Effective Reward Management as Part of Strategic Human Resource Management - Research Paper Example

Effective Reward Management as Part of Strategic Human Resource Management Introduction In an attempt to define reward management, we can say that, “Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization” (Armstrong & Murlis, 2007 P. 3). Thus, it is aimed at designing, implementing and maintaining reward processes as well as practices which are in turn focused at improving the overall organizational performance as well as those of the teams and of the individuals. Reward management is strategically aimed at developing and implementing reward policies as well as the practices and processes that are required by the organisations in achieving the business goals. It has been observed that, “Rewards will have more motivational influence when the employee recognizes a direct relationship between activities, performance, results achieved, and rewards gained” (Heneman, 2002 P. 96). Hence it is important to observe that the principal concern, while designing reward systems, should be to evaluate the extent to which the plan will be successful in motivating the employees. The theoretical base on which such a design consideration rests is the expectancy theory which necessitates an efficient reward plan to have certain motivational characteristics. This essay is aimed at comprehensibly analysing the various aspects of reward management as integral and indispensable components of efficient strategic human resource management. In the light of an extensive literature review, the essay will try to evaluate the importance of monetary rewards in enhancing the motivation and productivity of organisational employees. Sufficient efforts will be given to establish the premise that incentivised activities result in enhanced performance. Money & Reward Management Reward management is an area of strategic human resource management that entails the analysis as well as efficient control of employees’ remuneration and it also covers salary as well as benefits. This area also emphasises on the nature as well as coverage of rewards, the way the rewards are delivered to the employees, and the effect of rewards on the organisation and its employees (Cornwell Management Consultants Plc., 2007). Basically, there are two types of payment schemes, viz. fixed pay and performance linked reward. Certain organisations incorporate elements from both these schemes in their compensation system. In fixed pay, there is a fixed monetary compensation which doesn’t fluctuate over consecutive periods of time (usually a year), unless revised by policy driven and definite increments in pay on an annual basis. Generally fixed pay depends mainly on the responsibility and/ or seniority of the employees. When we think from the motivational aspect of monetary rewards, fixed pay do seem to play an inspirational role because the employees normally tend to feel secured by this stipulated amount that they are rightfully entitled to receive (Gerard, 2006, P. 128-130). As is evident from the name, performance linked reward is a variable mode of compensation which is generally delivered to the employees on a quarterly basis depending on the quality as well as quantity of work done by the employees. This type of a reward acts as a motivational catalyst and drives the employees to perform better in order to earn an extra amount over and above their basic pay. If the management plans to boost performance and productivity, it may thus employ this form of reward as a strategic tool. Both these schemes work smoothly, given the scales are comprehendible and the processes of assessing completed job are explicit, precise and reasonable. However, considerable degrees of dissatisfaction have been observed with respect to compensation management on either side of the employer-employee affiliation. Of late, organisations have made attempts to formulate remedial strategies to alleviate the situation by implementing new systems as well as an enhanced dependence on performance linked pay (HRM Guide, 2010). OECD data revels that most of the developing countries as well as their developed counterparts have been showing incremental trends to employ performance linked pay systems in order to enhance productivity and performance of their employees (Perry, Engbers & Jun, 2009). For a better understanding of its potentiality to be treated as a strategic as well as a motivational tool, reward management should be further analysed by the understanding of psychological contract which may be defined as, “the perceptions of the two parties, employee and employer, of what their mutual obligations are towards each other” (CIPD, 2009). With reference to this perspective it can be argued that considering the human interface that exists in any organisational setup, the psychological element inherent to any interpersonal transaction should be factored in