In the views of Alan et:al
(1999:441): “wages may be at award rates, which are set at a minimum, or at
some specified level about the relevant rewards, determined by the ‘going rate’
for the area”. They identified the following as the factors that influence pay:
- Regulatory environment
-
Minimum award and
-
Statutory requirements
- Market forces
-
Labour supply and demand
-
Regional market differentials
-
Job family differentials
-
Industry differentials
-
Economic environment, which include
Ø
Inflation
Ø
Unemployment
Ø
Labour force participation rate
Ø
Skill shortage
- Work Value:
-
Knowledge and experience required
-
Task complexity
-
Type of problems solved
-
Responsibility for resources management
-
Interpersonal skills
-
Impact of the job on the organization
- Remuneration strategy:
-
What do we want to reward?
-
What can we afford to pay
-
What sort of people do we want to attract
-
Should we provide benefits? What about other
entitlements? e.g
Ø
Sick leave
Ø
Overtime and super annuation
-
Will we have a variable reward programme? e.g
Ø
Incentive scheme
- Individual factors:
-
The nature of an individual’s contribution to the
business
-
Performance compared to expectations
-
Development of relevant skill/competencies
-
Individual or collective bargaining power.
Reward decision brings managers
focus on what needs to be achieved in the broader business context. Developing
reward plans often forces all levels of management to come to consensus on
identifying and measuring the results that are really critical to the business.
McAdams (1996) opined that through remuneration (reward) management can make a
difference to the success of a business.
The human resource manager, based
on the reward policy of the firm, should be able to decide whether the firm is
to be a leader or follower, regarding pay (Pefeffer,1998). Meanwhile, if
employees become aware of inequities in the pay system, disappointment and
often conflict can result. Some
firms therefore maintain strict secrecy over pay matters.
In addressing the issue of pay
dissatisfaction, Nelson et:al (2008) opined that “employers need to solve the
right problem”. They went further to
state that “potential sources of dissatisfaction include amount of pay and
benefits, and how both raises and the overall pay plan are administered.
Winter (2000) maintained that: salary
inequities can trigger a big response, with morale down due to widespread
concerns about inequitable salaries; layoffs, and racial discrimination, suit
etc.
In taking any decision about
wages and salaries, human resources managers or directors should not handle or
fix salaries with their whims, rather they should compare their intended amount
with other firms or similar operations, through the e-mail, internet or by
reading research reports on salaries and wages.
Supporting the above view, Mark
(2000) revealed that smaller firms are making use of the internet in other
ways. He further noted that the Human Resources Director of Stock-House Media
Corps makes extensive use of the web for determining salaries for all the
firm’s personnel.
Employee’s reactions about pay
system fairness are related to organizational justice. Organizations usually
want to pay market rate that is to match the ‘going rates’ paid employees by
competitive organization. This agrees with the views of Brown and Wilsh (1995)
when they posited that “fairness in pay is essentially concerned with the
relationship between the pay of different individuals or groups: it is based on
comparison … management will prefer to pay the ‘going rate’.
The view of Henderson (2000:85)
tallies with Mark’s view, when he (Henderson) said that:
It is difficult to set pay rates if you
don’t
know what
others are paying, so salary
survey
plays a big role in pricing jobs.
He noted that: “virtually every
employer conducts at least an informal telephone, newspaper or internet salary
survey”. Salary surveys can be formal or informal. Informal telephone or
internet surveys are good for checking on a relatively small number of easily
identified jobs (Watson Wytt Data Service, 1998).
Jaja (2000) noted that one of the
obligations of the employees association is:
To ensure the orderly development of a good
labour
management system, and in particular
to
encourage the payment of equitable rate of
wages and
salaries to workers, and to assist
members
with advise on the settlement of
industrial
disputes.
In Nigeria, wages and salary
administration had been the function of the state policy is evidenced by the
number of government salary and wage determination commissions and tribunals
set up to fix or review existing salary structure in recent time ( Jaja, Ibid).
The in-equitability of wages
among occupations within and outside a particular organization is one of the
major sources of conflicts in an organization. There are five important factors
always considered by prospective employees before accepting any job. They are:
- Job design
- Job degree of responsibility
- Job security
- The possibility for growth and
- Cost of learning the job
Many employees (and unions too)
prefer wage payment that are geared to their performance. Organizations that
shy away from pay for performance, and plan to protect employee income during
inflation periods have reportedly adopted merit pay arrangement to induce
higher productivity.
