Money as Organizational Rewards ~ Overview

The theoretical background on money as a reward:

Money has been viewed as a reward organizations give to their employees.  Money provides a rich basis for studying behaviour at work because it offers explanations for why people act the way they do.  Money is also associated with four of the important symbolic attributes for which humans strive; achievement and recognition, status and respect, freedom, control and power
In fact in most of the management literature dealing with money researchers have focused on money as pay and the ways in which pay affects motivation, job attitudes and retention.  In particular money full fills needs of physical and psychological objectives.
Money has also played an integral role in helping develop theories of organizational behaviour
• Another important perspective on money as a reward is provided by agency theory, a relatively new approach to understanding behaviour by individuals and groups both inside and outside the organization.  Specifically agency theory is concerned with the diverse interests and goals that are held by an organization’s stakeholders and the methods by which the enterprise’s reward system is used to align these interests and goals.  The theory draws its name from the fact that the people who are in control of large organizations are seldom the owners; rather in almost every case, they are agents who are responsible for representing the interests of the owners.
• Agency theory seeks to explain how managers differ from owners in using pay and other forms of compensation to effectively run the organization
• Agency theory also examines the role of risk and how owners and managers may vary in their approach to risk taking.  Owners are generally risk aversive and prefer conservative courses of action that minimizes their chances of loss
• Finally agency theory examines the differences in time horizons between owners and managers.  Owners may have longer time horizons because their goal is to maximize their value over time.
• Research on the effectiveness of Pay:
• Money can be positively reinforcing as an organizational reward
• Money means different things to different people
• Money –the more you have Is the more you long for it
• Although money was probably over emphasized in classifiable management theory and motivation techniques.  The pendulum now seems to have swung too far in the opposite direction.  Money remains a very important but admittedly complex potential motivator
• In order for the money to be effective in the organizational reward system, the objective must be as fair as possible and be administered contingently on the employee’s exhibiting critical performance behaviours.  Effective pay system must address three basic considerations: the organization must ask itself what it is seeking in terms of outcomes.  Secondly the organization must be able to measure these results. Thirdly the organization must tie these rewards to the outcomes.
• Traditional methods of administering pay:
• Base wages – depending on market conditions
• Merit pay – cost of living allowance
• Merit pay is supposed to be a form of catch up
• Individual incentive pay plans
• The use of Bonuses
• The use of stock options
• Recognition versus organizational rewards
• Life disability and Health insurance
• Pension Benefits
• Time off benefit
• New types of benefits:
• Wellness programs
• Life cycle benefits
• Flexible cafeteria style benefits
• Medical assistance