Reward Systems: Organizational Variability Pay in Terms of the Body Metaphor - Essay Example

Reward Systems: Organizational Variability Pay in Terms of the Body Metaphor Reward Systems: Organizational Variability Pay in Terms of the Body Metaphor Variable pay is a combination of different forms of compensation which become a hybrid of profit-sharing, gainsharing, and team pay. Variable pay can be described as a form of payment that is not folded into the primary pay base and varies according to performance. It can also be considered an alternative system of compensation that is tied to business outcomes in order to support a more participative process of management.

Cash is provided based on measurements of outcomes, which can be based on group or organizational goals. Its nature is to not be guaranteed, but to provide a means through which to perform case payments or allow for equity related investments in terms of the business (Heneman 2002, p. 216). The use of variable pay can only be beneficial when performance outcomes are primarily within the control of the employee. As an example, a hotel housekeeping staff may be compensated based on comment cards that indicate the cleanliness of the room because this is based on their performance, while the front desk can only control the quality of their service rather than the way in which individual departments throughout the hotel maintain the hotel itself.

Using the body as a metaphor, the front desk is like the head or brain, operating as the center for sending and receiving messages about the rest of the hotel. The front desk can send and receive messages, helping to control the hand or the foot, but the function of the hand and foot are only as good as the muscles that are controlling them. Therefore, even if the head requires that the feet run a 25K marathon, if the muscles are not up to the challenge then there will be very little that the brain can do to meet that challenge.

Therefore, like muscles, if the actions of housekeeping or maintenance serve the best interests of the hotel then their performances can be compensated differently than the front desk because the front desk has control that is based on the performance of other areas. Reward systems can be either extrinsic or intrinsic. The variable pay system is an extrinsic reward system that does not always work towards creating better performance. Generally, if merit pay is used as a reward for performance on an infrequent basis, is going to have a negative effect on overall performance.

Because people will only put in a high level of performance during those times when they are going to be compensated more for their efforts. In contrast, when they are not compensated for extra efforts employees will be less likely to maintain a high level of performance. Various aspects that will influence the effectiveness of merit pay include the frequency of its use, the symbolic nature of the pay, and the overall effectiveness of the system. In other words, measuring whether or not desired results are achieved through merit pay is the best way in order to understand whether or not to continue this type of system (Heneman and Werner, 2005).

Disadvantages of using variable pay will often come from incentives that are misaligned with the behaviors that executives want exhibited. As an example, Gerard (2006, p. 16) shows that when a focus is made on annual profit target so that merit pay can be given for performance, long-term value could be sacrificed in the process. In addition, when rewards are considered at an individual level this could create a situation where management personnel will only prioritize their own performance over that of the rest of the team.

Incentives need to be aligned with both shareholder interests as well as organizational goals because otherwise the move to prioritize one aspect can suddenly create over inflated importance for that aspect (Armstrong, 2002, p. 19). A good example of this would be a tennis player who repeatedly uses one arm in order to swing the racket, making those muscles grow and thicken while the other arm remains normal size. While the immediate need of being good at tennis is served by this imbalance, the need to look good in an evening gown could be dramatically influenced by this overemphasis of only one part of the body.

While variable pay can provide some benefits to the company where consistent performance and frequency of reward are matched with the goals of the organization, it can also lead towards shareholders paying out more for less value. In order for variable pay to work correctly, it must be applied to portions of the organization where performance is either in an extraordinary position or where this type of pay can be frequently applied. Therefore, the rewards provided for employees need to be aligned with desired outcomes as well as long-term goals.

Bibliography Armstrong, Michael. 2002. Employee reward. London: Chartered Inst. of Personnel and Development. Gerard, Patrick. 2006. Performance and Reward: Managing Executive Pay to Deliver Shareholder Value. Leicester: Matador. Heneman, Robert L. 2002. Strategic reward management: design, implementation, and evaluation. Greenwich, Conn: Information Age Publ. Heneman, Robert L., and Jon M. Werner. 2005. Merit pay linking pay to performance in a changing world. Greenwich, CT: Information Age Pub.