Contribution of the Human Resource Management Function - Case Study Example

HRM and Reward Practices Introduction The importance of effective human resource management (HRM) has been recognised by virtually any company which follows western standards of business. If an organisation fails to properly and effectively manage its human resources in the right areas of the business, at the right time and at the right cost, serious inefficiencies are likely to arise creating considerable operational difficulties and likely business failure (Beardwell, Claydon & Holden, 2003). Originally emerged in 1960s, the paradigm of HRM relies the past research and findings of organizational scientists. Throughout the whole XX century and even earlier both practitioners and scholars attempted to design the theories explaining human behaviour at work and the ways to raise its effectiveness. A good insight into the value of HR related programs is provided by Schuler (1990: 52-54). He emphasizes that the HR function had an opportunity to shift from being an “employee advocate” (associated with personnel management) to a “member of the management team”. Schuler’s (1990) view was that this required HR professionals to be concerned with the profits, organizational effectiveness and business survival. In other words, human resource issues should be addressed as business issues. Storey (2001: 18-34) believes that emergence of HRM contributed greatly to an ever-greatest since industrial revolution shift in the principles of management. HRM encouraged both managers and employees to get rid of traditional patterns of interaction, outdated ideas of motivation, stereotypes, assessment and appraisal. Managers ceased to be mere mentors and executioners and turned to be the members of business teams. Introduction of HRM principle has made modern companies more competitive, dynamic and people-friendly that consequently influenced their efficiency and marketability. Therefore, many believe that HRM caused what was later called “a new managerialism” – a new look on organization, the ways it functions and succeeds and the way its employees work (Storey, 2001, p. 18). At the same time, HRM is not just a set of principles; it is rather an organizational science that helps to implement company’s general strategy in a most effective way. Thus, according to the most conventional definitions HRM is defined as a “system that is tailored to the demands of the business strategy” (Miles and Snow, 1984, p. 36-37); or “the pattern of planned activities intended to enable an organization to achieve its goals” (Wright and McMahan, 1992, pp. 343-345). Furthermore, according to HRM approach the employees’ role has changed significantly. The essence of this change was brilliantly summarized by Peters and Waterman: “Treating people-not money, machines, or minds – as the natural resource may be the key to it all (Peters & Waterman 1984:39). Consequently, the reward system is one of the most essential elements that can either facilitate or, on the contrary, hamper achievement of these goals. Main Body The system of reward is normally based on a certain philosophy promoted by organization. This philosophy includes a broad range of guiding ideas and principles that are consistent with the organizational values. HRM paradigm stresses the importance of investments made in human resources. This implies that corresponding return is expected from such investments and since the return from various employees is also different, it is reasonable, according to the HRM perspective to reward people differently depending on the return they generate (Armstrong and Stephens, 2005). HRM perspective implies that the system of reward management must incorporate all aspects of reward, including material and non-material rewards, be strongly linked to other HR measures and activities designed to promote motivation, commitment, and learning and further development of personnel. In other words, the reward system shall be an integrate element of human resource management strategies implemented in the organization. According to Armstrong (2005), effectiveness of the reward distribution system depends on presence of the following basic characteristics: 1. Distributive justice: this feature refers to the provision of rewards to employees. 2. Procedural justice: the ways in which the organization’s management makes decisions regarding rewards and implements these decisions. Tyler and Bies identify several elements that influence employee’s perception of procedural justice, namely: consideration of employees’ views, objectiveness, consistent decision-making, constant feedback, and comprehensive explanation (transparency) of managerial decisions relating to rewards. 3. Fairness: employees should perceive the reward distribution system as fair. 4. Equity: appropriate distribution of rewards in relation to other employees. 5. Consistency: consistent decision-making in distribution of rewards. 6. Transparency: clear understanding by the employees of how the reward system works. 7. Strategic alignment: the reward system must be aligned with the business strategy of the organization to support the achievement of planned goals. 8. Organizational context and culture: the reward system must be designed in a manner to fit the specific organizational context and culture that is unique in each company. 