Best Practices Remuneration and Performance Management System - Capital Airtime Ltd - Case Study Example

Name Tutor Title: ‘Best practices’ remuneration and performance management system Institution Executive summary This report analyses the ‘Best Practices’ when designing a remuneration and performance management system in organisation. Capital Airtime Ltd is medium-sized company that’s looking to attract and retain the appropriate employees. Also, the organisation plans to become profitable and increase returns on its stock price. The paper outlines the seven principles of The Pfeffer-digm ‘best approach’ strategy which includes Employment security, selective hiring, self-managed teams or team-working, high pay contingent on company performance, extensive training, reduction of status differences, and information sharing The paper recommends the ‘best practices’ approach and gives benefits of implementing the strategy. 1.0.Introduction Remuneration and performance management is applied to describe several activities practised in an organisation so as to evaluate, monitor and adjust aspects of individual and organisational performance using various management controls (Thompson and Richardson, 2003). There are several remuneration and performance management system such as ‘best Practice’ and strategic alignment. 2.0. Literature review Several Philosophers have widely discussed the issue of whether employee management contributes to the general performance of an organisation. Several studies that have been conducted to evaluate the impacts of this high performance work practices. Pfeffer-digm discovered the 'best practice ' approach which includes employment security, selective hiring, extensive training, reduction of status differences, information sharing, self-managed teams or team working, and high pay contingent on company performance (Pfeffer 1998). 2.1. High pay contingent According to Pfeffer (1998) contingent compensation may include profit sharing, stock ownership, team incentives, gain sharing, pay for skills. Companies such as Southwest Airlines, Microsoft and AES Corporation support such share ownership. Home Depot is among the Fortune 500 services company that ensures that top management buy stock in the Company (Pfeffer 1998). Starbucks, one of the best coffee chains provides stock options to all the employees including part-time employees. However, employee stock ownership options is rare in most companies. In 1993, a compensation consulting organisation, Hewitt Associates stated that only 30 large firms provided stock option plans to employees. Hewlett-Packard (HP) encourages quarterly profit-sharing motivates employees to focus on costs and profits (Pfeffer 1998). Incentive plan is efficient in decreasing turnover rates (Cho et al, 2005). An extensive research conducted by Banker et al (2001) indicates that incentives plan had a connection with higher revenues, high profits and low cost. According to Paul and Anantharaman (2003) compensation and incentives influence operational performance. Lawler and Rhode (1976) suggested that as much as performance-based compensation has the capacity to motivate employees, some employees may view it as a management strategy to control their behaviour. 2.2. Employment security Currently, most organisations are facing downsizing and rightsizing issues. According to Pfeffer (1998) and (Lachos (2009) employment security tends to create trust between employees and the organisation management which results in increased cooperation, and performance. Herb Kelleher the CEO OF southwest indicates that job security and favourable work environment are essential techniques for creating employee partnership and performance (Pfeffer 1998). Delery and Doty (1996) conducted thorough research on the financial performance of 192 banks. They observed significant relationship between job security and the financial institutions' return on assets. Great job security to employees resulted in increased returns to the financial institutions. However, job security does not imply retaining non-performing employees. Job security is the practice of retaining employees in case of economic downturns or strategic mistakes of top management (Pfeffer 1998; Lachos 2009). 2.3. Selective hiring Lachos (2009) argued that recruiting the right employee contributes to profits in organisation. For this to happen, the organisation requires to have a wide range of applicants from which to choose. For instance, in 1993, the Southwest Airlines shortlisted 16,000 applicants for interviews after receiving 98, 000 jobs applications and recruited 2,700 (Pfeffer 1998). Singapore Airlines is among the best Asian companies that deliver high quality services to clients. The company is thorough and selective when it comes to hiring employees. According to Pfeffer (1998) “senior management at Singapore Airlines pass through several tests and two interview sections and only 2% of the shortlisted candidates are employed.” Subaru-Isuzu received over 30,000 job applications after opening its automobile manufacturing industry in the United States (Pfeffer 1998). Cho et al (2005) stated that pre-employment interviews are a critical aspect of the hiring process and influences employee retain rate of employees. 2.4. Training According to Pfeffer (1998) “having a workforce that is multi-skilled, adaptable to rapidly changing circumstance, and with broad conceptual knowledge about the production system is critical to the operation of the flexible production system". Japanese manufacturing in North America offer 700% more training while plants based in Korea, Taiwan, and Brazil offer 750%. The amount of training in Australia equals with U.S levels. Companies in Australia provide about 40 hours of training during the first six months for new workers (Pfeffer 1998). 2.5. Self-managed teams The ability to tap more ideas, skills and effort from employees result in high perform level. Best practice performance management system accomplishes this by organizing people into work teams. 2.6. Reduction of status differences The basic principle of management systems is to reduce the status differences existing between individuals and teams and can result in some felling less valued (Lachos 2009). Tittles and language play an essential role in influencing how people relate to their organisation. For instance, at Subaru-Isuzu all employees from the company head on down were referred as an Associate. According to Pfeffer (1998) the Company's literature indicates that they do not “recruit workers rather Associates to work together as a team to accomplish task.” . 