Performance and Reward Management - Assignment Example

?It is likely that in the next few years, employers will face increasing pressures to reduce their payroll costs. Critically evaluate the range of ways by which payroll costs can be reduced whilst taking into account the need to maintain a focus on the achievement of wider corporate goals and plans. 1. Introduction The value of the HR management for the increase of organizational performance cannot be doubted. However, often, the HR practices developed within the organizations do not manage to support the organizational growth, a fact indicating, among other issues, the problematic relationship between the HR policies and practices. The above issue is critically discussed in this paper. Reference is made particularly to the potential decrease of the payroll costs without the corporate plans to be affected. The reward practices, as a tool for supporting employee motivation, are analytically explained because of their high contribution in the increase of payroll costs. Particular emphasis is given on the problematic relations between the reward policies and practices since the above problems can negatively affect the payroll costs of organizations. A series of studies related to the issues under discussion have been studied. It is made clear that the limitation of payroll costs, as a strategic target of firms in different industries, is feasible; however, it is not clear whether the above finding involves in all organizations or whether there are organizations where the limitation of payroll costs is more difficult – especially when the need for increased profits, even in the short term is high and the limitation of payroll costs would negatively affect such effort. In any case, the decrease of payroll costs should be adopted by all organizations, which are interested in establishing a long-term growth. The use of specific strategies, as indicatively suggested below, could help these firms to be protected from failures in their plans, as a potential consequence of the limitation of payroll costs across their departments. 2. Reward policies – role and forms In everyday business practice, the term ‘reward’ is used instead of the terms ‘salary’ and ‘wages’ (Cowling et al. 1998, p.173). In other words, the particular term is used in order to show all the potential benefits of an employee from his work in a specific organization. Moreover, the term reward can include both the monetary and the non-monetary benefits of employee in the workplace (Cowling et al. 1998, p.173). It should be noted that reward, as described previously, is part of a greater framework, the reward system, which has specific structure and rules as explained below. Moreover, in the context described above, reward can affect the payroll system of each organization (which under these terms is considered equal to the reward system). For this reason, the evaluation of the potential limitation of the payroll costs of a particular organization requires the reference to the reward system of the specific organization. The reward system of each organization can be differentiated, in accordance with the organizational culture and goals but also with the resources available for the realization of the relevant plans. In accordance with Armstrong (2007) the reward system established in modern organizations is likely to include a series of policies and practices, as for example: a) a reward strategy including the future plans of the organization regarding the payroll of employees, b) a reward strategy that refers to the terms on which the payment of employees in various organizational departments is based – compared to the average salary of employments within the same industrial sector; the particular strategy needs to be based on the relevant provisions of the law – referring both to the type of the reward given to each employee but also to the level of the reward, c) a reward practice referring to the techniques used for estimating the effectiveness of job evaluation techniques – as developed within the local or the international market, d) a reward process, focusing on the methods used for the development of the various organizational policies – meaning those policies related to the payroll of employees across the organization (Armstrong 2007, p.8). 2.1 Problematic links between reward policies and practices Despite the fact that reward policies have a key role in the development of business performance, their realization is often problematic. The reasons can be many. At a first level, managers who design the reward policies are not always capable of understanding the actual needs of organization in terms of employee performance neither the actual potentials of the organization regarding the reward schemes suggested. As a result, when the particular reward practices are introduced, they are likely to be irrelevant with the organization’s needs or not feasible – because the resources required are not available (Armstrong et al. 2010, p.73). Another reason of the problematic relation between reward policies and practices is the following one: in most cases, HR practices are used as a tool for achieving the increase of organizational performance; in this way, emphasis is given on the achievement of the above target, not so much on the alignment of the HR practices with the organization’s HR policies. In fact, there may be cases that HR practices are developed without being included in the HR framework of an organization, just because they are expected to lead to increased profits, in