Reward Management - Essay Example

?Reward management Contents Sr. # Topic Pg Introduction 2 2. Relationship between rewards and performance 3 3. Flexible reward policies 6 4. Non-financial rewards 8 5. Integrated approach to total reward 10 6. The employee entitlement trap 12 7. Conclusion 13 References 14 "Little evidence demonstrates the efficacy of rewards, although much evidence indicates that rewards and their design loom large in management attention" Pfeffer, 1998 qtd. in Armstrong, 2010: 50 1. Introduction: The world is changing at a rapid rate, resulting in a simultaneous change in the composition and structure of the workplace. The organizations today comprise of a highly diversified workplace, than ever before. The expectations of the employees have also changed drastically with the change in the organizational composition and structure. Employees in present times are no longer satisfied with mere cash-based rewards (Dewhurst, Guthridge, and Mohr, 2010). They are increasingly seeking alternate sources of reward mostly non-financial such as recognition of their work and contribution made towards organizational success, health benefits, policies that enable them to strike a perfect work-life balance, positions of authority that enable them to exercise control and take risks to accomplish challenging objectives, etc among others. Motivating such diverse and talented pool of human resources has hence become highly challenging for the organizations. They are now compelled to reassess their reward management strategies and revise them in accordance with the changing demands of the industry, and include novel strategies that appeal to the individual tastes and preference of their employees. This includes initiating organization wide changes in the management styles, re-organizing the design systems, and incorporating the principles of transparency and fairness, by seeking active participation of employees in the reward design process. The rules of the workplace have evolved during the last couple of decades and the realities of yesterday no longer hold true in present times. The drastic change brought about by information technology, globalization, and expansion of the marketplace has entirely changed the rule of the game. Organizations today are no longer chasing customers but are also compelled to come up with innovative strategies to retain their skilled pool of human resources. Employee retention through implementation of motivational reward oriented strategies has assumed a top priority for the management. This paper on reward management discusses the various issues concerned with performance oriented pay structures, including the effectiveness of rewards on employee performance, the relationship between non-financial rewards and employee performance, the application of flexible reward policies, impact of non-financial rewards, the relevance and significance of integrated approach to total reward, and the issue of employee entitlement trap. 2. Relationship between rewards and performance: Various studies have indicated that there exists a strong relationship between rewards and employee performance (Guzzo et al., 1995; Jenkins et al., 1998; Hansen, 1997; Stajkovic & Luthans, 2001). Employees play a key role in enhancing the organizational performance. Hence it is imperative for organizations to ensure that the employees are appropriately rewarded for their contribution towards organizational development through an effective reward framework. The significance of effective reward management strategies for organizations can be ascertained by the fact that rewards help the management in preventing employee burnouts and provides them with adequate strength and motivation to address the various challenges encountered on the job (Schaufeli et al., 2002). It has been observed that employees are often subject to severe stress. This is particularly evident in service industries such as banking and the hospitality sector where the employees are directly in touch with the customers. Consumers today are getting more and more demanding and expecting better services. However the quality of the service expected by the customers is not always in sync with that provided by the employees (Wong et al., 1999). Organizations are hence caught in the midst of an intense struggle to mediate between the two and strike a balance by influencing and coaxing their employees to improve and enhance their performance (Bitner et al., 1994). Motivating employees to enhance their performance levels is a highly complex task, primarily due to the fact that employees have different needs and uniform motivation strategies implemented by employees across all sections and departments within the organization may not bear desirable results. According to Maslow’s hierarchy of needs individuals have different needs such as physiological needs, need for security, need for belongingness, esteem needs, and self-actualization needs and once the lower or the most basic needs are fulfilled the higher needs emerge and the individuals strive towards the fulfilment of their higher needs (Griffin, 2012: 450). Fig. 1: Maslow’s hierarchy of needs Source: Griffin, (2012): 450 Employees must hence strive to develop bespoke reward management strategies which match the rewards provided to the employees with their needs. This would ensure that the employees are effectively motivated, resulting in a simultaneous improvement in the organizational performance as well. The initiative of the management at The London and Provincial Bank to introduce employee oriented reward management program hence is an effective strategy that would help them ensure greater employee participation and enhanced employee performance, ultimately translating into improved organizational performance. 