REWARD SYSTEMS: RECOGNITION AND BENEFITS, Efficiency Wage Theory

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Organizational Psychology (PSY510)

LESSON 11

REWARD SYSTEMS: RECOGNITION AND BENEFITS

RECOGNITION

Organizational and social recognition is used by managers as rewards. Companies operating in global

markets need employees who continuously improve the way they do their jobs to keep the company

competitive. Employees are more likely to share their ideas for work improvements when managers give

them credit for their contributions. Employee recognition programs can enhance employee relations by

communicating that the organization cares about its employees' ideas and is willing to reward them for their

efforts. The HR department can help here by developing and maintaining formal employee recognition

programs such as suggestion systems and recognition awards.

A recognition program does not have to be expensive. The structure of a recognition program is limited

only by your imagination. An effective program has the following components:

· Fairness

· High visibility and consistency.

To be fair, a program must not favor one employee over another, merely because of his or her position

within the organization, or his relationship with his supervisor. There must be an effective means of

identifying employees who should be recognized. In many programs, there is an easy means by which

employees can nominate others for recognition. As a supplement to a nomination program, supervisors can

keep lists of notable employee achievements.

Making certain that a program is highly visible helps to ensure consistent implementation. If a recognition

program becomes viewed as management's "program of the month," nominations will drop and those who

are nominated may well be those who are perceived in the eyes of many to be management's "favorites."

Small, but meaningful achievements may be ignored unless there is a plan to actively solicit nominees.

The actual rewards can be anything you want. One approach is to have small rewards initially, and make

each employee who receives eligible to receive a larger reward at the end of the year.

The reward itself should be just part of the process. Recognition can be achieved by having the reward

given at a gathering of employees, and by recognizing the award in corporate communications, such as the

corporate newsletter or Intranet site. Some of the awards to consider include the following:

· Practice giving concentrated/ focused recognition by calling deserving employees into your office.

· Buy a trophy and give it to the most deserving employee in the unit or department.

· Deal with this "out of sight, out of mind" problem by faxing, e-mailing, or leaving a voice mail for

the person that says "thank you for a job well done."

· Write a note that recognizes an individual's contributions during the last pay period and attach this

note to the person's pay check.

· Acknowledge the role that was played by your support staff by taking all of them out to lunch.

· Take a picture of someone who is being congratulated by his or her manager.

· Have a senior manager come by and attend one of your team meetings during which your recognize

people to their accomplishments.

· Invite your work team or department to your house on a Saturday evening.

· Recognize the outstanding skill or expertise of an individual by assigning the person an employee to

mentor

· The next time you hear a positive remark made about someone, repeat it to that person as soon as

possible.

· Stay alert to the types of praise and recognition that employees seem to like the best and use these as

often as possible.

· Catch people doing things right-and let them know!

Efficiency Wage Theory

It states that organizations can save money by offering higher pays/benefits because they can hire best

talent. Basically Efficiency wage theory is the idea that you will pay way above average wages and attract the

best employees to your organization. These bright workers will be very productive, more than most

Organizational Psychology (PSY510)

employees, because you'll have a group of the best and brightest in your field working together. As well,

those workers, because of their high wage and fear of losing it, won't be slacking off and there will be less

risk of them leaving to work elsewhere. And if you are in a developing country, your employees may earn

enough from these increased wages to buy food and medicine. It's good to have employees who are paid

enough to eat. Healthier employees can be more productive!

So why doesn't everyone pay Efficiency wages? Obviously, the reason is cost. You are paying above market

wages to attract the best and the brightest, and if enough other firms start doing the same that new higher

wage will become the new market wage and you will have to raise prices again to attract those superstar

employees.

Also, Efficiency wages can increase unemployment. You see, if I as a manager hire a group of superstar

employees who are much more productive, all of a sudden instead of hiring ten semislickerss who barely get

the job done, I only need to hire 5 top guns. Those other five fools are off on the street looking for new

work.

If these new higher wages become the regular market wage demanded by that industry, and something

similar takes place throughout the work force risk bringing on the higher wages, then higher wages (people

having more money and thus being able to spend more money and driving up prices by doing so) will cause

inflation.

