Human Resources and Performance Management via Reward Systems - Essay Example

?Human Resources and Performance Management via Reward Systems By Contents Contents 2 Executive Summary 3 Introduction 4 Performance Management Systems 4 The Relationship between Motivation and Performance 7 Rewards Systems and Performance Management 9 Conclusion 12 References 14 Human Resources and Performance Management via Reward Systems Executive Summary This report contains a summary of major findings in the literature relative to the link between performance management and a reward system. Guided by the research findings this report provides an evaluation of the purpose of performance management systems and its relationship to obtaining the objectives of the business organization. In this regard, this report will evaluate three major components of performance management systems. The idea is to set out a conceptual framework for analyzing the connection between performance management and reward system. Having set out the conceptual framework in the context of performance management, this report will move directly to aspects of reward systems. Thus this report goes onto to evaluate the connection between motivation and performance management by reference to two motivational theories. Finally, this report will set out a description and evaluation of a total rewards system and make a connection to performance management. It is hoped that the information provided in this report will aid human resources management in the establishment of a rewards system for enhancing performance for the benefit of the organization as a whole. Introduction The organization is determined to improve organization performance and thus seeks to target human capital. This report thus conducts an evaluation of a rewards system with a view to helping human resource management determine the merits and methods for implementing a rewards system. Jackson et al (2011) suggest that a human resources management strategy should be set up to include “performance-based incentives and employee development” (p. 316). Thus the purpose of this report is to provide a rationale for using a rewards system as an instrument for creating a “performance driven culture” within the organization (Jackson et al, 2011, p. 316). This report begins by setting forth an evaluation of purpose of performance management systems and its link to achieving the objectives of the business organization. Three major components of performance management systems will be evaluated. This will be followed by an evaluation of the link between motivation and performance management. The final part of this report sets out a description and evaluation of a total rewards system linked to performance management. Performance Management Systems In a business environment that has become increasingly globalized with a wide array of customer services demands and fierce competition between markets, organization performance and productivity has become the central focus of many organizations (Becker & Gerhart, 1996). Thus the objectives of the modern business organization are inevitably to improve performance with a view to remaining and or becoming competitive. In order to remain or become competitive, organizations are persistently seeking ways to enhance performance (Becker & Gerhart, 1996). This report intends to demonstrate how performance management via a rewards system can enhance organizational performance. It is first necessary to establish how a performance management can be structured so as to include a rewards system. Thus three of the main components of performance management systems will be evaluated. Ideally, a performance management system begins with performance planning, and branches off into performance appraisal/reviewing followed by feedback/counseling and performance facilitation which is in turn followed by rewarding, performance improvement plans, and potential appraisal (Armstrong, 2005). Together these components of performance management systems signify an organization driven by high performance systems if managed effectively and efficiently. Thus activities, practices and policies of any performance management system must be comprised of each of these components. A consistent theme in the literature reveals that there is a positive link between the activities, policies and practices of human resources and organization performance (Armstrong, 2005). For instance Evans and Davis (2005) reported that a high-performance work system depends almost entirely on the activities and practices of human resource management and each of the practices developed by human resource management will direct the main components of high performance work systems. These components include forging ties between different departments, “generalized norms of reciprocity, shared mental models, role making and organizational citizenship behavior” (Evans & Davis, 2005, p. 758). Performance appraisal and reviewing; rewarding good performance and potential appraisals are three aspects of performance management systems that support high performance work systems as they are motivational tools. It is argued that appraising and reviewing; rewarding and focusing on potential appraisals are supportive of motivating workers to perform and to achieve as they look forward to being appraised, being rewarded and thus having a potential appraisal. Performance appraisal allows for dialogue and engages the employee in planning and setting goals for improving performance and also recognizes the employee’s achievements. Rewarding good performance is entirely important for motivating the employee and is thus a significant component of performance management systems. Potential appraisal allows for the hope of movement in the organization and thus is a key motivational and performance enhancement tool (Armstrong, 2005). Among the main activities of human resource management is “motivating workers to achieve improved performance” (Foot & Hook, 2008, p. 3). Motivation can be tied to three main components of performance management because performance management is intricately tied to human capital. As Klett (2010) informs, the three major goals of performance management systems are conducting business in an innovative way, improving “effectiveness and efficiency at work” and “productivity” (p.279). It therefore follows that human capital is a “key source of innovation and competitive improvement” (Klett, 2010, p. 279). Thus the three components of appraisal/reviewing; rewarding and potential appraisal are key components for achieving the goals of performance management systems. Combs et al (2009) argue that organizations are increasingly turning to human capital as a method of