Reward Management Systems in Apple Inc - Case Study Example

REWARD MANAGEMENT SYSTEMS IN APPLE INC Name: Course: Tutor: Institution: City and State: Date: Reward Management Systems in Apple Inc. Executive Summary Reward management systems are a combination of all forms of payment that a company issues to its staff in return for their input. This remuneration could take the form of cash payments, benefits and discounts. Apple, one of the United States’ largest consumer electronics firms, currently employs 43,000 people inside the country. The company’s current reward system focuses on basic pay and benefits. While the basic pay is relatively low, industry experts agree that the company provides some of the best benefits within the sector. However, Apple needs to do a lot to improve the situation for most of its employees, especially within the retail department. In the ideal reward management system, the employer combines intrinsic and extrinsic forms of compensation to make the workers feel valued and treasured. Improvements on Apple’s current reward system should focus on the firm’s basic pay and performance-related pay schemes. The basic pay for most workers in Apple’s retail section should be increased to reflect the firm’s status as a leading producer of consumer electronics. Additionally, Apple should introduce a commissions system to help increase the income that people in the sales department earn. Paying employees using sales commissions would help the hard workers earn a salary that is proportional to their effort, while also increasing the total amount of money that all of the employees take home. Introduction The management of a company’s employees and senior staff is a very important aspect of every business entity’s activities. Staff management involves a range of activities and concepts many of which ensure that a company maintains optimum production. Reward management systems are one of the key elements of staff supervision. Companies use reward schemes to influence the behaviour of their employees by encouraging and motivating theme. Most schemes have a combination of intrinsic and extrinsic rewards and firms need to strike a balance between the two to ensure that the system works. Reward management systems normally have a host of objectives. One of the objectives is to align the aims of the employees to those of the company. Another objective of the systems is to motivate employees so that they maintain high levels of productivity as they work for the firm. Reward Management Systems Currently used at Apple Inc History of Apple Inc Apple Inc. Is an international company that deals with computers, mobile devices and consumer electronics among other products. The company is based in California and was started in 1976 (Finkle & Mallin 2010, 35). Over the past two decades, Apple has risen to prominence as one of the world’s best computing and consumer electronics firms. Products such as the Mac computers, the iPod music player and the iPhone are some of the most recognizable products of the company (Finkle & Mallin 2010, 31). Experts in the industry claim that Apple has “a strong reputation for beauty, simplicity and quality” an issue that has helped the firm grow into the giant that it is today (O’Grady 2009, 42). Employee Rewarding at Apple Inc Innovation has been the key driving force behind Apple’s success over the past one decade. Ingenious creations from the firm’s research and development teams have helped Apple get ahead of their competition and produce items that have set the trend in the electronics industry. Griffin (2012, 51) argues that the three best techniques that a company can use to promote innovation within its employees are organizational culture, rewards systems and intrapreneurship (a system where people develop a business venture within the auspices of an existing organization) (Griffin 2012, 52). Reward management systems are a preferred motivational tool for Apple Inc. Indeed, Apple has built a strong reputation for itself as one of the best companies to work for in the United States. Currently, Apple employs as many as forty three thousand workers in the United States (Segal 2012). The rewards that the employees receive for their work is dependent on a range of issues such as the staff member’s position, contribution, effort and sacrifice (Lashinsky 2012, 44). As a company that relies on innovation for progress, Apple focuses a lot on its rewards system to make sure that the workers continue to contribute to the firm with regards to innovations, inventions and new ideas. Ryan (2013, 11) explains that most reward management systems use two criteria to determine how much a person is paid. The first criterion is competitiveness, while the second one is pay. Companies normally try to offer wages that are competitive in the job market. This means that the salary offers that a prospective employee is given should ideally be higher than that which the competing firms are willing or able to present. In the second criterion, firms normally try to ensure that the salaries earned by employees are proportional to their value and input within the company. Apple‘s use of internal equity to determine employee salaries is quite noticeable. Workers in the firm’s retail sector earn salaries that are significantly lower than those that employees in the product development section are paid. One of the most basic forms of reward system is the base pay. Ryan (2013, 5) refers to basic pay as the minimum amount of money that employees receive for working for a company. Also called basic salary, companies normally support this form of remuneration with other benefits. According to Segal (2012), 30,000 of the companies 43,000 earn approximately $25,000 a year. This basic salary is well above the minimum wage that workers earn in the United States as well as the pay earned by workers in reputable firms such as Gap. However, industry analysts have noted that the basic pay that Apple employees earn is below the average that other employees in the sector earn from firms such as AT&T and Verizon (Segal 2012). Comparisons between what the company pays its employees and what it earns from them in a year also shows a large disparity between the input that Apple gets from its workers an what it pays them. Segal (2012) states that the average electronics company earns $473,000 per employee. With Apple being one of the largest players in the industry, it is possible that the company earns more on average per worker meaning that the basic pay that the employees receive from the company is still relatively low. In addition to the basic pay, Apple also utilizes a range of benefits and allowances within its rewards system. Within Apple’s reward management system, all of the firm’s employees receive full benefits regardless of their position within the company. This means