Practical Proposals for Organizations - Term Paper Example

Running Head: Retaining quality staff in UK with employee perks Retaining quality staff in UK with employee perks s Name] Retaining quality staff in UK with employee perks We live in an era of relentless pressure and frenetic competition. Today, the world is a free agency replete with signing bonuses and stock options; a world where every employer is afraid of losing their top performing employees. Only a few manage to attract and retain their talent at the desired level. What do they do differently Is there a magic formula behind their practices When analyzing the various programmes companies implement and use, it is apparent that leading-edge organizations that have invested significant efforts in developing, testing and rationalizing their approach to reward management run programmes that deliver comparably higher value to their businesses. Unarguably, reward management is a sensitive and controversial area that has been extensively debated at both practical and theoretical levels. This report delves into the intricacies of reward values, structures and processes, and explains how reward management can be used to enhance employee efficiency by influencing their behavior. Meanings and types of Rewards 'The significance of pay as a means of attracting, retaining and providing tangible rewards to people is not to be underestimated. It is important to get it right - much harm can be done by getting it wrong. But as a means of generating long-term commitment and motivation, pay has to be regarded as only part of the whole. It is the non-financial rewards that will ultimately make the difference." Michael Armstrong and Duncan Brown Reward structures can speak volumes; not only in their implications of values, equality and worth to the employees and the community they serve, but to the performance of the authority itself. In this context, it is important for the organization to realize that the organizational rewards have many meanings for employees. There are two values associated with every reward - surface and symbolic. The surface value of a reward to an employee is its objective meaning or worth (a measure of spending power of the employee). In addition to the surface value, every reward also has a symbolic value, which is simply the personal or subjective meaning the employee attaches to it. However, a high salary doesn't always mean a high satisfaction with salary! Nor does a rise in salary necessarily translate into a corresponding rise in satisfaction. The DQ-IDC IT-survey of 2004 reveals this very fact . HP, the best paymaster in the industry, has many employees who look dissatisfied with their salary levels. The employees at Siemens also tend to echo the HP employees' views. On the other hand Mindtree, which is near the bottom of the table in terms of size of the packet, has relatively satisfied employees. So does TCS. And Oracle employees are quite satisfied with their salaries despite Oracle featuring quite low on actual salaries. It is results like these that make Maslow's hierarchy of needs look like the absolute truth. In short, managers need to tune in to the many meanings rewards can convey - not only to the surface messages but to the symbolic messages as well. Types of rewards Organizations use various types of rewards (listed below) which when combined form the compensation package of the individual. * Base Pay * Incentive systems * Benefits * Perquisites, and * Awards In the Indian context, while the base pay package (the most important rewards people receive for their work) has seen an increase of 11.3%, an interesting feature to be noted is the rising prevalence of variable pay plans. According to the Asia Pacific Salary Increase Survey conducted by Hewitt , a greater proportion of respondents reported having a variable pay plan in 2004 (88.1%) as compared to 2003 (85.3%). Clearly, performance-based pay which was confined to the higher echelons of management is now creeping in to the lower grades as well. Another matter of debate in recent years has been the increase in pay of the elite core of stratospherically-paid promoters (spread over 86 companies). Part of their compensation is through salaries, while commissions make up the rest. The salary and perquisites portion of their packages rose by almost Rs 53 crore to Rs 237 crore in 2003-2004, a rise of 28.8 per cent. On the other hand, their commissions, usually a fixed share of the company's net profits, increased by 23.7 per cent. Strangely enough, managers' salaries rose at a much faster clip than those of promoters: 76 managers and executives took home a salary hike of 34% in 2003-2004. They took home as much as Rs 118 cr, Rs 30 cr more than in the previous year. Other employees, of course, got a much lower 16% salary hike. Designing Reward Management Systems Modern organizations are now facing significant challenges, such as ensuring reward is appropriately linked to performance, recognizing employee contribution in a non-discriminatory way, and managing benefit arrangements. The benefits of having an efficient and strategic rewards system cannot be overemphasized. Such kind of a system can: Lift motivation and drive service improvement if people are rewarded properly for their contributions. Increase the efficiency of the day to day running of the pay and rewards system. Prevent discrimination and ensure that all staff are paid fairly, thereby eliminating any liability to big equal pay claims. Become a powerful method of innovating change and improvement when pay systems are no longer used solely as an administrative tool. Help cost / performance calculations to be accurately estimated thereby enabling authorities to identify and act on specific under-performing areas. However, while designing effective reward systems, there are certain issues the organization