Human Resourses and Personnal Management - Assignment Example

Introduction Organizational effectiveness depends on a number of factors such as the qualifications of its employees, the employee’s motivation level, ability of the organization to attract and retain competent people and the structure of the organization (mechanistic or organic). It also depends on the culture that the organization wants to promote (skill based culture, merit based culture, team culture, individual culture) among its employees and the cost of the business (Heneman 1984). The organizational section controlling personnel is the human resource department. It does so by improving personnel welfare so as to ensure that their motivation stays on the optimum (Torrington 2005). The most common way of motivating personnel is through pay. Organizations have different reward systems for their employees depending on the policies and procedures in place. The reward system is supposed to anchor employees towards achieving an organization’s objectives by motivating the personnel to acquire new skills or to perfect old ones so as to improve their working efficiency for improved productivity (Derder 2002). Rewards can be in the form of money or other materials. Monetary rewards include basic salary and bonus, commission payment, retirement monies and benefits, and health insurance. Non-monetary benefits, on the other hand, are recognition, job grade promotion, improved working conditions and better treatment at work (O’Dell 1987). Pay for performance There are various types of payments; variable pay, alternative pay, merit pay, incentive system and pay for performance (Peck 1984). Organizations can use one or more payment systems on their employees. Performance has three measures; input (The level of an employee’s effort, knowledge, skills and abilities); behavior (observable ways of doing a job) and outcomes (include those of an individual or group). Pay for performance is a reward system which incorporates both monetary and non-monetary rewards for employees based on their performance appraisal; the greater the performance the higher the pay (Belcher 1991). The success of this method depends on three factors as illustrated by the expectancy theory. 1) Valence It is derived from Maslow’s theory of needs. Maslow proposes that humans are always in need, and these needs are the drive for pursuit. When a need is fulfilled or is non-existent, it stops being a motivation (Bandura 1986). For a reward to motivate better performance there must be a need and the need must be fulfilled by the reward. If one has need for money and they are offered money as a reward for higher performance, they are likely to record higher performance. On the other hand if money is not their need maybe due to economic or cultural reasons then the reward will not result in increased performance. In that case, other desirable rewards as expressed by employees can be offered. Organizations should try to find out the needs of their staff so that the rewards set are desirable in order to foster increased productivity (Lawler 1971). 2) Performance-Reward association The reward offered should be proportional to the work done. Employees should be in agreement with the reward offered. If the reward offered is too small to be noticed, it will not motivate performance (Bratton and Gold 2007). Companies should have reasonable rewards that will encourage performance. 3) Performance-Effort association This is an individual’s perception of whether a target is reasonably achievable or not (Kessler 2001). Every target demands some level of effort to achieve but targets set should seem achievable. Companies should set reasonable targets to encourage their employees to try and achieve them. Expectancy theory illustrates that a working pay for performance relation should have a clear association between reward and performance (Hambrick and Snow 1989). Pay for individual performance It has two approaches; variable pay and merit pay systems (Huselid 1995). Variable pay controls labor costs by ensuring that a company reaps maximum benefits through individual and group incentives. Individual incentives include basic pay, which is given, on piece rates and commissions determined by the number of units sold (Ronald 2002). As was proposed by Taylor of the scientific management theory, piece rates make employees work harder and smarter because they are paid according to the number of units produced (Babchuck and Goode 1951). Basic pay ensures equitable payment between workers. Commissions boost hard work and creativity acquired through sales experience and targets. Group incentives include profit sharing between individuals forming the group (Belcher 1991). Equal profit sharing helps boost trust and team work, therefore, ensuring that all members contribute towards achieving overall organizational goals. Merit pay system is the most popular method in pay for performance. The manager determines an individual’s pay increase through performance appraisals (Balkin and Gomez-Mejia 1987). Salary increase depends on the job group based on performance. This method aims at attaining and retaining best performers through rewards for their achievements (Kessler 2001). It also encourages managers to give actual feedback to their employees so that they can improve or maintain their production (CBSSE 1991). Pay for Organizational Performance There are three variables that will ensure an increase in organizational effectiveness; profit sharing, stock sharing and gain sharing (Peck 1984). The general performance of an organization can be increased through bonus payments made based on the profits made by the organization. If more profits are made indicating a good performance, the bonus given is higher compared to when the returns are low. Another variable is stock ownership whereby employees are given the liberty to buy company shares on the stock market. This will give a sense of ownership to the employees thus ensuring more effort and better productivity. It will also reduce labor costs because a company will pay what they can afford also motivate employees to strive for a better outcome so as to get a higher bonus (Heneman, 1984). Gain sharing covers tangible and non- tangible benefits such as working