Reward System Strategies - Literature review Example

REWARD SYSTEM STRATEGIES {Insert University name} {Insert instructor’s name} {Insert Student’s name} November 9, 2012. REWARD SYSTEM STRATEGIES Brown and Purcell (2007, p. 28) defines reward management as the processes, policies and strategies that are needed to ensure that peoples values as well as their contribution in attaining organizational, team and departmental goals are not only recognized but also rewarded. It further entails the design, maintenance and implementation of organizations design systems with the main aim of satisfying the employees, the organization and the stakeholders. Consequently, reward management is not only about employee benefit, financial rewards and pay but it also entails development opportunities, recognition, increased job responsibilities and learning. This essay will discuss Cox, Brown and Reilly (2010) argument on the reward strategies and why most reward systems continue to disappoint managers. Cox, Brown and Reilly (2010) argue that organizations continue to be disappointed by their reward strategies. This is because the process of developing a suitable reward system has been challenging for organizations. Additionally, the centrality of the reward systems in association with the employment contract, there is minimal focus on the formulation and implementation of appropriate reward strategies within the organization. On the other hand, high percentage of managers has the perception that implementing an appropriate reward system is either challenging or extremely challenging. Brown and Purcell (2007, p. 28) in his report highlighted that the problem lies on external regulatory and environmental changes as well as existing perceived resistance from the line managers. The next session will examine some of the reward strategies that managers have used before discussing some of the challenges experienced by organizations in designing and implementing appropriate reward strategies. Good remuneration is one of the policies that organizations have adopted with an aim of increasing workers’ performance and organizations’ productivity (Hansen, Smith and Hansen, 2002, p. 64). Additionally, with the current global economic trend, most employers have realized the importance of ensuring that workers are motivated through viable reward systems to ensure great performance. Lowry (2006, p. 67) in his study pointed out that skilled workers’ effectiveness can be limited if there is lack of motivation. Other managers make use of performance-related compensation in enhancing employees’ performance and motivation within the organization (Brown and Perkins, 2007, P. 82). Rewards and compensation systems are based on expectancy theory. According to the expectancy theory, employees will be motivated to effectively perform if they believe that there is an existing link between their performances and the way they are rewarded. This is because human beings are rational decision makers who critically think about their actions and as a result act in a manner that not only satisfies their needs but also assist them in attaining their goals. Cox, Brown and Reilly (2010, p. 250) in his study concluded that compensation system such as profit sharing results into great performance as the interests of the employees to those of the organization and team are linked, an aspect that enhances efforts and effective performance. The four mainly applied variable pay schemes include: profit sharing schemes, group performance related schemes, employee share –ownership plans and profit-related payments. Employee share ownership plans enable employees to play a role in the company they work for through the stock shares that are awarded to them. On the other hand, profit sharing plans results into employees being rewarded with a certain percentage of the company’s profit as a result of contributing to the success of the company. According to Lowry (2006, p. 67) the rewards can be take various forms which include shares or cash or both. However, group performance-related schemes entail rewarding a team or a group of employees in form of cash for attaining an agreed target. The aforementioned schemes are designed with a purpose of enhancing organizations performance. This is because the employees’ interests are aligned with the company’s financial performance. Various studies have revealed the positive impacts of incentive and reward systems on the performance of organizations. Purcell, Kinnie, Swart et al (2007, p. 67) in their empirical research revealed that incentive plan impacts positively on customer satisfaction, sales and even profit. Another study carried out by Hansen, Smith and Hansen (2002, p. 64) drawing data from US National Organizational Study highlighted that profit sharing positively impacts on product development, customer satisfaction, product quality, organizations profit and sales growth. According to Cox, Brown and Reilly (2010, p. 252) non-monetary and monetary rewards are the foundations of performance management in the organization. Reward is important for employees’ effective performance. Hence, absence of equitable or adequate rewards can result into collapse of other performance management strategies. Moynihan and Wells (2010, p. 45) in his study further pointed out that reward whose key function is to fulfill motivational needs and motivate can be a demotivation if not carefully addressed. Hence, it is clear that a reward strategy that is badly executed and unprofessionally conceived can result into satisfaction of one section of employees an aspect that can cost not