Stephens, 2005
© Michael Armstrong, 2007
The right of Michael Armstrong to be identified as the author of this work has been asserted by
him in accordance with the Copyright, Designs and Patents Act 1988.
ISBN-10 0 7494 4962 4
ISBN-13 978 0 7494 4962 9
British Library Cataloguing-in-Publication Data
A CIP record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Armstrong, Michael, 1928–
A handbook of employee reward management and practice / Michael Armstrong. –
2nd ed.
p. cm.
ISBN-13: 978-0-7494-4962-9
ISBN-10: 0-7494-4962-4
1. Incentives in industry. 2. Employee motivation. I. Title.
HF5549.5.I5A668 2007
658.3’142–dc22
2006039560
Typeset by JS Typesetting Ltd, Porthcawl, Mid Glamorgan
Printed and bound in Great Britain by Bell & Bain, Glasgow
Contents
Preface xi
PART 1 THE FUNDAMENTALS OF REWARD MANAGEMENT
1 Reward management: an overview 3
Reward management defined 3; The aims of reward management 4;
Achieving the aims 4; The reward system 7; Elements of a reward
system 8; Factors affecting reward management policy and practice 12;
The development of reward management 14; References 18
2 The context of reward management 19
The internal environment 19; The external environment 24; Impact of
the environment 28; References 30
3 Total reward 31
Total reward defined 31; The significance of total reward 33; Benefits of
total reward 33; Model of total reward 34; Relational rewards 35;
Developing a total reward approach 40; Approaches to total reward 41;
Turning rhetoric into reality 46; References 47
4 Strategic reward 48
Strategic reward management defined 48; The rationale for strategic
reward 49; Guiding principles 49; The concept of reward strategy 52;
References 59
vi Contents
5 Developing and implementing reward strategy 60
General considerations 60; The reward strategy development sequence 62;
Implementation 83; References 94
6 Reward policies 96
The purpose of reward policies 96; Reward policy headings 96; Level of
rewards 97; Developing reward policies 101; Examples of reward
policies 102
PART 2 THE CONCEPTUAL FRAMEWORK
7 Factors affecting pay levels 107
Economic determinants of pay 107; Factors affecting pay levels within
organizations 112; The significance of the factors affecting pay levels 114;
Application of the factors 117; References 118
8 Motivation and reward 119
The process of motivation 119; Motivation theories 122; Motivation and
financial incentives and rewards 127; Factors affecting satisfaction with
pay 129; Motivation and job satisfaction and performance 130; The key
messages of motivation theory 131; References 134
9 Engagement and organizational commitment 135
Definitions 135; Engagement 137; Organizational commitment 144;
References 146
10 The psychological contract 147
The psychological contract defined 147; The significance of the
psychological contract 148; Developing and maintaining a positive
psychological contract 149; References 150
PART 3 ESTABLISHING JOB VALUES AND RELATIVITIES
11 Job evaluation schemes 153
Definition of job evaluation 153; Aims 154; Features 154; The case for and
against job evaluation 155; Categories of job evaluation 157; Types of
analytical schemes 158; Types of non-analytical schemes 161; Market
pricing 163; Computer-assisted job evaluation 164; Examples of the use of
job evaluation 165; Conclusion 166; References 167
Contents vii
12 Developing and maintaining job evaluation schemes 168
Developing a job evaluation scheme: initial stages 168; Designing a
point-factor job evaluation scheme 180; Designing a job classification
scheme 192; Developing an analytical matching scheme 193; Developing
management procedures 196; Introducing job evaluation 198; Maintaining
a job evaluation scheme 198; References 199
13 Equal pay for work of equal value 200
Why discrimination takes place 200; The legal framework 203; The
EOC Code of Practice on Equal Pay 207; Equal pay claims 208; Avoiding
discrimination in job evaluation 210; Discriminatory pay structures 212;
References 213
14 Equal pay reviews 214
Purpose of equal pay reviews 214; Planning a review 215; The equal
pay review process 216; Analysing pay 222; Conclusion 225;
References 226
15 Market rate analysis 227
Market rate analysis defined 227; Aims of market rate analysis 228; The
problem of defining the market rate 228; The process of market rate
