How Can an Organizations Reward System Assist Organizational Success - Coursework Example

HOW CAN AN ORGANIZATION’S REWARD SYSTEM ASSIST ORGANIZATIONAL SUCCESS? goes here] [Your goes here] [Due the paper Introduction In the present world, increased profitability and productivity are two of the main goals of every company. To achieve these goals, companies need an enthusiastic and motivated workforce which can put its efforts in achieving the goals for the company. A highly skilled and motivated workforce plays the role of the backbone of a company as it drives the company towards achievement of goals, and increase in the level of profitability. Therefore, the top management of a company needs to meet all concerns of the employees to get the best out of them. Although there are many ways to improve employees’ performance, such as, appraisal systems, better salaries, and provision of a better work environment, but rewards and incentives are such factors that really drive the performance of employees and make them work hard for the company. Incentives are those benefits or remuneration that the management of a company provides to the above-average performers related to any particular department. Rewards and incentives play an imperative role in achieving the highest level of employee productivity. However, a company needs to consider some key factors while designing an appropriate rewards system for the employees. Some of those factors include conditions for implementation of the rewards system, understanding the type of system, criteria for employees, practicalities of the plan, and organizational structure. Three main types of incentive plans exist for employees, which include individual-based, team-based, and organization-based pay incentives. In this paper, we will discuss the relationship between rewards and organizational success. The paper will also include a discussion about different types of rewards and their advantages and disadvantages. There will also be a discussion about the need to align rewards system with the corporate strategy. Moreover, we will also discuss how reward system is a necessary but not sufficient condition for organizational success. 2. What is Organizational Success? Organizational success refers to improved position of a company in any local or international market. Some of the factors that play their role in the evaluation of organizational success include market position, market share, level of productivity, level of profitability, and level of customer satisfaction, and the image of the company in the minds of customers and competitors. All of these factors play a vital role in determining success of any company or organization. Managers and owners of all companies aim to improve the levels of productivity and profitability of their companies. They do so by providing high quality products and services to the customers. If customers are satisfied with the quality of products and services being provided to them by the company, they become loyal customers of the company and play a vital role in increasing the customer base. Increased customer base is also a key factor in increasing organizational productivity and profitability which the main determinants of organizational success. Employees play a key role in ensuring the success of a company in market. They are the main driving force of a company that works hard to achieve the goals and objectives set by the managers of the company. Therefore, managers need to play special attention towards the development of an efficient workforce which should be able to deliver above-average performances for accomplishing the goals of the company. To do this, companies design employee benefit plans and incentive schemes for their employees which are the main drivers of improved employee performances. “Giving out monetary rewards is one of the oldest and time tested ideas to aggravate employee motivation strategies” (Lowe 2012, p. 1). A company should give rewards and benefits for all those employees who show excellent performance in a particular amount of time. Although money and benefits are not the only ways to make employees work hard to achieve organizational goals, but they can definitely be some of the most important factors that drive employee performance and increase the level of employee satisfaction. As organizational success is related directly to the performance of employees, companies pay special attention towards making employees satisfied with their jobs, as well as with the overall organizational culture. 3. What are Rewards? Rewards are the type of recognition that a company gives to its employees who show good job performances (Lawler III & Worley 2006). Companies need to motivate employees to make them show improved job performances. Giving rewards to them on their performances is one of those ways that companies use to achieve their aims through employees (Stephane 2005). After all, they are the employees who make the company achieve all of its goals and objectives, so managers need to keep employees happy and satisfied with their jobs. Therefore, they use rewards and incentives because they are the best motivating factors for employees. Promising a gratification for showing improved performances also increases employee motivation and commitment (Bremzen et al. 2011). Gratification injects in employees a sense of respect and self-esteem which are essential for improved job performances. “A reward strategy must be deliberately created to support an organizations unique human capital strategy” (Gross & Friedman 2004, p. 7). Managers develop a clear statement of the plan’s objectives while developing a reward plan for employees. The statement includes purpose of the plan, employee eligibility criteria for getting rewards, and the types of rewards. Managers develop employee-oriented rewards systems for their employees (Luthans & Stajkovic 1999). Understanding the needs and concerns of employees also plays a valuable role in designing an employee-oriented reward plan. When employees know that their managers will acknowledge their performances through cash and non-cash rewards, they show more concentration towards their work, which results in increasing individual productivity, as well as overall productivity of the company. According to Colletti and Fiss (2001, p.316) companies spend a large amount of money every year on the development of sales incentive plans which include variable pay and recognition events. However, they keep in view the financial condition of the company while developing a reward plan. They cannot introduce such reward system in which the cost of rewards go beyond the limitations of the financial strength of the company. Let us now discuss different types of rewards that a company can offer to its employees for improving their job performances. 