needs to address. The organization must consider its ability to pay employees at different levels, economic and labor market conditions, and the impact of the pay system on organizational financial performance. In addition to the above the organization must also consider issues like: Linking performance and rewards - Organizations must ensure that pay differences are based strictly on performance (including seniority), not on factors that do not relate to performance (like gender or ethnicity). They should develop a reward strategy which enables the employees to see a clear link between their own job-related behaviors and attainment of rewards. Flexible reward systems - A flexible reward system allows employees to choose the combination of benefits that best suits their needs within specified ranges. In spite of the high administrative costs, this kind of system develops strong loyalty and attachment to the employer. Participative pay systems - Employee participation in administering the pay system is a natural extension of having employees participate in its design. A participative pay system can be designed by the members of the human resources department, an outside consultant, the employees, or a combination of these sources. Expatriate compensation - In the event of transfer of employees from one location to another, the employer needs to redesign the compensation package so that the employee's lifestyle in the new location is comparable to that in the old. A checklist of the primary concerns that need to be addressed when designing compensations systems is shown below: * How much of emphasis to place on pay * What should be the level of base pay * What is included in the pay package (benefits, promotion, or ownership) * What should be the degree of pay dispersion across levels, across departments and across individuals within departments and levels * What should be the basis for pay (individual, group, or organization) * What should be the basis for measurement (tenure, skills, outcomes, etc) Strategic Reward Management The realm of strategic reward management deals with the role of reward as an instrument of organizational change. If the reward strategy is to make its contribution to changing employee behaviors it must contain three key components: the values that support the strategy; the structures that promote these values; and the processes involved in the design and implementation of the strategy. It must be noted that a strong alignment between the core reward values, structural features and processes is essential for the effectiveness of the reward strategy. Assumptions made under strategic reward management: * Business strategy is a rational, top-down process rather than emergent. * Employees will endorse the business strategy and wish to demonstrate the behavior it implies. * Employees will accept the organization reward strategy if the values structure and process are consistent. * An effective reward strategy will have a beneficial effect on the performance of the organization. Though the above assumptions appear to shift the model of strategic reward management away from the realities of organizational life, it is useful to study the model to understand the implications of using reward as an instrument of organizational change. Reward Management Values * Paying for performance - Performance-based pay has been increasing in prevalence in today's corporations. It may take three forms: individual, group and organization and the organization needs to identify the type of pay which links the action and performance closest. For instance, Citibank puts a lot of emphasis on performance. According to an insider, "Citibank's compensation program is pretty standard, with benefits including stock options and 401(k) plans. Total compensation potential is heavily weighted on performance. If you are good at what you do, you will receive an amount of total compensation that exceeds industry average. If you have a bad year, your total compensation may be slightly below industry average." Though the espousal of performance-related pay may succeed in employee skill development and autonomy, there are a few negative implications as well. Too much emphasis on individual performance related pay might lead to non-cooperation, since the employee might override the overall good of the organization for personal success. The team-based performance-related pay will overlook the problems of free-riding and might lead to disillusionment among the employees. * Equity - The value of equity is a major contributor to the promotion of changed employee behaviors since it plays an important role in the acceptance of the reward strategy by the employees. There are two ways in which employees may feel their pay is inequitable - pay in comparison to those in other organizations (external equity) and pay in comparison with those doing similar jobs in the same organization (internal equity). For instance, Goldman Sachs, one of the leading investment banking firms of the world has a reputation of being a bit harsh on their employees. According to a survey conducted by Vault, "Employees seem fairly ambivalent about their compensation program, neither raving nor ranting about their salaries." Another source notes that the "perks are pretty standard for an investment bank, but the gym is a great perk, as it only costs $30 per month to use, while other New York City gyms cost anywhere between $50 and $100 per month." Indeed, says an associate in M&A, "The company gym in New York is top notch and a deal for employees." Hence, there is a necessity for employers to take a clear policy decision on the value placed on equity, and the way it is expressed. * Employee sharing in organization's success - The most popular form this has taken is profit related pay. Sharing the commercial success of the firm with the employees generates