Current Reward Strategy of an Organization - Essay Example

?Introduction “Our knowledge of motivation tells us that people do what they do to satisfy needs,” (Robbins, 1993, p. 581). Before they do anything, they look for the payoff or reward. As such, this report has been designed to outline a proposed reward strategy that might be adopted by the Director of Reward at Massaman International (MI), a securities trading arm of Massaman Investment Bank in London. Particular attention will be followed on the following aspects: Evaluation of the organisation’s current reward strategy. What motivates the dealing team? Assess the extent to which team-based pay is appropriate. Analyse and discuss the role of HR particularly the Compensation and Benefits Manager. An analysis of the types of non-financial rewards that could be introduced and how this may affect retention. An analysis of the view on bonus arrangements and any recommendations in terms of required changes. Detailed recommendations to the issues raised will be given to the Director of Reward at the end of the report. 1.1 The organisation’s current reward strategy MI currently uses the extrinsic rewards strategy to compensate its employees for the contribution they make towards its viability. Basically, extrinsic rewards include direct compensation, indirect compensation as well as non financial rewards (Robbins, 1993). Direct compensation in this case includes a basic wage salary, bonuses based on performance as well as profit sharing. Apart from the high basic salaries being earned by the traders in this particular case of MI, the bank also calculate their rewards on overall profitability of the trading operation and this entails that they get anything between 30 and 50 % of what they have earned in profit for the Bank. Performance bonuses significantly contribute to the package earned by the dealers and these motivate them to put optimum performance in their operations. It can also be noted that all dealers currently attract a package of benefits including a company car, healthcare and pension contributions. Grobbler (1998) suggests that these can be awarded to the employees on the basis of their performance. The traders are treated as the most valued assets to the bank as they may leave if they are not satisfied with the reward system for their performance. As such, their rewards are designed in such a way that they will appeal to their interests which in turn can lead to their retention in the organisation. It can be observed that the major strategy used by the bank to offer rewards is based on overall profitability of the bonds that have been sold. The traders are entitled to get a certain percentage of the profit as their bonus. However, the external environment plays a significant role in shaping this strategy. The strategy is influenced by gathering and analysing competitor information so as to come up with the best reward strategy. In this case, MI tries to remain on top of other organisations hence it seeks to differentiate its rewards strategy from other competitors. The organisation is compelled to offer the best reward on the basis of the situation obtaining in the environment. The level of performance of the economy also shapes this strategy since bonuses are calculated on the basis of overall profitability of the trading operation. In the event that the bonds sold have poorly performed, this entails that their rewards will be lower which shows that the external environment has a bearing on the strategy of rewards. Though there is no direct government intervention in the operations of banks with regards to their reward systems, it can be noted that more financial institutions are becoming wary of not rewarding undue risk taking. For instance, the recent Turner report contributes to the mounting pressure for financial organisations to review their bonus systems in order to protect the interests of the shareholders. These are some of the external factors that shape the rewarding strategy by MI. 2.0 What motivates the dealing team? Since the dealing team has a very little loyalty to the organisation, it can be noted that they are motivated by the reward bonuses which are performance based. According to Swanepoel (2007), performance based compensation is concerned with paying the employees on the basis of some performance measure. The dealers know that they are in demand hence they can move to other organisations which offer better performance based bonuses. As noted in the case of MI, the dealers are aware of the running profits they are making on each of their dealing transactions as they calculate their profits on a day-to-day basis. The traders usually expect between 30 to 50 percent of the profit earnings by the bank. If they generate more profits from their operations, then their bonuses are likely to be higher and vice versa. As such, it can be noted that the traders have the opportunity to make money which doubles their already high basic salaries which are apparently competitive in the market. Their bonuses are flexible given that they are determined by the amount of profits they generate from their dealings. Therefore, the higher the profits they make, the higher the bonuses they will earn at the end of the day. This greatly motivates them as they are in a position to determine the level of bonus they may want to make out of their operations. Unlike other traditional strategies of rewarding top performing employees which are often carried out on an annual basis, the dealers at MI are in a position to get their rewards on a monthly basis and their efforts determine the amount they can get. This shows that the dealers are in control of the money they are capable of getting out of their efforts. The fact that bonus rewards are not fixed is a great motivator to the dealers who are motivated to put optimum performance in their operations with the aim of getting handsome rewards. The organisation can respond to these needs through the introduction of a flexible benefits plan. This plan allows the workers to tailor their benefit program to meet their personal needs by choosing from a menu of benefit options (Carell et al, 1995). This strategy replaces the traditional “one-benefit-plan-fits-all” programme that has been characterising organisations during the past period. Such a strategy will enable the individual to link their goals to organisational rewards offered. By allowing the employees to choose their compensation package, the organisation will be offering motivators to them since they can align their needs with the rewards they get from their operations. If an employee is given the opportunity to decide the compensation plan, he is motivated as he or she can fulfil his expectations as well as goals which is the basic tenet of motivation. Therefore, the organisation shall always attempt to respond positively to the needs of the strategic employees in particular. 