3.1 Intrinsic Rewards (Non-Monetary) Intrinsic rewards are intangible in nature and are used to increase employee satisfaction with their jobs. Intrinsic rewards inject the sense of competence in employees (Reif 1975). These rewards help managers in creating a win/win form of motivation for employees, as well as for the company. Some of the examples of intrinsic rewards include appreciation by the managers, team encouragement through certificates, and acknowledgement of performances in front of higher officials. These types of rewards play a valuable role in the accomplishment of individual and team goals. 3.2 Extrinsic Rewards (Monetary) Extrinsic rewards include both direct and indirect financial compensations. Direct financial rewards include bonuses, commissions, increased salaries, whereas indirect financial rewards include paid leaves, free housing, car allowance, and educational and employment services. Both types of rewards play a vital role in increasing employee motivation. Cash rewards put an immediate effect on the performance of employees. The reason is that employees can make use of cash wherever they want. Such rewards also reduce employee turnover which is a big challenge for modern companies (Kochanski & Ledford 2001, p. 31). Therefore, they work hard and show high levels of commitment and dedication to achieve cash rewards. On the other hand, paid leaves, free housing, and educational services are also some of the biggest motivating factors that help in retaining key employees. According to Wilner (1998, p.80), managers should be able to read employees’ minds to know the incentives which can improve their performance. Employees like to work for the companies which provide them with housing, medical, and educational benefits. The reason is that these are the basic requirements of every individual’s life and when a company takes care of these needs of employees, it puts a positive impact on the performance of employees, as they want to be the permanent part of their companies by shoeing improved performances. Both extrinsic and intrinsic rewards are key players in the improved job performances of employees. “Many firms will have a combination of these types of job categories and hence require a combination of intrinsic and extrinsic motivators to successfully encourage performance” (Brown 2010, p. 1). 3.3 Individual and Group Rewards Rewards can be individual-based and group-based. Individual-based rewards increase the motivation at individual level, whereas group-based rewards increase motivation of the whole group, which is usually more beneficial for the company as compared to individual rewards. Bonus payments related to individual performance is one of the examples of individual-based rewards. The advantages of this type of rewards can be immediate impact on the performance of employees and improved employee focus on his/her assigned tasks. However, the disadvantage associated with this type of rewards can be the extra burden on finance of the company due to the payment of large amounts of individual bonuses instead of one collective bonus for the whole group. With individual-based bonus scheme, the short-term individual goals are associated with direct rewards. The quality and quantity of work done by employees are measured individually. For example, attendance, work safety records, monthly sales etc. This type of rewards plan promotes equal distribution of bonuses based on individual achievements. Group-based rewards, on the other hand, include payments related to the performance of the team. In such system, rewards are shared according to a pre-designed formula. Some advantages of such rewards include enhanced multitasking, achievement of team goals, and reduced internal competition. The drawback associated with this type of rewards is the inability to distinguish individual performance as some team members might have worked more for the cause than others did. Such rewards are associated with the performance of groups and are distributed equally among all team members regardless of the level of their efforts in the accomplishment of goals. However, this feature of group-based rewards also turns out to be a drawback because it puts performing and nonperforming employees in one category regardless of their individual efforts. 4. Why are Rewards Important? Rewards play a vital role in achieving maximum employee productivity. The reason is that they inspire and motivate the employees to work with full dedication and commitment to be able to get to the rewards. We can take example of sales staff which is highly motivated and enthusiastic. The factor that plays the most significant role in building enthusiasm of sales force is rewards. Salespeople get bonuses and commissions for sales which motivate them to close more sales for their companies. As Ellis-Christensen (n.d., p. 1) states, “An incentive program is any type of program that motivates participants in some particular way by offering them some form of reward”. Some of the main reasons for implementing rewards and employee benefit programs include hiring and retaining skilled employees, encouraging the performances of above-average staff members, increasing employee morale and loyalty, achieving improved job performances, reducing employee turnover, and making employees satisfied with the company (Armstrong, Brown & Reilly 2009). Moreover, rewards and incentives also help organizations foster a collaborative environment at the workplace. 