while administering a reward mechanism. The management should set SMART (Specific, Measurable, Attainable, Relevant and Time bound) goals for the employees which can perceive to be rational. Only then would it make sense if the management attaches a specific reward with the achievement of the goal. It can be suggested that money alone cannot motivate the employees if the job is not interesting. Hence, the concept of psychological contract plays an important role in understanding the requirements of strategic reward systems and in using monetary rewards judgementally to enhance employee motivation. As has been already mentioned, the overall compensation package consists of a fixed as well as a variable component. From the perspective of strategic human resource management (SHRM), there can be an alternative composition, according to which rewards may be categorised into a financial part which is generally referred to as compensation, and a non financial part that comprise the rewards. Since compensation consists of basic salary, performance linked incentives and employee benefits, while rewards may be intrinsic, i.e. those which are related to the job itself, and/ or extrinsic, i.e. admiration, recognition, flexitime, etc. (Leeds School of Business, n.d.), it can be clearly understood that the latter serves the purpose of motivational buffers. It is justifiable to comment in this context that rewards, if monetary, are more acceptable for employees as they provide them with a means to satiate their worldly requirements in a better manner. We will have a closer look at this aspect in a later part of the essay. When it comes to evaluate the importance of money as an effective motivator, a comprehensive understanding of the motivational theories, viz. Maslow’s Hierarchy of Needs, Herzberg’s Two Factor Theory and Adam’s Equity Theory is necessary. The aim of these theories is to propound various measures to motivate people and at the same time they explain the bases of human behaviour with respect to the efforts that employees give at their workplaces. They also describe different organisational initiatives that should be adopted in order to enhance the morale of employees so that they are encouraged to put their skills and abilities to the best use and thereby help the organisation achieve its goals. These theories also emphasise on the job satisfaction as well as the fulfilment of personal needs of the employees (Armstrong, 2006 P. 251). It goes beyond saying that money is a vital requisite for the fulfilment of our needs. The physiological needs of the employees, i.e. the need for basic elements such as food, shelter, etc. comprise their basic priorities, while the higher needs comprise those of security, love and belonging, esteem, and finally self actualisation. Quite obviously, employees like any other human being, need money to satisfy their base level, i.e. physiological needs. This observation finds its theoretical support in the work of Abraham Maslow (Maslow & Stephens, 2000 P. 1-10). The need for money as a motivating agent gradually decreases while moving up the career path, though its importance can not be completely ruled out. As an individual (employee) moves towards the apex, the thirst for money takes a backseat and he craves to achieve aesthetic satisfaction. Justifying the central theme of this research it can be said that monetary rewards play a major role in motivating an employee from the initial stages of his career until the point of time when his worldly needs are satisfied. Once he is completely secured against the uncertainties of his physical environment by virtue of financial stability, his focus shifts to the pursuit of higher objectives. Once we have analysed the role interrelationship between money and the fulfilment of human needs, it is important to take a closer look at how money can be intelligently employed to manifest both employee satisfaction as well as optimal performance. When observed from an employee’s perspective a job is found to comprise two vital components, viz. the job context and the job content. As has been suggested by Frederick Herzberg, these two aspects serve as the bases of job dissatisfaction and job satisfaction respectively. The hygiene factors are those that are relevant in terms of the job context, e.g. the workplace environment, while the motivator factors are pertinent in terms of the job content, e.g. the tasks to be accomplished (Nelson & Quick, 2007 P.127-128). Within an organisational setup, in order to satisfy the basic expectations of the employees which are commonly a safe and healthy working environment, a reasonable compensation and benefits package, etc. are necessary and at the same time motivation factors have to be employed in order to motivate the employees. Motivation factors ensue from an efficient job fit which ensures that the right person has been given the right job (Anderson, Ford & Hamilton, 