Designing Reward Practices To Influence Employee Behavior - Essay Example

? DESIGNING REWARD PRACTICES TO INFLUENCE EMPLOYEE BEHAVIOR by goes here] Presented to [your goes here] [your goes here] [your university’s name] [due date of the paper] Designing Reward Practices to Influence Employee Behavior 1. Introduction Managers have grown to understand that setting a strong management system is the main force that helps a company in the achievement of strategic goals. A strong management system is one, which includes such features and processes, which not only benefit the organization but also the employees. Reward practice is one of the most considerable features of a strong management system, which play a vital role in improving employee productivity and performance. In this paper, we will discuss reward practices/incentive plans and the way managers can use them strategically to improve employee performance. 2. Reward Practices/Incentive Plans Before discussing how reward practices or incentive plans can influence employee behavior and improve their productivity, let us get a better understanding of what reward practices actually are and why is it important for the managers of a company to implement a suitable reward/incentive plan for the employees. Incentives are those benefits that a company offers to its employees as a reward for achieving some particular goals and objectives for the company. Incentive plans also plays a considerable role in achieving maximum sales employees’ productivity. Schwartz (2006, p. 140) found that incentives plan is one of the most important planning activity related to the employees of a company. Ellis-Christensen (n.d.) states, “They could help encourage members of a company to achieve certain goals or they might jumpstart extra learning in a classroom”. The factors that managers should consider while developing an appropriate incentive plan for the employees include type of compensation plan, method of payment calculation, discretion to award, conditions for implementation of the plan, practicalities of the plan, and culture of the company. 3. Key Issues to Consider Let us now discuss some of the key issues that the managers of a company need to consider when designing an incentive plan for the employees. 3.1 Organizational Culture According to Colt and Perrin (1998, p. 15), all companies develop incentives schemes that support and communicate the cultural values of those companies. Managers should consider the organizational capabilities, managerial maturity, as well as the culture of the organization while designing a reward/incentive plan for the employees. Pay for performance acts as one of the most suitable motivational factors for the employees. It is very important to do a complete study of the organizational culture while designing a reward system in order to ensure alignment of reward system with the achievement of organizational goals. 3.2 Needs and Demands of Employees According to Beardwell (2010), understanding employees’ needs and demands is also very necessary to design an employee-oriented incentive plan. Managers should design an incentive plan by incorporating the basic needs and demands of the employees in the plan. When the employees of a company know that their company has implemented an incentive plan through which it rewards their job productivity and efficiency in terms of both cash rewards and non-cash rewards, they show more commitment to their work, which not only improves their productivity but also increases the overall productivity of the company. 3.3 Statement of Plan’s Objectives The most critical issue, which managers need to consider while developing an incentive plan, is development of a clear statement of the plan’s objectives. The statement includes purpose of the plan, eligibility criteria, and types of incentives. Goal setting and employees’ improved performance are two of the basic advantages of an incentive plan. 3.4 Link Performance to Organizational Goals Alignment of the employees’ performance with the organizational goals is the stepping-stone for designing an effective incentive plan for the employees. Managers should clearly explain the eligibility criteria to the employees in order to make them show good performance to become eligible for the rewards. 3.5 Financial Conditions of the Company Understanding the financial condition of the company is very important while developing a suitable incentive plan. Managers should base the design of the incentive plan on the current financial conditions of the company and the performance of employees. A company should never introduce such reward system, in which the rewards go beyond the limitations of the financial strength of the company. 3.6 Understanding Incentive plan’s Structure According to Buchanan and Huczynski (2010), employees become more organized and efficient when they know the ways the company will reward them for their performance. There are many ways for rewarding employees of a company. One of the common methods is basic salary plus bonus, which includes paying a fixed bonus amount for showing excellent performance. Another type of pay is basic salary plus commissions that usually focuses on 2/3 commissions and 1/3 fixed pay in most companies. Managers should also include non-cash rewards, such as, paid meal and paid holidays in the incentive plan because such rewards are very effective in motivating the employees. 