improving competition and productivity. In enhancing the performance of employees organizations are honing in on programs that improve the capacity of human capital. These programs invariably include training and engagement. Thus an effective performance management system recruits talent, employs talented employees, trains and motivates for talent and skills (Combs et al, 2009). Conventional wisdom dictates that human capital cannot achieve its maximum potential unless motivated to do so. The Relationship between Motivation and Performance An examination of two main motivational theories will demonstrate the relationship between performance and motivation. The rationale is, if employees are motivated they will perform at a high level. Thus human capital is improved and aligned with the goals and objectives of the organization. Moreover, internal competition improves with the result that the organization as a whole is performing at an enhanced level and is competitive in terms of the external market and environment. Equity theory is instructive in terms of connecting motivation with performance. Equity theory maintains that people generally are not concerned with the rewards that they are given, but with the rewards that they receive in comparison to those that others receive. People analyze “outcome-input ratio relative to others” and as a result there is tension. The tension generated “provides the basis for motivation” in that “people strive for what they perceive as equity and fairness” (Ramlall, 2004, p. 55). Under equity theory of motivation an “exchange relationship” is created (Ramlall, 2004, p. 55). Employees expect to be rewarded/outcomes for specific input such as performance factors such as experience, education, job performance and training. According to Ramlall (2004): The most important outcome is likely to be pay with outcomes such as supervisory treatment, job assignments, fringe benefits, and status symbols taken into consideration also (p. 55). Essentially, equity theory of motivation is founded on two primary presumptions. First, it is assumed that people generally formulate concepts of what amounts to fairness and equity in terms of job performance. Secondly, it is assumed that people generally compare their treatment with the treatment of others and will be motivated to act accordingly. The difficulty with the second assumption is that comparing treatment may not automatically result in enhanced performance. An employee who perceives they are not being treated fairly may be motivated to underperform. Therefore, much depends on the manner in which a motivational or reward system is implemented. If a reward systems is managed fairly and equitably, employees making comparisons will more likely be motivated to improve performance in order to receive rewards. Expectancy theory of motivation is perhaps more instructive. Expectancy theory developed by Vroom takes the position that: The strength of a tendency to act in a certain way depends on the strength of an expectation that the act will be followed by a given outcome and on the attractiveness of that outcome to the individual (cited in Ramlall, 2004, p. 56). Thus expectancy theory assumes that individuals perceive that their input will extract a desirable outcome and will thus act accordingly. Vroom (cited in Ramlall, 2004) constructed three essential features of expectancy theory: valence, instrumentality, and expectancy. Valence refers to the emotions that drive individuals toward outcomes. In the workplace, valence is directed by job satisfaction which is tied to what the individual expects to receive in exchange for performance. Instrumentality arises when the individual compares his/her outcome to that of others. Thus an individual will believe that an outcome is highly rated if its instrumentality is comparable to that of others. Thus expectancy follows from the individual’s expectations that his/outcome is comparable to that of others (Ramlall, 2004). This would necessarily require that motivation is consciously taught and learned. Employees are taught how and what to be motivated for and thus their expectancies are more realistic. Thus equity and expectancy theories of motivation both assume that individuals can be motivated to underperform or enhance performance based on their perceptions of treatment. Treatment, in this regard refers to recognition relative to their input. Equity theory however, does not discount that an individual may be motivated to underperform if his or her perceptions are that they are not being treated fairly when compared to the treatment of others whose input is essentially the same. Therefore, equity theory can inform of the correct approach to take to a rewards system. Regardless, equity theory and expectancy theory both assume that motivation is a significant tool for improving performance and managing performance systems. In this regard, a rewards system that is informed by equity and expectancy theories of motivation will ensure that performance management is constructed effectively. Rewards Systems and Performance Management The structure of a reward system is expected to reflect an interaction between the design of work and involving employees in a way that produces “goal-directed behavior and task performance” (Cummings & Worley, 2008, p. 436). Expectancy theory explains the relationship between performance management systems and rewards. Expectancy theory is suggestive of how to design and evaluate a rewards system to enhance performance. As previously noted expectancy theory suggest that the employee will attempt to reach performance objectives if some value is placed on outcomes. These attempts will produce performance goals if goals are articulated clearly, and the employee knows what is expected and if they have the requisite talent as well as resources (Cummings & Worley, 2008 ). Thus continuing motivation will largely depend on the “extent to which attaining the desired performance goals actually results in valued outcomes” (Cummings & Worley, 2008, p. 436). It therefore follows that the primary goals of a reward system is the identification of outcomes/rewards that employees value and connecting those outcomes/rewards to performance goals (Heneman, 2007; Kerr & Slocum, 2005). There are several types of reward systems that organizations can adopt, they are both financial and non-financial reward systems. These rewards are numerous and are either person-based (intrinsic) rewards or team-based rewards (extrinsic) or monetary rewards (Heneman, 2007). A variety of financial reward systems fall under person-based and team-based rewards. Three main reward systems are bonuses, promotions (with pay increase) or privileges in terms of