Benefits

Employee benefits are group membership rewards that provide security for employees and their family

members. They are sometimes called indirect compensation because they are given to employees in the

form of a plan (such as health insurance) rather than cash. A benefits package complements the base-

compensation and pay-incentives components of total compensation. Employee benefits protect employees

from risks that could jeopardize their health and financial security. They provide coverage for sickness,

injury, unemployment, and old age and death. They may also provide services or facilities that many

employees find valuable, such as child-care services or an exercise centre.

Benefits issues are important to employees. Managers must help employees understand and make the best

use of their benefits. For instance, if an employee has a child who needs urgent medical attention, the

employee's managers should be able to explain the company's medical benefits to ensure that he employee

obtains all available coverage.

Benefits are a powerful recruiting tool. Managers at firms that offer enticing benefits can use this advantage

to recruit high-quality applicants.

Benefits help retain talented employees. Firms that offer an attractive benefits package to employees give

managers an advantage because the package often helps reduce turnover

Certain benefits play a part in managerial decisions. Some benefits such as vacations, family and medical

leave, and sick days-give employees scheduling flexibility. Managers need to aware of these benefits to

effectively manage work schedules.

Managers also need to be aware of their own benefits options. Some decisions, particularly those

concerning retirement plans, have long-term consequences. Good decisions in this area made early in a

career can affect quality of life at the end of and after a career.

Types of Benefits

There are two types of benefits:

1. Traditional

2. Newer Type

Traditional Benefits

1. Health insurance: Health insurance covers hospital costs, physician charges, and the costs of other

medical services. Because of its importance health insurance is usually considered separately from

other types of insurance.

2. Life insurance: Insurance plans protect employees or their dependents from financial difficulties

that can arise as a result of disability or death.

3. Education for children

4. Pension plans after retirement

5. Vacation time. Employees are sent on paid vacations by the company.

6. Medical facilities for self and family.

Organizational Psychology (PSY510)

7. Eid holiday is also an example of benefit.

8. Disability compensations are compensations provided for disability of employees.

9. Old age benefit plans are to provide certain income to retired employees.

10. Free travel facilities are often provided to employees as a part of benefits package.

Newer Type

1. Wellness programs: These programs are designed to keep employees health. These include

provision of gyms, vacations, exercise facilities, weight control measures etc.

2. Life cycle benefits: These are given at different stages of life cycles, for marriage, child birth,

children's education etc.

3. Employee Assistance Programs (E.A.P.): These are company sponsored programs that help

employees cope with personal problems that are interfering with their job performance. For

example, an employee assistance program may be run for solving alcohol programs of employees.

4. Flexible benefits: The flexibility of benefits choice concerns the degree of freedom employees have

to tailor the benefits package to their personal needs. Some organizations have a relatively

standardized benefits package that give employees few options. This system makes sense in

organizations that have fairly homogeneous workforce. In these firms a standardized benefits

package can be designed for a "typ0ical" employee. In organizations that cannot develop a "typical"

employee profile, a decentralized benefits package that emphasized choice will probably be more

effective.

5. Others: Organizations also provide benefits which cannot be categorized above. These benefits

include services such as helping employees get education or training. It is a common practice these

days.

REFERENCES

· Mejia, Gomez. Balkin, David & Cardy, Rober. (2006). Managing Human Resources (Fourth Edition).

India: Dorling Kidersley Pvt. Ltd., licensee of Pearson Education in South Asia.

· Luthans, Fred. (2005). Organizational Behaviour (Tenth Edition). United States: McGraw Hill Irwin.

· Employee Recognition Programs - Perks.com: The Perks incentive program solution is to increase,

motivate and reward deserving employees: http://employeerecognition.com/

FURTHER READING

· Guide for Employee Recognition: http:// www.usda.gov/da/employ/recog.htm -

· Employee Recognition: http://www.overlakehospital.org/careers/recognition.aspx

· A discussion of an economic theory that potentially could both increase wages but at the same time

also increase profits for firms:

www.americafront.com/news/23/what_is_efficiency_wage_theory_and_why_it_matters.html

· Employee Benefits and Compensation: http://www.managementhelp.org/pay_ben/pay_ben.htm -

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