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REWARD SYSTEMS: RECOGNITION AND BENEFITS, Efficiency Wage Theory

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Organizational Psychology­ (PSY510)
VU
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
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Organizational Psychology­ (PSY510)
VU
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.
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Organizational Psychology­ (PSY510)
VU
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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Table of Contents:
  1. INTRODUCTION TO ORGANIZATIONAL PSYCHLOGY:Hawthorne Effect
  2. METHODOLOGIES OF DATA COLLECTION:Observational method, Stability of Measures
  3. GLOBALIZATION:Aspects of Globalization, Industrial Globalization
  4. DEFINING THE CULTURE:Key Components of Culture, Individualism
  5. WHAT IS DIVERSITY?:Recruitment and Retention, Organizational approaches
  6. ETHICS:Sexual Harassment, Pay and Promotion Discrimination, Employee Privacy
  7. NATURE OF ORGANIZATIONS:Flat Organization, Neoclassical Organization Theory
  8. ORGANIZATIONAL CULTURE:Academy Culture, Baseball Team Culture, Fortress Culture
  9. CHANGING ORGANIZATIONAL CULTURE:Move decisively, defuse resistance
  10. REWARD SYSTEMS: PAY, Methods of Pay, Individual incentive plan, New Pay Techniques
  11. REWARD SYSTEMS: RECOGNITION AND BENEFITS, Efficiency Wage Theory
  12. PERCEPTION:How They Work Together, Gestalt Laws of Grouping, Closure
  13. PERCEPTUAL DEFENCE:Cognitive Dissonance Theory, Stereotyping
  14. ATTRIBUTION:Locus of Control, Fundamental Attribution Error
  15. IMPRESSION MANAGEMENT:Impression Construction, Self-focused IM
  16. PERSONALITY:Classifying Personality Theories, Humanistic/Existential
  17. PERSONALITY ASSESSMENT:Standardized, Basic Categories of Measures
  18. ATTITUDE:Emotional, Informational, Behavioural,Positive and Negative Affectivity
  19. JOB SATISFACTION:The work, Pay, Measurement of Job Satisfaction
  20. MOTIVATION:Extrinsic motive, Theories of work motivation, Safety needs
  21. THEORIES OF MOTIVATION:Instrumentality, Stacy Adams’S Equity theory
  22. MOTIVATION ACROSS CULTURES:Meaning of Work, Role of Religion
  23. POSITIVE PSYCHOLOGY:Criticisms of ‘Traditional’ Psychology, Optimism
  24. HOPE:Personality, Our goals, Satisfaction with important domains, Negative affect
  25. EMOTIONAL INTELLIGENCE:EI IS Related To Emotions and Intelligence
  26. SELF EFFICACY:Motivation, Perseverance, Thoughts, Sources of Self-Efficacy
  27. COMMUNICATION:Historical Background, Informal-Formal, Interpersonal Communication
  28. COMMUNICATION (Part II):Downward Communication, Stereotyping Problems
  29. DECISION MAKING:History, Personal Rationality, Social Model, Conceptual
  30. PARTICIPATIVE DECISION MAKING TECHNIQUES:Expertise, Thinking skills
  31. JOB STRESS:Distress and Eustress, Burnout, General Adaptation Syndrome
  32. INDIVIDUAL STRESSORS:Role Ambiguity/ Role Conflict, Personal Control
  33. EFFECTS OF STRESS:Physical Effects, Behavioural Effects, Individual Strategies
  34. POWER AND POLITICS:Coercive Power, Legitimate Power, Referent Power
  35. POLITICS:Sources of Politics in Organizations, Final Word about Power
  36. GROUPS AND TEAMS:Why Groups Are Formed, Forming, Storming
  37. DYSFUNCTIONS OF GROUPS:Norm Violation, Group Think, Risky Shift
  38. JOB DESIGN:Job Rotation, Job Enlargement, Job Enrichment, Skill Variety
  39. JOB DESIGN:Engagement, Disengagement, Social Information Processing, Motivation
  40. LEARNING:Motor Learning, Verbal Learning, Behaviouristic Theories, Acquisition
  41. OBMOD:Applications of OBMOD, Correcting Group Dysfunctions
  42. LEADERSHIP PROCESS:Managers versus Leaders, Defining Leadership
  43. MODERN THEORIES OF LEADERSHIP PROCESS:Transformational Leaders
  44. GREAT LEADERS: STYLES, ACTIVITIES AND SKILLS:Globalization and Leadership
  45. GREAT LEADERS: STYLES, ACTIVITIES AND SKILLS:Planning, Staffing