only other sections but also organizational health. In a nutshell, reward management within the organization is important for successful performance management and posses unlimited capacity in motivating employees to ensure effective performance. The mentioned are some of the benefits of appropriate reward systems for organization but there are existing challenges in designing and implementing them. Challenges in designing and implementing reward systems Purcell, Kinnie, Swart et al (2007, p. 69) however pointed out that organizations find it challenging to design and implement appropriate design systems because in the implementation process, they disregard the existing facts and only acts of causal benchmarking and ideology. Cox, Brown and Reilly (2010, p. 253) emphasizes that reward strategy should be based on competitive and choice differentiation and not on employers preferences. Consequently, due to the reward centrality to the existing employment contracts, it is expected that appropriate strategies should be formulated and implemented. According to them, the key factor lies in the manner in which the reward strategies are designed and executed. For the last 20 years multinational corporations have used reward strategies that are pay focused, performance oriented and business aligned. Lowry (2006, p. 67) in his study pointed out that most organizations use pay as one of the reward strategies as it is easier to use. However, the result of pay as a reward system has not been impressive. () in his study added that there are evidence of positive associations with certain forms of pay systems and organizational performance and productivity other than pay system. Additionally, Purcell, Kinnie, Swart et al (2007, p. 69) highlighted a number of challenges found in implementing individual performance related pay as reward strategy. One of the problems associated with pay as a reward strategy is the negative impact it has on teamwork. In a survey in which 500 companies in Europe were involved, it was found out that employees were not effectively motivated by individualized pay as a reward strategy. Furthermore, Cox, Brown and Reilly (2010, p. 255) in his study points out that management have been disappointed with the results of using pay systems as reward strategies. This is as a result of the failure of the technical elements of not only the scheme selection but also design. Therefore, it is important for managers to follow a specific model in designing reward strategies with an aim of aligning the rewards strategies and employees performance. According to Cox, Brown and Reilly (2010, p. 258) the contributing challenges as a result of less attention being given to the fact that managers makes use of pay with an aim of changing the behavior of employees. However, other forms of reward strategies such as can be used in rewarding and enticing to the employees. Hansen, Smith and Hansen (2002, p. 63) argued that individuals who prefer pay as a form of reward may not be desirable for a variety of roles as well as having low organizational commitment. In regard to the aforementioned Hansen, Smith, and Hansen (2002, p. 61) pointed out that it is important to change the way in which employees are treated rather than the way in which they are paid. Another study on motivation indicated that individual incentives to some extent are associated with work motivation; however, the degree of motivation negatively impacts on intrinsic motivation in particular situations. Consequently, technical elements contribute to failure in both rewards strategies selection and design. Additionally, the decision process of the management is further limited by bounded rationality resulting into use of shortcuts or heuristics in the design of reward system. The mentioned can result into dependence pertaining to decision making about reward designs and strategies. Hansen, Smith, and Hansen (2002, p. 62) pointed out that hope, faith as well as personal beliefs shape not only how reward systems designed but also how they are evaluated. It has been pointed out that management has assumed that what motivates is likely to motivate employees and the belief that if the used reward strategies are not appropriate, the problem relies on implementation or design instead of the managers putting into consideration that other form of reward strategies can be appropriate (Brown and Purcell, 2007, p. 29). According to Cox, Brown and Reilly (2010, p. 259) the views of the employees are also neglected in the formulation and designing reward strategies. Lowry (2006, p. 67) further added that nations in the mainland Europe provide employees an opportunity to influence directly the pay system as well as the design of the systems. Nonetheless, it is important to point out that national cultures have impact on the expectations of the employees in their involvement in designing the reward strategies. Hansen, Smith and Hansen (2002, p. 64) added that in nations that have strong bargaining power it is challenging to involve employees in designing the reward systems. However, in situations whereby the employees are involved two narrow steps exists. First, employees’ preferences are considered which entails their choices in a system that is heavily circumscribed. Another study indicated that limited consultation on the reward system design and implementation makes huge difference on organizational performance. For instance, in situations whereby employees had real choices in comparison with gain sharing reward schemes whereby employees voted on their introduction with those that were unilaterally