1998 P. 296). Thus, it is again observed that monetary rewards play a vital role in satisfying the employees and make them inclined towards fulfilling their professional commitments given that they are also sufficiently motivated. Owing to the fact that pay, or the financial compensation, is perceived as a true measure of an employee’s value to the organisation, it is quite normal for employees to draw interpersonal comparisons on the basis of the same. Hence, in order to maintain a climate of harmony and job satisfaction within the organisation, it is important for the management to ensure an impartial distribution of rewards which is based strictly upon performance. It is also equally important to make sure that each employee has a clear understanding of such a compensation and reward scheme. The Equity Theory which was proposed by John Stacey Adams “refers to an individual’s subjective judgement about the fairness of the reward received for inputs in comparison with the rewards of others” (Koontz & Weihrich, 2006 P. 305) and propounds that employees tend to be satisfied and motivated only when they observe that similar efforts are rewarded at par by the employer. Any discrimination with respect to this aspect leads to dissatisfaction and the employees are forced to lose integrity. Efficient communication helps the management achieve credibility and hence organisational harmony which are essential to enhance unidirectional alignment of goals. In organisational context, “equity theory is most relevant to pay as an outcome” (Pride, Hughes & Kapoor, 2009 P. 289). For the purpose of creating an environment that sustains self motivation, managements are required to advocate organisational justice and fairness, whose significance has also been propagated by the equity theory (Greenberg & Colquitt, 2005 P. 18). One of the major cognitive theories which were developed by Victor Vroom and E. E. Lawler suggests that the employee should believe that his efforts will bring positive changes in the performance and should subsequently recognise that enhanced performance will generate rewards. He should also accept that the rewards so generated are the ones that he requires for fulfilling his needs. Once these requisites are in place, the employees put their efforts to enhance performance. Their knowledge, skills and abilities (KSAs) are periodically augmented through self motivation and through interventions of the employer in the forms of training and development (Watson, 1986 P. 119). Hence, it is noteworthy that rewards are an integral ingredient of motivation. Correlating this theory with Maslow’s hierarchy of needs, it can be observed that monetary rewards are necessary to uplift the morale as well as job satisfaction of employees. The primary driving force behind an employee’s willingness to work is the reward associated with the outcomes of his performance. Hence, the management should identify the needs of the employees and consequently attach with the tasks relevant rewards that will help the latter satisfy their needs. For employees whose needs are at the base of Maslow’s hierarchy of needs, financial incentives serve as the best rewards as they motivate them the most. Likewise, for an employee who is seeking solutions to his self actualisation needs, the management should cater aesthetic rewards which are often high value and yet non-monetary, for example, an all-expenses-paid family trip to a premium foreign location. At no point of time should the management neglect the fact that employees, irrespective of their positions in the organisational hierarchy, nurture certain preordained expectations about the outcomes of their performance, though the nature of the outcome may vary in accordance with their needs. Hence, the management should carefully cater to those needs in order to stoke their ego and in turn motivate them to perform optimally on a continuous basis so as to enhance the productivity and profitability of the organisation and at the same time help it achieve its business goals. Conclusion From the extensive research that was undertaken to materialise this essay, it was observed that an efficient reward management system is of immense importance in determining the success of strategic human resource management. As has been propounded by various management scholars, rewards have a motivational influence on the employees by making them recognize a direct connection between their activities as well as performance, the results achieved, and the rewards gained by them as a consequence. The employer and employees are associated through a phenomenon called the psychological contract. The mutual obligations between employer and employees are generally informal and indefinite. Owing to this, some of the obligations are perceived as promises, others are recognised as expectations. The most important aspect of psychological contract is that the employee is necessitated