Employee Reward and Resourcing - Essay Example

? EMPLOYEE REWARD AND RESOURCING MODULE_HRM Executive Summary The objective of this research is to identify the basic relation between employee reward strategies and employee resourcing and evaluate it in context of the report, ‘For what it’s worth?’ given by by CBI. A rewarding strategy is a framework of payment to employees, keeping in mind the needs of both the organization and the employees. The main components of a reward strategy are Non-Financial Rewards, Job-Evaluation, Base Pay, Grade and Pay Structure, Market Rate Analysis, Pay Progression, Contingent Pay, Service Related Pay, Allowances, Pension and Benefits and Performance Management. There are two fundamental reward strategies; pay-related reward policy for the private sector and fixed pay structure for the public sector. These two forms have been critically evaluated. Employee resourcing measures the recruitment, retention and transfer of employees. Its strategic and operational components are Human Resource Planning, Resourcing Plans, Retention Strategy, Flexibility Strategy and Talent Management Strategy. A relation is found between employee reward and resourcing; the higher the reward, the higher the ease of recruitment, retention and transfer of employees. However, the report by CBI cites pay as one of the least related determinants of resourcing. Instead, it identifies the ability of the management staff and communications pertaining to the value of rewards achieved as the main factors influencing resourcing of human capital. As conclusion, some key recommendations are given that would lead to a more efficient working of the public sector and reduce government deficit. Introduction The world believes in the principle of ‘punishment for failures and rewards for achievements’. With the biggest companies going global, a need has been felt to recruit, retain and transfer human resources of the companies, i.e. employees, to various other sites of business in order to expand the scope of business and achieve the maximum corporate dividends. However, research has found that companies are not able to handle this effectively. As a way out of this problem, companies, now, offer higher monetary rewards to their employees as compensation, benefits, bonuses or incentives. But in order to decide standard policies on granting rewards, reward strategies have to be decided. A detailed description on these lines has been provided in the following paragraphs and this subject has been studied, analyzed and criticized in view of the report “For What it’s Worth?” composed by the CBI. Understanding Organizational Reward Strategy and its Components Meaning of Reward Strategy “Reward Strategy is a declaration of intent which defines what the organization wants to do in the longer term to develop and implement reward policies, practices and processes which will further the achievements of its business goals and meet the needs of its stake-holders” (Armstrong, 2009, p.746). It forms a rough framework for reward policies by setting direction and purposes for them. A reward strategy takes into account the needs of the employees and the organization. It develops the values of an organization and sets the basis on which people are to be valued and thus, rewarded. Components of a Reward Strategy There are various components of Reward Strategy and which are interrelated. The important ones have been stated as follows. Non-Financial Rewards: Rewards are not always monetary. Sometimes, they may satisfy a person’s need for influence and reputation. Non-financial rewards may be in the form of recognition, responsibility, achievement or growth. For example, an employee may be receiving promotion or awards for attaining a high standard in his field of work. Job-Evaluation: It is a process which involves the identification of particular jobs and the corresponding employees in those jobs and a standard scheme of evaluation is developed and finally, a pay structure is decided upon. (Armstrong and Baron, 2002, p.30) Base Pay: It is the fixed income of the employee that he receives for doing a job. It forms the largest part of the compensation and depends upon the market value of the employee. Grade and Pay Structure: Grade and pay structures provide a framework for deciding compensation for a given job. It enables an organization to decide the order of promotions, define pay levels and pay progression. (Armstrong, 2007, p.263) Market Rate Analysis: It is a process of collecting and comparing data on the rates and available benefits for the same profile of jobs in other organizations and the growth rate of incomes elsewhere. (Armstrong, 2007, p.227) Pay Progression: Pay Progression is a standard on which the compensation of an employee is increased overtime. It determined on the basis of the difference between the targeted and attained level of competence of the employee. Contingent Pay: This is an increased payment to an employee ‘contingent’ on the condition that he/she will achieve a higher standard of performance in future. Service Related Pay: This form of payment is based on the hierarchies in grade prevalent in organizations. It follows the simple principle that an individual higher in grade should get a