3.7 Discrimination Elimination of the factor of discrimination is another factor, which managers need to consider while designing an incentive plan for the employees. Those companies are very successful in terms of productivity, which base their decisions and incentive plans on behavior and performance of the employees. Managers should always base the rewards and incentives purely on the performance of the employees instead of their backgrounds. 4. Connection between Rewards and Performance Performance of Employees = “Procedural Knowledge” * “Motivation” * “Declarative Knowledge” The purpose for implementing any reward/incentive plan is to ensure that the domains of the employees’ performance are well defined and understood. There are three domains of employee performance. The first domain of employee performance is knowledge that an employee needs to perform various tasks related to his/her job. If an employee does not have the technical knowledge of his/her tasks and the ability to achieve the results, he/she cannot show good performance. Skill is the second domain of employee performance. Skills are the characteristics and competencies that an employee needs to complete his/her job tasks. Ability is the last domain of employee performance. An employee needs to achieve the goals using right set of tools, environment, and work setting. 5. Performance Models There are three types of models, which managers use to design an effective incentive plan for the employees. Those models include individual level performance model, multilevel performance model, and organizational development performance model. Let us discuss these models in some detail. 5.1 Individual Level Performance Model: This model enables managers to measure the level of output from each unit in a clear and direct manner. The identification of deficiency in the employees’ performances is simple and uncomplicated. Therefore, it is very easy to find out the ways to improve employees’ performances. 5.2 Organization Development Performance Model: According to this model, input leads to design and design leads to organizational output. This model focuses on collaborative efforts to make use of the inputs to the fullest in order to get the output. An employee’s high performance individually cannot drive the organization towards the achievement of goals. This model is very effective in increasing employee, however, it does not work very well for the profit driven strategies. Managers should design such incentive plans, which should encourage team efforts to achieve the goals. Individual level plans do not support collaboration among employees and are employees do not like such plans in case of stretched targets. It is a fact that if different departments of an organization do not work in proper collaboration with each other and with optimum level efficiency and pace, the productivity of the organization slows down. However, if the managers communicate organizational goals to the employees in such a way that every employee becomes well aware of all goals and their deadlines, they cooperate very well to achieve the goals. 6. Performance Management System Managers need to understand the culture of the company to design an effective reward/incentive plan for the employees. Once managers reach a complete understanding of the organizational culture and the available performance models, they need to consider the following factors while developing an effective reward/incentive plan. For any performance management system, alignment of performance goals with the organizational goals acts as the stepping-stone. The managers should align the goals and should clearly define the incentive plan not only in terms of its purpose and performance measurement criteria but also in terms of its minimum achievement eligibility criteria. The managers should also cascade down the performance assessment system throughout the company to the unit and to the employees. One of the major mistakes that most of the managers make while designing a performance management system is that they center their attention regarding revenue-generating positions just for incentives without considering the importance of other value chain members who offer their support to the revenue-generating positions. An important thing, which managers need to consider when designing a reward system, is that they should ensure that the types of rewards include both cash and non-cash rewards in addition to contingent, timely, visible, and reversible rewards. 7. Designing and Implementing the Incentive Plan Designing an incentive system needs careful analysis of all issues related to the organization and the employees. Managers need to consider all issues related to the employees, working environment, and organizational culture in order to develop a pan, which should prove effective in improving employee performance, if applied strategically. Some companies base their business policies and reward/incentive systems on the idea that employees are the partners in business instead of just workers. It is the responsibility of the managers to involve the employee representatives in the process of incentive plan development. Managers need to devise a careful plan when implementing a reward/incentive plan for the employees. The reason is that if they will not implement the plan carefully, it will have devastating impact not only on the employees but also on the company. Another reason is that if the incentive scheme is out, it becomes very difficult for the managers