Max Mednik
  • Home
  • About
  • Interests
    • Angel investing
    • Magic
    • Scuba Diving
  • Blog
  • Contact

Readings and musings

Lessons Learned from Pay and Rewards

3/19/2011

4 Comments

 
Picture

This is my last post in the series about my classes last quarter. It's about my main takeaways from my HR elective class on pay and rewards in organizations. The course surveyed empirical research studies on a variety of topics including executive compensation, pay for performance, start-up compensation, and pension plans. A lot of the points below are taken from the articles or studies that we looked at as well as our professor's notes.

We learned that pay is determined by three main forces: the labor market, business strategy, and employee motivation/culture.

One research model we studied suggested the following tips:
  • Avoid fixed performance contracts (as they can be gamed)
  • Evaluate and reward relative performance (not fixed/absolute)
  • Use a few, simple, transparent measures
  • Align rewards with strategic goals
  • Reward team performance (not individual)
  • Align rewards with interdependent groups
  • Don’t use rewards to “motivate” people (people motivate themselves; find people who are self-motivated)
  • Make rewards fair and inclusive
We also went over several dangerous "myths" about pay from another article:

  • Labor rates and labor costs are the same thing (ignores productivity)
  • Can lower labor costs by cutting labor rates (ignores productivity)
  • Labor costs constitute a significant portion of total costs (varies)
  • Low labor costs are a potential, sustainable competitive advantage (easily replicable)
  • Individual incentive pay improves performance (undermines teamwork)
  • People work for money (meaning in work is more salient)
We next covered the various research frameworks that can be used to analyze how pay practices can best align with business strategy. We covered several types of rewards that are available.

Extrinsic:
  • Money
  • Promotion
  • Diverse co-workers
  • Compatible boss
  • Work location and environment
Intrinsic:
  • Interesting, challenging work
  • Job autonomy
  • Job rotation
  • Work-family life balance
We also studied how profit sharing with employees positively affects perceptions of trust in management and organizational commitment and reciprocity.

Delving into employees' intrinsic rewards, we looked at how the practice of "job sculpting," where employees will stay with and be retained by organizations only if their jobs match their "deeply embedded life interests." These do not determine what people are good at; they drive what kinds of activities make them happy. These deeply embedded life interests are mostly the following:
  • Application of technology
  • Quantitative analysis
  • Theory development and conceptual thinking
  • Creative production
  • Counseling and mentoring
  • Managing people and relationships
  • Enterprise control
  • Influence through language and ideas

People can sometimes concentrate on one or a combination of these life interests, which ultimately determine which jobs make them happiest.
The seven “HR Best Practices” (or high-performance work system practices)  we studied were the following:

  • Employee continuity
  • Team-based work
  • Decentralized, selective hiring
  • High pay contingent on organizational performance
  • Business information sharing
  • Training and development
  • Low status differentials
In terms of work-life balance, it turns out that organizations that follow the above practices have employees with higher perception of work-life balance in the organization. Other elements that are positively associated with a sense of balance are an understanding supervisor, child care services, organizational commitment, and several categories of intrinsic rewards. This was based on extensive survey data.

In terms of executive compensation, we learned from the research that the use of long-term contingent compensation results in significant windfalls for CEOs and is not consistent with the idea that such compensation exposes executives to risk; in addition, cash compensation for CEOs is not reduced when contingent compensation is granted (thus the latter is a perk); and in the end, firm performance is lower among firms that heavily use long-term contingent compensation for CEOs. The remedies to this include requiring reduction in CEO pay when options are paid and shifting to more emphasis on annual cash pay adjustments (as well as finding CEOs more motivated by themselves than through compensation).

The class was informative, and I found the discussions about employee culture and motivation (as well as how compensation can be used strategically in start-ups) to be the most interesting.
4 Comments
Sherman
3/20/2011 02:32:26 am

Indeed very interesting and informative topics. Thanks for sharing all the learning from the courses!

Reply
Jonathan link
3/24/2011 05:22:23 pm

I agree with Sherman. The "Lessons Learned" posts are very informative! Perhaps you should post them every quarter! Thanks for sharing!

Reply
new york hats link
3/25/2011 04:36:20 pm

You write good articles, I will always be concerned about

Reply
Max
3/31/2011 04:14:29 am

Thanks, guys!

Reply

Your comment will be posted after it is approved.


Leave a Reply.

    Archives

    June 2021
    May 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    April 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    May 2019
    March 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    February 2018
    January 2018
    November 2017
    October 2017
    September 2017
    May 2017
    April 2017
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010

    Categories

    All
    Angel Investing
    Cacti
    Cars
    China
    Community Service
    Culture
    Design
    Djing
    Dogs
    Education
    Entertainment
    Entrepreneurship
    Family
    Finance
    Food
    Google
    Happiness
    Incentives
    Investment Banking
    Judaism
    Law
    Lighting
    Magic
    Marketing
    Medicine
    Networking
    Nolabound
    Philosophy
    Professionalism
    Psychology
    Reading
    Real Estate
    Religion
    Romance
    Sales
    Science
    Shangri-La
    Social Entrepreneurship
    Social Media
    Sports
    Teams
    Technology
    Travel
    Turtles
    Ucla
    Venture Capital
    Web Services
    Weddings
    Zen

    Subscribe

    RSS Feed

Picture
Picture
  • Home
  • About
  • Interests
    • Angel investing
    • Magic
    • Scuba Diving
  • Blog
  • Contact