implemented, not only showed high sustainability but also success in reward schemes that employees had influence on. Nonetheless, it is challenging to conclude that high employee consultation about the types of rewards to be adopted within the organization will make the systems more productive. This is due to the fact that currently managers do not have full control on the design and implementation of the reward systems (Brown and Purcell, 2007, p. 32). How can organizations overcome the weaknesses identified by Cox, Brown and Reilly (2010) There are various theories that managers apply while developing reward systems within the organization. Lowry (2006, p. 67) in his study outlines the importance of matching organizational values to reward systems in such a manner that the values of the employees are included. Hansen, Smith and Hansen (2002, p. 64) in their study doubts the extent to which organizational culture impacts on reward system development. Associating reward with various motivational fulfillment Lowry (2006, p. 120) concluded that rewards are related to organizations performance. The main reasons why employees work within the organization is to secure future, earn living, gain recognition and acquire luxuries among other reasons. Thus reward strategies provide opportunities and avenues for all the employees within the organization to fulfill the aforementioned motivational needs. Consequently, organizations can effectively change employees’ potential into high performance by linking employees’ performance to various motivational needs. Therefore, it is evident that reward strategies not only assists employees to earn a living but also ensures that their work experience is enriched an aspect that gives them motivation satisfaction thus resulting into increased organizational performance. Current researches emphasizes on the importance of including employees perception in designing and implementing reward systems (Lewis, Saunders and Thornhill, 2004, p. 178). Nonetheless, there are challenges in not only identifying but also satisfying employee reward preferences. One of them is the way to customize the reward strategies in an effective manner. Another challenge is to how to ensure that managers effectively deliver non-financial and financial elements as required within the organization. Lewis, Saunders and Thornhill (2004, p. 178) added that for managers to effectively grasp the similarity and variety of reward preferences cutting across diverse workforce profile, it is essential to involve employees extensively and carefully. In regard to the aforementioned, it is important for organizations to adopt flexible benefits with an aim of accommodating the preferences of employees in an effective manner. However, in the past, employees’ preferences and choice have been seriously considered in designing and implementing reward strategies. However, flexible benefits are prevalent in large corporations for instance Vodafone. According to Cox, Brown and Reilly (2010, p. 260) flexible benefits provide choice on tangible rewards such as personal insurance, holiday and pensions. However, they fail to meet the employees’ reward expectations. In addition, it is important to appreciate the significance of employees’ attachment to non financial attributes of work rather than the pay rewards. Nonetheless, there is minimal research on total reward system application or involving employees directly. Furthermore it is important for organizations to adopt prevalent total rewards philosophies by providing supportive workplace cultures and meaningful work. Consequently, attaining career development for instance needs identification of employees’ needs and goals as well as sufficient learning interventions and the support of the line managers. The mentioned strategies need to be made attractive to all types of organizations. Brown and Purcell (2007, p. 30) in their research however pointed out that most line managers do not make use of informal reward systems in the daily operation of the organization. On the other hand, some managers are struggling not only with inflexible but also complex pay systems that are centrally developed and administered by HR departments who not pay attention to the needs of the managers and employees. This is because in some situations, the reward systems are developed by a team that is centralized who lacks knowledge on the operational experience of the organization. Therefore, it is important that the reward systems within are organization are developed by line managers and team members who interact with the employees as they are aware of their needs. Cox, Brown and Reilly (2010, p. 259) in their study further points out that organizational managers should think of about grand reward strategies rather than only using financial incentives. According to Corby, White and Stanworth (2005, p. 7) other reward strategies other than the financial incentives have the potential of guiding the employees as well as the organization to do their best. Additionally, rewards do not only encourage healthy competition but also collaboration among the organizations employees with an aim of performing well an aspect that results into innovation in order to attain reward achievement. The aforementioned reward achievement is not the key motive for great performance and hard work among employees. However, during the process of reward achievement, performance becomes the destination. Consequently, organizations performance can only be realized if there is employee involvement. Additionally, employee empowerment, participation and involvement can