Managing Human Capital - Assignment Example

1. In the face of globalization and internationalization, the issue of motivating and retaining the staff has intensified. Organizations and management are attempting to find different means to motivate their employees and merit is one such area that has been linked to rewards as a means to motivate. The purpose of any pay or performance is to be able to attract, motivate and retain talent. Merit pay systems have been designed to induce performance, and while it has been found to be necessary, it is not sufficient to induce high performance (Brody, Frank & Kowalcyzk, 2001). Merit-pay systems can in fact serve to demotivate and even generate anxiety, thereby only contributing marginally as motivators of desired performance (Barclay & York, 2003). Merit pay is usually rolled into the base salary and hence performance in one year will have effect on the salary in the future. However, this is based on performance appraisal and the methods of performance appraisal followed by organization are a controversial issue (Barclay & York). Even if linkages to productivity do not exist, the plan communicates a useful message to employees (Campbell, Campbell, & Chia, 1998). It is generally believed that individuals should be rewarded based on their contributions and hence merit-based pay serves to fulfill the “norm of distributive justice”. Thus it diffuses concerns among the employees about fairness and equity. Theories of motivation also support the basis of merit for pay. Managers are encouraged to link important outcomes to desired behaviors. Whether they base their decision on the reinforcement theory or the expectancy theory, managers need to demonstrate to employees a link between performance and rewards. All these would indicate that basis of merit for pay is necessary as well as beneficial. However, in practice, such strategies often result in disappointments, discouragement, dissatisfaction and decreased performance. Measurement issues Researchers express doubts whether performance can be accurately measured and there have been suggestions to make the measurement objective instead of subjective judgments (Campbell, Campbell, & Chia, 1998). Moreover, individual performance is linked to others in the organization and this poses difficulties in calculating individual contribution to the organization. Instead of output measures, behavioral measures can be considered but none is satisfied with such measures. Performance appraisal feedback and acceptance issues Employees’ acceptance of the feedback systems creates problems as they do not accept the evaluations as accurate. Perceived favoritism is a problem in merit compensation systems due to the subjective nature of the performance evaluation process (Brody, Frank & Kowalcyzk, 2001). Moreover, the appraiser’s informational and cognitive constraints can influence the appraisal which would not be acceptable to the employees. Employees do not agree to appraisals lower than their own expectations. Amidst uncertainties and to avoid confusion managers may tend to overpay the workers in which case the workers may likely withdraw effort (Belfield and Marsden, 2003). Example Companies such as Nokia have actually experienced reduced performance over time as people realize that goals are achievable and hence a positive appraisal assured (Nikols, 2007). Involving employees in the appraisal process my to some extent increase acceptance but the bias control mechanism cannot be eliminated due to the human element involved (Davis & Landa, 1999). Multiple appraisals from different managers, is one method of eliminating manager-bias but if ratings from different managers differ, it could again impact the overall appraisal (Lewis, 1998). Participation and involvement by the employees could help. Reward desirability issues For the merit pay system to be effective there must be meaningful pay differentials. Larger performers must be rewarded with large pay differences (Campbell, Campbell, & Chia, 1998). Example At IBM, the core philosophy is based on two factors – to reward their employees on individual performance and to differentiate strongly among employees who contribute to the overall firm performance (Portfolio, 2009). They appropriately reward the highest contributors. Individuals are asked to establish their annual goals at the beginning of the year and assessments are conducted mid-year and at the year-end. However, recognizing high performers may demotivate the low performers, which may give rise to a feeling of insecurity. This in turn affects motivation, performance and output. Country differences Reward preferences are shaped by individual values, needs and expectations and hence what works in one country may not be effective in another (Chiang & Birtch, 2005). There is close interdependence between rewards, motivation and culture. When employees contribute towards obtaining job objectives, they expect rewards, which satisfy their individual goals. Both content and motivation theories of motivation acknowledge that values differ across cultures and nations. This impacts how the employees from different nationalities perceive and relate to their work environment. Additionally, it can influence the appraisal by the manager - a positive appraisal will fetch a positive outcome such as satisfaction, comfort and commitment (Testa, 2004). Example I: The senior management team at Hyatt International Hotel Group represents eight different cultures. The group hence uses the familiar cultural framework as it has helped them to evaluate and incorporate the national culture right from the planning stage. The incentive packages under such circumstances have to be flexible and vary across nations (Teare, 1995). The German managers prefer incentive based on thirteen-month salary bonus while the Americans prefer a non-contributory pension scheme used in USA. Example II: The Russians managers are at the lower level of the needs hierarchy and hence are motivated by the salary level where degree bonuses are appropriate while the Swedish managers have their basic needs met (Fey, 2005). Hence, they being higher up in the needs hierarchy are motivated by an enjoyable work environment. These two examples show that national cultures play an important role in determining the conditions for motivating people. Different levels of employees Motivators again differ across different levels of managers. Knowledge workers is a new kind of employee that are paid to gather, develop, process and apply information, to the benefit of the organization (Smith & Rupp, 2004). In the case of knowledge workers