An employee’s pay structure is the cluster of pay levels
associated with jobs in the organization. The pay structure defines the
relationships between jobs in terms of pay.
According to Bratton and Gold (1999) some of the cogent
questions that may arise from the issue of reward are:
- Why do some employers pay more (or less) than other employers in the same industry?
- Why do some employees’ performances change with a change in reward?
- Why are different jobs within the same organization paid differently?
- Why do different employees doing an identical job for the same employer receive different pay?
- How are these decisions made? And
- How does the government influences reward management?
The fundamental tension underlying the employment
relationship makes for an unstable contract between the two parties, which is
the context of global price competition and technological change is constantly
being adjusted. To increase market ‘viability’, employers attempt to increase
performance through payment of incentives or pay cut to reduce labour costs.
One of the most important question in modern reward theory
is how closely should performance and rewards be linked? From human relations
stand point, this question relates less to the specific types of reward that
can be given, than it does to the reward system itself.
Stiles, Gratton, Truss, Hope-Vailey and Mchovern (1997:165)
opined that:
By specific the new performance requirements
of employees as a result
of strategic change
and the reward employees
will receive upon
their fulfillment,
management define new
expectations and so
alter the employment
relationship.
Many companies appear to be
rewarding the employees within the same organization and doing an identical
job, at different pay levels. Some writers describe this changes in pay as
revolutionary because they over throw the old assumption that employees should
be paid the same, even though their contributions differ.
The question now in the minds of
the watchers of the new reward system is whether the shift is an adhoc,
reactive response to contextual changes or do the reported changes in reward
systems represents a more proactive and strategic human resource management
approach (Kessler, 1995).
A study by Poole and Jenkins(1998:58) concluded that:
At a policy level, human resource management
endorsed a s policies
the rewards that link pay
with performance, and declared that, there
is
little evidence of widespread adoption of
many
of the ‘new pay’ practice.
A reward system that directly links pay to performance will
requires an appraisal system that is both reliable and valid.
Milkovich and Newman (1990) seem to agree with Poole and
Jenkins, when they noted that “adopting a competitive pay policy is akin to
establishing a niche in product market; there are conventional and new directions
in external pay polices”. However, there is little empirical evidence of the
consequences of these different options.
Strategic reward should be founded on the proposition that
the ultimate source of value is people. Reward strategy in the private sector
should be business driven, responding to the needs of the business to compete,
grow and innovate, but it is also a lever for change, rein-forcing and
validating the thrust of the business. In the public and voluntary sectors,
reward strategy is similarly driven by the organization to improve its overall
effectiveness (Armstrong, 2006).
Organization must reward
employees, because in return, they are looking for certain kinds of behaviour,
they need competent individuals who agree to work with high level of
performance and loyalty. Individual employees in exchange for their commitment,
expect certain extrinsic rewards in the form of promotion, good salary, fringe
benefits, perquisites, bonuses or stocks options. Individuals also seek
intrinsic rewards such as feeling of competence, achievement, responsibility,
significance influence, personal growth and meaningful contribution. Employees
will judge the adequacy of their exchange with the organization by assessing
both sets of rewards.
People’s feelings about the
adequacy of their pay were based upon comparisons they make between their pay
and the pay of other external market comparisons as the most critical,
because they are the ones which
strongly influence whether individual want to stay with their organization
(Lawler, 1990, Brown and Walsh 1995, Mark 2000, Henderson 2000, and Winter
2000).
Any system that purports reward
for performance must obviously be able to measure performance. This requirement
is often hard to satisfy, even in cases where employees produce or sell an
identifiable product, as the case where individual and group incentive system
exist, measures are often less satisfactory than desired.
According to Walsh (1995), … pay provides, however, misleadingly, the
only common language of reward. It provides the natural focus for collective
bargaining and the obvious channel into which discontents over the more
intangible aspects of work can be displaced.
Employees consider the
relationship between their performance, and rewards related to that
performance, and then the fairness of the relationship. The final step in the
process will have the employee setting new goals and expectations based on past
experiences within organization (Currel et:al 1992).
If employees see little
relationship between performance and reward, then they may set minimum goals in
order to retain their job, but will not see the need to excel in their
position. People work to get rewards for their efforts.
The above view coincides with
Kabanoff (1991) when he opined that, “when people work, they expect to receive
fair value (equity) for their efforts, and they expect the rewards received to
be distributed fairly.
If employees believe that
managers play favoritism, then the credibility of the entire pay system will be
reviewed suspiciously (Greene, 1991).