Rewards Management of Apple Inc - Case Study Example

Rewards Management of Apple Inc. Table of Contents Executive Summery 3 Introduction- Company background 4 Literature review on rewards management theory 5 Findings 8 Analysis- Comparison with the literature review 9 Conclusions & Recommendations 9 Reference 11 Bibliography 12 Appendix 13 Executive Summery The project begins with the introduction of the importance of rewards structures in organizations and its association with the performance and growth of employees. This is followed by the brief introduction of Apple Inc, which is a US based MNC and specializes in the production and designing of electronic goods, computer softwares etc. This is followed by the literature review which focuses in the theories of rewards management in organizations. It shows the different kinds of rewards structures and the way each of them contributes towards enhancing employee motivation and performance and in what ways too. The various arguments presented by the researchers on the subject are presented in the critical analysis of the literature review. The rewards and compensation structure of Apple Inc has been provided in the light of the literature review and comparisons are provided against the same. Finally recommendations are provided as to the changes or modifications can be brought about in the reward structure in Apple based on the drawbacks of loopholes which follows from the analysis Introduction- Company background The successful corporate leaders have increasingly recognized the fact that their basis of competitive advantage in the market is their human resource or their people. They have also acknowledged the fact that organizations must emphasize on managing their human resource with greater importance as work environments remain extremely dynamic and keeps changing with great pace. In this context the role of reward management for motivating and inspiring employees to deliver their best contributions in the organization cannot be ignored. The case of Apple Inc is discussed in length in this project. Apple Inc is a multinational corporation based in the United States that producing and marketing consumer electronic goods, computer softwares as well as personal products. The company is well known for producing iPods, iPhones and iPads. The company operates through 357 different retail stores across 10 different locations and is rated as one of the largest global publicly traded organizations. It also accounts for the largest technology company in the world market in terms of profits and revenues. The basis on which the company’s human resource management strategies are built is its recognition of the crucial importance of organizational structures and the people or the human resource which comprises this structure. The strategy demonstrates a complete response to competence, creativity, competencies and constraints which individuals carry with them or create at the workplace. In all its human resource strategies the company seeks to assure superior performance of employees and this is achieved through high end compensation and rewards management system. The idea is to create a workforce which is highly motivated to perform to the best of their abilities in the organization consequently providing a competitive edge for the organization in the market. Literature review on rewards management theory The theories on motivation and rewards management primarily distinguish between the two main kinds of rewards, which are categorized as being extrinsic or intrinsic. Extrinsic rewards are in the form of money or other verbal reinforcements which are mediated from outside the individuals while intrinsic rewards are those which are mediated within the individuals or persons. Researchers consider a person to be intrinsically motivated to conduct an activity if there are apparently no rewards associated apart from the work activity itself. In fact all the theories of motivation considering the two kinds of rewards as developed by researchers and practitioners consider or assume the fact that the resulting effects on motivation is actually the additional effects of the two types of rewards. Research was conducted to find the result of external rewards on intrinsic motivation. The results showed that an individual’s intrinsic motivation to undertake an activity continued to fall when he received contingent monetary rewards, received punishments arising out of under level performances, punishments or negative feedback for performance. However, non contingent rewards did not bring about any change in the intrinsic motivation level of the person and verbal reinforcements increased intrinsic motivation considerably (Deci, 1972, p.217). According to Taylor (2011), since the emergence of scientific management, the piece rate system of payments is considered to be the most commonly used strategy of motivating employees (Fisher, Waschik, & Prentice, 2010, p.242). Under these system an individual’s financial rewards is associated directly with his performance at the workplace and a rate of payment is set against every unit of output that he delivers (Deci, 