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The Role of Reward Systems to Improve Employee Motivation - Essay Example

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This study 'The Role of Reward Systems to Improve Employee Motivation' is based on a critical examination of the role of reward systems to improve employee motivation, employee retention, and general company performance. Reward packages for employees are seen as a contributory factor in employee retention…
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Critically Assess and evaluate total reward packages as a contributory factor in employee retention: A case study based on Marks & Spencer Introduction This study is based on a critical examination of the role of reward systems to improve employee motivation, employee retention and general company performance. Reward packages for employees are seen as a contributory factor in employee retention and an example considered here is the employee reward system used by the retail giant, Marks and Spencer superstore. Rewards and incentives could facilitate in improving motivation of employees and improved motivation would lead to better work performance and collectively aid in boosting company profits. Attractive reward packages are particularly effective in retaining employees and Marks and Spencer uses reward packages as an effective tool in retaining its employees. This research focuses on a particular case study within Marks and Spencer, a major UK superstore to understand the impact of rewards, incentives and performance appraisal on employee motivation and performance. Marks and Spencer is a leading name in retailing within the UK. The company maintains that the rewards package given to its employees is flexible, competitive, focused on superior results and is aimed to support personal choices of personal lifestyles. The elements of the reward packages of the company include fixed and competitive pay rates, variable performance related pay and a wide range of other benefits (marksandspencer.com, 2006). In this study we prepare a detailed questionnaire to understand the impact of these benefits, payment and reward systems on employees and we also determine whether these rewards actually help in improving motivation and how this would relate to improved company performance. Marks and Spencer has boasted of 73% employee retention over 2004-2005 and retention may be considered as an important indicator of employee satisfaction and motivation (MarksandSpencer.com, 2006). Questionnaires are distributed to employees of Marks and Spencer to determine whether rewards systems given to them have a positive impact on their motivation and performance levels and aid them in heir decision to work for one company for a long period of time. The participants are employees of Marks and Spencer working in customer service divisions and 100 completed questionnaires are obtained and the data compiled are analysed for employee motivation and satisfaction levels that provide an indication of the employee retention level within a company. Marks and Spencer claims a high percentage of employee retention. The questionnaires are aimed to determine employee expectations, rewards given, job satisfaction, employee motivation, years of service and performance levels. Literature Review Companies use different means of rewarding employees and Brody et al (2001) discuss merit pay plans used by companies to motivate and reward employees. The theory of motivation would highlight that rewards and reinforcement for individual accomplishments should produce positive results although there may also be negative outcomes (Brody et al, 2001). Brody et al suggest in their study that when individuals are involved in hiring and merit allocation for employees, their prior commitments have significant effects on rewards allocated to the employees. This shows that a manager's personal involvement with employees can lead to increased merit allocation and rewards. This study highlights the factors that determine merit allocation and rewards which may not be completely dependent on employee performance and also large depends on interpersonal relationships within the workplace. Rewards could be largely based on performance ratings and it would be important to understand how employees perceive these ratings of their performance. Smith and Rupp (2004) state that a major purpose of having performance appraisals of employees is to determine individual merit which in turn help in determining whether merit pay or benefits would be given to some employees. However our research study is based not on the reward process itself but on the general effects of rewards. Expectancy theory would suggest that high performance ratings would lead to high merit increases and low performance ratings can lead to low merit increases. Smith and Rupp used a survey on actual performance and reviews as well as pay raises, management reviews, employee motivation, attitudes, years of service and educational levels and related performance ratings with merit allocations (2004). The negative aspects of reward systems have also been discussed. Smith and Rupp suggest that the management should maintain performance evaluations to implement motivational and incentive pay systems that can enhance training, employee retention, and performance metrics and also provide an indication of company goals and employee expectations. Employee retention is one of the major determinants of company performance and suggests the general levels of employee satisfaction in a company. Glen (2006) examines the human resource strategies used by companies to address the issues of key skills, employee retention, employee engagement, employee motivation, organization costs, productivity and business performance. The uses of employee assessment and feedback are important in determining the reasons of retention and show how employee