Performance Based Reward and National Culture - Case Study Example

Performance Based Rewards: Management Briefing report Student’s Name Institution Abstract As companies strive for improved corporate performance, human resource practices and techniques are increasingly becoming performance oriented. Organizations are leaning towards practices which reward employee performance, effort and input, and celebrate star performers (Chen, 1995). Cultural aspects of a workforce that affect or influence the success of a reward system have shifted over time, leading to the need to critically scrutinize the existing attitudes among employees towards an organization’s system. This report analyzes the article; “Performance Based Reward and National Culture: An Empirical Evidence from Indian Culture” and recommends approaches that ensure fair performance reward practices in an organization. Introduction Human Resource practices have a significant impact on how productive employees are. Organizations have realized the need to carefully analyze the Human Resource techniques they intend to use, to determine their appropriateness and likelihood of success (Chen, 1995). Of significance are reward systems that are put in place by an organization. These are intended to motivate employees and also assist the organization to achieve its performance goals. Implementing an appropriate reward system for a particular organization is crucial, and has a lot of bearing on the performance of a company (Yunxia, 2007). Assessing and rewarding employees’ efforts Companies are often plagued with the dilemma of what principles to employ when evaluating their employees’ performance. They face the same dilemma when distributing rewards for performance, such as promotions, pay rises, bonuses and other forms of rewards. As stated above, the appropriateness of a reward system or scheme has significant bearing on the motivation and performance of employees, as well as the realization of the company’s goals and objectives (Yunxia, 2007). Performance based reward systems are widely used in today’s labour market. Muduli (2011) describes a performance reward system as one under which an employee’s compensation is based on his/her performance at a specific time. An employee whose performance is rated highly gets a bigger share of the available rewards, while one with a lower ranking gets a proportionately smaller share of the spoils. According to Milikic & Janicijevic (2009), this is a system that is synonymous with highly performing companies. The reasons advanced for this argument is that compensating employees on the basis of their individual input bolsters their motivation and encourages a culture of hard work. This if effect, translates to improved performance by the company or organization. Performance based rewards, however, do not have the same results in all companies or states. They cannot be employed uniformly in all organizations across the globe and register success. Many factors come into play in determining the success or effectiveness of a reward system. The appropriateness of a system is one of these factors. Muduli (2011) and Glykas (2011) share the same views on the factors that affect the appropriateness of a reward system. The two writers give detailed analysis of how these factors influence the applicability of performance/effort based reward systems in different organizations and various parts of the world. Muduli’s analysis is based on the Indian economy, while Glykas studies companies in Serbia. Muduli (2011) investigates two rubrics for the allocation of rewards, to determine the appropriateness of performance based rewards in India. These rubrics are; equity and equality. Under equity, an individual’s performance dictates that person’s compensation. More effort is rewarded highly, and less effort attracts lower rewards. Equality on the other hand, demands that all employees under the same circumstances be treated the same. All employees across the workforce enjoy equal rewards irrespective of their individual contribution to the success of the team or organization (Glykas, 2011). The appropriateness of a performance based reward system depends on; the organizational values of a company, cultural values of employees and national culture (Muduli, 2011). However, the cultural values of the employees and national values of the country in which the organization operates have significant influence on its effectiveness (Bourguignon, 2004). Culture is an important aspect of people’s lives and influences how they perceive things or react to situations. Muduli (2011) defines it as the way of life, programming of the mind, design of living, traditions, collection of beliefs, collection of values and learned behaviour of a group of people, which make it different from other people. Muduli (2011) draws on Hofstede’s categorization of national culture into four dimensions to analyse its impact on the appropriateness of performance based reward systems in India. The four dimensions of national culture discussed by Muduli (2011) include; power distance, individualism-collectivism, uncertainty avoidance and masculinity-femininity. The values that are dominant in a particular country’s national culture tends to override other factors in influencing an organization’s reward scheme (Stefanescu, Constantinescu & Bogdanoiu, 2009). Power distance is a measure of the extent to which people accept power structures and hierarchical systems. Many societies are