analysis 231; Initial decision to conduct market rate analysis 231; Decide on
benchmark jobs 232; Sources of market data 232; Analyse data 240; Prepare
information on the jobs to be surveyed 243; Interpret and present market
data 243; Using market data 245; A final word 247; Reference 248
16 Role analysis 249
Definitions 249; Role analysis and reward management 250;
Methodology 251; Role profile definition 253; Examples of role
profiles 255
PART 4 GRADE AND PAY STRUCTURES
17 Types of grade and pay structures 263
Grade structures 263; Pay structures 264; Incidence of grade and pay
structures 266; Narrow-graded structures 266; Broad-graded
structures 269; Broad-banded structures 273; Career family structures 281;
Job family structures 285; Combined career/job family and broad-banded
structures 288; Pay spines 289; Spot rates 291; Individual job
grades 291; References 292
viii Contents
18 Developing grade and pay structures 293
Guiding principles for grade and pay structures 293; The design
programme 294; The design process 297; Define guiding principles and
objectives 297; Analyse present arrangements 297; Selecting the
structure 299; Criteria for choice 299; Design options 302; Use of job
evaluation 304; Graded pay structure design 304; Broad-banded structure
design 316; Career family structure design 320; Job family structure
design 325; Designing non-discriminatory pay structures 325;
Implementing new grade and pay structures 326; References 331
PART 5 REWARDING AND REVIEWING CONTRIBUTION AND
PERFORMANCE
19 Individual contingent pay 335
Individual contingent pay defined 336; The incidence of contingent
pay 336; Contingent pay as a motivator 336; Arguments for and against
contingent pay 337; Alternatives to contingent pay 339; Criteria for
success 340; Performance-related pay 341; Competency-related pay 343;
Contribution-related pay 345; Skill-based pay 354; Service-related
pay 355; Choice of approach 356; Readiness for contribution pay 357;
Developing and implementing contribution pay 357; References 360
20 Bonus schemes 362
Bonus schemes defined 362; Aims of bonus schemes 363; Rationale for
bonus schemes 363; Types of scheme 363; Category of staff covered 364;
The business case for bonus schemes 365; Designing a bonus scheme 365;
Introducing a bonus scheme 370; Reference 370
21 Team pay 371
Team pay defined 372; Aim of team pay 373; How team pay works 374;
Requirements for team pay 376; Advantages and disadvantages of team
pay 376; Developing team pay 377; NHS case study 378; References 379
22 Paying for organizational performance 380
Types of schemes 380; Aims 381; Profit sharing 382; Share ownership
schemes 383; Gain sharing 384; References 384
23 Recognition schemes 385
Recognition schemes defined 385; Principles of recognition 386; Types
of recognition 387; Examples of non-cash awards 388; Designing a
Contents ix
recognition scheme 389; Example of a recognition scheme at
Camelot 389; References 390
24 Performance management and reward 391
Performance management defined 391; Purpose of performance
management 392; Principles of performance management 392; The
performance management cycle 393; Key features of performance
management 394; Performance management as a motivating
process 395; Performance management and non-financial
motivation 396; Performance management and pay 397;
References 403
PART 6 REWARD MANAGEMENT FOR SPECIAL GROUPS
25 Rewarding directors and senior executives 407
The background 407; Governance reviews and remuneration 408;
Remuneration committees 409; Directors’ and senior executives’
remuneration 410
26 International reward 414
The international scene 414; International reward strategy 416;
Rewards for expatriates 419; References 422
27 Rewarding sales and customer service staff 424
Rewarding sales representatives 424; Rewarding customer service
staff 431; References 433
28 Rewarding knowledge workers 435
What motivates knowledge workers? 436; Managing knowledge
workers 436; Approaches to rewarding knowledge workers 437;
References 443
29 Shop floor pay 445
Factors affecting shop floor pay 445; Time rates 446; Incentive
schemes 447; Single status and harmonization 454; References 455
PART 7 EMPLOYEE BENEFITS AND PENSION SCHEMES
30 Employee benefits 459
Rationale for employee benefits 460; Employee benefit strategies and
policies 460; Types of benefit 460; Incidence of benefits 463; Choice of