the short or the long term. In this context, the differentiation between the HR policies and practice is unavoidable. Furthermore, emphasis should be given on the following fact: the main target of HR management is to support the organizational performance; in accordance with Armstrong et al. (2010) this target ‘can be achieved only through a series of appropriate practices resulting in high quality, flexible and committed employees’ (Armstrong et al. 2010, p.74). However the above target is not always achieved because the HR practices used for the realization of specific HR plans are often differentiated from these plans, either in terms of structure or in terms of the resources employed. In this case, the relationship between the HR policies and the HR practices becomes problematic, a fact that often leads to severe organizational turbulences. Moreover, Bohlander et al. (2007) note that HR policies need ‘to be aligned within one another to establish a configuration that it is mutually reinforcing’ (Bohlander et al. 2007, p.73), an approach also known as ‘best fit’. The issue of ‘best fit’ is also analyzed in the study of Shields (2007); the above researchers notes that within each organization the performance and the reward practices need to be developed followed a ‘best fit’ approach, which reflects the existence of ‘synergy between the organizational practices’ (Shields, 2007, p.511), meaning that these practices focus on the achievement of the same goals, or else, that ‘they are directed towards the same direction’ (Shields 2007, p.511). It is noted that, in practice, the above target is not achieved. As a result, HR practices, based on the firm’s HR policies, serve different organizational needs, for instance ‘training can focus on teamwork while the rewarding can focus on personal achievements’ (Bohlander et al. 2007, p.73). In this way, the ideas and the values promoted within the organization are differentiated, a fact that negatively affects cooperation and communication within the organization. The aspects of the relationship between the HR policies and the HR practices are analyzed in the study of Leopold et al. (2009); in accordance with the above researchers, the actual effects of certain reward schemes on the increase of employee motivation (i.e. also on the increase of organizational performance) are not guaranteed. In fact, it has been proved that reward schemes are likely to be effective – referring to the increase of employee motivation – only on employees that reach a high level of performance; on the contrary, in case of employees with low performance the above schemes have rather a negative impact (Leopold et al. 2009, p.248). Additionally, the introduction of reward schemes within a particular organization can lead to the transformation of the employment relationship, as follows: the role of employee within each organization is to support the growth of the organization, a target which usually requires a long period to be achieved. However, the reward schemes can lead employees to increase their performance for a particular period of time – just in order to have the right to be rewarded in the context of a particular reward scheme (Leopold et al. 2009, p.248). In other words, the performance – based rewards can establish within the organization the trend for seeking for short term gains instead of trying for a high performance on a continuous basis, a practice which would mostly support the growth of the organization. From this point of view, the HR practices (in the context of which rewards are provided) set barriers to the development of the organization in the long term – which is the main target of HR management; it is in this context that the relationship between the HR management and the HR practices becomes highly problematic. From another point of view, Hoffman (1968) noted that the relationship between the HR policies and the HR practices is, by its nature, problematic because of the following fact: the HR practices are commonly used for the achievement of targets that are out of the HR framework of an organization; reference is made for example to the performance-based pay which has introduced conflicts within organizations as of the terms used each time for identifying the actual contribution of each employee in the increase of organizational performance. At this point, HR practices are differentiated from the HR management, since the latter promotes the common effort of employees for the achievement of organizational goals while HR practices can lead to the development of discrimination within the organization (in the context described previously) being differentiated from the HR framework’s rules for cooperation for the promotion of the interests of the organization. 