stratified along the inequalities existing in them. Human inequalities exist in terms of prestige, power and resource distribution among other differentiations. A society that has a high power distance is characterized by people who accept the existing inequalities. Juniors accept their positions and accept unequal treatment with their seniors. Muduli (2011) places India and other Asian countries in the group of societies which have a high power distance. He argues that organizations operating in such environment are likely to pursue performance based reward systems successfully. However, this contention contradicts his findings that Indian culture does not support performance based rewards. There are several possible explanations for this contradiction. The most prominent one is the fact that a society that accepts inequality and unequal treatment prefers payment to be based on the rank of the employee. This is because members of such a society have deep respect to hierarchical systems and structures. When a hierarchy is established, equality is intolerable and the hierarchical order takes precedence. Performance based rewards are based on individual effort, and this means that a junior employee may end up earning more than a senior one if his/her efforts are highly ranked. This is inconsistent with the values of high-power distance societies such as the Indian society. If an organization operating in such a society employed these reward systems, they are likely to be unsuccessful and may not improve employees’ motivation or productivity. Individualism-collectivism is another aspect of national culture that influences an organization’s choice of technique in performance management. Muduli (2011) expresses it as the measure of the extent to which members of a society value being a member of a group, or being independent. If individualism is prominent in a society, its members value personal goals, privacy and independence. Organizational strategies that reward acquisition of knowledge, skills, personal development and individual performance are likely to be adopted in such societies. Individualistic cultures have little regard for collective benefits. Collectivism in a society fosters a culture that cherishes social cohesion, membership to a group and loyalty to such group. Individuals belong to integrated social networks and are closely linked to each other. For this reason, they are less concerned about personal gains and benefits. Employees who belong to collectivistic societies are likely to sacrifice personal benefits at the workplace for collective gains. They support equality based reward systems under which all employees are treated the same and paid equally irrespective of individual efforts. Organizations operating in such societies would benefit more from techniques that emphasize equality. Recognition of individual efforts through reward systems such as bonuses is not likely to ensure improved performance from the employees. After considering the above factors, Muduli (2011) came to the conclusion that societies that are highly collectivist do not support performance based reward systems. For this reason companies and organizations in such areas should explore other means of evaluating their employees’ performance and rewarding efforts. Suitable techniques would be those that foster equality among employees, and reward collective efforts as opposed to individual contribution. Uncertainty avoidance is presented by Muduli (2011) and Glykas (2011) as the means through which a society deals with instability and risk. High uncertainty avoidance societies value sameness, routines and stability, aver risks and fear arbitrary events. When an organization rewards its employees on the basis of their efforts, earnings become unstable. Employees from high uncertainty avoidance societies such as Japan and India fear unstable earnings and they may oppose such moves. Muduli (2011) argues that high poverty rates in these societies induce a fear of poverty in its members. They, therefore, prefer stable payments that are fixed and not based on performance which keeps fluctuating. An organization intending to reward its employees for their efforts should first consider whether it is the appropriate strategy to motivate them. It may not work if employees come from societies that highly avoid uncertainties. However, if risk avoidance in the nation’s culture is low such as in the United States, this strategy may be appropriate. Employees who embrace a risk taking culture feel motivated when their efforts are rewarded. The thrill of uncertainty drives them to push boundaries in order to earn more. They are also likely to be individualistic and care more for personal gains as opposed to collective benefits. The dominant values in a society’s culture such as feminism or masculinity inform employees’ attitudes towards reward systems at their places of work. Masculinity in culture fosters personal ambition, competition and drives performance. When masculinity is high or dominant in a society, employees from such societies embrace rewards for individual performance. Performance based reward systems are highly successful in such environments. Masculine employees admire high achievers and emulate them, aspiring to achieve the same levels of success. For such employees, having their efforts recognized and rewarded is a significant motivator and affects their working culture. When femininity is dominant, the story is different. Feminine