to take it back if they do not properly analyze the financial implications of the scheme on the company. One of the key points, which managers need to consider when implementing an incentive plan, is that they should involve all stakeholders in implementing the plan in the early stages. Managers also need to communicate the bonus scheme to the employees in order to make them work hard to achieve the bonuses. Employees work hard only if they know what they will get as the reward of their hard work. It is essential for the managers to communicate the plan to the employees in order to inject enthusiasm and motivation in the minds of the employees regarding achievement of the rewards introduced in the plan. Some important factors that managers need to add in the reward/incentive plan of the company include team performance, reward eligibility, cash rewards, and non-cash rewards. Let us discuss these factors in some detail. 7.1 Eligibility Factors and Calculation Methodology An important point which managers need to consider is that they should base the minimum score eligibility factor on monthly KPIs (Key Performance Indicators). The monthly KPIs should match the organizational KPIs that focus mainly on two areas, which include Brand Mix Individual Target achievement and Branch GDI (Goal Driver Indicator) Scoring assessment. a. GDI Scoring Assessment In order to implement that plan strategically and make it productive for the company, the managers should base the eligibility of the monthly bonus on minimum GDI Scoring Assessment of 85%. The total score of all employees should be equal to 85%. If a group of employees achieves a score of more than 85%, then the management should award an additional 300$ to every employee of the group regardless of the total quantities sold by each employee of the group. b. Brand Mix Individual Target achievement In case of sales employees, managers should place a minimum target of 70% brand mix for the employees in order to qualify for the bonus. If a group of employees achieve a score of more than 70% of the brand mix target for the month, then the management should award an additional 400$ to every employee of the group regardless of the total quantities sold by each employee of the group. 7.2 Team Performance Measuring team performance plays a very important role in deciding whether the managers should award any particular employee or not. Performance appraisal means to evaluate performance of the employees and the business processes in order to bring improvement in the organizational effectiveness and productivity. The basic aim of performance appraisal is not just to assess the employees’ performance; rather it also focuses on increasing the organizational output by improving performance of the employees. Performance appraisal makes managers of a company know where the company stands in reality and what they need to do to improve the company’s performance. There are five basic dimensions of performance evaluation, which include market competitiveness, financial performance, quality of service, utilization of resources, and innovation in the business processes, products, and services. Companies make use of performance evaluation systems to evaluate performance of the employees. Support of the top management, implementation of the most appropriate system, design of system’s procedures, company’s goals and objectives, and employee training are some of the key components of a performance appraisal system. Performance measurement system is a continuous process, which not only measures and improves employees’ performance but also helps managers align the performance with strategic goals of the company. Implementation of performance measurement systems are of extreme importance for all companies and organizations. Without the implementation of an effective performance appraisal system, it becomes very difficult for a company to achieve the desired set of goals and objectives properly. For an employee, performance assessment is a continuous process that begins with the first day of the job and ends with the last day of the employee in the company. Companies apply the most suitable methods to assess performance of the employees. Some of the commonly used methods include behaviorally anchored rating scale, critical incident method, confidential reporting system, weighted checklist method, paired comparison analysis, and 360-degree performance appraisal. These methods not only check and improve the employees’ performance but also play an important role in improving the organizational effectiveness. Performance measurement serves many purposes for a company. Some of the most common purposes of such systems include measuring employee performance, developing and improving skills of the employees, and increasing the organizational effectiveness. A performance appraisal system is something that every company or organization needs to put into practice in order to ensure success in the market. An effective performance evaluation system plays a key role in the success of a company as it assists the managers in taking suitable decisions regarding different issues. A suitable performance assessment not only makes employees aware of their deficiencies in carrying out their job responsibilities but also helps them improve their efficiency, skills, and abilities. Along with measuring employee performance, managers should also measure organizational performance after implementing incentive schemes in the company. The reason is that if there is an improvement in organizational performance, it means that the incentive scheme has been successful for the company. On the other hand, if the level of organizational performance does not show any improvement, it means that the managers need to improve the incentive scheme for the benefit of the employees and the company. 