3.0 Assessment of the extent to which team based pay is appropriate Essentially, the goal of teamwork should be synergy, in other words, the sum of the individual efforts in the team is greater than the sum of the individual inputs (Schultz, 2003). Simply put, the inputs of the individuals in a team should be combined in order to produce a single output. If people are working in a team, their efforts are directed towards the attainment of the same goals and objectives hence they ought to be remunerated in a similar fashion. In most cases, people working in the same team hold similar positions which may be slightly different though. The purpose of the team is to ensure that the efforts of the team members are directed towards the attainment of the same goals and objectives. As such, the outcome of team efforts should not be treated as individual effort which is the reason why team based pay is seen as appropriate. Team based pay is also ideal in that it helps to reduce the chances of conflicts among the members of the same group. Members of the team are fully aware that they are doing more or less the same tasks except for team leaders. There is a tendency by people to compare their input with others occupying the same position in the organisation then comparing their wages. Any discrepancy in salaries for people performing the same task in a team is a source of conflict given that the one who is getting lower pay is de-motivated. His performance is negatively impacted since this person tends to view himself as badly treated. Conflicts in a team should be avoided at all costs since they are counterproductive. If a person discovers that he is earning less than other team members, his performance is negatively impacted which will also lead to poor productivity in the organisation. Team based pay is also appropriate in that it promotes equality among the members of a particular organisation. People performing the same task will view themselves as equal if they are given the same pay. This also shows that they are treated as important since there is no individual member being given preferential treatment. A person who is treated as a valuable asset to the organisation is motivated since he can identify with that particular firm. The overall performance of the organisation is mainly determined by the combined efforts of the members of the team hence their wages should not differ if they are in the same level as this may impact negatively on their performance. Thus, efforts of the team members should be directed towards the attainment of the same goals and objectives and they should also get wages commensurate to their efforts. It can be noted that performance is improved if the employees get a team based pay since there are limited cases of misunderstandings over the issue of pay. 4.0 The role of the HR particularly the Compensation and Benefits Manager Human resources management (HRM) plays a pivotal role in the operations of an organisation. Basically, HRM is defined as a “system of philosophies, policies, and practices that affect the people who work in the organization. It includes activities related to staffing, training and development, performance review and evaluation as well as compensation,” (Jackson et al, 2001, p. 242). In this particular case, the Compensation and Benefits Manager’s main role are concerned with reviewing and evaluating performance as well as compensation strategies that are in place within the organisation. The aim of this is to ensure that personal needs of the employees are met in order to improve their commitment to their work. This emanates from the HRM approach which posits to the effect that there is need for reciprocal dependence between the employee and the employer where the needs of both need to be met for optimal performance. This approach suggests that organisational goals and individual needs should not be treated as mutually exclusive given that one set need not to be gained at the expense of the other (Carell et al, 1995). In this particular case, the Compensation and Benefits Manager should gather as much information as possible about the measures taken by the other competitors in designing their benefit strategies for strategic employees like the traders. This information should be used as the basis for designing the reward strategy that can appeal to the interests of the dealers such that the organisation can be in a position to retain these vital resources in the organisation. Traders in a bank can move to the other institution if they find the reward strategy attractive. Therefore, the above mentioned manager should make concerted efforts in gathering information about other competitors in order to be able to devise strategies that can attract the traders. By virtue of implementing a reward system that is better than the competitors, the organisation is positioned to retain its key staff members since their commitment to it is also likely to increase. The Compensation and Benefits Manager should also engage the strategic employees in dialogue in order to be in a better position to know their concerns. There are high chances of mutual understanding if people engage in a face to face dialogue given that an amicable solution between the parties involved can be easily reached if they exchange their views in a cordial fashion. The manager also has to play a role in monitoring the performance of the dealers. The manager has a task to ensure that the performance of the traders is compatible with the goals and objectives of the company. There might be a tendency by the traders to engage in bad practices in a bid to gain a quick buck which can negatively impact on the reputation of the organisation. The manger should therefore make sure that deserving efforts should be rewarded and should also ensure that the operations of the traders are in compliance with the standard expectations of the organisation. Therefore, it is important for the manager to monitor both the internal and external environment of the organisation so as to be able to come up with relevant information that can be used to design an attractive rewards system that can promote the retention of key employees in the organisation. 