cultures are inclined towards less competitive, nurturing and caring behaviour. Caring for others and having quality life is important to employees from feminine cultures. They aspire to make money that is only necessary for a good standard of life and do not exhibit competitive tendencies. Performance based reward systems may not have the desired effects on such employees. They may not elicit any competitiveness in them, or drive them to perform better. In cultures where femininity is dominant such as in India, reward strategies should be based on equality and not equity (Muduli, 2011). In masculine cultures, successful strategies are those that motivate employees to be competitive and perform better. Muduli (2011) in the article under review consults past studies which suggest that employees’ attitudes towards the concepts of equality and equity explain their attitude towards compensation systems in an organization. Equity demands for the allocation of rewards in accordance with individual contribution of an employee. An employee who contributes more than the rest should receive more. On the other hand, equality principles propose that rewards should be distributed equally among all employees irrespective of their individual efforts or contribution. Performance based reward systems reflect principles of equity. It follows, therefore, that an employee who exhibits a positive attitude towards equity principles also has a positive attitude towards rewarding performance. The reverse is true, as an employee who favours equal distribution of rewards will be opposed to performance based compensation. It is crucial for an organization to establish the appropriate strategy to use when compensating its employees. If equality principles are considered when selecting a reward scheme and the employees are from a culture that is dominated by masculine values, favours independence or is inclined towards equity principles, conflict may arise. Employees who cherish equity feel that their efforts are unappreciated if rewards are shared equally. Milikic & Janicijevic (2009) argue that such employees have the capacity to feel extreme feelings of appreciation and neglect. They feel appreciated and are motivated to work hard when they are compensated, and feel neglected when they don’t get additional payment for extra effort. Determining the attitudes of employees is essential, as it is a pointer towards the success or failure of a compensation strategy. There are however, instances when contradictions and inconsistencies appear in the relationship between cultural dimensions and attitudes of employees towards a compensation scheme. For example, Muduli (2011) points out that a considerably large section of Indian employees support equity based strategies such as performance based reward systems. This contradicts the assumption extracted from Indian culture which supports loyalty to group membership and collective gains. The point made from this illustration is that the cultural values of a society may point towards certain attitudes, but the reality may turn out to be different. There are various reasons for such kinds of contradictions and inconsistencies. The orientation of society may have shifted slightly, leading to inconsistencies between cultural values and attitudes towards pay systems. A society’s culture remains relatively unchanged over a long period of time, but its orientation may be subjected to a variety of changes. Shifts in societal orientation may be induced by a variety of factors. For example in India, new economic circumstances led to a change in orientation in the society. This does not mean, however, that changes in culture explain the discrepancies. Changing a society’s culture is difficult even over a long period of time. Changes in global business practices and the globalization of trade and business also have a significant impact on the attitudes of employees. Companies are increasingly shifting towards strategies that emphasize competition and improvement of individual performance. Many companies cite performance based reward systems as the force behind good performance. Globalization has exposed people to different cultures and opened their minds to alternative attitudes. This influence has tended to effect a shift in attitudes, even when cultural values point in the opposite direction. Globalization has also brought changes in employees’ lifestyles and relationships. Societal bonds have been broken or loosened, and even though the basic threads in the fabric have not been undone, people are no longer tightly attached to groups to which they belong. This means that even when societal values lead to the assumption that employees will embrace or reject a reward scheme, the existing attitudes may contradict these assumptions. As Chen (1995) puts it, this state of affairs has led to dualism in management practices in India, and this problem has to be made right for the benefit of the organization as well as its employees. When making assumptions based on the national culture or cultural context in which an organization operates, there is an underlying presumption that the culture is similar across the nation or region. This is often misleading and is one of the factors that give rise to inconsistencies between cultural values, orientation and attitudes. Societies do not always have the same cultural values though they may be similar. For example, Muduli (2011) points out that India has many castes, religious sects and