Employee Reward and Development - Essay Example

?EMPLOYEE REWARD AND DEVELOPMENT Total Reward System Many definitions of Total Reward exist. Three of them are Total rewards represent the monetaryand non-monetary rewards provided to employees in order to attract, motivate and retain them. (Mathis & Jackson, 2008) Total reward is a strategically focused approach that includes financial and non-financial complementary elements designed to recruit, develop, retain, recognize and motivate employees. (OSP) Total reward includes all types of reward – non-financial as well as financial, indirect as well as direct, intrinsic as well as intrinsic. It is a value proposition which embraces everything that people value in the employment relationship and is developed and implemented as an integrated and coherent whole. (Armstrong, 2004) According to CIPD, the following are the characteristics of a total reward system : 1. Holistic 2. Best fit 3. Integrative 4. Strategic 5. People-centred 6. Customisation 7. Evolutionary 8. Distinctive. The concept of total reward is fairly recent. The traditional “Salary administration” approach of the 1960s and the 1970s focused on the competitive attributes of the employees rather than as a strategic/ tactical tool. This approach gave way to the “Reward Management” line of thought wherein the emphasis was on all employees contributing to the success of the organization. This was a more dynamic approach which brought in non-financial rewards in the form of intrinsic and extrinsic motivation, into the ambit of compensation of an employee. The “New Pay” model (Lawler, 1990) factored in the challenges of a competitive global economy and recommended that employees be paid for the value they bring to the organization. The popular models of total reward (Armstrong, 2004) are – Engaged performance model, WorldAtWork, Wyatt model, Towers Perrin model and Armstrong model. Of these, the Towers Perrin model reiterates, almost entirely, the Brown model of total reward. The Brown model (Brown, 2001), depicted above, deals with four elements of compensation – Pay, Benefits, Learning & Development and Work environment. A comprehensive model dealing with both the financial and non-financial components of pay. A good compensation approach to attract, motivate and retain the employee. Addresses the short-term as well as long term needs of employees. Pay component looks at base pay as well as variable pay whereby the employee is assured of a minimum income every month. Performance of the employee as an individual as well as a group is considered. Employee gets a part of profits of the company. This combined with the availability of the shares of the organization brings about a strong sense of ownership. Benefits which are both individual and family based enables the employee achieve work-life balance. The Pension component assures an independent life style for the individual even after retirement. Learning and Development provides opportunities to develop and grow in the workplace so that the overall productivity is enhanced. Continuous learning takes place and the organization can move toward becoming a Learning organization and develop core competencies and competitive advantages in the market place. Career development helps become aware of the career progress and this helps to plan one’s life in the short term as well as the long term. Succession planning helps bring out the managerial and leadership skills in the individual for mutual benefit of the individual and the organization. Another highlight of this model is the work environment component. Organisational culture and non-financial recognition are highly effective motivation tools. Human dignity is fostered through work-life balance. Communication channels, especially grapevine, can be utilized to create a rich organizational climate. From the above, it is clear that Total Reward can be used as a corporate strategy to attract, motivate and retain employees in an organization and derive tremendous advantages over competition in a globalised and highly competitive business environment. It is imperative for an organisation to adopt a strategic approach towards compensation. Both fixed and variable components need to figure into the compensation package of an employee. The fixed component assures the employee of a minimum base rate of wage/ salary. This enables the employee to fulfill the individual and family basic safety needs – food, shelter and clothing. They can also take care of their safety needs, to an extent, such as insurance, investment planning etc. The variable component rewards the employee on the basis of performance of the employee, group as well as the organization, as a whole. Both these components are equally important. A fixed rate alone would fail to recognize the extra efforts of an individual which would act as a huge demotivator. On the other hand, the variable component cannot insure the employee against the vagaries of seasonal demand fluctuations and macro environment conditions of demand and supply, necessitating lower levels of production of goods and services. A judicious combination of both fixed and variable pay is ideal and can be a great source of employee