Performance-Related Pay - Assignment Example

PART A

Introduction

Human resource challenges in Germany relate primarily on the countries workforce policies and the nature of the active employable population. In particular, Germany considers HR challenges in both private and public sectors. In this essay, Germany’s HR challenges are observed from a general perspective which considers both the public and private sectors. However, the solutions and strategies on how to address some of these issues takes into account organisational approaches to address the issues and their associated outcomes.

HR Challenges, Germany

Performance-Based Pay

Performance-related pay (PRP) is a widely used concept in Germany organisations especially for public employees. With regards to other OECD countries, Germany relies on performance assessment in the establishment of human resource decisions. In addition, the hiring processes in Germany is highly integrated with the educational qualifications of individual potential employees. While Germany’s economic environment is largely made up of export economy through foreign direct investment of multinationals and international investment companies, the human resource environment is controlled and managed institutionally. As a result, the employment of professionals with reference to educational qualifications takes into account the eligibility of employment especially for senior employees and those holding executive positions (OECD, 2012).

Unlike a variety of organisations in other nations, especially in the UK and the US, Germany does not consider seniority pay-based approach but takes into account one-off bonuses for most of the employees. While this approach may counter issues such as those facing other economies such as unfair allocation of CEO pay, it also poses the problem of managerial efficiency. As of 2011, the one-off bonus packages considered 6-10% of the base salary. However, as a challenge, the performance-related pay, combined with an aging population is among the issues which have contributed to poor integration of the younger employees in both executive and other positions especially in the public sector. On the other hand, the performance-based pay in the private sector also plays the role of pushing employees in to public positions which have better retirement benefits. In this case, Germany’s collective bargaining approach to hiring is among the concerns of PRP which challenge the securing of qualified candidates and retaining them. It is through the PRP approach that most young people are unwilling to stay employed thus reducing organisational performance due to uncertain training and development investment outcomes (Backes-Gellner, et al. 2015).

Aging Workforce

Germany, like China, has an aging population which also makes the largest majority of the working population. However, while aging is a major considering especially for organisations that require to hire more active personnel, this population also threatens the economic environment of the nation as a whole in the long run. With reference to human resource challenges, aging population is posing a threat in the management positions within organisations. Among the issues associated with human resource management in these organisations is that the elderly population is leaving management void which is unreplaceable by inexperienced young generation which is also unprepared to take executive roles. On the one hand, elderly population holds among the highest executive positions and upon retirement, these executive positions are left without experienced candidates to fill them. On the other hand, the aging population leaves a gap which is problematic in meeting organisational management roles since a significant gap exists between the elderly and the next active generation which largely makes up the new entrants into the job market.

Therefore, for human resource, the gap left between executive & senior management and the new entrants into the job market is a challenge in that HR departments have the premature choice of recruiting under-experienced individuals to take up the management positions. Thus, in the long run, although educational qualifications may be justified with varying positions within the organisations, the needed experience to handle contemporary organisational issues from a managerial perspective threatens to cripple the performance of respective companies. In addition, while foreign direct investment is a major economic contributor for Germany, it is forcing many local companies to adapt the strategy of importing labor which, in the long run diminishes the economic viability of local investment to the nation (Backes-Gellner, et al. 2015).

Transfer of Experience

In Germany, transfer of experience is yet another human resource challenge that HR departments have to worry about while training and developing workforce to fill in available positions. Firstly, the Germany population as discussed earlier is mostly aging and with few available qualified people to partake the available positions, especially managerial and demanding positions, HR departments do not have qualified personnel to transfer responsibility to. Secondly, experience transfer relates to the integration of mixed-age workforce which is recommended for the transfer of responsibilities. In Germany, organisations have a poor transfer of experience which can also be termed as poor transfer of knowledge from current position holders to future workforce. This situation can be observed from the current workforce which is majorly comprised of the elderly population. Thus, whether it is within the executive branch or other positions, the elderly population leaves office at around the same time leaving no qualifying personnel for the available positions. As a result, the retirement age for the German workers is clocking the 65-years’ mark (Hendry, 2012; OECD, 2012).