bigger pay package than someone at a lower grade. Allowances, Pension and Benefits: Allowances, Pensions and benefits are a part of all organizations. Pension is the monthly payment, usually half of salary in working period, an individual gets after he has retired. Allowances and Benefits provided to employees vary from company to company. For example, one organization may give food coupons to their employees whereas another might provide free pick up and drop services to them. Performance Management: This is one of the key HR functions today. The process involves monitoring the general level of performance of the employees and an attempt to improve it through a textual report and suggestions. These components are all interrelated to one another. Job Evaluation determines Basic Pay and Grade and Pay Structure, which is also affected by Market Rate Analysis. Similarly, Pay Progression and Contingent Pay are related; the higher the performance of the employee, the higher his contingent pay and thus, a faster pay progression. (Armstrong, 2010, p.28-29) Critical Evaluation of Systems and Frameworks of Reward Strategy The prevalent reward strategies in the public and private sectors Reward structures are an amalgamation of all the factors described above. Effective reward structures must have the following three attributes. They should be have clearly defined goals and objectives, linked to business. The pay and reward programs should be well defined, considering the essentialities of the employees and the organization and consistent with and integrative to both. The Human Resource Department should be effective and supportive and the reward processes should be adequate.(Armstrong, 2004, p.85) On the basis of the report on “For What it’s Worth?” published by the CBI, two kinds of reward structure have been discussed and evaluated in this section; a performance related pay structure, as in the private sector and a hierarchied pay structure, found in the public sector. Even though the concept of a reward mechanism is prevalent in both the public and private sectors, the basic structure of rewarding is very different. The private sector pay arrangement is based on the business needs and the performance, skills and competencies of employees. The public sector, on the other hand, is a multi-employer system, where wages are determined by collective bargaining between the Trade Unions and Management. A limited amount of bargaining exists in the private sector as well, in the manufacturing industries but overall Trade Union structures in this setup has been replaced by consultation and communication between employers and employees, with line managers as intermediates. Research showed that whereas 74% of the public sector was multi-employer, the corresponding figure for the private sector was only 26% (CBI, 2006, pp.11-15). Job-Grading in the public sector is ‘control and predictability’ based while that in the private sector is more about flexibility. Pay progression depends on term of service and job evaluation in the public sect. In the private sector, however, pay progression is precised on the level of performance and skill of an individual and market rate analysis. This implies that the public sector follows a fixed salary structure (with individual pays for only senior managers) while in the private sector, the salary rates are individual and based on market research. Data shows that 70% of the public sector uses term of service for wage determination in contrast to only 5% of the private sector which does the same. Apart from these, the private structure gives more bonuses than the public sector. The amount of bonuses, too, is dependent on individual and organizational performance. (CBI, 2006, pp.11-15) Critical Evaluation In light of the specifications for an effective reward strategy, the rewarding structures in the private sector seem to be more efficient than the ones in the public sector. As per the CBI Report named ‘For what it’s worth’ these facts can be critically evaluated. The public sector represents an inadequate structure of rewarding as it fails to reward outstanding performances. This would reduce the employee’s incentive to work. There may be the possibility of more strategic talks than collective bargaining between the employers and the trade unions, in case of public sector enterprises. This means that the trade union leaders may conspire with the management, in return for some extra benefits, to exploit the workers. The existence of a fixed pay structure in the public sector may imply a lack of trust on the managers to provide adequate salaries to the workers. It may also be due to the fact that a principle of ‘equal pay’ is followed and mistakes in work may have dire consequences and thus, would be expensive, in the public sector. The divergences between the two sectors in terms of the time needed to gain expertise, is another area of much debate. Since the employees in the private sector reach a target level of performance, usually a period of 1-2 years, they are promoted faster. Whereas in case of public sector, even clerical jobs has a target period of 6 or more years. Finally, the standard of payment in the private sector is decided by comparing remuneration sectorally