Chapters 9 and 10 Designing Reward Systems/ Rewarding Performance and Change Chapter Objectives Chapters 9 and 10 focus on the reward systems of b2change organizations and complete our discussion of the designing process in the Built to Change Model. By the end of these chapters, the reader should be able to discuss: what types of rewards are best suited to changeable organizations the characteristics of reward system processes that support b2change organizations how reward systems integrate with information and measurement systems, performance management systems, and structure. Built to Change Strategy: Make Reward Practices Transparent Built to Change Strategy: Link Rewards to Skills, Knowledge, and Organizational Performance Reward systems are one of the most important levers for change and strategy implementation. In these two built to change strategies, we reiterate our commitment to transparency. To the extent that the organization’s reward systems principles and practices are available and seen by everyone, the notion of motivation and the linkages between performance and pay will be cleaner. The strategy of linking rewards to skills, knowledge, and performance is not new, but takes on increasing importance in a b2change organization. In an organization that must address both current performance and change, the flexibility provided by this reward system principle is critical. Chapter Outlines Chapter 9 Outline Chapter 10 Outline 1. Motivation and Rewards 1. Seniority-Based Rewards Expectancy Theory 2. Merit-Pay Plans Reward Attractiveness 3. Bonuses 2. Rewards and Performance The Impact of Bonuses The Impact of Goals on Design Keys Motivation 4. Profit Sharing Job Satisfaction, Performance, 5. Stock Ownership and Change The Impact of Stock Satisfaction and Support for Change Organizational Performance 6. Person-Based Pay 3. Organization Structure and Rewards 7. Egalitarian Perquisites How Job Design and Structure 8. Rewards for Risk Taking and Affect Rewards Innovation How Reward System Designs 9. Dealing with Failure Affect Structure and 10. Conclusion Performance The Impact of Rewards on Structure 4. Organizational Identity and Rewards 5. Strategic Intent and Rewards 6. Conclusion Chapter Comments The primary purpose of Chapter 9 is to review the research on reward systems design and how they can support change, and integrate with other elements of designing and other core processes in the Built to Change Model. This chapter is easily summed up by the Built to Change Strategy that introduces the chapter – good reward system designs are transparent. In contrast to Chapter 9, the chapter on rewarding performance and change describes why some types of rewards – promotions, seniority-based rewards – do not support a b2change philosophy. In contrast, the chapter describes in some detail when some rewards integrate well and support b2change principles and when they don’t. The reader should take away the very real concern that finding the right mix of rewards is not governed so much by formulas but by choices of structure, human resource strategy, leadership brand, information and measurement system properties, and, of course, strategic intent and identity. In general, however, the best rewards in b2change organizations are contingent on skills, knowledge, and performance. We thought one of the more interesting implications of the discussion of reward systems and types of rewards was the section on rewarding innovation and risk taking. As we pass through the mid-2000’s, this is a particularly relevant section given the current emphasis on growth over efficiency. But it’s also important to temper any interest in the relevancy of this section with our firm belief that b2change organizations are not likely to be very fashionable. They are likely to be very good performers over the long run as opposed to mercurial performers with fantastic performance followed by dismal results. Conclusions Overall, a reward system needs to attract, retain, and motivate individuals who are capable of developing and implementing a strategic intent. One implication of this is if strategy changes, the reward system needs to be examined and most likely will have to be altered. It also means that if the reward system can be adjusted to encourage behaviors that support a new strategy, it can serve as a lever for change. It can create an organization that is motivated to change and can push the skills and capabilities of the organization in a direction that supports change. The inescapable conclusion, therefore, is that organizations that wish to be high performance and built to change need to employ significantly different reward systems than the ones commonly used in large organizations. B2change organizations need reward systems that motivate performance, reward change, and encourage the development of individual and organizational capabilities and competencies. Paying the person instead of the job and using variable pay and stock are perhaps the most powerful changes an organization can make in moving its reward system toward one that supports performance and change. Decreasing the rewards for seniority and hierarchical position are important and desirable positives, but they are not likely to be as powerful as rethinking how the system should reward individuals for their skills and how it should reward performance. Of all the changes we have discussed, the most profound is the shift in what the organization considers its basic building block—away from the job and toward the individual. Getting rid of job descriptions, which we advocated earlier in the book, is one step toward reducing the importance of fixed jobs. However, when organizations make the leap to rewarding individuals for their skills and knowledge, they have done something even more significant. It is the logical approach to use when an organization adopts the b2change approach and develops person descriptions and human capital management approaches that focus on an organization’s competencies and capabilities.
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