3. Flexible reward policies The reward policies must be flexible in order to ensure better results. This is because the benefits of the reward can be best accrued if they are perceived to be important by the employees, and since the needs and preferences of employees vary (as observed in the Maslow’s hierarchy of needs) it is imperative for organizations to ensure that the reward management programs are flexible and takes into account the views and opinions of their employees as well (Armstrong & Murlis, 2007). Transparency: It has been observed through research that the transparency of reward structures play a key role in ensuring success of the reward framework. This is because it reassures the employees regarding the fairness in decision making and non-prejudicial treatment of employees by the management. It ensures the equity of reward and provides assurance to the employees that they are not being treated unfairly or punished by the management for actions beyond their control. It provides the employees and unions an opportunity to collective bargaining and in the process ensure better outcomes for the organizations (White & Druker, 2012). According to Wright (2004) transparency in pay systems is of utmost significance in order to ensure that the pay systems being implemented are fair and easy to understand by the employees. Organizations today are increasingly seeking active involvement of employees in framing the reward and pay structures. If the organizations are to seek an improvement in productivity it is imperative for them to ensure that the employees are motivated enough to enhance their performance. This in turn can only be ensured by communicating the benefits that may be accrued by them in exchange for their efforts put in towards improving the productivity (Cornelius, 2001). One of the key issues faced by organizations today including the London and Provincial Bank, is the fact that engaging, rewarding, and motivating employees is a highly tedious task. As the competition within the industry intensifies the struggle for influencing employees to enhance their performance becomes all the more difficult. In such a situation it is imperative for organizations to seek active involvement of employees in the pay and reward structures and reassure them regarding the various benefits made available to them in exchange for an improved productivity. The increased competition has compelled organizations to pursue and evaluate the needs and preferences of the employees as well, and incorporate the same within their reward and pay structures. Transparency in the reward management programs would help the organizations to gain employee confidence which can then be translated into an improved participation of employees in management activities geared towards achievement of their key goals, thus enabling them to sustain their competitive position in the industry and withhold external threats from their industry rivals. It is the people who determine the failure or success of an enterprise, and the manner in which they are treated is highly crucial factor in determining the outcome of an organization. Keeping them motivated is perhaps the only key to ensure organizational performance (Lawler, 2003). 4. Non-financial rewards As discussed in the previous section of this study, the needs and preferences of individuals vary according to their perception of satisfaction and rewards (La Belle, 2005). Hence what is considered important by one may not be important for others. Thus, not all employees value and can be expected to be equally motivated by cash / monetary rewards. Some employees may find non-financial rewards such as holidays, recognition by their immediate superiors, difference in treatment by their leaders, or other non-material incentives equally gratifying. There is ample evidence in literature which supports the fact that non-financial rewards are equally important tools for motivating employees and enhancing their job satisfaction. Various studies conducted over the years have indicated the existence of a direct and strong relationship between non-financial rewards and increase in employee satisfaction and performance (Shields, 2007; Secord, 2003; Armstrong, 2007; Armstrong, Brown, and Reilly, 2010). Some studies have claimed that the non-financial rewards are comparatively more profitable than financial rewards in the long run particularly with regard to ensuring greater employee participation and enhancing employee performance (Ellis & Pennington, 2004). Human resources are one of the most critical and valuable resources at the disposal of the management. Competent and highly skilled personnel contribute significantly towards steering the organizations towards the successful accomplishment of its goals and in ensuring that it retains its competitive positioning in the industry. It is hence imperative for the management to ensure that this pool of human resources are treasured and treated in a way that they are constantly motivated to perform better and make valuable contributions for the organizations (Chapman, Hopwood, and Shields, 2007; Armstrong, 2007). Various studies have indicated that the recognition of employee efforts and contribution towards organizational success is often a key motivating factor for the employees, since it helps in enhancing their self-esteem. Many employees view recognition and the accompanying enhancement of their self-esteem, as key motivating factors and rewards for their efforts (Armstrong, 2007; Arnolds & Venter, 2007). Job interest is also identified as one of the key motivational factors in ensuring employee performance. The mere shift in duties or offering positions which are of interest to the employees ensure greater job satisfaction for the employees and leads to improved productivity. Other non-financial factors such as positions of power and responsibility to the employees add to their sense of achievement and lead to better performance. This is mostly applicable in case of employees who are pursue challenging jobs, and display leadership and risk taking abilities. Positions of authority give them the power to execute their duties effectively hence resulting in higher sense of self-esteem (Heller & Hindle, 1998; Grensing, 1996; Herzberg, Mauser, and Synderman, 1959; Holley, 1997). From the organizational perspective non-financial rewards prove to be highly cost-effective and provide them an opportunity to balance their budgets and increase their profitability (Shields, 2007). The various types of non-financial rewards that can be introduced by the London and Provincial Bank can be categorized into group based/ collective and individual reward: Category Type of