Rewarding Excellence: Pay Strategies for the New Economy / Edition 1

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In the new economy, human capital, perhaps more than any other asset, is an organization's chief source of competitive advantage. And if your company wants to attract, retain, and motivate the kind of people it needs to hold that advantage, it needs to develop a reward system that recognizes their market value and rewards them for developing their knowledge and skills. It needs a system that encourages high performance as it rewards excellence.In this book, acclaimed management expert Edward E. Lawler III identifies a variety of reward system practices that support the high-performance organization model. He shows how the development of core competencies and organizational capabilities is enhanced once a company learns how to pay people instead of jobs. He also details new methods for measuring and rewarding performance and for determining how much of an individual's pay should be based on performance.You'll get useful advice on how you should conduct performance appraisals and how you can structure a pay system that suits your organization and serves its strategic goals. You'll benefit from Lawler's practical discussions and guidelines regarding the appropriateness of such practices as team-based pay, 360-degree performance appraisals, stock options, incentive pay, and skill-based pay. Moreover, you'll learn how to design a reward system that attracts excellent employees, inspires excellent performance, and makes for a stronger, more profitable enterprise.More than just a book about paying individuals, Rewarding Excellence is a blueprint for designing and managing pay systems that create excellent organizations. It's about gaining competitive advantage by maximizing the potential of human capital. And so, ultimately, it's about the future effectiveness of your enterprise.

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Editorial Reviews

From the Publisher
"Ed Lawler again expands our knowledge regarding a critical management challenge: how to align reward systems with the evolving organizational forms emerging in the new economy. In this new book, he provides CEOs and HR leaders with an easy-to-follow map for building organizational effectiveness through strategic reward system design." —Daryl D. David, vice president of human resources and strategic growth,, Inc.

"Once again, Ed Lawler has written a book human resource professionals can use. Rewarding Excellence provides an excellent blueprint on how to design compensation systems that will attract and retain workers in today's knowledge economy." —Michael R. Losey, president and CEO, Society for Human Resource Management

"Leadership capital is a vital corporate resource-perhaps the most critical of all in building for the future. As the 'war for talent' escalates, Ed Lawler's new book provides companies of all sizes with innovative ways to attract, retain, and motivate executives-and to maintain competitive advantage." —Richard M. Ferry, chairman, Korn/Ferry International

"Worried about your business in the new millennium business economy? Ed Lawler provides cutting-edge concepts for building high-performance organizations!" —Steven L. Miller, chairman, president and CEO, Shell Oil Company

Lawler (management and organization, U. of South Carolina) identifies a variety of reward system practices that support the "high-performer" organization model. He shows how the development of core competencies and organizational capabilities is enhanced through effective pay strategies, and he details methods for measuring and rewarding performance and basing pay on performance. He also offers guidelines for team-based pay, performance appraisals, stock options, incentive pay, and skill-based pay. Annotation c. Book News, Inc., Portland, OR (
From The Critics
During a recent dinner with a recruiter, I learned that small details in a compensation package can make or break a deal with a hot executive. One candidate wouldn't leave his comfy job for a startup because he would have had to itemize his own expense reports. It's the little things that count, right?

In a job market in which companies are falling over themselves to meet potential employees' demands, Edward Lawler asks the question of the moment: Is money really what motivates workers? The answer, he suggests in Rewarding Excellence, is no. He proposes alternative ways for companies to motivate their employees.

Lawler dismisses merit pay doled out on the basis of seniority and job ranking. In fact, he's skeptical about the whole relationship between worker performance and pay. "Research in this field suggests that pay for performance can cause people to stop finding intrinsic pleasure from doing work, and as a result, cause employees to do things only when they are paid for doing them," Lawler writes.

With charts and performance-matrix graphs, he quotes stats on the best ways to use money to inspire excellence. Merit pay may be necessary, Lawler admits, but it can do only so much, he maintains.

He says it's OK for companies to give raises and bonuses, but only if they're based on fair and accurate employee evaluations. That isn't easy to do, he concedes, since such tests require companies to apply their overall strategy to every employee's role. But Lawler lays out a method for grading performance, as well as an alternative reward system based on team rather than individual performance.

Anyone who needs to get up to speed on compensation trends will benefit from Lawler's real-world examples and clear instructions. But if you're looking for bottom-line salary figures, you won't find them here. No magic pay scale exists, he insists; he doesn't believe in one-size-fits-all numbers.

Lawler's argument is a paradox: He downplays the correlation between pay and performance, and then writes extensively about how to use money to motivate workers. But in the end he's realistic, acknowledging that in an overheated job market money talks - and underpaid workers walk.

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Product Details

  • ISBN-13: 9780787950743
  • Publisher: Wiley
  • Publication date: 12/21/1999
  • Series: Jossey-Bass Business and Management Series
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 352
  • Sales rank: 1,385,299
  • Product dimensions: 6.08 (w) x 9.09 (h) x 0.31 (d)

Meet the Author

EDWARD E. LAWLER is director of the Center for Effective Organizations at the University of Southern California and professor of management and organization in the USC Marshall School of Business. An internationally acclaimed scholar and author, Lawler has written or co-written thirty books, including From the Ground Up (1996) and Strategies for Creating High Performance Organizations-The CEO Report (1998), both from Jossey-Bass. Business Week has recognized him as one of the leading management experts in America.