and company-wise but if the same is followed in case of the public sector, it will lead to a compression of wages. (CBI, 2006, pp.16-17) Operational and Strategic Aspect of Employee Resourcing Meaning of Employee Resourcing Employee Resourcing is “the process of ensuring that an organization has ready supply of appropriately skilled people”. (Loosemore, Dainty and Lingard, 2003, p.83) It involves taking care of the present and future needs for human resources of the company, by recruitment, by transfer of employees and by undertaking employee development activities. The fundamental administrative programs like salary and wage administration and welfare and health safety provisions are needed in this case. Strategic concepts and Operational implications of Employee Resourcing The strategic and organizational aspect of employee resourcing is aimed towards a more efficient allocation of human resources. The important components to be considered are as follows. Human Resource Planning: This involves assessing future business needs and setting standards for the number and type of people to be employed. Resourcing Plans: Identifying the specific skills of the people from within the organization and developing these skills through programs is what forms resourcing plans. In case the business cannot be met, it involves transferring of human resources from one department to another and drawing up long-term plans that will provide a higher level of satisfaction to these needs. Retention Strategy: These are plans to retain the employees the organization requires for immediate and future purposes. Flexibility Strategy: This implies planning for increased flexibility so that the organization can utilize the human resources at its disposal optimally. Talent Management Strategy: It means planning to ensure that there are enough talented people for management succession and to meet the business needs of the organization. (Armstrong, 2008, p.157) Critical Evaluation of the Relationship between Employee Reward and Employee Resourcing The ease with which Employee Resourcing takes place depends on the presence or absence and the adequacy of the Employee Reward Strategy. They are positively related; the higher the rewards, the more the retention, flexibility and attraction for employees. Rewards produce the right attitude and behavior towards work. Thus, it is mandatory for business success. The best fit model for this purpose is directly relates to Human Resourcing to pay and other related contingencies. The ideal reward structure would link payment issues to business objectives and through it attract and retain employees to the organization. We will now evaluate the two types of rewarding we have studied previously, in the light of the relation between Human Resourcing and Employee Rewards. Private Sector The payment level, pay progression and promotion in a private organization depend on the performance and competency of an individual. The bonuses, perks and benefits available are conditioned on achieving the targeted level of performance. This strategy shows a direct linkage between employee resourcing and rewards. Thus, it may be assumed to be highly effective. It has the provision of awarding deserving candidates through a calculative commitment. Also, this will prove to be helpful in attaining the long-term goals of the company. However, this arrangement of payment shows a judgmental approach. It judges people harshly on their ability or failure to perform a certain task. This is, of course, not the complete picture as a person may be talented in other less lucrative ventures. Another criticism of this approach is that it is extremely money-oriented. Rewarding an achiever monetarily is not the only option; there are various other ways in which a person may feel rewarded, like getting an award for good performance, etc. Public Sector The public sector follows a hierarchied system of payment. The pay, in this case, is dependent on the sectoral divisions and term of service of a person. Each sector has a fixed level of payment as per their individual grades. So, the manufacturing sector may have a fixed level of salaries and the banking sector may have an entirely different fixed level of salary. Also, the more number of years an employee has served, the higher his wage. The best thing about this system is that equal pay for all, irrespective of race, class, gender, performance, qualification and other considerations, is ensured. But, this implies not adequately rewarding an outstanding performance as everyone in the same grade and profile of job will get the salary. This may act as a disincentive for work as a higher level of performance is likely to go unrewarded. Another problem is that a hierarchied system of payment entails an older employee to a higher wage, irrespective of the level of expertise gained by him. It might be the case that a junior employee is performing much better than an older employee. In that case, this practice is unfair and unjust. (Storey, 2007, p.166) An Analysis of the Relationship between Employee Reward and Employee Resourcing in the CBI Report The referred document states that there is no real evidence to prove that human resourcing is really dependent on reward