motivation. In addition, the following elements (Mathis & Jackson, 2008) also need a look in : 1. Annual and long term incentives 2. Flexible and portable benefits 3. Multiple pay plans considering the job, family, location and business units 4. Knowledge-based broadbands to determine pay grades. According to the business dictionary, performance refers to accomplishment of a given task measured against preset standards of accuracy, completeness, cost and speed. As per the Baldrige Criteria for Performance Excellence, Performance refers to output results and their outcomes obtained from processes, products, and services that permit evaluation and comparison relative to goals, standards, past results, and other organisations. Performance can be expressed in non-financial and financial terms. The OA framework (MacPherson and Pabari) indicated below, suggests that Organisational Assessment comprises three major dimensions – Environment, Organisational motivation and Organisational capacity. Performance Management System (PMS) is a set of techniques and procedures for improving organizational performance. A visual of the Performance Management System is given hereunder. The key components of the system are the task skills, ability and the qualifications of the employees which factor in the competencies and personal attributes of the human resource in an organization. Into the future, the concept of total rewards is likely to develop on holistic lines. The visual shown below outlines the various components of the Total Holistic Rewards framework (Schlechter). Direct financial rewards are a mixture of fixed and variable pay packages. Indirect financials address the non-cash benefits of the employee. Work environment encompasses the work surroundings and other organizational support provided by the employer. Carr component facilitates personal growth and development of the individual within the organization. Work content attempts to provide meaningful work to the individual whereby the employee finds the work fun and challenging as well as an opportunity to contribute one’s best for mutual benefit. Presented below is a model of Total reward strategy (Schlechter). As can be seen, this model brings about a strategic dimension to the compensation strategy of the organization. 1. The overall business strategy and the human resource strategy of the organization provide the essential inputs to the Total Reward Strategy. 2. Performance Management System with its wide array of techniques and tools is designed with a people-centric approach. 3. Training and Development. Career Management and Performance Management form the cornerstones of the Total Reward Strategy. 4. The remuneration and other benefits which would form the essence of the Reward Strategy must include both the fixed and variable components. 5. No Reward Strategy would be successful in the long run without the presence of a congenial reward environment. The organizational culture, core value framework. The management style must all adapt to the newer needs. Recent trends in Compensation ((Mathis & Jackson, 2008) prevalent in progressive organizations include : No raises for length of service No raises for longer service poor performers Market-adjusted pay structure Broader industry comparison Rewards tied to performance and results. A CIPD survey found out that a dismal 12.4% of organizations surveyed included employees in their design and development of Total Reward Strategy. This raises serious questions on the effectiveness of the entire strategy. The resultant trust deficit is a huge stumbling block for the successful implementation and success of any such endeavours. It is common knowledge that money has ceased to be the sole, prime factor in the overall reward structure. Human resource has been and will continue to be the most important factor of production and people are the greatest asset of an organization. Against this backdrop, all attempts at human resource strategies such as Total Reward, Human Resource Accounting, Human Capital Valuation would come to nought in the absence of adequate representation from the employees. Human dignity demands that employees are appropriately empowered so that they contribute to the success and prosperity of the organization in thought, word and deed. References www.osp.state.nc.us/.../total%20rewards%20summary.doc Armstrong, 2004. Total Reward, Lecture notes, Accessed on 15th Apr 2011), available from www.employeebenefits.co.uk/.../972/Michael_Armstrong_2MB.ppt Schlechter, Reward Management & Talent Retention, Lecture notes, Accessed on 15th Apr 2011), available from www.commerce.uct.ac.za/.../Anton%20Schlechter/M%20Business%20Strategy%20and%20Reward%20Management%. Mathis & Jackson, 2008. Human Resource Management Chapter 12 Total Reward & Compensation, Lecture notes, Accessed on 15th Apr 2011), available from http://ppt.aandamar.com/ppt/Total-reward-and-compensation.html http://www.businessdictionary.com/definition/performance.html http://www.bpir.com/what-is-performance-measurement-bpir.com.html MacPherson & Pabari, Accessed on 14th April 2011) available from cmsdata.iucn.org/downloads/ oa_short_course.pdf CIPD (2007) Reward Survey Report. London: CIPD Read More