Reward management and performance related pay - Essay Example

R.Preeti 5/2007 Reward Management Introduction In today's fast-paced modern world, the job market seems to be getting more and more diverse, wide and inclusive of a great number of potential factors, that could affect the way one sees his job. Human Resources Management is one such area that is gaining importance by the day. Human Resources Managers work towards the fundamental problem of creating a balance between the expectations of both, employers and employees. The job market is getting highly competitive and retaining good talent is becoming an arduous task, owing to the better attractive offers being offered to talented workforces. As they say, grass on the other side of the fence is greener and therefore, employees find themselves being pulled across by alluring competitors. Under such circumstances, the compensation or pay packet goes a long way in determining the loyalties of employees. For instance, if the talented employee in question is unsatisfied with the compensation he receives from his current job, he would obviously consider the competitor's job that offers him greater potential and pay. Most employees prefer jobs that offer challenges and on successful dealing and completion of these challenges, would prefer better pay packets. At the end of the day, pay is a huge motivator or factor in diminishing quality of output. Therefore, jobs that offer growth potential, in terms of the hierarchical setup and the pay raise, experience great amount of success in maintaining stability in terms of employee retention and in cementing employer-employee relationships. "..the pay package is one of the most obvious & visible exchanges of the employment relationship; it is the main issue in the exchange between employer & employee, expressing the connection between the labour market, the individual's work & the performance of the employing organisation itself" (Hegewisch, 1991: 28). Therefore, the solution to this problem faced by employers in the process of reducing employee attrition rates and retaining talent, is performance-related payments and issuing rewards for quality output of work! Objectives of Employer and Employee In an organisation, both the employers, as well as, the employees possess varied objectives and expectations from each other, the job and the outcome. The objectives of the employer varies significantly from that of the employee, in formulating and pursuing the mutual contract. Here are the objectives of the employer, when he formulates and enters into a payment contract with his employee: Detainment: Employers look towards retaining the talent they spot in employees, without allowing competitors to take over the same. Therefore, they endeavour to satisfy their talented employees by formulating and putting forth a good payment contract. No one would want to lose a good employee due to under-payment levels. Thus, one of their many objectives is to retain talent and reducing the attrition rates. Steer clear: Employers attempt to steer clear of competitors and emerge victorious in alluring and maintaining some of the most skilful talent, which directly affects the positive quality of work output. Thus, they look to maintain an upper hand amongst competitors, by entering into a decent payment contract with their employees. Intelligent dealings: Employers try to attract the best possible talent within their limitations in providing payment. When they enter into the payment contract, they attempt to make the most in terms of attracting the best possible talent within the stipulations held up in the contact. Motivation: Employers do possess insight into how payment plays a major role in motivating and satiating their employees; therefore, they also try to encourage their employees by putting forth a likeable contract of payment. Better management and output: As they enter into payment contract, employees attempt to provide enough impetus to their employees by cajoling them to attain better skills and profieicency, which helps in altering management and improving it, by and large. These are the objectives of employers, when they enter into payment contracts with employees. Employees too, possess a number of objectives, when they sign on that dotted line of payment contracts: Level of Payment: Employees possess knowledge regarding the job market and its standards, in terms of offering payments. They know where they stand and therefore, look towards getting a good deal, out of the payment contract they enter into. Job Satisfaction and Recognition: Employees find job payment contracts good enough, if it comes about as a due recognition of the efforts and work put in. The payment needs to be in proportion with the efforts put in and under such circumstances, it could provide job satisfaction and recognition for work, in terms of payments. Comparability: Payment contracts that offer growth in pay structures, with increment in that of the other professions or occupations, the relativity in terms of growth attained, goes a long way in keeping the employee satisfied and he attempts to achieve the same through payment contracts. Standard of Living: The employees expects being offered a rather decent and good level of standard of living and purchasing power, in accordance to his job position and occupation, in the market. Benefits: The clauses, stipulations and conditions of payment contracts must find approval in terms of their composition, and this is another objective that the employee considers while entering into payment contracts. Thus, these are the objectives of employers and employees, while they enter into payment contracts. These sets of objectives can find mutual benefits and appeasements, if the contract in question offers a good deal to both parties. A mutually satisfied relationship between the employer and the employee goes a long way in leading to a strong complementary bond, that shows its advantages even in the development and growth of companies. Performance and Reward Management Human Resource Management is all about maintaining a good amount of relationship, growth and mutual benefit within organisation. Performance Management is one such arena which has been gaining importance. Performance Management is viewed as a three-tier activity. It includes the management of organisation, the management of employees and finally, the management of the organisation-employee relationship. Besides this, Reward Management, which helps in the process of managing performances and linking them to performance related pays, is another important aspect. Performance Management helps is motivating and subsequently, recognising exceptionally good performances from employees. Reward Management helps in attributing rewards to such performances in order to provide encouragement and due recognition of the efforts of employees. Here are the various factors that influence Reward Management: Market Conditions: Market conditions influence performance