recognition or praise (non-financial). A bonus reward system is significant because like any financial reward system it distinguishes financial reward from base salary. As a result, it distinguishes an above average performer from an average performer and thus motivates employees to perform at a higher level (Rouse, 2006). Likewise reward system that utilizes a pay increase system signifies the same message with the underlying aim of improving job satisfaction and thus motivates employees to adapt the kind of value associated with expectancy theory (Rouse, 2006). Essentially bonus rewards and salary increases are effective and traditional financial rewards systems that are designed to motivate employees to identify and set performance goals and to persist in a resolve to meet organization objectives and to perform at a better than average level. Non-financial rewards targets the intrinsic need of most people to be recognized, to achieve, to have responsibilities, influence and to grow (Armstrong, 2005). Parker et al (2000) describe non-financial rewards as having “trophy value” (p. 191) with permanent reminders of the value that the individual has to the organization and thus can be very effective in improving staff morale, motivation and thus performance. Non-financial rewards systems can be intrinsic or extrinsic and include a variety of options for rewarding and recognizing performance. They can include certificates of recognition, the admission of days off, increased vacation, the allocation of more prestigious duties, parking privileges or any number of non-financial accolades. The idea is to issue some form of praise or recognition that suits the basic needs of the employee to achieve, to influence, to grow or to take on greater responsibilities. Heneman (2007) argues that a total rewards system is preferable. A total rewards system combines non-financial and financial payoffs. An important non-financial rewards system is “recognition” (Heneman, 2007). According to Heneman (2007) nothing motivates an employee more than recognition and the expectation that advancement is on the horizon. Such a reward can improve both the individual and organization’s performance by improving “job satisfaction, employee loyalty and workforce morale” (p. 1). Ultimately, the key is to ensure that the employee’s output and interest are consistent with the organization’s goals and objectives. A differentiated rewards system also means rewarding “outstanding performers” (Rouse, 2006, p. 102). However, this must be preceded by clearly stated goals, the creation of a “culture of dialogue” and differentiating performers (Rouse, 2006, p. 102). This is important for ensuring that employees strive toward high performance individually. Assurance by virtue of establishing and communicating clear goals will ensure that employees know that outcomes consistent with the organization’s objectives will be entirely commensurate with rewards. A positive environment of competition will be perpetuated and employees who work for the good of the team will be motivated to go beyond that which is minimally required to ensure effective team performance. Conclusion This report concludes that performance driven organizations is the key to competing in a highly globalized market where demands for customer service and high quality services and products are top priorities. Thus performance management systems are the key to realizing these goals and positioning the organization so that it is highly competitive. This report also demonstrates that human capital as a non-financial asset is the key to effective performance management. Human capital is improved by virtue of motivating. Motivational theories of equity and expectancy inform that employees are motivated when their expectancies relative to input and outcome are equitable and fair. However, equity theory in particular assumes that employees can form erroneous perceptions of input/output when compared to the input/output of others. Thus, rather than perform at a high level, employees may just as easily underperform if they perceive they are not being treated fairly and equitably. Expectancy theory focuses more acutely on emotions and thus predicts more positive ways of ensuring that employees’ expectations are more realistic, by emphasizing learning motivation. Learning motivation is more effectively accomplished by created a reward system under performance management systems. Such a system clarifies, communicates and differentiates. In this regard, the risk of underperformance as exposed by the equity theory is undermined and learning motivation as argued by expectancy theory is enhanced. Expectancy, as argued by Heneman (2007) can be improved by virtue of non-financial incentives such as recognition. Thus a total rewards system does not necessarily require expenditure. Recognition can be a very important rewards mechanism in an organization seeking to reduce cost and improve productivity. References Armstrong, M. & Baron, A. (2005). Managing Performance: Performance Management in Action. London, UK: Chartered Institution of Personnel and Development. Becker, B. & Gerhart, B. (August 1996). “The Impact of Human Resource Management on Organizational Performance: Progress and Prospects.” The Academy of Management Journal, Vol. 39(4): 779-801. Cummings, G. & Worley, C.G. (2008). Organization Development & Change. Mason, OH: South-Western Cengage Learning. Evans, R. & Davis, W. D. (October 2005). “High-Performance Work Systems and Organizational Performance: The Mediating Role of Internal Social Structure.” Journal of Management, Vol. 31(5): 758-775. Foot, M. & Hook, C. (2008). Introducing Human Resource Management. Essex, England, Pearson Education Limited. Jackson, S. E.; Schuler, R. S. & Werner, S. (2011). Managing Human Resources. Mason, OH: South-Western. Heneman, R. L. (2007). “Implementing Total Rewards Strategies.” SHRM Foundation, Society for Human Resource Management, 1-54. Kerr, J.& Slocum, J. W. (2005). “Managing Corporate Culture Through Reward Systems.” Academy of Management Executive, Vol. 19(4): 130-138. Klett, F. (2010). “The Design of a Sustainable Competency-Based Human Resources Management: A Holistic Approach.” Knowledge Management & E-Learning: An International Journal, Vol. 2(3): 278-292. Parker, G.; McAdams, J. & Zielinski, D. (2000). Rewarding Teams: Lessons From the Trenches. California:Jossey-Bass Inc. Ramlall, S. (Sept. 2004). “A Review of Employee Motivation Theories and Their Implications for Employee Retention within Organzations.” Journal of American Academy of Business, Vol. 5(1/2): 52-63. Rouse, W. B. (2006). Enterprise Transformation: Understanding and Enabling Change. Hoboken, NJ: John Wiley & Sons. Read More