An applied organizational rewards distribution system

Abstract

Purpose

How can managers optimally distribute rewards among individuals in a job group? While the management literature on compensation has established the need for equitable reimbursements for individuals holding similar positions in a function or group, an objective grounding of rewards allocation has certainly escaped scrutiny. This paper aims to address this issue.

Design/methodology/approach

Using an optimization model based on a financial rubric, the portfolio approach allows organizations to envision human capital assets as a set (i.e. a team, group, function), rather than independent contractors. The portfolio can be organized and managed for meeting various organizational objectives (e.g. optimizing returns and instrumental benefits, assessing resource allocations).

Findings

This research introduces an innovative portfolio management scheme for employee rewards distribution. Akin to investing in capital assets, organizations invest considerable resources in their human capital. In doing so, organizations, over time, create a portfolio of human capital assets. The findings reduce large variances in rewards distribution yet serving employee and management considerations.

Practical implications

The research has tremendous implications for managers who can mitigate serious equitable rewards distribution issues by creating a process that exemplifies rewards distribution using four different rewards allocation scenarios based on varying managerial prerogatives.

Originality/value

This research is a unique model that addresses a pressing human resource issue by solution based on a usable and feasible optimization mechanism from financial portfolio theory.

Citation

Datta, P. (2012), "An applied organizational rewards distribution system", Management Decision, Vol. 50 No. 3, pp. 479-501. https://doi.org/10.1108/00251741211216241