that company provides health and retirement benefits, vacation time and regular breaks within the workday (Segal 2012). Most analysts agree that these benefits are on the higher side, especially considering the fact that most of the company’s employees work in the retail sector. In addition to the benefits, Apple also rewards its workers by allowing them to purchase its products at large discounts. Apple employees receive many benefits depending on how well the company does. One effective way of making the reward system reliant on the firm’s overall performance is by using the company’s shares to remunerate workers. Since 2013, the company has been issuing its employees with limited stock units (Thomas 2013). This means that as the company grows, so will the bonuses that the employees receive from it. In addition to the restricted stock, the firm also adopted a new plan where it paid its employees a sum of money equal to a dividend, each time the company’s shareholders were paid a dividend (Thomas 2013). Computations of the firm’s restricted stock units indicate that this reward system is likely to cost Apple as much as forty million dollars. This reward system creates a strong connection between the firm’s performance and the bonuses that the workers receive. Because of this intrinsic connection, Apple’s employees are more likely to be committed to their firm’s work since it ensures their own prosperity (McCarthy, Reeves & Turner 2010, 649). Faults within the Current Reward System Since the company that is heavily reliant on its employees’ innovation, Apple’s reward management system is a critical part of the firm’s operations and growth. Apple’s employees are quite happy with the current reward system, with many of them claiming that the benefits that they receive from their employer makes them feel valued and appreciated. However, some analysts have raised certain issues regarding the basic salary that Apple employees receive. Segal’s analysis of the basic pay that workers in the firm’s retail section earn showed that most employees feel that the company underpays them, especially considering the amount of work that they do (2012). Several factors further aggravate the issue of the employees’ basic pay. Firstly, Apple is one of the largest consumer electronics firms in the United States meaning that it rakes in more profit than most other companies in the sector do. Additionally, most employees feel that they should be earning more money per month considering the fact that they create an average of $473,000 in revenue per worker and unlike other retailers, Apple does not issue its staff with commissions (Segal 2012). Even though Apple is one of the best paying retailers in the United States (when benefits and bonuses are included), the company’s prestigious position within the industry means that it should be obligated to pay its employees a higher basic salary than most of its competitors. Proposed Reward Management System A proposed reward management system for Apple needs to consider the firm’s goals and objectives. During a product launch in 2013, Apple’s CEO Tim Cook explained that the firm aimed to look at what people want to “feel?/ delight/ surprise/ love/ connection” and then craft products and merchandise around these demands (Guglielmo 2013). Additionally, the company seeks to create products that enhance life by being simplified and perfect. This mission statement explains what the firm seeks to do and in a way dictates what it requires from its employees. The statement also shows that the firm’s success is dependent on the products that its employees make thus emphasizing the importance of an efficient rewards management system. The ideal reward management system combines extrinsic and intrinsic forms of remuneration. Extrinsic rewards are a transactional form of remuneration that workers receive for their input to a company (Grosser 2007, 22). This form of reward comes in the form of salaries, bonuses and benefits. Companies issue some extrinsic rewards in the form cash such as salaries and bonuses, while other types of remuneration could be issued through health insurance, vacation time and retirement benefits. Intrinsic rewards are not transactional and this makes them harder to account for. Grosser (2006, 23) states that intrinsic rewards could be environmental, meaning that they occur within the workplace. This means that the rewards could be the values that leaders and supervisors in the company exhibit as well as the way that they interact with the workers. Another form of intrinsic reward could be compensation in the form of learning opportunities that acknowledges the employee’s desire to improve their working skills. Basic Pay Basic pay is a crucial part of any company’s reward management system. Most employees and analysts use the basic salary to estimate how well a company treats its staff as well as the value that it puts in them. Ryan (2013, 6) states that basic pay is the least amount of money that a worker receives for the input he provides for a company. In most cases, companies compute basic pay using an hourly rate as a way of motivating workers to be conscious of how they spend their time at work. Firms normally supplement basic salaries with other forms of compensation such as overtime. Currently, Apple employees receive a basic salary that averages around $25,000 a year (Segal 2012). For a firm that is doing that well in its specific industry, a strong argument can be made in favour of increasing the basic salary that employees receive to make it comparable to Apple’s success or the contribution that they make to the manufacturing giant. Alternatively, Apple Inc. could introduce other forms of remuneration such as performance-related pay. Performance-Related Pay Performance related pay refers to any form of remuneration where the money an employee earns is dictated by the work that he or she has done for their employer (Wright & Chartered Institute of Personnel Development 2004, 17). Ryan (2013, 7) explains that many companies have shifted towards this kind reward because it motivates people to put more effort into their work. Different companies have varying kinds of performance pay. The kind of work that a company does normally determines the specific system that the organization will use to remunerate its workers. For example, manufacturing companies favour the piecework scheme, where an employee is paid a certain amount of money for every unit that they produce. Scholars argue that the popularity of this system comes from the fact that it is fair and simple as the hardest working individual makes the largest amount of money (Van der Stede 2007, 8). Other forms of performance-related schemes include the individual-performance related pay, group-related performance-related pay, knowledge contingent pay, commissions, profit-related pay