be achieved if opportunities are established so that employees can involve themselves in the management of the organization. Cox, Brown and Reilly (2010, p. 261) pointed out that it is dangerous to use financial incentives as the default reward strategy as well as applying reward strategy concepts that only focus on planning and not processes. This explains why most reward strategies applied in organizations have failed. In most cases, the function to pay to recruit staff as well as retain them is undisputed however it should not be confused broader total reward strategies that will result into higher performances as well as elicit engagement. Consequently, reward management is about people, it is stakeholder integrated, strategic, oriented and evidence based. Moynihan and Wells (2010, p. 24) further indicated that reward management is mainly about people and in particular employees who get rewarded for their skills, contribution and efforts but also for the managers, reward specialists and directors who not only plan but also manage and administrate the rewards. Therefore, it is important to design appropriate reward strategy for the organization. Consequently, different kinds of reward strategies vary according to employees demographic characteristics for instance by age, ethnicity, staff grades, sector, gender and occupations. Therefore, it is important for organization to put the mentioned into consideration while designing and implementing reward strategies. For a number of organizations according to Cox, Brown and Reilly (2010, p. 261) is the implication is that, most reward designs systems are designed in alignment with the business plans rather than the needs of the employees. However, it is important for organizations to stop using line managers in the delivery of reward strategies as this is effective reward strategy implementation (Corby, White and Stanworth, 2005, p. 5). Additionally, it is essential to involve personal capabilities of the managers in order to ensure that pay-system that are centrally designed. This is the aforementioned is a true total reward strategy instead of managers concentrating on implementing flexible benefits plans as a way of benefitting the employees Zingheim and Schuster (2000, p. 45). There is sufficient evidence that illustrates challenges experienced in delivering reward strategies and practices via operational managers who busy and have imperfect understanding of as well as to the management processes of the people. Regarding reward strategies (Lewis, Saunders and Thornhill, 2004, p. 175) just like their employee customers, reward professionals and HR managers have greatly marginalized in the development of reward strategies. Additionally, the line managers have minimal training in not only administering but also implementing the reward systems. Therefore, total reward is essential in ensuring that there is a change from adopting simple appraisal and pay systems fairly and accurately and ensuring that every employee feels involved and valued in making decision within the organization thus feeling highly motivated (Corby, White and Stanworth, 2005, p. 4). Additionally, the benefits and compensation in most cases feel that their role is marginalized in the design and implementation of reward strategies. However, the challenge is that they lack sufficient in development as well as training in determining ways in which their contribution in putting in place a total reward package that will ensure that employees are engaged and highly performing in their duties (Zingheim & Schuster, 2000, p. 67). In conclusion, it is important for organizations to ensure that their reward policies are in alignment with the policies of the business in a manner that is flexible and involve both line managers and employees as the key customers of the reward systems. The mentioned will ensure that the pitfalls of mechanic and rigid contingency models are avoided. This is likely to make organizations to adopt ambitious reward strategies that could result into high performance within organizations. References Brown, D., and Perkins, S. (2007). Reward strategy: The reality of making it happen. World at Work Journal, 16(2), 82–93. Brown, D., and Purcell, J. (2007). Reward management: On the line. Compensation and Benefits Review, 39(3), 28–34. Corby, S., White, G., and Stanworth, C. (2005). No news is good news? Evaluating new pay systems. Human Resource Management Journal, 15(1), 4–24. Cox, A, Brown, D, and Reilly, P. (2010). Reward Strategy: Time for a More Realistic Reconceptualization and Reinterpretation? Thunderbird International Business Review Vol. 52, No. 3. Hansen, F., Smith, M., and Hansen, R. (2002). Rewards and recognition in employee motivation. Compensation & Benefits Review, 34(5), 64–72. Lewis, P., Saunders, M. N. K., and Thornhill, A. (2004). Family breakdown: Developing an explanatory theory of reward system change. Personnel Review, 33, 174–186. Lowry, D. (2006). HR managers as ethical decision-makers: Mapping the terrain. Asia Pacific Journal of Human Resources. Retrieved from http://apj.sagepub.com/content/44/2/171 on November 3, 2012. Moynihan, D, P. and Wells, S. (2010) Designing Compensation Plans to Manage Today's Risk Environment. Compensation & Benefits Review. Retrieved from on http://cbr.sagepub.com/content/43/1/17 on November 3, 2012. Purcell, J, Kinnie N, Swart. J et al (2007) people management and performance. Newyork and London: Routledge. Zingheim, P., & Schuster, J. (2000). Pay people right! Breakthrough reward strategies to create great companies. San Francisco, CA: Jossey-Bass. Read More