Following a Reward System Based on Differentiation - Coursework Example

Terrible Phones 4US Introduction The company as described is placed under less than ideal conditions where the union is in a strong position while the management is on considerably weak footing. Due to the news of the layoffs, it can be expected that employee motivation is much lower than it should be therefore a system of reward management and employee selection for rewards/punishment is to be implemented in line with the expectations and realities of the technology industry. The best example of which is the one followed at General Electric which rewards the top 90% of the performers at the company and removes the bottom ten percent from service. Since this is completely inline with the technology industry practices, the union can have no objection to such a system. The System We Should Follow Many experts have commented on and have given glowing tributes to the innovative ways employees are managed at GE. The company has been in existence for more than a century and has often been the top ten of Fortune Magazine’s list of most admired companies (GE, 2006). From 1998-2002 it retained the No. 1 spot and this year’s list places GE at the top of Both the American and the global list of most admired companies (Fisher, 2006). GE’s performance appraisals methods were outlined by Jack Welch (2005) and can be summarized as follows. Appraisal Factor Reason Effect Timely (Quarterly Appraisals) Continual and rapid feedback to employees on their output and work done for the company Employees know where they stand and those who are going to be let go are not blind sided by the decision when it comes Honest (Open discussion on all points) It lets the employee know exactly where they stand and what they can do to improve the situation Employees can be motivated and can also suggest ways on their own to bring up their performance levels Broad ranged Covers a variety of methods by which an employee can give input the company and all aspects of performance are analyzed for improvements or rewards Employees know that they can work on all aspects of their job to improve their relationship with the company as per the given values Directly connected to rewards Performance connected to rewards ensures that the same performance would likely in the future Employees are motivated to work towards a goal and seek further rewards. The most interesting aspect of GE’s reward plan is the public nature and disclosure which follows the evaluation at GE. All divisions at the company are required to list by name, position and compensation the amount of money and bonuses given to the top 20% of the management as well as the bottom 10% (Schmitt, 2001). So if an employee is given some stock in the company as a reward for creating a new product, the information will be disclosed to all member of his/her department to publicly celebrate his/her achievement. I think that this is a good idea if there is no element of jealousy involved and those who see it happening know that the reward was justified. While this public disclosure may be seen as difficult to swallow, Jack Welch defends this by saying that even though we may seek to protect the reward system from criticism by not letting others know about the bonuses and rewards given to their coworkers, people seem to know this information anyways. By making it public, the information can be used as a motivational factor and it lets all employees see which persons are the stars of their divisions and who are facing the risk of being let go (Welch, 2005). Therefore, as recommended by Boxall and Purcell (2003) GE is using rewards as a tool for strategic management as well as motivation. Significant Rewards for Significant Motivation Jack Welch, the most well known and outspoken CEO of GE wrote very clearly about differentiation and rewarding employees when he said: “When people differentiation is real, the top 20 percent of employees are showered with bonuses, stock options, praise, love, training, and a variety of rewards to their pocketbooks and souls. There can be no mistaking the stars at a company that differentiates. They are the best and are treated that way” (Welch, 2005, Pg. 41). A bonus is a lump sum payment which is significant enough for an employee to motivate him/her. Clearly a hundred dollar bonus would do little to motivate an employee who makes $100,000 per annum but a $20,000 bonus would be certainly useful. None of the sources given declare the exact amount of bonuses per salary bracket at GE but Grote (2002) says that the useable figures for realistic and motivating bonuses are between 9-12% of the person’s yearly income. This is a significant amount and we should use this value as a guide for making our rewards at the end of a quarter for those employees who show their commitment to the company and its values. By making our company values the primary method of judging employees performance we can directly link our mission statement of being profitable to how our employees perform. In terms of links to the mission of the company to the reward system, Welch (2005, Pg. 16) says that “Every decision or initiative was linked to the mission. We publicly rewarded people who drove the mission and let go of people who couldn’t deal with it for whatever reason.” GE’s own mission when Jack Welch was running the company was to be the most competitive company in the world which fits with the two pronged approach of rewarding and doing the utmost to keep the best talent within the company and letting go of those who do not perform to a certain level. Rewards by Selection The process of establishing who must be rewarded is a rather delicate question and often creates a huge debate for the senior management groups. The method at GE separates all employees into three categories as shown below: Action Taken A B C Employees are Evaluated and placed Top 20% of the company Middle 70% of the employees Bottom 10% of employees Short term strategy Rewarded and awarded Motivated and trained to come to higher