e!ard "ystems and #egal Issues $vervie!

Reward Systems Legal Issues

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

e!ard "ystems% $vervie!

Traditional and Contingent Pay (CP) Plans
Reasons for Introducing CP Plans Possible Problems Associated wit CP Selecting a CP Plan

Putting Pay in Conte!t Pay Structures

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Herman Aguinis, University of Colorado at Denver

&raditional Pay
Salary and salary increases are based on
Position Seniority

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Contingent Pay 'CP(

Salary and salary increases are based on
"ob #erformance

Also called$ Pay for Performance If not added to base #ay% called$
&ariable #ay

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Herman Aguinis, University of Colorado at Denver

easons for Introducing CP

Performance management is more effecti'e w en rewards are tied to results CP Plans force organi(ations to$
Clearly define effecti'e #erformance )etermine w at factors are necessary

CP #lans el# to recruit and retain to# #erformers CP #lans #ro*ect good cor#orate image

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Herman Aguinis, University of Colorado at Denver

CP )lans *el) im)rove motivation !*en%

+m#loyees see clear lin, between t eir efforts and resulting #erformance (Expectancy) +m#loyees see clear lin, between t eir #erformance le'el and rewards recei'ed (Instrumentality) +m#loyees 'alue t e rewards a'ailable (Valence)

motivation = expectancy x instrumentality x valence

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Herman Aguinis, University of Colorado at Denver

Possi+le Pro+lems Associated !it* CP

Poor #erformance management system Rewarding counter#roducti'e be a'ior Insignificant rewards T e reward becomes t e dri'er +!trinsic 's- intrinsic moti'ation )is#ro#ortionately large rewards for e!ecuti'es

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"electing a CP Plan% Issues to consider

A- Culture of organi(ation .- Strategic direction of organi(ation

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A. Culture of organi,ation% &y)es of organi,ations

Traditional
To#/down decision ma,ing &ertical communication "obs t at are clearly defined

In'ol'ement
S ared decision ma,ing Lateral communications Loosely defined roles

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Herman Aguinis, University of Colorado at Denver

CP systems for different organi,ational cultures%

Traditional organi(ations
Piece rate Sales commissions 0rou# incenti'es

In'ol'ement organi(ations
Profit s aring S,ill/based #ay

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-% CP Plans to en*ance "trategic Directions%

+m#loyee de'elo#ment
S,ill based #ay

Producti'ity
Indi'idual
Piece rate Sales commissions

Customer ser'ice
Com#etency based #ay 0ains aring

0rou#
0ains aring 0rou# incenti'es

1'erall Profit
+!ecuti'e #ay Profit or stoc, s aring

Teamwor,
Team sales commissions 0ains aring Com#etency based #ay

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Herman Aguinis, University of Colorado at Denver

Putting Pay in Conte.t

A reward increases t e c ance t at
S#ecific be a'iors and results will be re#eated% or +m#loyee will engage in new be a'ior and #roduce better results

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Herman Aguinis, University of Colorado at Denver

e!ards can include%

Pay Recognition
Public Pri'ate Status

Time

Trust 2 Res#ect C allenge Res#onsibility 3reedom Relations i#s

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Herman Aguinis, University of Colorado at Denver

Ho! to /a0e e!ards 1or0

)efine and measure #erformance first and t en allocate rewards 1nly use rewards t at are a'ailable 4a,e sure all em#loyees are eligible Rewards s ould be bot
3inancial 5on/financial
(continued)

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Herman Aguinis, University of Colorado at Denver

Ho! to /a0e e!ards 1or0 'continued(

Rewards s ould be$
&isible Contingent Timely Re'ersible

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Pay "tructures
"ob +'aluation .road/banding

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Pay structures
An organi(ations #ay structure Classifies *obs
Into categories
.ased on t eir relati'e wort

Is designed by *ob e'aluation met ods

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Herman Aguinis, University of Colorado at Denver

2o+ evaluation
4et od of data collection
)etermine t e wort of 'arious *obs to Create a #ay structure

Consideration of
6SAs re7uired for eac *ob &alue of *ob for organi(ation 8ow muc ot er organi(ations #ay

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&y)es of 3o+ evaluation met*ods%

Ran,ing Classification Point

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2o+ evaluation met*ods%

Create *ob descri#tions Com#are *ob descri#tions Ran, *obs

an0ing

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Advantages of using an0ing met*od

Re7uires little time 4inimal effort needed for administration

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Herman Aguinis, University of Colorado at Denver

Disadvantages of using an0ing met*od

Criteria for ran,ing may not be clear$ )istances between eac ran, may not be e7ual

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2o+ evaluation met*ods% Classification

A series of classes or grades are created +ac *ob is #laced wit in a *ob class

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Herman Aguinis, University of Colorado at Denver

Advantages of using Classification met*od

"obs can be 7uic,ly slotted into structure +m#loyees acce#t met od because it seems 'alid

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

Disadvantages of using Classification met*od

Re7uires e!tensi'e time and effort for administration )ifferences between classification le'els may not be e7ual

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

2o+ evaluation met*ods% Point met*od

Identify com#ensable factors (*ob c aracteristics) Scale factors (e-g- on a scale of 9 :) Assign a weig t to eac factor so t e sum of t e weig ts for all factors ; 9<<=

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

Advantages of using Point met*od

+stablis wort of eac *ob relative to all other jobs wit in organi(ation Com#re ensi'e measurement of relati'e wort of eac *ob in organi(ation +asy to ran, *obs w en total #oints are ,nown for eac *ob

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Herman Aguinis, University of Colorado at Denver