7.3 Non-Cash Rewards Non-cash incentives should be awarded to the employees at the end of the financial year. For example, a lunch or a dinner for the two or a trip for the families of employees should be given in order to appreciate the employees for their hard work. Non-cash awards mean a lot for the employees. They start feeling satisfied with their jobs and work hard to achieve such rewards again. As a result, the organizational productivity also increases. Therefore, we can say that non-cash rewards can play a considerable role in improving employee and organizational performance strategically. In case of sales employees, managers should give non-cash rewards to the employees based on the following three factors: 1- Annual Employee Sales GDI Scoring Assessment achievement 2- Sales Quantities Achievement 3- Annual Brand Mix Achievement scoring Finally, managers should focus skill development of the employees in order to ensure that the pay of the employees is not only according to individual performances of the employees but also embedded into the human resource system. The performance evaluation of the employees should take place every year. Managers should base the evaluation on annual employee sales GDI scoring assessment achievement, sales quantities achievement, and annual brand mix Achievement scoring along with some other important factors, such as, performance appraisal score, annual GDI Scoring Assessment, annual brand mix achievement, and annual sales quantities achievement. If all annual cumulative scores are according to the targets defined by the management of the company and the result of performance appraisal is an “A”, then the managers should promote the employee to the next grade. The reason is that promotion is the right of an employee who shows good performance. Therefore, if an employee shows good performance, he/she should get the promotion as a reward for his/her performance. Once an employee gets promotion based on his/her performance, the company should motivate him/her to do more hard work in order to achieve higher ranks. In this way, the employee will not stop there, rather he/she will try to move up to the higher ranks. There are different types of rewards for the employees other than cash rewards. Some of those rewards include employee of the month, a dinner for two, and other various prizes. A company should focus on giving more and more non-cash rewards to the employees because non-cash rewards put a very good impact on the employee productivity. According to Hodges (1999), “Research shows that the way the brain processes information is responsible for non-cash rewards having a greater impact on people than cash awards”. Non-cash rewards also provide an opportunity to the employers to think about the kind of reward that will be the most suitable one for the employees, instead of adopting the same prize approach. Researches also show that employees value non-cash rewards more than cash rewards. When a company rewards sits employees based on their performances, they feel that the company has recognized their efforts and hard work and is treating them perfectly due to their work. As a result, employees show more good performances in order to receive the rewards again. This mindset eventually makes the company show good performance and increase the level of productivity. 8. Impact of the Reward/Incentive Plans A good incentive plan results in driving the employees towards struggle to achieve organizational goals as well as individual goals. The impact of relating pay with KPI drives the company towards the achievement of results and better measurement of the GDI indicators. With the alignment of career growth plans with pay, managers can monitor the employees through development track to ensure that the employees have developed their skills very well. Incentive plans create such workplace environments that foster and care for employee engagement and capacity building to respond to the opportunities properly. Churchill (2007) states, “Incentive programs are a great way for businesses to reach out to their employees in an appropriate and appreciate manner”. Employee, in return, put all of their efforts to achieve organizational goals in order to receive the rewards. With the implementation of incentive plans, every employee becomes able to play his/her role in the success of the company. Employees feel like an integral part of the company when managers appreciate their performances in terms of rewards and incentives. Ellis-Christensen (n.d.) states, “People tend to be more productive if they’re happier, and that means that an incentive program can never take the place of skillful managing or teaching that is respectful”. When a company puts into place a well-designed incentive scheme, the results start occurring within no time. The reason is that employees like to show their efforts for those companies, which appreciate their performances in terms of cash and non-cash rewards. Churchill (2007) states, “The incentive programs that are implemented may also enable a company to improve communication between the different co-workers and levels of management”. The improvement in the working relationship between employees and management result in improved organizational productivity. Therefore, we can say that a well-designed incentive plan, if implemented properly, really helps the company improve the levels of productivity ad performance. 