2.7. Sharing information Morishima (1991) found a positive relationship between sharing information and high productivity. Sharing information on things such as operating profits, sales by team, sales by store, or annual staff motivation survey creates trusts in the organisation (Lachos 2009). AES Corporation is one of the firms that shares detailed operational and financial information with its staff to ensure security regulation (Pfeffer 1998). However, Ichniowski and Shaw (1999) conducted an extensive comparison of US and Japanese steel manufacturing plants and discovered that employee participation based only on information sharing o problem-solving teams did not result in significant increase in productivity. Recommendation Implementing the ‘best practices’ remuneration and performance system will introduce systematic controls in the management process to control the activities of the organisation. The efficient controls involve management judgment, making decision, and action to ensure attainment of the set objectives. The ‘Best practice’ remuneration and performance management will help in intra-organisational and extra-organisational performance management of the Capital Airtime Ltd. Intra-organisational performance ensures implementation of effective internal controls to evaluate and monitor organisational goals and objectives. The Capital Airtime Ltd management can regularly evaluate performance standards achieved though use of ‘best practice’ strategy. Each individual in the Capital Airtime Ltd should have a specific responsibility in achieving the set objectives and targets. This contributes to the achievement of the key performance indicators and outcomes. The management and employees should take collective and individual accountability for performance achieved. Accountability in the organisation will facilitate systematic and comprehensive performance evaluation, and review. Mechanisms for reinforcing the performance and remuneration strategy should be implemented with positive consequences for success and negative consequences for under-performance against the program. Extensive training and development is essential especially for technological positions in the organisation. This will help to maintain the Capital Airtime's core competencies and retain key talent. The organisation should provide training opportunities and allow employees to take up several training programs. The training involves skills on new products, customer services and selling skills. Additionally, Capital Airtime Ltd can facilitate employees’ education by paying for advanced master's degree and Ph.D.s in work-related fields. High pay contingent is significant aspect of the management process in the Capital Airtime Ltd. The organisation’s main objective is to maximize return on their investment especially on human capital. Capital Airtime Ltd should ensure that their compensation policies, design, delivery and decisions are balanced, fair and understood by employees as well as potential employees. It’s essential to attract, hire and retain employees with appropriate skills, knowledge and other necessary qualities so as to attain the goals of the organization. Compensation is a significant factor in attracting and retaining employees and developing aspects of the current and future workforce. Capital Airtime Ltd needs to specify the most critical skills and attributes when hiring. The Company should evaluate potential employees based on initiative, judgment, adaptability and ability to learn. Selecting appropriate employees will be significant to the success. However, the firm should be willing to utilize resources on the selection procedure. Capital Airtime can reduce status difference by use of common language and labels, physical space, and dress code. Additionally, the firm can reduce the level of wage inequality especially across levels. The management should eliminate special dining rooms and reserved parking. Reducing status difference promotes open communication, learning and adaptation. Contingent compensation will promote promotes equity and fairness in the organisation. All employees should be awarded for helping an organisation to produce great returns rather than benefiting the senior management and shareholders. However, compensation practices and policies should be aligned with organisational objectives. References Banker, D., Lee, S.Y., Potter, G & Srinivasan, D 2001, an empirical analysis of continuing improvements following the implementation of a performance based compensation plan, Journal of Accounting and Economics, 30 (1): 315–350. Cho, S., Woods, R & Jang, S., Erdem, M 2005, measuring the impact of human resource management practices on hospitality firms’ Performances, International Journal of Hospitality Management. Delery, J & Doty, H 1996, Modes of theorizing in strategic human resource management: tests of universalistic, contingency and configurational performance predictions, Academy of Management Journal, 39(4): 802-835. Ichniowski, C & Shaw, K 1999, The effect of human resource management systems on economic performance: an international comparison of US and Japanese plants, Management Science, 75(5): 704-721. Lachos, I 2009, the effects of human resource practices on firm growth, Int, Journal of Business Science and Applied Management, Volume4, Issue 2, Agricultural University of Athens Lawler, E & Rhode, G 1976, Information and Control in Organizations, Goodyear Publishing Company, Pacific Palisades, CA. Morishima, M 1991, Information sharing and firm performance in Japan, Industrial Relations, 30 (1):37 Paul, A. K & Anantharaman, R. 2003, Impact of people management practices on organizational performance: analysis of a causal model, International Journal of Human Resource Management, 14 (7): 1246-1266 Pfeffer, J 1998, the human equation; building profits by putting people first, Harvard business school press Thompson, M & Richardson, R 2003, The Impact of People Management Practices on Business Performance: A literature review, The Institute of Personnel and Development Read More