standards Warned and motivated Long term strategy Considered for and given leadership positions Moved within the company or within departments to find best fit Removed from service GE’s policies make it quite clear that all the attention is not given to the top 20% or the bottom 10% of the pile. In fact, Mr. Welch (2005) declares the middle 70% to be the most valued asset for the company since they are the ones who do the majority of the work. With enough training at attention this group could produce many stars at a future date. At GE, managers are asked to spend at least half of their time with the middle 70% along with half the rewards that are going to be distributed to the performers. Another key factor about the system of rewards at GE is the response time for the reward to come as a result of performance. The calendar is a useless tool for rewards at GE since a delayed reward loses its effects. Kerr (1996) uses the example of rewarding rats in a cage for pulling a lever and says that if a sugar cube comes 9 months after the lever was pulled there would be little association between the two actions. In certain companies, the reward process is so far delayed that when an extra sum comes up in the employee’s pay slip, they are not sure why it has happened. Good companies make their HR policies effective and practical as well as quick (Torrington & Hall, 1995). Jack Welch has summarized the differentiation process of rewarding performers and punishing underperformers by saying: When all is said and done, differ­entiation is just resource allocation, which is what good leaders do and, in fact, is one of the chief jobs they are paid to do. A company has only so much money and managerial time. Winning leaders invest where the payback is the highest. They cut their losses everywhere else. (Welch, 2005, Pg. 38) I believe that is the correct way to manage rewards within a company that wishes to keep the best human resource given to it and remove those who have been recruited as a mistake. While there is no legal requirement for using or not using the differentiation process for rewarding employees, the other side of differentiation which asks for the bottom 10% of the employees to be removed from service means that there is a possibility of a wrongful termination lawsuit for the company. A disgruntled employee may consider their notice to be a summary termination but the system at GE works in such a pattern that the notice does not come as a surprise to anyone involved in the process (Welch, 2005). Moreover, termination may not be a necessary option if the person can be moved to a different department more suited to their abilities (Grote, 2002). GE’s ranking system for rewarding employees was greatly appreciated by Grote (2002) who said that companies which do not rank employees are wasting time if they give the workers any performance appraisals. In fact, even in situations where two employees are performing at more or less equal levels, Grote recommends going deeper into the situation to exactly find out who is performing more and who is performing less. To give rewards and bonuses, a ‘forced ranking’ system is used at GE through which it is impossible to say that two employees are working at the same level. One is always better than the other and the best can improve to raise the bar for everyone. It is to GE’s credit that their differentiation system for reward management has been respected, tested and accepted by some of the biggest names in the world. This ranking system for bonuses etc is used by Microsoft, Cisco, HP, Sun, Capital One, PepsiCo and Intel amongst many others. Sun exactly mirrors GE’s system to discriminate employees by saying that 20% are superior, 70% are “Sun Standard” and 10% are underperforming. On average a quarter of all the companies in the Fortune 500 list have established this practice of division as a reward management standard (Grote, 2002). Welch insists that the removal of the bottom ten percent is a critical part of the overall rewards process and in his final letter to the company’s stock holders he wrote that: "A company that bets its future on its people… …must remove that lower 10 percent, and keep removing it every year--always raising the bar of performance and increasing the quality of its leadership." (Grote, 2002, Pg. 41-41)” Therefore, the reward system is intrinsically linked to the philosophy of the company to improve itself using differentiation and if that means making some tough decisions, they have to be made quickly and efficiently. Conclusion I feel that by following a reward system based on differentiation and allowing the top employees to become the starts of the company is the best way in which we can improve our current situation. The employees union can not object to a plan which is actively seeking to reward 90% of the company and only getting rid of those employees who are holding back the rest. We must accept and appreciate the change that is coming because if we continue to travel down the same road we are going, Terrible phones might simply degenerate into bankrupt phones and this would be in the interest of no concerned party. With an effective differentiation and reward management programme in place we can make terrible phones the best phone and telecommunications manufacturer in the country if not the world. Word Count: 2,070 Works Cited Boxall P. and Purcell J. (2003) Strategy and Human Resource Management, Palgrave & Macmillan: New York Fisher, Anne. 2006. America’s most admired companies. Fortune. 153(4): 65-76. GE, 2006. ‘General Electric’. ge.com [Online] Available at: http://www.ge.com/en/ge/morefaqs.htm Grote, Dick. 2002. Forced Ranking: Behind the Scenes. Across the Boar. 39(6): 40-46 Kerr, Steven. 1996. Risky business: The new pay game. Fortune. 134(2) 94-97. Schmitt, Joseph. 2001. Welch has a lesson, even for small shops. Contractor Magazine. 48(10): 16. Torrington D. and Hall L. (1995) Personnel Management: HRM in Action, 3rd Ed. Prenetice Hall: London Welch, Jack. 2005. Winning. HarperCollins: New York. Read More