about 1700 spoken dialects. This means that there is diversity in culture within the same country or region. Differences in cultural values in such a diverse society may be one of the reasons why inconsistencies emerge. Recommendations After studying the culture of employees and practices within the country or society in which a company operates, it makes decisions regarding its compensation strategies. Many organizations decide to implement a single culture-based strategy, guided by the perceived cultural values and attitudes of employees towards the payment scheme. In an ideal situation, this may effectively motivate employees to improve their performance. It may also contribute positively towards the success of the organization. However, in societies riddled by diversity as the Indian society, companies need to be sensitive to the cultural diversity that is present. A one fits all type of strategy may not register any success for the company. It neither benefits the company, nor the employees. Some employees will end up feeling left out or insignificant and may not respond well to the payment scheme or evaluation methods. Strategies that embrace diversity may not be the correct answer to all the problems that a company may be facing with regard to effort compensation. However, they take into account the interest of a large portion or majority of the employees and, this benefits both the company and employees. It also ensures that equity and equality principles of reward distribution are applied where necessary, to satisfy different categories of employees. Companies should, therefore, desist from employing strategies that are based on one culture. These may not be significantly beneficial especially in a culturally diverse environment. The importance of adopting strategies that embrace cultural diversity cannot be over emphasized, due to the changing nature of today’s working place. Globalization has led to the movement of people across the globe, and this has translated into the spread cultures into foreign lands. The modern working environment is characterized by cultural diversity, and multinationals have to be alive to the fact that these diverse cultural backgrounds require different strategies to ensure high performance. It is not possible to satisfy everyone’s desires and needs in an organization. However, conscious effort should be made towards ensuring that reward systems in the organization are fair and do not disregard the interests of any one group of employees. The notion of fairness means different things to different persons. To those who favour equity based strategies, fairness means rewarding effort proportionately. Distributing rewards equally among employees in total disregard for their individual contribution is the idea of fairness proposed by persons who embrace equality principles in performance management. Harmony can, however, be achieved if organizations consciously endeavour to accommodate these diverse views in their policies. Conclusion Cultures that are dominated by values which embrace principles of equity in performance management favour performance based reward systems. However, those that favour equality principles attach strong societal and social ties to their work. Such cultures do not value individual performance or reward, and are more group oriented. The collective gains of the whole group are more important than individual rewards for personal effort. These are cultures that exhibit a high power distance, are dominated by femininity and collectivism values, and have high uncertainty avoidance. The Indian society is one of the societies that has been identified as exhibiting these characteristics and therefore, does not support. The essay presents evidence that the cultural characteristics of a society does not always point correctly to the attitudes of its members towards pay systems. For this reason, companies have to exercise caution when implementing reward systems. Care should be taken to ensure that the strategies used are sensitive to cultural diversity within the organization, and that they are fair to the employees. Fairness does not mean the same to every employee. Ideals of fairness are different among employees who value principles of equity and equality. Organizations should, therefore, determine where their employees belong so that the strategies that are employed do not turn out to be unsuccessful. References Bourguignon, A. (2004). Performance Management and Management Control: Evaluated Managers’ Point of View. European Accounting Review. 13(4), 659-684. Chen, C. (1995). New Trends in Rewards Allocation Preferences: A SINO-US Comparison. Academy of Management Journal. 38(2), 408-428. Glykas, M. (2011). Effort Based Performance Measurement in Business Process Management. Knowledge and Process Management. 18(1), 10-13. Milikic, B. & Janicijevic, N. (2009). Cultural Divergence and Performance Evaluation Systems: A Comparative Study of Three Serbian Companies. Economic Annals. 54(180), 40-55. Muduli, A. (2011). Performance Based Reward and National Culture: An Empirical Evidence from Indian Culture. Synergy. 9(1), 1-13. Stefanescu, L., Constantinescu, L. & Bogdanoiu, C. (2009). The Impact of Reengineering Upon Performance Management. International Journal of Performance Management. 1(3), 14-27. Yunxia, Z. (2007). What Drives Differences In Reward Allocation Principles Across Countries and Organizations. Academy of Management Perspectives. 21(3), 90-92. Read More