With more elderly people forced to work past their retirement ages, qualifying personnel for the positions they leave are also elderly individuals as well. Through this cycle of aged individuals, young people have little chances of working with the elderly to inherit their positions. Thus, once one generation of workers leave office, its corporate experience is lost to retirement and new workforce has to be trained and developed afresh. This issue has contributed to the problem of employee retention especially for younger workforce which, in current years has been recruited to take on more demanding positions which it is not prepared for. For human resource departments, holding on to the aged population is much viable than spending corporate funds in training and developing individuals to fill experience-based positions (Stahl, Björkman, and Morris, 2012).

Education and Corporate Skills Disconnect

Education in Germany is one of the most important qualification measure for management and executive positions in both public and private companies. In order for these positions to have the right workforce, it is observed that HR departments take into account a variety of qualifications assessments among them education level and excellence in the same academic positions. However, in recent years from 2005, Germany HR departments have reported that they have been unable to find the right match of academic excellence needed for contemporary positions within the organisations (Budhwar, and Debrah, 2013).

While the education sector continues to reform its approach to prepare more candidates for required positions in modern organisations, the skills acquired in academics does not fit the needs of these organisations. One way of resolving this challenge has been to ensure that vocational training is offered to ensure that academics can bridge their qualifications and perform better within the corporate sector. Nonetheless, candidates from academics have recently shown a decreasing level of interest in bridging their qualifications to take on more responsibilities. With the problem transferred to the organisations to embark on lengthy training and development programs, these organisations complain of being extremely burdened with financial obligations aiming to make workforce more qualified to take on modern challenges of doing business. In the long run, HR departments are counting on high costs of operation since education and corporate requirements are out of sync. These organisations take more educative roles than modeling roles hence spending more funds to align employees with organisational demands (OECD, 2012).

Conclusion

Germany, besides being one of the most stable economies in the EU, is also faced with human resource challenges which have largely affected the output of organisations. Among these problems include aging population which has contributed to the problem of hiring and retaining a rather slow group of workers. On the other hand, Germany suffers from the problem of HR policies which demand for PRP compensation which does not compensate individuals based on seniority. Additionally, experience transfer due to poor integration of workforce in terms of age leaves various positions empty prolonging retirement age for current workers. Lastly, the employability of potential workers does not sync with corporate demands for holding managerial and executive positions.

PART B

Introduction

As illustrated in the previous section, various HR challenges in Germany shape the structure and performance of an organisation. Elderly/ageing workforce & performance-based pay are some of those challenges. Most of the available literature that has analysed the problem of ageing workers’ retention discusses a broad range of strategies appropriate for organisations to manage the ageing workforce. A core management strategy of paying for performance is particularly challenging to a team if it is new or the organisation lacks an effective performance management process (Kulik, Ryan, Harper, and George 2014; Kirschner et. al 2013). The strategies incorporated in this study involve measures to help in retaining an ageing workforce to avoid the old staff problem and ways of countering the problems associated with performance-based payments.

Strategies for managing the ageing workforce

To help sort the situation, there could be a link between salary and performance to deter payments for length of service, though, when it comes to the public service, this approach would most likely be inconsistent with union pressures and equity policies that push for standardization of salaries (Kulik, Ryan, Harper, and George 2014).

Another solution to the challenge is for organisations to review their retirement policies, and consider a reduction of the attractiveness associated with early retirement. The exit of ageing workers from a company could be an opportunity for other employees, and the process can be viewed as an active strategy of retention, but it can also lead to a loss of organisational experience and knowledge. It may also be important for organisations to consider establishing retirement seminars that help to educate attendees on the realities of retirement financing. This financial advice could make workers be able to ascertain if it is the right moment for them to retire, and thus, it may encourage ageing workers that wanted to retire to extend their stay in the workforce. HR policies could be aligned with seminars on financial planning, and be developed for employees to be able to try retirement, and if it does not present a comfortable situation, the ageing workers could return to work after few months of retirement (Kulik, Ryan, Harper, and George 2014).