3. Payroll costs and business goals Reward policies are commonly used as tools for achieving corporate goals. This fact has the following implication: through the rewards of employees the payroll costs of the organization are significantly increased, a fact that can lead to severe organization turbulences if there is no such provision in the firm’s HR strategy. Of course, it cannot be doubted that reward schemes can benefit the organizational performance; however, their use would be carefully checked in advance, in terms of the firm’s potentials to afford such schemes. In accordance with White et al. (2000) the payroll system of each organization should be regarded as a competitive advantage of the organization – compared to the other firms operating in the same industry. This view is based on the fact that many organizations develop unique payroll systems (in terms of these systems characteristics); these systems can highly increase employee motivation. From this point of view, a payroll system can be a criterion of competitiveness of the organization – among the other firms in the same industry. Such system should be considered as highly supporting the organizational development and it is at this point that this system is related to the organizational performance. However, it should be noted that a payroll system can have such benefits for the organization only when it is aligned with the organization’s HR framework. Otherwise, the particular system will not be able to survive for a long period of time – if it is opposed with the firm’s HR policies, which are based on the organization’s strategic planning. For instance, the provision of extremely high bonuses as a reward scheme could not be used as a HR practice in the long term if there is no such potential of the organization – as reflected in the organization’s HR framework. The relationship between the payroll costs and the business goals is also reflected in the following fact: professionals that have to manage payroll costs need to be aware of the organization’s goals; otherwise, they will not be able to evaluate the appropriateness of employees’ compensation and rewards – referring to both monetary and non-monetary rewards of employees in different organizational departments (Armstrong 2010, p.454). On the other hand, Stredwick (2005) noted that the payroll costs are necessarily related because of the following fact: the level of rewards given to employees of a particular organization need to be estimated in accordance with the goals of the specific organization; it is explained that these goals will reveal the organizational needs, which have to be addressed by the development of particular tasks, assigned to employees in different departments; the level at which each of the employees participated in these tasks will be compensated need to be precisely estimated in advance, aiming to ensure the employee motivation in achieving the targets set (Stredwick 2005, p.243). Moreover, Armstrong (2000) noted that the reward strategy of an organization is related to the corporate goals at the following points: a) promotes the synergy (alignment) of corporate strategies for the achievement of business goals, b) is aligned with the corporate culture and c) promotes employee motivation supporting, in this way, the increase of organizational competitiveness, a fact that can increase the chances for achievement of the corporate goals (Armstrong 2000, p.233). Under these terms, the payroll costs, a term used in order to describe the rewards of employees, are necessarily related to the corporate goals. 4. Methods for reducing payroll costs without negatively affecting the corporate goals The effectiveness of the payroll systems in organizations of different characteristics is not standardized. In fact, in accordance with White et al. (2000, p.132) payroll systems are likely to perform differently in each organization being influenced by the internal and external environment. In this context, it is explained that a payroll system, which achieved a high performance in a particular organization, may have lower performance in another organization, a fact that justifies the view that a payroll system can be characterized as a competitive advantage (White et al. 2000, p.132). Under these terms, the methods used for the limitation of the payroll costs in each organization may be differentiated across organizations – even among organizations operating in the same industry, as fact highlighted in the study of White et al. (2000). However, it is possible to present a general plan of action, i.e. a series of initiatives, which can lead to the limitation of the payroll costs and which can be applied on all organizations, after being appropriately transformed – in accordance with the business needs and characteristics but also in accordance with the resources available. Particular emphasis should be given on the strategies available for the implementation of successful reward schemes, i.e. schemes that would protect the organization from high costs regarding the reward of employees. Since these schemes are necessary for most organization, their relevance to the limitation of payroll costs cannot be doubted. One of the most effective strategies for controlling the payroll costs within an organization could be the evidence-based development, an approach analysed in the study of Armstrong (2010); the above approach is based on the following rules: the conditions in the internal and the external organizational environment are carefully reviewed; then, the strengths and the weaknesses of the reward schemes under discussion – meaning those schemes reviewed by the firm’s HR managers – are examined and evaluated, aiming to choose the reward scheme that could best serve the needs of the organization and which has the least, possible, disadvantages; finally, the cost and the risks related to each reward scheme are estimated (Armstrong 2010, p.410). Through the above process, the reward scheme chosen for a particular organization is aligned with the organization’s needs and financial status; it is assumed that through the introduction of such scheme the payroll costs of the organization involved are reduced. The introduction in the organization of an integrate strategy for controlling the level of rewards – meaning the compensation of employees, in all its