5.0 An analysis of the types of non-financial rewards that can be introduced at MI Given their overall contribution to the performance of the organisation as a whole, it can be seen that the traders are status conscious people. Such people often need non-financial rewards in a bid to motivate them. Such kind of motivation is related to self actualisation as stated in Maslow’s hierarchy of needs (Carell et al, 1995). Status-oriented employees may value an impressive job title due to their level of importance to the organisation. In this case, instead of calling people like Tom, Fabrice and Dave dealers or traders, a special title for their job can be suggested. A title such as Financial Executive can stimulate these people toward top performance. If this new title appeals to their interests, they will view themselves as very important to the company and not easily indispensable hence they will stay longer in it. People who are treated as valuable assets to the company can identify with it and they are likely to continue working for it. These key employees in the organisation can also be presented with the opportunity to have their own business cards as well as private secretaries who will help them execute their duties. On top of this, they also need well located parking spaces with their names inscribed below the reserved sign at the company premises. To a larger extent, people who feel that they are important to the company are particularly concerned with aspects that will reflect their status. People who have higher statuses in society are respected by individuals from various quarters and such status can appeal to the interests of the traders at MI. This in turn can also motivate them to put optimum performance in their operations as they would be treated as very important to the organisation as a whole. On top of putting maximum performance in their operations, there are likely chances that they will stay longer in the organisation as they are fully motivated. The other nonfinancial reward that can be offered to key members of staff is to give them a chance to operate without close supervision on the discretion of the management. When this strategy is carefully aligned to individual needs, it acts as a stimulant to improve the performance of the employees in their operations. People holding strategic positions in an organisation are not only motivated by financial rewards but giving them the autonomy to make strategic decisions that affect their operations. If they are given the opportunity to solve the problems they may encounter in their work, they are likely to create a sense of belonging to the organisation which will motivate them to stay longer in the company. Such an opportunity also gives them a sense of importance to the organisation which is a great motivator. 6.0 An analysis of the view on bonus arrangements and recommendations in terms of required changes An analysis of the bonus strategy at MI shows that there is need for the management to decide a fixed bonus percentage on overall profitability of the trading operation. At the moment, the traders expect anything between 30 and 50% and this is likely to cause confusion in the future. For the sake of consistency, the traders should get a fixed percentage which can be reviewed on a quarterly basis depending on the market performance of the organisation. If the percentage is not consistent, the traders may think that they are being short changed in the event that the rate has declined from the previous figure. Therefore, it is recommended that steps should be taken in order to ensure that the employees are aware of the percentage they should get from the profits as their bonus. This will also minimise the chances of misunderstanding among them. It is also recommended that the dealers should get their benefits on a monthly basis so that the transition does not affect their normal flow of income. It is also recommended that MI should adopt a flexible benefits strategy which allows the employees to choose from among a menu of benefit options. The idea behind this strategy is to allow an employ to select a benefit package that is tailored to suit his or her own needs. According to Robbins (1993), the traditional benefits programmes were designed to suit the workforce of the 1950s of which the same strategy does not meet the needs of the diverse workforce. Various employees during the contemporary period have varied needs and these should not be treated as synonymous. Giving all the employees the same benefits assumes in a certain way that all employees have the same needs which is a false assumption. Therefore, it is recommended that employees should be given flexible benefits should they request such an arrangement. Flexibility is attractive because the employees can tailor their benefits and levels of coverage to their own needs. This tends to be a motivator if it is carefully implemented. Each employee has got his or her own needs and these have to be prioritised by the employer in order to motivate them which ultimately lead to retention of key strategic employees. Research has shown that eighty percent of the organisation’s employees changed their benefit packages when a flexible plan was put into effect (Robbins, 1993). Clearly, flexible benefits is an idea whose time is now ripe for organisations that are concerned with retaining key members of staff. 7.0 Conclusion Over and above, it can be noted that MI uses pay-for-performance strategy in rewarding the traders their bonuses. This is influenced by factors such as profits generated by the bank in its transactions. It has also been observed that team based pay is appropriate given that it has more advantages than disadvantages. Conflicts are minimised if people performing the same task in a team get salaries which are uniform. The HR manager has a role to gather information that can be used in deciding the appropriate strategy that can be implemented in deciding the benefits for the employees. It has been recommended that MI should adopt a flexible benefits strategy which allows the employees to fulfil their needs and aspirations. A fixed percentage of benefits should be offered to the traders in order to maintain consistency as well as to operate within the expected standards within the financial sector. References Carrell, R et al 1995, Human Resources Management: Global Strategies for managing a diverse workforce, 5th Edition, Prentice Hall:NY. Financial Services Authority, March 2009, The Turner Review: A regulatory response to the global banking crisis, Viewed 24 April, 2012, Grobler, P et al 2006, Human Resource Management, 3rd Edition, Thompson Learning: London. Hackett, P 1996, Success in Managing people, John Murray: London. Jackson, E, et al 2001, Management, Oxford University Press:CT. Jackson, SE & Schuler, R 2000, Managing Human Resources: A Partnership Perspective, South Western College Publishing: NY. Robbins, SP 1993, Organisational behaviour:Concepts, controversies and applications, Englewood Cliffs: Prentice Hall: NJ. Schultz, S et al 2003, Organisational behaviour, Van Schaik Publishers: CT. Swanepoel, BJ 1998, Human resources management: Theory and practice, JUTA: CT. Read More