Another form of strategy is to give ageing workers the opportunity to retire; however, organisations could re-engage them for fixed periods but on short term contracts when they could be available to meet the firm`s fluctuations in demand. The re-engagement strategy benefits the retiring workers by providing them with individual income while also enabling the company to address their needs regarding labour supply. Encouraging and assisting employees with ways of shifting to time arrangements that are more flexible is also widely significant. The strategy of introducing flexible working methods was aimed at retaining workers that have caring commitments, but it could equally be useful for allowing ageing workers a period of phase in towards retirement. Ageing workers need to be encouraged to get more involved with part-time work, or find means of working outside the office where possible for the transition to retirement to be a phased process (Truxillo, Cadiz, and Hammer 2015).

Another significant way of dealing with problems brought about by ageing workers is to use job analysis to formalise the job requirements, and restructure the job to meet the experience of ageing workers. It is also important to advocate for job design changes in an attempt to reduce practices associated with discriminatory measures, and to make existing jobs more rewarding. Another way of making jobs more worthwhile is by introducing functionally based teams that emphasise on a collaborative action for the sharing of skills and encouraging of active contributions. The team based structure should be incorporated into efforts of helping ageing workers to mentor the less experienced and younger workers. This strategy enhances the knowledge of the new and less experienced staff while recognising and respecting the skills and experience of the ageing workers. Moreover, a team based management is likely to reduce instances of a hierarchical structure or a command based management that could exist in the public sector. Thus, the process will enhance organisational culture and the workplace experience (Shultz and Adams 2012).

Strategies for Managing Performance Based Pay

Barriers linked to performance-based pay need to be addressed as the process of performance-based is implemented. Some of the key success barriers and respective strategies for organisations to consider when planning for an organisational change effort are described below.

Many firms are not able to provide an ideal case for the implementation of the performance based program or stress the possible benefits for employers and managers. Companies that are new to incentive programs and formal performance management need to be abundantly clear about the desired outcomes and rationale of the process.

The main assumptions need to be reasonable and definite:

• Every staff performs at different effectiveness levels based on capability, time in a position, engagement and motivation.
• The top performers need to be rewarded for their contribution to the organisation`s success.
• Developing a standardized approach and an objective to the assessment and rewarding of performance will improve the productivity of the company as well as provide an incentive for top employees to grow and stay with the organisation.

For the staff, performance-based pay is essentially about rewards and fairness for increased performance whereas for the company it is a strategy with precise and clear implications for financial results and goal achievement. It is essential for the management to keep plain and clear messages from the initial stage of the change process for the success of the project (Kirschner et. al 2013).

Another challenge encountered by organisations when introducing performance-based pay is that the process could be supported by compensation, HR, and IT professionals and can be easily identified as a process initiated by the HR. This situation may make managers view the course as less associated with business than other processes like forecasting or budgeting. When the ownership of pay based performance is not evidently addressed by managers of an organisation from the onset of the initiative, the Human Resource could be challenged to drive the process. Accountability and active involvement must dwell with the leadership of business if a performance-based pay process is to be sustainable (Kirschner et. al 2013).

Organisations need to take the following steps to ensure that performance-based pay programs are owned by the company and facilitated by the human resource department:

• Establish a stable structure of governance: Programs of performance-based pay need to have an apparent structure of governance that includes representation by central organisation leaders. A steering committee needs to meet regularly to review decisions on compensation strategy and major system configurations.
• Address budget considerations in advance: The implementation of performance-based pay could come with various budgeting implications. Funds that are allocated to provide an incentive for merit could impact the overall budget. The sources and levels of funding for merit-based allocations need to be adequately analysed before implementation.
• Hold organisation leaders accountable for the execution of the process: While the IT, compensation and HR staff are typically responsible for the configuration of the system, administration and training, company leaders should be framed as the owners of the performance-based payments. The timely completion and quality of the process needs to be the management`s core responsibility for the process to be entirely successful (Cohen, Jaffrey, Bruno, and Baumann 2013).

Conclusion

Promotional opportunities that are limited are usually identified as key factors in the creation of the desire to exit an organisation. Predominantly, this issue is important for employees in the public sector where salaries and jobs are grouped in bands or scales and regularly, older workers are at the top of the salary range for different job categories, with little or no opportunity for progress. When addressing the problems linked with performance-based payments, an analysis of the main barriers encountered while establishing a pay-for-performance process while also highlighting the key strategies to ensure the success of the project is a critical success factor.