high performance ratings does not entail high merit ratings, which is the usual basis adopted by organizations, as per the Expectancy Theory. However, companies are decoupling performance ratings and pay. In a study of 53 cases, it has been found that merit increase was based upon perceived levels of performance. A small percentage of participants received a low performance rating and high merit increase. Employment security is a major concern among knowledge workers, which the management is aware of. Once hired and before sent for training, the knowledge workers the forms of reporting have to be mutually agreed upon and the organizational goals should be clarified. Stock options/profit sharing Apart from merit pay, other forms of incentives offered include stock options, profit sharing and gain sharing. Merit pay is granted on an individual basis and is linked to performance, over which the employee has some sort of control (Kraizberg, Tziner & Weisberg, 2002). In the profit and gain sharing schemes, the employee has no direct control over the amount of incentive he may receive because this depends upon overall organizational performance. Since they have an indirect and partial influence over the bonus or incentive they receive, anything below their expectations could serve to demotivate them and which in turn leads to lower performance. Stock options may have even lower levels of motivation because in this case the incentives are market driven. Employee stock options have been gaining in popularity as compensation aimed at motivating the employees but there is neither theoretical nor empirical evidence that this is superior to other incentive schemes such as profit sharing or gain sharing (Kraizberg, Tziner & Weisberg, 2002). In fact profit or gain sharing enables the employees to use certain amount of incentive immediately. Stock options cannot be exercised till after a prescribed period of time. Moreover, in the meantime if the employees leave the organization they forfeit their right to exercise their stock options. Under the circumstances some sort of cash incentive like merit pay can induce a higher level of work output, motivation and enhanced organizational outcome. This is based on the Expectancy Theory. However, in all these alternatives money is used to compensate employees and as yet there is limited research available on the linkages between monetary compensation and organizational outcomes (Kraizberg, Tziner & Weisberg, 2002). It thus is evident that there is no empirical evidence to suggest what actually motivates the employees and results in enhanced organizational outcomes. Cash incentive is however a necessity and this should be based on either individual or team performance, wherever applicable. The employee has no control over organizational profit, gains or stocks and hence he/she risks the amount received through such schemes. Merit-pay system cannot be done away with, despite several problems perceived in linking pay to merit. Moreover, it fetches immediate gain and the employee knows for sure he has contributed to the organization. This itself may enhance the self-esteem and motivate them to perform better. The HR professionals contend that in the right circumstances merit-pay can serve to motivate the employees. For merit systems to be effective, such systems should be linked to the business objectives (Barclay and York) apart from taking into account the cultural differences. 2. Job analysis is a fundamental step towards developing a total rewards program. This is a systematic process that helps evaluate the employee’s distinct role but due to time and budget constraints this step is often executed in a hurry (Simmons, 2002). It was believed that job analysis was a sound business practice that could enhance communication, accommodate change, and be cost effective in improving the human resource management (Singh, 2008). However, worker requirements have changed in recent years due to cross-functional job responsibilities, shifts in job responsibilities, global competition, free trade and self-managing teams ((McEntire, Dailey, Osburn & Mumford, 2006), shorter product life cycles and changing nature of organizational structures (Singh, 2008). Added to these is the sudden surge in competencies – either in leadership as in the US or in developing technical skills as in South Africa (McLagam 1997). Organizations have become dependent on human capital and their market value relies on knowledge, loyal customers and other expressions of human capital. Job analysis is supposed to serve as a foundation for most HR related activities and issues. It helps organizations to gain a better understanding of their jobs and their workers (McEntire, Dailey, Osburn & Mumford, 2006). It provides a point of reference for the HR professionals and managers but the scope of job analysis has yet to be exploited to its fullest potential. This is because the decisions made by the HR professionals rely on loose inferences or qualitative hunches. This happens because of lack of means and tools for data configuration and analysis. The deficiency of tools refers to the inability of the HR professionals to keep their job analysis outcome current with respect to the status of their human capital. They are also unaware of the changes in the organizational need and advancement in technology and equipment. The decisions do not reflect the current situation because the information analysis is improper. The job requirements and the employee requirements are not updated. Job analysis decisions have to vary across departments, jobs and organizations. The traditional job descriptions are not flexible enough for the constantly changing world of new strategies, ever-changing customer requirements, and an overall competitive environment (McLagan, 1977). This is perhaps the reason why the organizations are unable to obtain the desired performance from the employees. Since the job analysis lacks efficiency, HR planning should be the first step taken by the HR professionals. HR planning ensures that the right person is in the right job at the right time (Jackson & Schler, 1990). This maximizes long-run benefits both to the individual and the organization. The process involves forecasting the future human needs and then developing programs such as staffing, training and appraising. Such planning can ensure that people with the desired skills would be available when required. Strategic HR planning is a three stage process including strategy formulation, implementation and evaluation (Krishnan & Singh, 2004). In each stage the macro and micro environmental