1972, p.1). According to Vroom and Deci (1970), the assumption behind this fact is that bonus, plans or piece rate systems of payments assumes that an individual is willing to deliver effectively as long as he gets rewarded for his performance. This assumption of motivation had received considerable support from psychological literature. According to the law of effect as presented by Thorndike (1932), a response tends to occur again and again when it is followed by reinforcement. The system has also been supported by some the theories of motivation, such as the expectancy theory. According to Vroom (1964), the assumption of the theory is that every individual’s behavior is goal directed and consequently his actions are undertaken in such a way which leads him towards desired end results (Deci, 1972, p.218). The system is not free of criticisms or limitations. The most important of the criticisms is the fact that there are certain types of reinforcements which can be externally mediated. Some of the tangible rewards like money, promotions, fringe benefits and even social and verbal reinforcements are some of the mediators. According to Maslow (1970), the above rewards are only sufficient to satisfy the lower order needs of individuals and they are least effective in satisfying the higher order needs of individuals (Nevid, 2011, p.405). On the contrary a number of studies have revealed that employees desire more to meet their higher order needs such as self esteem and self actualization (Deci, 1972, p.218). Deci (1972) has suggested a change in intrinsic motivation along with the changes in rewards systems through the cognitive evaluation theory. A person evaluates the importance of rewards against his perception of why he does a particular activity. When the person is intrinsically motivated, he is able to locate his locus of causality within himself. He does the job because it provides him with a certain amount of satisfaction and contentment. This fact has been used by organizations to reward employees through words of appreciations, promotions or a change in designations, etc. The perceived satisfaction that he derives from getting a promotion or a word of appreciation from his superiors acts as a driving force for him to deliver better performances. This has been explained by Maslow as a state of self actualization which is one of the higher order needs of individuals. Verbal reinforcements such as words of appreciation by superiors for good performance standards, promotion to a higher level and having the responsibility of managing teams and groups can be regarded as some of the intrinsic rewards which can motivate employee to deliver higher performances and productivities (Deci, 1972, p.223). Also this is the basis on which organizations design reward structures which comprises of both the tangible benefits like pay, money, incentives etc and intangible benefits like promotions, communications, praises etc. Some researchers have emphasized more on the intangible or verbal rewards rather than on the tangible rewards like bonus, incentives, gifts, coupons etc on the ground that when an employee gets informed about tangible rewards they begin to count on it and the focus shifts from the task to the reward more. However, verbal rewards on the contrary retain the focus of the people on the task itself and encourage them to perform better (Robbins, 2009, p.202). An important theory worth discussing in this context is equity theory, according to which employees perceive rewards according to the rewards gained by others in the same organization. Comparisons are made with regards to job inputs such efforts, experiences, competencies, education etc relative to those with others in the organization (Fiore, 2004, p.226). Individuals compare the outcome and input ration against the outcome and input ration of others. It is understood that individuals perceive the situation as being fair when this ratio is equal with others and when the ratio is not equal candidates experience equity tensions at the workplace. Thus research shows that men and women prefer to have same sex comparisons. In fact individuals prefer to get rated on an equal platform with all other employees and on the same grounds too (Robbins, 2009, p.211). Findings Apple’s rewards structure with regards to the association of performance with bonus looks inappropriate. Even though the company links incentives and bonuses according to performances delivered, figures reveal that the structure is highly distorted. Considering the example of the CEO of the company as well as some of the executive officers (Please refer appendix 1), their bonuses was quite high in the years 2001 and 2002 when the company had suffered net loss. Apple has used employee schemes for motivating employees to desired performance levels and attaining goals and objectives. The first scheme has used incentives schemes which are directly linked with the performance of employees in the organization. Another scheme provides employees with stock options grants which are also linked with attainment of goals with regards to the four building blocks of comparative advantage, such as