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Read an Excerpt


I believe that a major revolution is occurring in the way organizations are managed. The revolution is being driven by new technologies and by the major social and political changes that have led to the globalization of business and to the increasing numbers of democratic, capitalist countries. Billions of people have recently entered, or are about to enter, the capitalist world. A smaller but very significant number have entered the world of electronic connectedness as a result of the growing popularity of the Internet, satellite TV, cellular phones, and videoconferencing.

Performance Demands

The shift toward capitalism and global capital markets, and along with it the lowering of trade barriers, is perhaps the most important new source of pressure on organizations to raise their performance levels. These changes have created many opportunities for growth but have also created many new competitors and more demanding investors. The growing power of institutional shareholders has enabled them to put more pressure on management to produce exceptional returns to shareholders. Retirement funds and mutual funds now hold large ownership shares in many corporations and have become active critics of their performance. This has led to the resignation of some CEOs and the restructuring of many corporate boards.

Knowledge Growth

It is an understatement to say that the last half of the twentieth century was marked by a knowledge explosion. The technological advances of that era were truly incredible. New knowledge led to the creation of new industries and to our ability to send people to the moon, as well as to communicate with each other on earth in new and much cheaper and more effective ways. The future promises the continued development of technology and scientific knowledge. Corporations' spending on research and development continues to grow, as does the number of scientific discoveries.

New Deal

The performance demands that organizations face, combined with the rapid growth in technology and changes in the nature of work, have led to an important change in the relationship between employers and employees. One part of this change is the much-discussed shift from a relatively permanent employment relationship to one that is much more transitory.4 Another part-the most significant part-is the transfer of power from employers to employees. Yes, corporations are engaging in and will continue to engage in large and frequent layoffs. Yes, workers have less job security. Yes, individuals have to worry much more about their careers and skills. But the fact is that an increasing number of employees have the upper hand when it comes to their relationships with corporations. Of course not every employee has the upper hand. Who has it and who doesn't depends on who has the skills and knowledge organizations need and on how scarce and important those skills and that knowledge are. Human Capital and Organizational Performance In baseball and other professional sports the highest-paying teams by and large win the most games. In 1997 the Florida Marlins had one of the highest payrolls, and they won the World Series. In 1998 they decided they could not afford to be a high-paying team and traded a number of their higher-paid players; as a result, they dramatically reduced both their payroll and their performance. The New York Yankees, however, increased their payroll to the second highest in baseball and replaced the Marlins as the World Series winners. In 1998 the highest-paying team in baseball-the Baltimore Orioles-had a losing season, demonstrating that it is not just how much you spend that matters. How you spend also matters. rately reflected in the compensation amounts received by human capital investors; otherwise, they will not remain members of the organization. The bonds of loyalty have been broken as a result of layoffs, downsizing, and the loss of job security. New bonds that are based on rewards need to be created. of corporations and the business environment, executives are an increasingly important key to the success of major corporations. Simply stated, being a successful executive requires more talent and motivation than it used to. Today it is not good enough to simply be a good manager. A successful executive has to be an exceptional leader and manager, as well as something of a visionary.

Rewards and Excellence

The old reward practices and systems that worked well in nationally focused, bureaucratic, capital-intensive, hierarchical, steady-state, near-monopoly corporations such as the old General Motors and AT&T simply don't fit the realities of today's business environment. Dramatic change is needed, and it is not difficult to identify what the key theme of today's reward systems should be: a focus on rewarding excellence. Many factors argue for excellence being the number-one focus of any organization's reward system, including the ability to attract and retain the best people and to motivate the kind of performance that an organization needs in order to succeed in the new economy.


Why the increasing emphasis on multimedia? What is the need for technology-based solutions for training delivery and solving business issues?


Multimedia-Based Instructional Design is intended for course developers (instructional designers, authors, project managers) who are beginning their first multimedia project, as well as experienced designers of large projects in which a consistent methodology can be followed by all team members. It is well suited for use by project teams where there is a mixture of experienced and new developers. It imparts a consistent message to those project teams that find members matrixed in and out of projects and that use a combination of internal and outsourced resources.


There are numerous books on the market today on how to design and develop computer-based training, others for web-based training, and still others for distance broadcast training. So why buy this book rather than one of the others?


Our philosophy is to focus on the human-performance arena. This focus presents challenges to multimedia development groups whose philosophy reflects a more traditional approach. We agree with Tom Gilbert (1996) that the purpose of all instruction is to affect human performance through learning or performance support. If multimedia development groups move into the human-performance area, they open new horizons of opportunities to work within an organization and become more valuable. We recommend Judith Hale's The Performance Consultant's Fieldbook: Tools and Techniques for Improving Organizations and People (1998) to help your group make the necessary shift.


The book is organized in four parts:

THE CD-ROM The CD-ROM that accompanies this book contains tools we developed, which are meant to be modified to meet your particular project requirements. Here are the directories and documents included:


The tools found on the CD-ROM require you to have access to a PC running Microsoft Word.

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Table of Contents

Preface The Author Introduction
Part One: Rewards and Organizational Performance
1. Organizational Effectiveness: The New Logic
2. Reward System Design Choices
3. Motivating and Satisfying Excellent Individuals
Part Two: Attracting, Developing, and Retaining Employees
4. Attracting and Selecting Excellent Employees
5. Job- and Seniority-Based Approaches
6. Developing and Retaining the Right Individuals
Part Three: Rewarding Performance
7. Rewarding Individual Performance
8. Appraising Performance
9. Rewarding Team Excellence
10. Rewarding Organizational Excellence
Part Four: Strategic Design
11. Strategic Reward System Design
12. Creating High Performance Organizations

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