Analysis of New Pay Systems and Employee Reward Practices in HRM

This essay provides an in-depth analysis of new pay systems and reward practices in human resource management. It begins by introducing the concept of 'New Pay,' a strategic system designed to align employee compensation with organizational objectives, contrasting it with traditional pay structures. The essay discusses the implementation of a New Pay system, emphasizing the importance of setting SMART goals, fostering open communication within the HR department, and regularly evaluating the system's effectiveness. Furthermore, it evaluates the criteria for assessing employee rewards, highlighting the significance of aligning reward approaches with the organization's culture, ensuring fairness and equity in pay management, and adapting to market changes and skill shortages. The essay concludes by underscoring the importance of a well-designed pay management system in attracting, retaining, and motivating employees, as well as its role in rewarding performance and fostering skill development. Desklib provides past papers and solved assignments for students.

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Human Resource Management
Student
Institution
Professor

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TOPIC ONE
New Pay Ideas
Introduction
New Pay is a strategy or system used by an organization’s management which is geared
towards identifying suitable pay practices for its employees to build strategic effectiveness so as
to achieve its desired objectives. Arrowsmith et al. (2010, p. 2716) expound on the explanations
given by Schuster and Zingheim in 1992 that the new pay system was initially developed in the
United States by the Human Resource Managers with a view to strategically manage
organizations. It facilitates the employee-organization partnership through fortune linking of
both parties in a positive manner. However, it places the employees at risk in that when certain
goals are met, the employees and organization share the gains, if losses both lose. This system
motivates employees which makes them align their efforts with their related jobs for gains to the
organization and themselves. The New Pay system requires the use of all possible
communications to the employees so as to hit the properly targeted performances (Buchan &
Ball., 2011, p. 50). How well Pay Systems are fit with the organization's strategy and the other
systems has a crucial effect on how effective an enterprise can be and the motivation and quality
of life of the employees.
The New Pay system was developed with an aim of ensuring a strategic management
whereby rewards are aligned towards performance-based rather than person based. In contrast to
the traditional system which has the strengths of objectivity and impersonality and does not
distinguish between the low and high performing employees, this New Pay system allows the
shift from “pay the person” to “pay for knowledge and skills” where the more skilled and
competitive employees earn more(Buchan & Ball., 2011, p. 51). This strategy helps in ensuring

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that there is “person related” pay which is reflected by the individual’s efforts rather than “job
related” pay which may not even reflect their efforts. Employees who are paid in accordance
with their efforts become motivated and perform better for the betterment of their respective
organizations and for their own development.
Reward strategies to employees should be aligned with business strategy. It is important
to reward behaviors of employees that are in line and can deliver for the organization's strategic
objectives. Such behaviors are the efficiency of employees in service delivery, quality of service
and innovation skills which helps in improving service delivery and more output from the
organization (Arrowsmith et al., 2010, p. 2716). However, it is worth noting that prioritizing
effective program delivery by the employees is good because there will be differentiation of
employee reward strategies and programmes that are aligned with their performance. It also
helps in attracting various talents and retaining critical-skilled employees. Organisations offering
rewards have a competitive edge over other related organizations because of employees’ hard
work and accumulation of various talents (Arrowsmith et al., 2010, p. 2718). Rewards to
employees not only ensure that their efforts are appreciated by the organization which increases
their self-esteem and satisfaction but also improves their attitudes and aims for quality which
increases the overall productivity of the organization.
In addition, New Pay strategy allows for the shift from seniority base pay to a more
variable means of payments. Variable Pay is a pay that reflects results of the job done. It is a
system that allows employees to add a considerable amount to their basic pay according to how
they work (Ruan & Reichman, 2014, p. 35). This allows harmonization of salaries and benefits
to the employees since their pay reflects their efforts. Furthermore, New Pay system allows for
flexible benefits since one is rewarded according to the efforts as opposed to the traditional