forms – in all organizational departments would also help to reduce the payroll costs, either in the short or the long term. This strategy would include the following phases: a) review of the organization’s current reward system, b) evaluation of the organisation’s bonus schemes and the performance – based agreements, c) evaluation of both the monetary and non-monetary rewards given to employees at different levels of the organizational hierarchy (Armstrong et al. 2006, p.145). From a different point of view, Bragg notes that payroll costs should be managed during all phases of employment – including the hiring process. In this way, it is ensured that the losses of the company from reducing payroll costs with delay would be minimized (Bragg, 54). In the hiring process the payroll costs could be effectively controlled by using the new hire modelling technique, a payment scheme which incorporates the provision for gradual increase of the reward of employee since its entrance in the firm; this strategy has the following advantage: the level of increase arranged is usually lower than the expected increase of the firm’s profitability – as an analogy – because of the hiring of the employee (Bragg 54). An alternative arrangement of payment for employees that enter the organization is the merit-based pay which depends the reward of each employee on his qualifications and his performance (Bragg 54). Both the above systems can ensure the effective control of the payroll costs at an early stage of the employment relationship, which minimizes the risk for relevant losses. Moreover, the payroll costs of a specific organization would be also limited if changing the common practice regarding the reward of highly specialized employees: for instance, when there is need for highly specialized employees – which are expected to have an extremely high salary (for instance, IT systems’ developers) then it would be preferable to use outsourcing – even at high rates of payment – instead of hiring an employee, the high salary of whose would continue to be increased reaching extremely high levels, a fact that would significantly increase the payroll costs of the organization (Bragg 56). The use of an appropriate reward management plan, as those presented in the Appendix section (graph 1 and 2) would help HR managers to control the payroll costs of the organization and avoid the exposure of the firm to increased employee rewards. 5. Conclusion The limitation of payroll costs in modern organization could be characterized as a target achievable but only under specific conditions, as analysed above. The review of the strategies available to managers for achieving the above target has led to the following assumptions: the control over the payroll costs is possible in different phases of the employment relationship; the development of outsourcing could help organizations to reduce their payroll costs, however the effectiveness of this strategy in the long term cannot be guaranteed. In any case, the limitation of payroll costs has to be a key part of reward management in modern organizations. The use of traditional strategic management practices, such as benchmarking or the balanced-scorecard, can help organizations to identify their potentials and needs; in this context, the establishment of an effective strategy for managing costs across the organization would be easier achieved. References Armstrong, M., Brown, D., Reilly, P. 2010. Evidence Based Reward Management: Creating Measurable Business Impact from Your Pay and Reward Practices. London: Kogan Page Publishers Armstrong, M. 2010. Armstrong's Handbook of Reward Management Practice: Improving Performance Through Reward. London: Kogan Page Publishers Armstrong, M. 2007. A handbook of employee reward management and practice. London: Kogan Page Publishers Armstrong, M., Brown, D. 2006. Strategic reward: making it happen. London: Kogan Page Publishers Armstrong, M. 2002. Employee reward. London: CIPD Publishing Armstrong, M. 2000. Strategic human resource management: a guide to action. London: Kogan Page Publishers Bohlander, G., Snell, S. 2007. Managing human resources. Belmont: Cengage Learning Bragg, S. 2010. Cost Reduction Analysis: Tools and Strategies. John Wiley and Sons Brown, D. 2001. Reward strategies: from intent to impact. London: CIPD Publishing Cowling, A., Mailer, C. 1998. Managing human resources. Oxford: Butterworth-Heinemann Hoffman, C. 1968. Work incentive practices and policies in the People's Republic of China, 1953-1965. New York: SUNY Press Holman, D. 2005. The essentials of the new workplace: a guide to the human impact of modern working practices. Hoboken: John Wiley and Sons Leopold, J., Harris, L. 2009. The strategic managing of human resources. Essex: Pearson Education Marchington, M., Wilkinson, A., Sargeant, M. 2002. People management and development: human resource management at work. London: CIPD Publishing Secord, H. 2003. Implementing best practices in human resources management. CCH Canadian Limited Shields, J. 2007. Managing employee performance and reward: concepts, practices, strategies. Cambridge: Cambridge University Press Stredwick, J. 2005. Introduction to Human Resource Management. Oxford: Butterworth-Heinemann White, G., Druker, J. 2000. Reward management: a critical text. London: Routledge Appendix Graph 1 – Reward management plan (Source: http://febooku.com/wp-content/uploads/2010/11/performance_management.jpg) Graph 2- Reward management process (Source: http://churmura.com/wp-content/uploads/2009/12/untitled26.jpg) Read More