and stock option plans (Moorhead & Griffin 2008, 161). Apple’s operations are divided into two main facets, retail and product development. The company designs, produces and develops a wide range of software and hardware that includes cell phones, music players, desktop computers and laptops. However, the actual production and assembly of Apple’s products does not take place in America, it is done through third-party companies that are mostly located in the Far East (Lashinsky 2012, 103. Most of the company’s employees in the US work in the retail section while others are involved in the conception and development of new products. Apple’s operational set up means that there are four kinds of performance related pay that the company could implement within its reward management system. Apple’s current reward management system already employs the use of three performance related pay schemes. The regular bonuses that employees receive are a form of individual performance-related pay schemes. Additionally, employees were allowed to purchase Apple stock at a fixed price as part of a stock option plan. Lastly, Apple’s decision to pay its employees the equivalent of a dividend for every dividend that shareholders earn is in some ways a profit-related scheme. However, employees working in the firm’s retail section should have a better performance related pay system considered for them. Most retail companies use commissions to motivate their workers into putting more effort into their work. Commissions are similar to the piecework scheme in that the company pays its sales staff a fee that is relative to their performance. This means that the more items and products a person sells, the more money they earn. Like the piecework system, commissions are simple and fair making them a favoured system for many companies (McCausland 2005, 638). Apple’s retail staff is currently paid less than those working in similar firms such as AT&T. In addition, the workers in many of Apple’s competitors earn sales commissions. As a way of rewarding its workers, Apple should consider implementing a commissions system within the retail sector. This would undoubtedly boost the figures that the retail department posts while making it possible for the sales staff to increase the income that they take home. Benefits Benefits are a form of remuneration that companies pay to their employees in addition to the basic salary. Normally, benefits cover areas such as retirement, housing, transport and health. Employers like to use benefits because they are flexible and, depending on the specific form of remuneration, cheap. In most cases, benefits are a cheap form of compensation that helps a company retain lowly paid employees with small incentives such as transport and meal vouchers (Tobler, O’Doherty, Dolan & Schultz 2007, 1625). Apple inc. is widely recognized as having one of the best benefits systems for people working in the retail section. Segal (2012) explains that Apple offers exceptional benefits for a retailer that includes health insurance, the option to buy cheaper stock and discounts for Apple products that employees purchase. However, Segal also argues that the company is making more income than most other firms in the retail industry meaning that the benefits that Apple offers its employees should be much higher than those that it competitors do. Recommendations There are several changes that Apple can make to its reward management system to its employees fell more valued while improving their financial status. Improving the situation for its employees could also make it possible for Apple to better its image and prestige within the industry and the country. The first step that Apple should take is increase the basic salary that employees in the retail sector earn. Segal (2012) argues that for most people, the idea of working for Apple creates an image of glamour and wealth from the Silicon Valley. However, the status for Apples sales employees is far from that reflected by the company’s engineers and development experts. Even though the input from the sales department is not as high as that from other sections, it reflects badly on the company to have one division within the firm that is marginally underpaid while another one earns high salaries. The process of improving the salaries within the retail sector should involve extensive market research to find out the rates that workers in other companies earn so that Apple’s sales staff is able to earn a basic pay that reflects its workload and the organization’s high status. Apple Inc also needs to restructure its performance pay related scheme. Within the current system, employees receive performance bonuses as well as income that is determined by the firm’s performance in the stock market. However, there is a need to introduce a sales commissions system, specifically targeting employees within the firm’s retail department. Workers in the sales department receive less credit for Apple’s success than those who are in the design and product development departments. Additionally, they are paid less than most other employees within the firm. The introduction of a commissions system would make it possible for these workers to come up with a way of increasing their pay and it would undoubtedly make them more committed to their work. Conclusion Reward management systems are a critical aspect of the operations of most companies. This is because the employees of a firm play a crucial role in ensuring the organization’s success. This means that a company’s success is heavily dependent on the way that it treats its employees. Using a reward system, companies can come up with comprehensive ways of remunerating workers based on the individual’s effort, the firm’s success, their contribution to the organization and the value that the corporation places in the person. In addition to this, reward systems also need to consider what rival companies are paying their employees to make sure that workers are not lured by more lucrative job contracts. Apple Inc is a consumer electronics giant that is based in the United States. The firm employs forty-three thousand workers in the country with thirty thousand of them working in the retail sector. Apple’s current reward system favours employees in the product development section of the firm, making the workers in the retail section some of the least paid in the company. Additionally, these employees also earn less than their counterparts in Apple’s competitors such as AT&T do. Even though the company offers its workers some of the best benefits in the market, it lags behind in terms of performance-related pay schemes due to the lack of a commissions system. Improvements to Apple’s reward management system need to focus on the basic salary and the performance-related pay. 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