to have faith in it in order to be associated with his employer and to be synergistically integrated with the organisation. Compensation consists of a basic salary, along with which performance linked incentives and employee benefits are added. In comparison, rewards may be considered as either intrinsic, i.e. factors which are related to the job itself, or extrinsic, i.e. motivational response from the management in the form of admiration and recognition. It is an equally important requisite that the reward system should be capably associated with the interconnected aspects of human resource systems owing to the fact that it is a key component of the organisational human resource strategy, organisational culture and the overall business strategy. On analysis of various motivational theories it was found that organisations should adopt strategic initiatives in order to enhance the morale of employees so that they are encouraged to put their skills and abilities to the best use and consequently help the organisation achieve its goals. Similarly, the management should ensure that the personal needs of the employees are also duly satisfied. It was observed that monetary rewards play a vital role in motivating employees and in enhancing their job satisfaction as long as the primary need of the employees is financial in nature. Employees as individuals need money to satisfy their physiological needs such as the needs of food, clothing, etc. When an employee grows vertically along his career path, his financial needs gradually decrease and he incrementally pursues higher aesthetic needs which are often non-financial in nature. Hence, it will be reasonable to conclude the essay by saying that money undoubtedly plays an important role as an agent for motivating employees but is not the exclusive means to motivate employees across all hierarchies. After the career path reaches a certain height, non-monetary rewards become more important to motivate employees. References 1. Anderson, D. T., Ford, R. & Hamilton, M. 1998. Transforming Leadership: Equipping Yourself and Coaching Others to Build the Leadership Organization. 2nd ed. CRC Press. 2. Armstrong, M. 2006. A Handbook of Human Resource Management Practice. 10th ed. Kogan Page Publishers. 3. Armstrong, M. & Murlis, H. 2007. Reward Management: A Handbook of Remuneration Strategy and Practice. Revised 5th ed. Kogan Page Publishers. 4. CIPD. January 2009. The Psychological Contract. [Online]. Available at: http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm [Accessed on: February 16, 2010]. 5. Cornwell Management Consultants Plc. 2007. Reward Management. [Online]. Available at: http://www.cornwell.co.uk/people_management/reward_management.asp [Accessed on: February 16, 2010]. 6. Gerard, P. 2006. Performance & Reward: Managing Executive Pay to Deliver Shareholder Value. Troubador Publishing Ltd. 7. Greenberg, J. & Colquitt, J. 2005. Handbook of Organizational Justice. Routledge. 8. Heneman, L. R. 2002. Strategic Reward Management: Design, Implementation, and Evaluation. Information Age Publishing Inc. 9. HRM Guide. February 16, 2010. Reward Management. [Online]. Available at: http://www.hrmguide.co.uk/performance_and_compensation/reward_management.htm [Accessed on: February 16, 2010]. 10. Koontz, H. & Weihrich, H. 2006. Essentials of Management. 7th ed. Tata McGraw-Hill. 11. Leeds School of Business. No Date. Strategic Rewards System I. [Ppt]. Available at: http://leeds-faculty.colorado.edu/balkin/MBAO6030/LectureNotes/MBAO%206030%20Strategic%20Reward%20Systems%20I.ppt [Accessed on: February 16, 2010]. 12. Maslow, H. A. & Stephens, C. D. 2000. The Maslow Business Reader. John Wiley and Sons. 13. Nelson, L. D. & Quick, C. J. 2007. Understanding Organizational Behavior. 3rd ed. Cengage Learning EMEA. 14. Perry, L. J., Engbers, T. & Jun, Y. S. January-February 2009. Back to the Future? Performance-Related Pay, Empirical Research, and the Perils of Persistence. Public Administration Review. [Pdf]. Available at: http://www.aspanet.org/scriptcontent/custom/staticcontent/t2pdownloads/PerryetalArticle.pdf [Accessed on: February 24, 2010]. 15. Pride, M. W., Hughes, J. R. & Kapoor, R. J. 2009. Business. 10th ed. Cengage Learning. 16. Watson, J. T. 1986. Management, Organisation, and Employment Strategy: New Directions in Theory and Practice. Taylor & Francis. Bibliography 1. Armstrong, M. 2000. Strategic Human Resource Management: A Guide to Action. 2nd ed. Kogan Page Publishers. 2. Armstrong, M. 2002. Employee Reward. 3rd ed. CIPD Publishing. 3. Armstrong, M. 2007. A Handbook of Employee Reward Management and Practice. 2nd ed. Kogan Page Publishers. 4. Brown, D. & Chartered Institute of Personnel and Development. 2001. Reward Strategies: From Intent to Impact. CIPD Publishing. 5. White, G. & Druker, J. 2000. Reward Management: A Critical Text. Routledge. 6. Wright, A. 2004. Reward Management in Context. CIPD Publishing. Read More