management systems, since greatly competitive conditions require greater levels of performance on the part of employees and better compensation offers on the part of the employers. Reward management, thus, help manage this increment. Technological Advancements: Improvements and upgradation of technology is an important factor in propelling towards rewards management, since they require changing and managing organisations, employee skill-sets and the processes of promoting the two parties together. Restructuring organisation setup: When the company undergoes a Merger and Acquisition (M &A), or when there is a need to downsize and eliminate certain factors, widespread organisational restructuring might take place. Such conditions call for performance management, in order to coordinate the whole new setup. Quality Maintenance: Organisations essentially need to maintain the quality of output and their upward progress. Reward management helps in this endeavour, motivating employees. Trade Unions: These are representative bodies of the employees and workforce. They come into the picture when the efforts of employees are not recognised. Thus, they play a good role in emphasising on reward management. Government disposition: The overall environment in terms of market conditions and the like is decided by government policies, rules and regulations. The importance given to public and private sector companies, the region in which the organisation in question falls, and the rules regarding the same need management, which is why reward management is dependent on this. Strategic Reward Management Reward Management, earlier was irregular, vague and slightly erratic. There were not set parameters to judge and to enforce it. However, reward management has become all the more clear, defines and strategic, with a great deal of policy-making and planning going into it. Today, about 80% of the organisations have a well-formed, clear and open strategy t reward good performances of their employees. Moreover, the recent three years have changed the figures of the earlier levels of strategic reward management, since about 94% of the organisations have recognised, introduced and implemented strategic reward management steadily over these years. However, scholars argue about the visible gap between theoretical basis and the practical implementation of strategic reward management plans, since it has managed to have some impact only in the private sectors. In addition to this, it is widely felt that companies posses only short-term strategies in this case, which are not exactly pragmatic to produce effects in the long run. Thus, there still exists some level of ambiguity and need for implementation still exists in the area of executing strategic reward management plans. Reward Management and Performance Related Pay Reward Management and paying in accordance with the performance of employees is seen as an effective way to bring uniformity and equity in organisations, besides the providing motivation. "performance related pay is a means of translating and transmitting market based organisational goals into personalised performance criteria whilst at the same time preserving the integrity of a coherent grading structure" (Kessler & Purcell 1992). Reward Management can be effective due to the following reasons: Motivation: Being paid for good performance and in accordance with the quality of output boosts the morale of employees. They work harder and better, at that! For instance, if the common pay packet of an employee for a piece of work, is about 100 pounds; if he manages to excel in the performance and it offers him about 125 pounds, it provides a great sense of encouragement to perform better the next time! Equity: Besides encouragement, performance based payments also help workplaces steer clear of any sort of favouritism or unrecognised payments. It introduces equity and fair play, in providing heavier pay packets who produce the required results, while the others would have to stay happy with lesser pays. Saving: Due to the establishment of equity, unnecessary rewards to those who do not perform is cut out. Thus, the expenditure and budget of the company receives considerable boost. Goal-orientation: Performance related payments and rewards help in propelling employees towards a goal---towards envisaging, reaching and completing the goal, successfully. This could also motivate the entire organisation to proceed towards the set goal and achieve the same, in cooperation and coordination. Retaining Loyalty: Employees are greatly satisfied with a setup that offers challenges, recognising their efforts and translating a sense of value-giving. This helps them avoid any alluring proposals of competitors, since they establish a bond with their organisation that cares for them. This helps in retaining loyalties of employees. Organisational growth: Individual progress, that is brought about by performance related payments also helps in attaining an overall growth rate. Thus, the organisation and the employees together proceed towards growth and development. Thus, the extent to which reward management and performance related payments are effective is quite clear. However, in practicality, organisations do experience some amount of problems in implementing the same: Setting criteria: Setting the criteria for payments, how and on what basis must the organisation pay is one of the difficulties experienced by organisations in executing performance related payments. Objectivity: Maintaining objectivity, evaluating and assessing all performances on similar levels and rewarding them accordingly is not very easily possible. This can pose problems. Budget: Financial constraints that the organisation experiences in providing payments and rewards at regular intervals and for all motivated employees can pose problems in implementing the very policy. Team or individual work: It sometimes becomes difficult to recognise team work and individual work, on the same plane. One does not know whether individual performance dominates the scene or team work is the secret. In such cases, a chaotic set-up comes to the forefront, marring the very appeal of performance related payments. Thus, it is clearly evident that retaining employees is an important aspect of organisations, today. In order to provide them with work and payment satiation, performance related benefits and rewards are necessary. One can assess their performances by performing performance appraisals and evaluations amongst employees. Due to this, their qualitative performances come to the forefront; helping the organisation recognise and reward their efforts. As a consequence, employees feel satisfied, motivated and charged to work better. This helps the organisation climb the ladder and become a great success, with the help of its encouraged employees! This is the link between performance related payments, motivation and performance appraisals; that are the secret of successful organisations! Read More