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system where only the seniors may get the benefits that they may not deserve. There has been a
trend where the seniors only get more benefits than the juniors. Majority of the senior employees
like delegating duties to their juniors and still get paid high salaries. This New Pay system
enables for equality and pays to performance (Ruan & Reichman, 2014, p. 35). The fixed
benefits associated with the old pay can be done away with. The best performing employees
regardless of their seniorities will earn more benefits and will be paid according to their job
done.
Implementation of a New Pay System
The size of a company greatly influences how the implementation process of a New Pay
will occur. If an employer needs to implement a new payment system, it is worth to first gather
information about the current payment system and evaluate it (Cooper, Gulen & Rau, 2016, p.
92). It is advisable that a full range of information about the employees can be easily accepted
when done by external consultants since there are reduced biases. Some procedures can be used
to set up a New Pay System: Set goals which are SMART and impact the company’s strategic
objectives (Cooper, Gulen & Rau, 2016, p. 92). The goals should also be aligned according to
the employees’ ability so as to leverage their strengths. This will make them work according to
the set goals with their abilities. Start the dialogue in Human Resource.
Initiate a reward strategy conversation in the Human Resource department to reinforce
the idea that everyone starting from the skills and training is part of their job making the
employees more creative. This ensures that they work and concentrate on what suits them best.
Regular evaluation and evolvement. This instills a performance process in the company that fits
the culture of all employees and evaluates the progress of every financial year to find any
improvements (Anuar, Ismail & Abdin, p. 82). Also, evaluation of the employees after a certain

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period of time for rewarding improves the company's output. Create a strategy awareness. For
the employees to learn and accept this strategy, it must be first communicated to them and
understand it so they can know how they can benefit and help the company to benefit from it.
In conclusion, the New Pay System can be easily embraced or not by the employees.
Therefore, an organization coming up with additional means of payment that would harmonize
the salaries and benefits among the employees should first emphasize the flexibility of the new
system. Apparently, New Pay systems have proven to be worthy to be adopted since they
improve the organization's effectiveness in service delivery to its customers, allows for flexibility
in benefits that its employees earn as compared to the traditional strategies. They allow for
specialization since employees may be divided according to their capabilities and allocated
duties reflecting their relevant skills. In addition, the productivity can as well be contributed to
by the regular employee training financed by the organization.
Topic two
Introduction
According to Gupta & Shaw (2014, p. 2), Reward practices concentrate on the
development and implementation of strategies geared towards rewarding the employees in a fair,
consistent and equitable manner, and in relation to their values in the firm. The following
paragraphs evaluate the criteria for evaluating employee rewards:
A suitable reward approach should be in line with, needs, characteristics, and culture, of
the enterprise and its workers. Organizational culture entails the values, aspirations, beliefs, and
ways of operation of the employees in a firm (Gupta & Shaw, 2014, p. 3). The industry Culture
and the market share are examples of the factors that may influence a firm’s reward system. For
instance, if a leader in an organization has a goal to attract the top talents from universities, he or

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she needs to establish a strong compelling brand presence on the specific university to enable it
to absorb and reward the best students. A good organizational culture should provide adequate
and desirable reward schemes like salary increments, bonuses, job perks, job promotions and
other non-financial rewards like thank you notes, recognition of bets performing employees and
career events for the workers. Besides, the leaders must uphold their role in respecting and
maintaining the culture of the firm. A well-established culture explains the right code of
employee behavior accepted in the organization, which can enable the employees in the firm to
drive the organizational goals (Cao, Chen & Song, 2013, p. 62). An appropriate organizational
culture may also lead to higher job satisfaction especially when the workers develop a feeling
that their leaders are assisting them in their tasks. In simple terms, culture and organizational
characteristics are the key values in shaping organizational behaviors.
Furthermore, a good organizational reward policy should facilitate the achievement of
consistency, equity, fairness, and openness in managing pay. Managing pay encompasses the
administration of the financial record of employees’ bonuses, wages, salaries and other employee
deductions (Sparrow, 2013, p. 233). Perhaps the most significant decisions that have to be made
by those concerned with rewarding the management are how employee’s payments should be
managed. Payment should be administered equitably to all employees in the firm. Equity
basically refers to the fair treatment of all the workers in the firm. Equality is also one of the
factors that may influence employees’ perceptions concerning fairness and consistency of the
payment strategy. Therefore, considering the impact of rewards on the rate of employee turnover
and retention, fairness is a primary aspect. (Fang et al., 2013, p. 18). Research has shown that
most employees drop out of their jobs due to issues related to the equality of payments. Most of
these employees do not leave their jobs because they are paid less, but rather because they view