factors have to be taken into account. The implementation stage is the most important where focus has to be on the right recruitment and selection of the workers. The third stage or the evaluation stage reviews the strategic integration and the effectiveness of the HR planning. This is a difficult stage because most organizations are unaware what they want to evaluate – is it employee turnover, organizational productivity or overall performance. Performance reviews also form a part of this stage, which again is a debatable issue as discussed in the first section. The forces of change thus urge for a flatter, less bureaucratic, less hierarchical, faster and more responsive organization as the model for the future (Beer, 1997). This would require strategic actions such as employee engagement, employee commitment, competency in leadership and general management, creativity and open communication. Employee engagement The long-term success of an organization is in retaining talent and this is contingent upon a highly motivated and engaged workforce. A global study of about 60 corporations in 2004 found that a highly engaged workforce delivers 20% better rate of productivity than the companies that have not invested in this relationship (Mansbridge, 2008). Wal-Mart, for instance has a consistent and disciplined approach to building relationship with employees. The right instruments such as employee surveys may help to measure the current state of employee engagement. After an analysis of the findings, the change required must become a part of the organizational culture. However, an engaged workforce can result only when there is meaningful and systemic dialogue between the company and the employees. Employee commitment Employee commitment can be affective, continuance and normative where affective commitment is the emotional binding that the employee develops with the organization. The employee identifies and aligns the corporate goals with individual goals. This is a ‘commitment’ of the employee because she wants to remain as a part of the organization (Jafri, 2010). Continuance commitment is the analysis of the losses if the employee leaves while normative commitment holds the employee to the organization with a sense of obligation. What is desirable is an affective commitment which is an intrinsic motivation and not out of force. When the employees are able to perceive a sense of mission, commitment increases. Commitment leads to motivation and involvement (Caldwell, Chatman and O’Reilly (1990). At the recruitment stage itself the expectations must be clarified to the applicants as in the case of Pizza Hut. Job previews provide balanced information about the work, about the advancement opportunities and give details about the general work climate within the organization. The website of Pizza Hut carries precise information of the job, the compensation, the expectations and the job roles. Competency in leadership and general management Another tool that could help HR planning is analysis of the competencies required in an organization. This would provide the workers tools for creating valid models of their current work and for adjusting at a rapid pace when the situation so demands (McLagan, 1977). Users must be able to construct the models in real time. Analysis also must be quick and what is more important is to spend time on the application of the model. Without involving experts, if employees are empowered to create their own tools and models, and they are held accountable for their output, it could serve to motivate them and enhance organizational performance. This approach is based on employee involvement because the situation warrants a continuous-improvement environment. This new competency approach can be a powerful tool in making everyone in the organization accountable and participative. This is what precisely Simmons also suggests. Simmons suggests that tasks should be broken up and written down in active voice. Tasks can be quantified and hence this would enable to develop measurements for performance-related applications. This approach would also ensure that organizational goals are integrated with individual goals. Organizational problems have become complex, and integration provides a wider range of solutions to these situations (Lengnick-Hall & Lengnick-Hall, 1988). Integration ensures that human resources are given consideration in setting and assessing capabilities, especially when they are involved in forming their own models. At the same time, integration limits the neglect of human resources that today have become a vital source of organizational competence and competitive advantage. Creativity and open communication Open communication is the basis for long-term relationships and organizations have to recognize that they not only have to make a reasonable effort to deliver information to employees, but they must create opportunities for employees to regularly voice their opinions (Mansbridge, 2008). The employees must be allowed to contribute to the decision-making process. Thus, since job analysis has not been used to its fullest potential, HR planning is the preferred approach to enhancing organizational performance and keeping the workforce motivated. However, the steps have to be initiated from the recruitment stage itself and have to be consistent through the evaluation stage. In the recruitment stage the incumbents must be made aware of the job roles and responsibilities, the expected outcome and the compensation they can expect. For continuous commitment to the organization, they have to be engaged through different means which would differ across regions, sectors, firms, departments and cultures. One method is to rely on competencies so that the right skills are available at the right time for the right job, which is the essence of HR planning. With the ever-changing business environment such planning has become essential and to achieve the desired performance the traditional employer-employee relationship has to undergo a change. The employees have to be feel a part of the organization and hence involved in the decision making process. They should be involved in determining the competencies and the tasks. They need to be empowered and when they have the intrinsic motivation, they would naturally remain committed to the organization. These techniques are given different names such as employee involvement, employee engagement, employee commitment, employee empowerment. Each of these serves as an intrinsic motivation and no external motivators would then be essential. 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