5. Systems Become More Individualistic Through the implementation of rewards-based system in a company, the system can become more individualistic as every employee starts working for the achievement of personal goals instead of team goals. We can take the example of a soccer player who starts focusing on his individual performance instead of focusing on team performance. That player will try to make a goal on his own and for that, he will not give proper passes to other players who can have a chance of making a goal for the team. Such approach by a player can lead the team towards loss instead of winning the game. Teams achieve success when there is high level of collaboration between all team members and work collectively to achieve the goals. Incentives can make employees perform individually to achieve individual rewards which affects team performance and sometimes makes teams unable to achieve required goals. However, where there is a chance of systems becoming more individualistic due to the implementation of rewards and incentive plans, rewards also prove effective for increasing employee performances. The chance of system becoming individualistic is comparatively less than the benefits that a company can get by offering rewards to employees. Employees work more hard when they know that their companies will provide bonuses, incentives, and cash and non-cash rewards to them on showing improved performances (Smoot & Duncan 1997). They work individually but the effects of their individual performances is good for the whole team as everyone gives his/her hundred percent for the job. Therefore, we can say that rewards are more beneficial for a company and the risk of system becoming more individualistic cannot overshadow the benefits associated with rewards. 6. Alignment of Rewards with Corporate Strategy One thing that managers consider while introducing rewards to drive employee performance is that rewards and incentives are not the only factors that improve employee performances, rather there are also many other factors that contribute to accomplishment of goals and objectives of a company. Some of those factors include organizational values and culture, work processes and business systems, team design, organizational structure, job design, and individual and team competence levels (Morris & Vascular n.d.). Rewards and incentives alone are never sufficient alone in order to be able to achieve results. They should be designed in the context of the managerial maturity, organizational capabilities, as well as with the overall culture of the organization in order to be effective for the cause. Management of a company should have a good understanding of the overall organizational culture, as well as organizational capabilities in order to develop a cost-effective and productive rewards plan. They should analyze the internal and external environments of the company while developing the plan because financial condition of the company, market environment, and the overall economy can fail the plan if it is not developed the way it should be. 7. Conclusion Summing it up, increased levels of profitability and productivity are two of the main goals of every company. Management of companies needs an enthusiastic and motivated workforce which can put its efforts in the accomplishment of these goals. Although there are many ways to improve the performance of employees some of which include better salaries, appraisal systems, and provision of a better work environment, but the implementation of an appropriate reward system is the factor that really drives the performance of employees and make them work hard for the company. Rewards and incentives play a critical role in achieving the required levels of productivity and profitability. Giving cash and non-cash rewards to employees on their performances is one of those ways that managers usually use to achieve company’s goals. Rewards bring a number of benefits to employees, as well as for the company. Some of those benefits include increased employee morale and loyalty, improved job performances, reduced employee turnover, and improved employee satisfaction with the company. Although there is increased concern about system becoming individualistic due to rewards, but such concerns are not able to overshadow the benefits associated with rewards. Here, one more point to be mentioned is that rewards and incentives are not the only factors that can help the company achieve higher level of profitability, there are also many other factors, such as, organizational values and culture, team design, and work processes and business systems that contribute to the accomplishment of goals and objectives of a company. References Armstrong, M, Brown, D & Reilly, P 2009, Increasing the Effectiveness of Reward Management: An Evidence-Based Approach, Institute for Employment Studies, Brighton. Bremzen, A, Kokhlova, E, Suvorov, A & Ven, J 2011, ‘Bad News: An Experimental Study On The Informational Effects Of Rewards’, pp. 1-37. Brown, D 2010, ‘Intrinsic and Extrinsic Rewards - The New Reality’, viewed 28 November 2012, http://ezinearticles.com/?Intrinsic-and-Extrinsic-Rewards---The-New-Reality&id=3918503 Colletti, J & Fiss, M 2001, Compensating New Sales Roles: How to Design Rewards that Work in Today’s Selling Environment, 2nd edn, AMACOM, New York. Ellis-Christensen, T n.d., ‘What Is an Incentive Program?’, viewed 28 November 2012, http://www.wisegeek.com/what-is-an-incentive-program.htm Gross, S & Friedman, H 2004, ‘Creating an Effective Total Reward Strategy: Holistic Approach Better Supports Business Success’, Benefits Quarterly, vol. 20, no. 3, pp. 7-12. Kochanski, J & Ledford, G 2001, ‘”How to keep me” – Retaining technical professionals’, Research technology Management, vol. 44, no. 3, pp. 31-38. Lawler III, E & Worley, C 2006, ‘Winning support for organizational change: Designing employee reward systems that keep on working’, IVEY Business Journal, pp. 1-5. Lowe, M 2012, ‘Employee Motivation Strategies for Organizational Success’, viewed 28 November 2012, http://ezinearticles.com/?Employee-Motivation-Strategies-for-Organizational-Success&id=7056893 Luthans, F & Stajkovic, A 1999, ‘Reinforce for performance: The need to go beyond pay and even rewards’, Academy of Management Executive, vol. 13, no. 2, pp. 49-57. Morris, D & Vascular, M n.d., ‘Strategic Reward Systems: Understanding the Difference between ‘Best Fit’ and ‘Best Practice’’, pp. 1-21. Reif, W 1975, ‘Intrinsic versus extrinsic rewards: Resolving the controversy’, Human Resource Management (pre-1986), vol. 14, no. 2-8. Smoot, D & Duncan, P 1997, ‘The search for the optimum individual monetary incentive pay system: A comparison of the effects of flat pay and linear and non-linear incentive pay systems on worker productivity’, Journal of Organizational Behavior Management, vol. 17, no. 2, pp. 5-75. Stephane, B 2005, ‘Motivate and Reward: Performance Appraisal and Incentive Systems for Business Success’, Personnel Psychology, vol. 58, no. 2, pp. 572-574. Wilner, J 1998, 7 Secrets to Successful Sales Management: The Sales Manager’s Manual’, CRC Press, Florida. Read More