strategies. If that had been the case, there would have been a recruitment crunch in the public sector. But, since that is not the case, recruitment and retention problems must depend on other factors. A survey showed that 70% of the employees left their current jobs due to bureaucracy and paperwork. Another 50% cited lack of resources, workload and slow pace of growth as reasons for resignation. One of the least important reasons to leave work was payment, less than 40% of people cited it as reason. An important trend that has been observed is that mostly, managers did not know the reason for the resignation of employees. Lack of proper data lays the blame of the recruitment and retention problems on pay. This research showed two main determinants of employee resourcing, viz, communicating value of reward to the employees and Management Staff. It is a common opinion that if an employee were to switch from the public sector to the private sector, he would earn much more. In this case, the managers have to explicitly communicate to the employees the total rewards of being employed in the public sector. This will show the employees that they prized by their organization. This will lead to a higher job satisfaction for the employees. The role of the Management Staff is vital in maintaining a workforce. Research showed that less industrial action had to be taken in the private sector (3%) than in the public sector (16%). Participation of workers in additional work was higher at 51% for the private sector than for the public sector at less than 43%. Also, the rate of attrition was higher for the public sector than the private sector. The reason for this is the existence of a more efficient management staff in the private sector. These facts prove what a good management staff can do for an organization. (CBI, 2006, pp.27-30) Key Recommendations of the CBI Report In light of the UK coalition government’s policy to reduce public expenditure deficit, some important recommendations for the public sector has been suggested by this report. Payment and increments in wages, in the public sector must be conditioned on the level of performance of the employees and market analysis. This will lead to more efficient working of an organization, more revenue for the government and thus, fewer deficits. Resources must be invested on improving communication between the employers and employees. This will help in tackling the problem of recruitment and retention of employees. It may also bring down the rate of absenteeism in employees. The final outcome will be higher revenue for the government and thus, fewer deficits. Programs and effective schemes should be undertaken to enhance employee productivity. This will give more revenue and thus, lessen deficit. The notion that the public sector employees earn less pay is misleading. This has to be recognized and proper pay disciplining measures must be taken to ensure efficiency and less wastage of resources. The ultimate outcome will be fewer deficits. A new pattern of pension and retirement schemes may be adopted that will be light on the purse of the government. Less public expenditure will imply lower deficits. The maintenance of adequate data and records on employees is a must in order to monitor their performance and thus, the performance of the public sector as a whole. The government should be cautious about wastage of resources through carelessness of employees and must ask them to maintain a standard level of performance to earn higher revenue that will, in turn, reduce deficits. Policies or practices that act as barriers to address performance related issues should be removed. This will compel the employees to work efficiently for higher revenue and lower deficits. All these recommendations will help to enhance efficiency of the public sector in the long run and result in less public deficit for the government. (CBI, 2006, pp.31-34) It may be concluded that the measures suggested in this report are very effective and will, most definitely, solve the problem of public deficit to a large extent. Apart from that, these measures will boost the performance of employees and help them attain an impressive level of efficient productivity. References Armstrong, M. (2009). Armstrong’s Handbook of Human Resource Management Practice. London: British Library Cataloguing-in-Publication. Armstrong, M. (2010). Armstrong’s Handbook of Reward Management Practice. London: British Library Cataloguing-in-Publication. Armstrong, M. and Baron, A. (2002). The Job Evaluation Handbook. London: Chartered Institute of Personnel and Development. Armstrong, M. (2007). A Handbook of Employee Reward Management and Practice. UK and USA: Kogan Page Publications. Armstrong, M. (2004). Employee Reward. London: Chartered Institute of Personnel and Development. Armstrong, M. (2008). Strategic Human Resource Management. London: Kogan Page Ltd. CBI (2006) “For What It’s Worth?”, Available At: http://publicservices.cbi.org.uk/uploaded/For_what_its_worth.pdf (accessed on August 27, 2011) Loosemore, M, Dainty, A and Lingard, H (2003). Human Resource Management in Construction Projects. London: Spon Press. Storey, J (2007). Human Resource Management: A Critical Text. London: Thompson Learning. Read More