goodwill among the employees as the example of Lehman brothers demonstrates. Compensation and benefits at Lehman are praised by employees, with certain benefits receiving serious compliments. Stock options are another part of comp, but "only kick in for associates." A VP adds, "Stock is an important part of compensation--a high portion of the company is owned by employees--and the percentage of compensation received in stock increases with seniority." As for the 401(k), an analyst adds, "If you earn less than $200,000, firm matches up to $4,000." However, these schemes haven't played much of a role in changing employee behaviors due to the distant connection between effort and reward. * Combining financial and non-financial rewards - Recognition by the employer that non-financial rewards may play an important role in attracting, and more particularly retaining employees suggests a view of humanity which recognizes that individuals require more for their efforts than monetary rewards. Non-monetary rewards can meet five areas of employees' needs: achievement, recognition, responsibility, influence and personal growth. Yahoo, a leading internet company, for example, makes its employees feel valued right from the day they join the company. On the first day of his job, an employee is greeted by the entire workforce of the office with applause and sweets and his cubicle is decorated with streamers and balloons in the company colours (purple and yellow). Reward Management Structures * Paying for performance - Moving from all base pay to a combination of base and variable pay signifies a move from paying for the job to paying the person. In an age where loyalty to an employer is increasingly becoming outdated, organizations are shifting focus to make the pay budget cost effective while achieving the traditional objectives of attracting, retaining and motivating people. Firms are increasingly questioning the permanent salary bill attributed to the fixed costs when the external, organizational and individual circumstances are in a state of constant flux. However, designing performance-related pay scheme demands robustness in the performance measurement systems employed by the organization. The measurement is further complicated when the performance measure is team-based. * Equity - There is a usual perception in contemporary organizations that the elite group gets an unfair share of the organizational rewards. Hence, organizations should try to nullify this perception by taking initiatives to harmonize terms and conditions of employment between different cadres of workers (as pioneered by the Japanese firms). Also, by compressing the hierarchy of pay grades into a small number of wide bands (called broad banding) barriers to employee movement can be removed and development of employee's skills and competencies can be achieved. * Employee sharing in the organization's success - Profit-related pay has been on the rise in current organizations. However, this scheme hasn't been explored to the fullest and is seen more or less as a tax-efficient way of structuring salary. Other schemes such as issuing shares and gainsharing (where employees share improvements in productivity, cost saving or quality) can be employed to increase employee awareness to the commercial success of the organization. * Combination of financial and non-financial rewards - Employers view non-financial awards as motivational tools. These might take the form of publicizing the successes of individuals and teams in in-house magazines, or setting up performance appraisal systems directed at defining the training and career development needs of employees, or designing jobs to allow employees greater freedom in defining their performance goals and standards of performance, or implementing a skill-based pay system (where the pay progression depends on the skills acquired by the employees, hence increasing the ability of the employee and his value to the organization). Reward Management Processes * Employee involvement - The involvement of employees in the design and the implementation of reward strategies is an essential part of the acceptance of the system by the employees. Employees could be involved in design by grouping them into a task force (which would consider all possible methods of achieving the expectations defined by the reward strategy) and using them to communicate the strategy to affected employees and to train the supervisors and managers who have to implement it. Employee involvement in the implementation of the reward system is also a critical part of the adoption of the new strategy by the employees. For instance, empowering the team members to pay less to the non-performing member is a good method of controlling poor performance. * Communication - The decision management makes over its reward communication policy is dependent on the culture of the organization and the employee behaviors it wishes to create. While open communication policy would generate greater employee creativity and productivity, there might be certain instances where the reward issues need to be veiled. On the other hand, the lack of openness might result in inaccurate rumors and a decrease in employee trust. Lessons from Reward management - The bottom line * Assuming that "agents" are driven by pay and need to be "controlled" can become a self-fulfilling prophecy. * Managers need to be careful and thoughtful about the attributions they make about other people's motivations because the crucial role these motivations play in the design of an effective reward management system. * While money has only limited power to motivate, it does have the ability to de-motivate employees if they are dissatisfied with the amount they receive or the way in which this amount is determined. References Bartlett, A. and Preston D. 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