non-financial rewards Group based Work-life balance policies, employee benefit services, voluntary benefits, training and learning & development programs Individual Positions of authority, opportunity to grow, recognition, praise, timely and consistent feedback 5. Integrated approach to total reward: Historically consumers have been consistently given the preferential treatment by organizations, adjusting according to their needs and preferences, and changing their strategies in order to meet their demands. However the significance of affording the same treatment to their employees has been fast gaining widespread attention. This is primarily motivated by the growing body of research pointing towards the role of employees in steering an organization towards the successful accomplishment of its goals. Considering the growing role of employees towards organizational success it is imperative for the management to involve and engage them in reward programs and incorporate their views and opinions while developing the same. One of the most effective ways to deal with the problem of reward management is the introduction of an integrated approach to total reward. The workforce in present times is global and comprises of employees working from across the globe. This change in employee composition requires a simultaneous change in the rewards arrangement implemented by organizations. Customized and rigid reward programs may not be acceptable to employees and hence lead to its eventual failure. The workforce today is becoming increasingly global, diversified, and flexible than ever before. With such diversified workforce any single or uniform reward element may not work as a value driver or motivational factor. As other factors such as job enrichment, recognition, job security, and non-financial employee benefit programs seep in, the entire system of cash-based reward management is likely to become obsolete. The traditional reward management structures are now a thing of the past, and it is time for the management to take note of the changing demands of the indutry and design customized and complete reward management strategies to cater to the changing needs of the modern workplace (Armstrong, Murlis, 2007; White & Druker, 2000). An ideal reward management strategy must include all the key elements that contribute in motivating the employees such as cash-based as well as non-financial rewards, encouraging participation of employees in designing and developing of reward structures, ensuring transparency in the process of designing to enable fairness; and taking into consideration the individual as well as collective needs of the employees. It essentially entails the development of a customized reward strategy rather than a uniform policy applied organization-wide with a complete disregard for the employee interests and views. 6. The employee entitlement trap: Organizations across the globe use various reward management systems with a view to encourage and motivate their employees to improve their productivity and performance. Such an investment on the part of the organizations generates long-term benefits to the organizations in the form of increased profitability and capturing wider customer base. However it is observed that the excessive use of and reliance on rewards by the management as a sole means of motivating the employees leads to a feeling of entitlement among the employees and tends to de-motivate them (Offstein & Morwick, 2009). Thus, what is perceived as a tool for motivating factor by the management is perceived as entitlement by the employees, in the process, defeating the very purpose of the reward program. The increased use of rewards leads to a simultaneous rise in the sense of entitlement among the employees and leads to a direct rise in the organizational budget. In order to control and effectively address this issue, the organizations must take active steps in clarifying the key purpose and scope of performance oriented pays / rewards to the employees. It is widely noticed that employees often tend to adapt faster to rise in pay however the reverse is not always true. Hence the organizations must make sure that the pay package delivered to the employees includes a clear differentiation between basic salary and the performance oriented pay. It must include detailed explanation of the reasons for reward being given. This would provide them with a clear idea about what to expect in their next pay, and reduce their sense of entitlement to a certain degree. The performance oriented payment / reward must be separated from the basic pay received by the consumer. The reasons for receipt of performance pay and the level of performance expected of the employees in order to be eligible for such payment must be clearly explained to the employees. In case of team performance, the management must make it amply clear that the failure of the team would result in non payment of the performance pay for an individual employee, regardless of their individual performance. Hence even if the performance of an individual employee is better than the rest of the team members, if the team fails to achieve the desired target, it negates the payment of bonus / reward. Such clear statements would help the organizations to achieve dual objectives – that of encouraging team effort and reducing the sense of entitlement among the employees. 7. Conclusion: The successful implementation of a wholesome and effective reward management system is a highly challenging and tedious task. In order to ensure greater success it is inevitable for organizations to take into account the needs and opinions of the employees while designing the system. This will ensure that all their needs are duly taken care of and will help the organizations in effectively motivating the employees and achieve better performance across all sections of the organization. References: Armstrong, M., Murlis, H., (2007). Reward management: A handbook of remuneration strategy and practice. London, UK : Kogan Page Publishers, p. 48-50 Armstrong, M., (2007). Employee reward management and practice. London, UK : Kogan Page Publishers, p. 392-395 Armstrong, M., Brown, D., Reilly, P., (2010). 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