Disadvantages of using Point met*od

Re7uires e!tensi'e administrati'e
Time +ffort

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Does 3o+ evaluation met*od matter4

3airness +'aluators
Im#artial 1b*ecti'e

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Com)ensation surveys
Information on
.ase #ay All ot er ty#es of com#ensation

Conducted in/ ouse or by consultants% suc as$ www-salary-com or www- ay#aynet-com

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Herman Aguinis, University of Colorado at Denver

-road5+anding%
Pay structure colla#ses *ob classes into fewer categories Ad'antages$
Pro'ides fle!ibility in rewarding #eo#le Reflects c anges in organi(ation structure Pro'ides better base for rewarding growt in com#etence 0i'es more res#onsibility for #ay decisions to managers Pro'ides better basis for rewarding career #rogression
Herman Aguinis, University of Colorado at Denver

Prentice Hall, Inc. 2006

e!ard "ystems% "ummary

Traditional and Contingent Pay (CP) Plans
Reasons for Introducing CP Plans Possible Problems Associated wit CP Selecting a CP Plan

Putting Pay in Conte!t Pay Structures

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

#egal Issues% $vervie!

Performance 4anagement and t e Law Some Legal Princi#les Affecting P4 Laws Affecting P4

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

Performance /anagement and t*e #a!

Performance management systems are legally sound% if t ey are fair$
Procedures are standardi(ed Same #rocedures are used wit all em#loyees

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

"ome #egal Princi)les Affecting P/% $vervie!

+m#loyment/at/will 5egligence )efamation 4isre#resentation Ad'erse Im#act Illegal )iscrimination

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

6m)loyment5at5!ill
+m#loyment relations i# can be ended at any time by
+m#loyer +m#loyee

+!ce#tions
Im#lied contract Possible 'iolation of legal rig ts

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

7egligence
If organi(ation documents describe a system and It is Not im#lemented as described% +m#loyee can c allenge e'aluation% c arging negligence

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Defamation
)isclosure of #erformance information t at is
>ntrue and >nfa'orable

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/isre)resentation
)isclosure of #erformance information t at is
>ntrue and 3a'orable

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Adverse Im)act 8 Unintentional Discrimination

P4 system as unintentional im#act on a #rotected class 1rgani(ation must demonstrate$
S#ecific 6SA is a business re7uirement for t e *ob All affected em#loyees are e'aluated in t e same way

1rgani(ation s ould re'iew ongoing #erformance score data by #rotected class to im#lement correcti'e action as necessary

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Herman Aguinis, University of Colorado at Denver

Illegal Discrimination or Dis)arate &reatment

Raters assign different scores to em#loyees based on factors t at are 51T related to #erformance +m#loyees recei'e different treatment as result of suc ratings +m#loyees can claim t ey were intentionally and illegally treated differently due to t eir status

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

6m)loyee claim of illegal discrimination%

)irect e'idence of discrimination% or +'idence regarding t e following$
4embers i# in #rotected class Ad'erse em#loyment decision Performance le'el deser'ed reward?different treatment 8ow ot ers were treated (not in #rotected class)

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

6m)loyer res)onse to claim of illegal discrimination

Legitimate and non/discriminatory reason for action Related to #erformance 5ote$ 0ood #erformance management system and subse7uent #erformance/related decision% used consistently wit all em#loyees% #ro'ides defense

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

#a!s Affecting P/%

)uring #ast few decades% se'eral countries a'e #assed laws #ro ibiting discrimination based on$
Race or +t nicity Se! Religion 5ational 1rigin Age )isability status Se!ual orientation

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

#a!s in t*e United 9ingdom%

+7ual Pay Act of 9@A< Race Relations Act of 9@AB Se! )iscrimination Act of 9@A: )isability )iscrimination Act of 9@@: +m#loyment +7uality (Se!ual 1rientation) Regulations C<<D +m#loyment +7uality (Religion or .elief) Regulations C<<D

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

#a!s in t*e United "tates of America

+7ual Pay Act of 9@BD Ci'il Rig ts Act of 9@BE Age )iscrimination in +m#loyment Act of 9@BA (as amended in 9@FB) Americans wit )isabilities Act of 9@@<

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

C*aracteristics of #egally "ound P/ "ystems

1rgani(ation$
T e system is formally e!#lained and communicated to all em#loyees T e system includes a formal a##eals #rocess Procedures are standardi(ed and uniform for all em#loyees wit in a *ob grou# T e system includes #rocedures to detect #otentially discriminatory effects or biases and abuses in t e system

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

C*aracteristics of #egally "ound P/ "ystems

4anagement
Su#er'isors are #ro'ided wit formal training and information on ow to manage t e #erformance of t eir em#loyees Performance information is gat ered from multi#le% di'erse% and unbiased raters T e system includes t oroug and consistent documentation including s#ecific e!am#les of #erformance based on first/ and ,nowledge

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

C*aracteristics of #egally "ound P/ "ystems

+m#loyees
Performance dimensions and standards are$
Clearly defined and e!#lained to t e em#loyee% "ob/related% and Git in t e control of t e em#loyee

+m#loyees are gi'en

Timely information on #erformance deficiencies and 1##ortunities to correct t em

+m#loyees are gi'en a 'oice in t e re'iew #rocess and treated wit courtesy and ci'ility t roug out t e #rocess

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver

#egal Issues% "ummary

Performance 4anagement and t e Law Some Legal Princi#les Affecting P4 Laws Affecting P4

Prentice Hall, Inc. 2006

Herman Aguinis, University of Colorado at Denver