9. Reward/Incentive Schemes There are different types of reward/incentive schemes that managers can adopt for their companies depending on the organizational culture and employee performance. Some of the incentive schemes that are used strategically by the companies to improve employee performance include business performance schemes, individual plans, team plans, and combination plans. Let us discuss all of these in some detail in order to get a better understanding of these schemes. 9.1 Business Performance Schemes Basic Features Good Aspects Bad Aspects Managers relate bonus payments to the performance of whole business instead of employees. Managers use KPIs to measure employee performance. This scheme increases employee commitment by sharing organizational success with employees in terms of bonuses. Using this scheme, one cannot guarantee increase in employee motivation. The reason is that bonuses are not based on individual employee performance. Examples: - Budgeted Profit - Earnings per share Companies adopt these schemes in order to ensure business success in terms of achieved business targets. Such schemes are not for low-level employees because they have no influence on the company’s decisions. They are set for senior employees or manager level employees because they are the ones who take business decisions related to profit, cost, and business revenues. Moreover, they ensure achievement of company’s goals and objectives by relating bonuses with employees’ performance. 9.2 Individual Plan Basic Features Good Aspects Bad Aspects Managers relate bonus payments to the performance of individual employees. This scheme has direct relation with individual employee performance, which ensures increase in employee motivation and commitment. One disadvantage is that in his scheme results in an unpredictable and irregular bonus system. Examples: - Pre-agreed objectives typically sales - Balanced Scorecard (It is a performance measurement tool) This is the most widely used incentive scheme. Managers use it for improving the performance of employees and revenue generating positions. With this kind of incentive system, managers link individual level goals with direct rewards. Moreover, managers can measure performance of the employees directly in order to reward them, with bonuses based on their individual performances. This is a very productive incentive scheme and helps companies retain best employees for the junior level revenue generating positions. This scheme also promotes fair distribution of bonuses based on individual achievements. 9.3 Team Plan Main Feature Advantages Disadvantages Managers relate bonus payments to the performance of teams. Bonuses are distributed using a defined formula. These schemes enhance team collaboration and motivation. Employees work in a collaborative manner to achieve the targets. It also results in reduction of internal competition. Discourages individual performance because in a team, some members work more and some less but bonuses are distributed equally. Examples: - Pre-agreed objectives typically sales - Customer service satisfaction - Balanced Scorecard This scheme is successful in a way that all members of the team work for the achievement of common goals. They do not struggle for personal benefits. 9.4 Combination Plans Main Feature Advantages Disadvantages This incentive scheme is the combination of individual performance and team performance. This scheme has direct relation with both individual employee performance and team performance and, therefore, combines the advantages of both schemes. A big disadvantage related to this scheme is that it is too complex to implement. 10. Conclusion Summing it up, rewards and compensation play a considerable role in achieving maximum employee productivity. Decision makers of a company should consider the viewpoints of employees’ representatives and management staff when designing and implementing a reward/incentive plan. Managers need to ensure that they have set proper pre-requisites and have performed a full detailed analysis of the company’s structure when designing the incentive plans. Managers should also know that without employee involvement, the reward/incentive plans fail to motivate the employees. Therefore, it is very important for the managers to consider the viewpoints of employees when designing and implementing the reward plans in order to make them improve their levels of performance and productivity. References Beardwell, J 2010, Human Resource Management: A Contemporary Approach, 6th edn, Prentice Hall, New Jersey. Buchanan, D & Huczynski, A 2010, Organizational Behavior, 7th edn, Pearson Education, New Jersey. Churchill, M 2007, Benefits of Incentive Programs, viewed 16 January, 2012, . Colt, S & Perrin, T 1998, The Sales Compensation Handbook, 2nd edn, AMACOM, New York. Ellis-Christensen, T n.d., What Is an Incentive Program?, viewed 16 January, 2012, . Hodges, W 1999, Sales incentive program basics – Sales incentives 101, viewed 16 January, 2012, Schwartz, M 2006, Fundamentals of Sales Management for the Newly Appointed Sales Managers, AMACOM, New York. Read More