conditions, increased benefits and cost reduction. Gain Sharing The term was common during the scientific theory of Fredrick Taylor. The term refers to a mutual relationship where employees and employers benefit from one another. A historical study of past gains is made so as to determine the basic expectations. All other bonuses beyond the basic monies are shared among employees (Belcher 1991). This helps the organization to cut on costs by using the current employees to an optimum level while motivating them with deserved bonuses and better working conditions. Profit Sharing It is a popular way of increasing organizational performance through pay. Research indicates that a third of all companies in the Unites States practice profit sharing. This method promotes cooperation within an organization by presenting the organization as a whole unit whose well-being is a result of collective effort. Efforts are rewarded collectively and equally among all members thus reducing competition. Profit sharing also reduces cost of labor by limiting profits to the amount collected (Becker 1975). Employee ownership Employee ownership can be in the form of stock ownership, stock purchase plan and stock ownership plan. Stock ownership is the most common, for employees become shareholders in the company (Hambrick and Snow 1989). This fact increases employee involvement in management decisions that affect profit gain and sharing and contributes to the overall wellbeing of the company. Congruence Theory The theory is another way of ensuring pay for organizational performance. The success of an organization significantly depends on the peaceful interaction of the different parts of an organization. The methods and procedures in place must support the desired culture (DeVries et al 1981). Other ways of improving performance such as skills and experience should not clash with pay for performance system. Participative management is necessary to ensure congruence and motivation of the employee like in the case of gain sharing, employee ownership and profit sharing (Peck 1984). The relation between congruence theory and organizational performance is not overt, rather it aims to measure and reward issues that concern employees and those that they have control over (O’Dell 1987). Pay for performance has been rising in popularity over the years due to the need to cut labor costs in companies while ensuring profitability (Huselid 1995). The system is highly meritocratic whereby pay increase directly depends on performance of individuals, groups or companies as a whole. There have been concerns on the negative effects of systems such as the cumbersome nature of the sole judgment of the manager on the performance level of an employee. Employees tend to rate their performance at a higher level compared to the manager’s rating. If not properly managed, the pay for performance system may lead to inequity due to pay differences and mistrust in cases where pay increments across job grades are not made public. In extreme conditions, it can lead to unhealthy competitions (Leventhal, Michael and Sanford 1972). However, the benefits arising from the system for both the individual and the organization makes it worth trying. Individuals are bound to be hard working, smart, creative and cooperative in achieving personal and organizational targets (Beardwell and Claydon 2010). The organization will be able to attract and retain competitive staff, reduce labor cost through commissions, profit sharing, employee ownership, and gain sharing (Torrington 2005). Careful implementation of the congruence and expectancy theory will also put in place methods and procedures that will ensure an increase organizational success. List of References Babchuck, N. and Goode, W.J. 1951. “Work Incentives in a Self Determined Group”, American Sociological Review 16, 679-687. Balkin, D. B. and Gomez-Mejia, L.R., 1987. New Perspectives on Compensation. Englewood Cliffs, NJ: Prentice Hall. Bandura, A., 1986. Social Foundations of Thought and Action: A Social-Cognitive View. Englewood Cliffs, NJ: Prentice Hall. Beardwell, J. and Claydon, 2010. Human Resource Management: A Contemporary Approach. 6th ed. Harlow: Prentice Hall. Becker, G.S., 1975. Human Capital. 2nd edn. New York, NY: National Bureau of Economic Research. Belcher, J.G., 1991. Gainsharing. Houston, TX: Gulf. Bratton, J. and Gold, J., 2007. Human Resource Management: Theory and Practice. 4th edn. Basingstoke: Palgrave Macmillan. Commission on Behavioral and Social Sciences and Education (CBSSE), 1991. Pay for Performance: Evaluating Performance Appraisal and Merit Pay. Washington: National Academies Press. Derder, B., 2002. Individual and Organizational Success or Failure. Chicago: i-universe Publications. DeVries, D.L, Morrison, A.K, Shellman, S.L and Gerlach, M.L., 1981. Performance Appraisal on the Line. New York, NY: Wiley Interscience. Hambrick, D.C. and Snow, C.C., 1989. “Strategic Reward Systems”. In C.C. Snow (Ed.) Strategic Organizational Design and Human Resource Management. Greenwich, CT: JAI. Heneman, R.L., 1984. Pay for Performance: Exploiting the Merit System. Work in America Institute Studies in Productivity. New York, NY: Pergamon Press. Huselid, M. A., 1995. “The effects of human resource management in organizational turnover: productivity, and corporate, financial performance”. Academy of Management Journal 38 (3), 635– 672. Kessler, I., 2001. ‘Reward system choices’. In Storey, J. Human Resource Management: A Critical Text. 2nd Ed. London: Thomson Lawler, E.E., 1971. Pay and Organizational Effectiveness: A Psychological View. New York, NY: McGraw-Hill. Leventhal, G.S, Michael, J.W and Sanford C., 1972. “Inequity and Interpersonal Conflict: Reward allocation and secrecy about reward as methods of preventing conflict”. Journal of Personality and Social Psychology 13 (2), 44-57. O’Dell, C., 1987. People, Performance and Pay. Houston, TX: American Productivity Centre. Peck, C., 1984. Pay for Performance: Interaction of Compensation and Performance Appraisal. New York, NY: The Conference Board. Ronald, S.R., 2002. Organizational Success through Effective Human Resource Management. London: Greenwood Publishing Group. Torrington, D. et al, 2005. Human Resource Management. 6th Edn. Harlow: Prentice Hall. Read More