efficiency, innovation, quality and customer focus and response. The stock based compensation schemes are primarily aimed at aligning interests of stakeholders and management by providing the executives of the company with incentives to design strategies which increases the future value of the organization and consequently the value of shares thereby increasing the shareholder’s wealth in the company (Brigham & Daves, 2009, p.197). With regards to some of the non monetary rewards and incentives schemes, Apple provides employees with an atmosphere that nurtures creativity, innovation, fascination for technology, liberty to perform on their own etc. Providing employees with savings plans also accounts for one of the rewards strategies of the company (Apple Computer, 2004, p.242). Analysis- Comparison with the literature review The fact that Apple’s incentive structure is directly linked with the performance of employees is a basic acceptance of the assumption of the piece rate system of compensation in which compensations are set against each unit of output employees deliver. It is evident that associating rewards with the performance of employees improves their changes of productivity enhancement due to the increased motivation they derive in the process. The strategy of providing stock option grants for employees as part of their rewards structure does not comply with the literature review which says that rewards are meant to enhance employee performance through enhanced motivation. It seems like Apple is more interested in uplifting the value of the organization rather than improving employees’ performance. Moreover, the evidence in the literature review about promotions and word of appreciations do not seem to be present in Apple Inc. The focus is primarily on the business benefits rather than on employee benefits. Finally, compensation and rewards structure in Apple is a complete contradiction of the equity theory. It is seen that there is wide disparity of rewards gained by the lower level employees and the higher level executives in the organizations. This could act as a de-motivator as employees would not be satisfied with the unequal input and output ratio in the organization. Conclusions & Recommendations The study reveals some of the loopholes in the rewards and compensation structures in Apple Inc, which must be addressed. Firstly it is recommended that disparities in rewards structures must be removed as much as possible. It is important to satisfy employees by providing them with equal grounds based on which rewards are granted. The fact that employees at the higher levels are granted much more rewards as compared to the lower level counterparts could as a de-motivator for employees to perform better. It is also important that employees at the higher levels must be compensated through non-monetary benefits like promotions (not necessarily pay hikes), or even provided with such options as monitoring and maintaining the quality of performance of subordinates and groups. Finally rewards structures must be such which inspires employees to perform better. However, the fact that the company grants stock options to employees is a mere reflection of the fact that it focuses more on enhancing the company’s image in the global market and not really bothered about the welfare and benefit of employees. This can also go against the company’s advantage and de-motivate employees even further. Reference Apple Computer. (2004). Apple Computer Inc. [Pdf]. Available at: http://www.andreaslindinger.net/downloads/strategicmgmts-lindingeretal.pdf. [Accessed on December 16, 2011]. Brigham, E. F. & Daves, R. R. (2009). Intermediate Financial Management. Cengage Learning. Deci, E. L. (1972). The Effects of Contingent and Noncontingent Rewards and Controls on Intrinsic Motivation. Organizational Behavior and Human Performance 8, 217-229 (1972). [Pdf]. Available at: http://intrinsicmotivation.net/SDT/documents/1972_Deci_OBHP.pdf. [Accessed on December 16, 2011]. Fiore, D. J. (2004). Introduction to educational administration: standards, theories, and practice. Eye on Education. Fisher, T. C. G., Waschik, R. & Prentice, D. (2010). Managerial Economics: A Strategic Approach. Taylor & Francis. Nevid, J. S. (2011). Essentials of Psychology: Concepts and Applications. Cengage Learning. Robbins, R. (2009). Organizational Behavior, 13/E. Pearson Education India. Bibliography Armstrong, M. (2006). A handbook of human resource management practice. Kogan Page Publishers. Burton, J. F. (1988). New perspectives in workers compensation. Cornell University Press. Deckop, J. R. & Deckop, J. R. (2006). Human resource management ethics. IAP. Lax, D. A. & Sebenius, J. K. (1986). The manager as negotiator: bargaining for cooperation and competitive gain. Simon and Schuster. McCourt, W. & Eldridge, D. (2003). Global human resource management: managing people in developing and transitional countries. Edward Elgar Publishing. Appendix Appendix 1 Figure 1: Performance and Compensation-CEO (Source: Apple Computer, 2004, p.35) Figure 2: Figure 1: Performance and Compensation-Executive Officers (Source: Apple Computer, 2004, p.35) Read More