9. Purpose-design: the reward system must be designed with clear understanding of the pursued goals and objectives, and must promote fulfilment of these goals (pp. 4-6). Motivation of employees in IBM As well as in all companies, the policy of motivation in IBM may be subdivided into material (rewarding) and non-material motivation of the employees. Regardless of differences in both policies they pursue the same end: making employees work more effectively through loving their job and the company (Rogers, 1986, pp. 233-235). Both in material and non-material motivation IBM tends to be the leading company on its sector of the market providing people highest salaries and greatest rewards. As a result, observing Rogers (1986: 235) only from four to five percent of employees leave the company to its competitors and the company always overachieves its objectives. The reward system in IBM pursues the following objectives: Procuring the feeling of safety to the employees. The company believes that its employees must not worry about the material side and instead, they should focus on accomplishing their tasks in the company. IBM as well covers related expenditures of its employees (sick leaves, petrol and free pass), provides social insurances, and provides the system of other compensations and bonuses. Providing the powerful stimuli for the employees to succeed in the company. IBM tends not to recruit people whose primary concern is money. Instead, it looks for the people who want more than material side, particularly self development and creative work. Ensuring the bonuses for the most successful employees. These may be prizes, gifts, free travels, etc. It is important that this procedure is transparent and all employees are aware of the criteria for appraisal and rewarding (Rogers, 1986, pp. 236-241). Since its founding, IBM has never discharged any of its employees due to cut down of its programs or budget. Instead, however, any employee may be dismissed in case he/she breaks down corporate ethics, or fails in his/her job. The company stimulates employees’ creativity. The best solutions of the employees are always praised. As a result, the company became has the world’s biggest “suggestions box” (a number of employees’ suggestion for production, business, and performance improvements) and the budget for rewards exceeds US $ 50 millions annually. Since 1980s IBM leads globally in a number of issued patents (Miles and Snow, 1984). Additionally, the company may motivate its employees by covering his expenses on mobile phone, transportation, luncheons, kindergarten or spouses’ insurance. Non-material motivation in IBM Also material motivation is extremely important for the people it does not satisfy people’s supreme needs. The non-material motivation in IBM is targeted to appeal to the supreme needs of people. As Rogers (1986, p. 240) claims, IBM designed a system of non-material rewards that ranges from compliments to rewarding letters, from promotion to new titles. Each time an employee exceeds his norm he/she becomes a member of “Club 100%”; this event is widely covered in company’s press and intranet and the membership in this club is extremely respected by the colleagues (Rogers, 1986; Scoble, 2005). As Rogers (1986, p. 242) shows the best ten percent of the employees become the members of the “golden circle” and their achievements are propagated in all IBM branches globally. The members of “golden circle” usually receive invitations to the restaurants and concerts, get the opportunity to have a dinner with company’s senior executives and CEO, receive free trips to exotic places, like Bermudas or Bahamas. The members of “golden circle” are lionized and treated as VIP persons (Rogers, 1986; Scoble, 2005). The most gifted employees of IBM receive an opportunity to get a perfect education covered by the company. This is the double-aim HRM strategy that on the one hand raises the level of employees’ education and, on the other hand, motivates people to work more efficiently. Eventually, IBM annually promotes around thirteen percent of its employees and about third of all staff is moved into new positions (Miles and Snow, 1984, pp. 43-45). Conclusion The onset of HRM perspective substantially transformed the management of employee reward practices. Firstly, based on the concepts and principles promoted by the HRM approach the management came to recognize the importance of non-monetary and psychological rewards provided for employees in exchange for their performance. The essence of this recognition can be summarized as follows: “Organizations would be far less effective systems than they actually are if economic rewards were the only, or even the principal, means of motivation available” (Bratton, and Gold, 2003, p. 241). While the role of material compensation had been recognized since long time ago, the contribution of non-material rewards was only emphasized by the advocates of HRM perspective such as Douglas McGregor and Abraham Maslow. The example of IBM brightly illustrates the potential of smartly designed system of non-material rewards in improving organizational performance. Secondly, HRM provided scientific underpinning to the established notion that reward management is the main facet of the employment relationship. Particularly, the principles of management promoted within the HRM perspective stressed the importance of employees’ perception of material and non-material rewards distributed in the organization. As Milcovich and Newman (2001) state: "Employees may see compensation as a return in exchange between their employer and themselves, as an entitlement for being an employee of the company, or as a reward for a job well done” (p.6). As a result, the set of characteristics and principles that improve effectiveness of the reward systems was developed and adopted though to various extent by the majority of organizations. References Armstrong, M., and Stephens, T. (2005). A Handbook of Employee Reward Management and Practice, 2nd edition. Taschenbuch: Flexibler Einband Bratton, J., and Gold, J. (2003). Human Resource Management: Theory and practice, Third Edition. Palgrave Macmillan Maslow, A. 1987, Motivation and personality, 3rd edition, New-York: Harper and Row. McGregor, D. 1960, The Human Side of Enterprise, McGraw Hill Higher Education. Milcovich, G., and Newman, J. (2001). Compensation Management. New York: McGraw-Hill. Miles, R. and Snow, C. (1984). Designing strategic human resources systems. Organizational Dynamics, Vol.2, No.4: 36-52 Peters, T. J., and Jr. Waterman, R. H. (1984). In Search of Excellence: Lessons from America's Best-Run Companies. New York: Harper & Row Rogers, B. (1986). The IBM Way. New York: Harper and Row Scoble, R. (2005). Creating and Unleashing Employee Evangelists the IBM Way [Online]. Available http://zane.typepad.com/ccuceo/2005/05/creating_employ_1.html [June 26, 2009] Storey, J. (2001). Human Resource Management: A Critical Text. Princeton: Thomson Learning Wright, P. and McMahan, C. (1992) Theoretical perspectives for strategic human resource management. Journal of Management, Vol.4, No.6: 341-368. Read More