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their organizations’ payment strategies as unfair compared to those of their peers. Therefore, an
organization should be transparent in formulating its reward systems to win the trust of its
employees.
Also, a suitable pay management system must be capable of adapting to pressures caused
by changes in market rates and skill shortages. Market rates can be defined as the usual prices
charged for goods and services in the market, for instance, an increase in demand for a particular
good will make the manufacturers and the sellers to increase the price of that product.
(Arokiasamy, Tat & Abdullah, 2013, p. 1597). Besides, a skill shortage exists when there are not
enough people with a particular skill to meet the organizational demand (Siegrist, 2016, p. 82).
Therefore, an appropriate remedy for skill scarcity in an organization is to increase salaries and
other rewards to attract new employees and motivate the existing ones. Besides, employees
would expect salary increments I cases whereby an organization experiences scarcity of skills.
A good pay management criterion should be able to attract, retain and motivate
employees. Ideally, some employees respond positively to extrinsic sources of motivation such
as salary increments, bonuses, and other material rewards, while others prefer intrinsic
motivation such as personal job satisfaction. (Presslee, Vance & Webb, 2013, p. 1809). Using
David Mc Clelland’s motivation model a leader can establish the motivating drivers of an
employee and assign to them the relevant tasks.
The management should also ensure that the pay management approach provides the
relevant scope as required for rewarding performance, contribution and increases in skill
competency. Pressley et al. (2013, p. 1811), expounds that government regulation, economic
conditions, and other market factors, may positively or negatively influence a reward system.
These factors may typically dictate how much an organization can compensate its employees.

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Also, by evaluating the employee retention rate an organization can evaluate whether its reward
systems and decisions impact positively on the employees, by keeping them motivated and
determined to work. It also helps the firm to decide on how to reward the employees with other
schemes like with time offs, bonuses or material prizes (Karami, Dolatabadi & Rajaeepour,
2013, p. 327). Besides, it enables the management to determine what procedures to use such as
customer satisfaction, production rates and production errors in formulating employee rewards.
Furthermore, a pay management approach should enable the enterprise to assume control
over the implementation of budgets and pay policies. Pay policies refer to a life assurance policy
whereby all the payments have been made and the employee is free from any obligations
(Brown, 2014, p. 148). Apart from the annual practice of establishing a pay structure, there are
other considerations like the expected expansion of the firm and the size of the enterprise which
should be put in place when implementing a pay policy. An enterprise should formulate a
centralized reward system to act a one payer system for all workers irrespective of where they
reside. However, the disadvantage of this approach is that the cost of living may vary between
countries, whereby some countries may be characterized by expensive cost of living. Therefore,
would be possibly unfair to the workers who live and work in countries with expensive costs of
living. (Shields et al., 2013, p. 19). Furthermore, according to the equal pay act of 1963, it is
illegal to make different salary payments to both men and women who carry out similar roles in
the same workplace. Therefore, the organization should design a pay system that is fair with
respect to the specific legal provisions.
In conclusion, a suitable reward system should motivate the employees and adapt to
pressures from different groups in the firm, coincide with the culture of the organization and
enable the enterprise to assume control over the budget and payment system. The system should

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also show fairness, equity, and consistency in compensating and rewarding the employees for
their services to the organization.
Topic three
Executive Pay
Introduction
Executive pay is also known as executive compensation is a payment system that is
composed of both financial and non-financial awards to executives from their organizations for
the services they render. Executive pay is ideally an award for performance. Executives are those
employees that are highly paid in the organization and owns more or equal to 5% of the shares of
the organization (Perkins, 2013, p. 162). Executives tend to be paid separately from the rest of
the workforce because their work is highly complex and highly unpredictable with a lot of
responsibilities by leading the whole organization (Joutsenvirta, 2013, p. 460). They also set
standards and lead as examples for the subordinates to follow and impact the entire workforce in
the firm positively. However, this approach is only adopted in regard to the company's
performance.
The structure of Executive Pay system
Gill (2014, p. 90), explains that planning and execution of strategic issues in an
organization is usually conducted by the executives such as senior Clinical Executive Officers
(CEOs). This makes their contracts to be different from the managers of the lower ranks. The
executive team focuses on how to determine long-term strategies (Diamond, 2013, p. 135). They
also have the task of managing huge financial decisions such as financial investments, strategic
alliances and stakeholder management that includes the board of directors. They sign contracts
with their organizations regarding the terms of services. The contract typically ranges from 3 to 5

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years where there is an agreement on the monthly salary, target bonuses, benefits and even
severance payments.
According to Carpenter & Yermack (2013, p. 3), the executive pay packages have to vary
from the rest of employees and these four components make up their pay package; base salary –
this is the base payment for just showing up for work, annual bonuses – yearly payments for
performance especially when specific goals have been achieved, share options – the rights to
purchase a specific amount of shares of an organization at fixed prices in the future, examples
are share incentive plan (SIP) and Save as you Earn (SAYE), and lastly long-term incentive
plans – reward systems that are designed in order to enhance a worker’s performance through
provision of some rewards which may not be associated with the prices of the shares of
company. All these payments are usually made through evaluation of the performance of an
organization under the leadership of the executive employee.
Share options have proven to be beneficial to both organizations and its employees.
However, research has shown that the use of share options in the United Kingdom has greatly
reduced around 54% of firms not practicing it. According to Xu & Yang (2016, p. 175), the
overall trend shows that fewer companies have been operating on share option schemes in the
2014-2015 tax year as compared to the 2013-2014 tax year. This could be due to; companies
have adopted tax-advantaged schemes and also technical problems that Human Resource
Remuneration Committee face which makes difficult to analyze levels of participation between
companies and the employees.
The process of Executive Pay Determination by Remuneration Committees
A better understanding of the structure and size of executive pay packages to executives in an
organization also requires a knowledge of the procedures involved in the design of the executive

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pay itself. Many factors have to be put in consideration before coming up with the final payment.
In an organization, it is recommended that any decision of coming up with an executive pay
should be done by the remuneration committee of the main board which comprises mainly the
non-executive directors with the CEO not taking part (Cheng, Venezia & Lou, 2013, p. 35).
However, small and medium-sized enterprises (SMEs) in the UK allow their CEOs to sit on the
Remuneration Committee during the process. Remuneration Committees are the primary bodies
in the United Kingdom that are used to determine the forms of pay for CEOs. Almost all
Financial Times Stock Exchange (FTSE) firms in the United Kingdom use Remuneration
Committees in their CEOs pay determination (Tay, 2013, p. 158). It is obvious that when
executive members are involved in the process of their pay determination, they will propose high
pay levels that may not match the performance level required. Good executive pays are derived
from evaluation of how an organization performs which is in line with the views of Grühn &
Brettel (2016, p. 16971), where he noted that high executive pays should always justify a
competitive rate so as to get the best in the business. Nevertheless, it is a responsibility of the
board of non-executive directors to set balanced measurement of how to evaluate the executives’
effectiveness.
In addition to the above statements, all the rewards such as incentives and bonuses that an
executive leader can be given largely depend on the company's performance. A good leader will
lead to the success of an organization. The performance of an organization may be gauged by a
couple of factors like profits or the growth of revenues, share price appreciation or return on
equity (Pepper, Gore & Crossman, 2013, p 38). In conclusion, it is worth to conduct this process
in a transparent manner in that the other stakeholders know every proceeding. Achievements to

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the organization by the executives should be communicated to the lower managers before the
pays are decided on so as to avoid any misunderstandings in the organization.
In conclusion, high executive pay levels make the CEOs in an organization to assume an
upper hand compared to the ones without this system. This is because since the executives know
that they will receive more benefits and bonuses if the company excels, then they become more
dedicated in their management roles and formulate adequate strategies that are in line with
organizational goals. In addition, they will make sure these strategies are properly executed
through monitoring. However, there has been lower growth rates in chief directors' compensation
by companies that adopt remuneration committees due to involvement by the government
variables that play a significant role in shaping the chief directors' pay.

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