development initiatives could be used. The employee engagement predictors given by Glen are process, management, values, challenge in the role; information; balance between work and life; stake/leverage/reward/recognition; work environment; and product (Glen, 2006).An organization's people management strategy is largely based on these identified factors (Glen, 2006). Glen suggests that the workplace being a key context in developing these factors, the issues of team engagement, motivation, attendance and retention would be important determinants of a successful business. Identifying these factors of retention and motivation would be important in developing a strategy for employee engagement and skills retention and could be used by HR professionals. London and Higgot (1997) suggest that reward and recognition of employees in a company is a controversial issue within human resource management. Rewards are an important part of quality management and show how far a system and its method of implementation could contribute to general management of a company. London and Higgot discuss a case study in which a company has attempted to introduce several employee reward and recognition schemes but failed in implementation so a new scheme was developed with the help of unbiased assessment of managers, employees and customers. This study suggests the importance of developing a reward system based on management, customer and employee expectations and unless all parties are consulted, reward systems may fail. It is important to define the concept of reward, delineate who should be rewarded, match these with the general expectations of consumers and employees and examine the reward process against employee performance and satisfaction. Overall company performance and staff retention are then reflected in the annual report of the company. Fisher and Yuan (1998) highlight that managers and senior officials must understand the general needs and preferences of their employees. They used a case study of employees at an international hotel in China and compared this with employee expectations in the west. Chinese employees place importance on good pay, good working conditions, and loyalty from boss and organizations and Chinese managers are in general aware of their employees' preferences. However general perceptions of employee preferences seem to be low or incorrect among managers in the west. For increasing motivation among employees and for enhancing employee and company performance, it would be important to understand what the employees really want and what kind of rewards would satisfy them. Providing rewards in accordance with expectations and preferences of employees could largely enhance quality management within any business organization. This study highlights the issues or factors that determine rewards and the importance of providing rewards in accordance with expectations to get positive outcomes in terms of increased motivation and performance. 1. Motivation theories Theories of motivation form the basis of employee performance and job satisfaction and motivation theories have different aspects to explaining why or how employee performance or job satisfaction could be improved. Motivational theories form the basis of work output and one of the most influential theories of motivation is that of Maslow's Hierarchy of needs theory. Maslow (1954/1959) categorized human needs as primarily physiological and when basic bodily needs of sex and hunger are satisfied, individuals strive to fulfill other needs as safety needs of personal or family security and social needs of achievement (in Maslow, 1959) by self esteem needs in which an individual primarily focuses on attaining status and recognition in society. The last need in a person's life is related to self actualization when the physical and material is transcended to achieve a sense of greater harmony with the universe at large. Needs fulfilled at work would relate to social and esteem needs when greater involvement with an organization provides a sense of self worth and esteem to individuals and help in motivating them to stay with the company for longer periods of time. Employee retention could thus be explained with the help of Maslow's theory in which a sense of achievement and self worth seem to be the contributory factor for an employee continued loyalty to a particular company. The Three Needs theory by McClelland (1961/1985) emphasizes on the need for achievement, the need for power and need for affiliation as humans seem to have a continued need for achievement, personal responsibility and some moderate risk taking (Madsen, 1968; McClelland, 1985) . This would explain why greater employee engagement can help in improving company performance and why personal responsibility and a sense of achievement are crucial to job satisfaction and employee retention. The need for power is synonymous with the needs for achievement, influence and competition. Individuals need healthy competition to exert their power and influence in society which serves as an important ingredient in job satisfaction. The need for affiliation is a social need and involves the human need for friendship and affiliation as well as cooperative activity in society. Whereas the need for power and achievement can be considered as esteem needs, the need for love and friendship relates to safety and social needs of individuals. Goal setting theory and Equity theory given by Adams (1965) suggests that employees will tend to compare his or her own inputs in a job and the outcomes or rewards achieved with that of other referents and if he perceives a discrepancy, he may resign or produce poor quality work (in Madsen, 1968). Performance levels are usually improved when goals are set although difficult goals can increase motivation and competitiveness and lead to higher achievements. Vroom (1964) provided the framework for Expectancy theory of motivation (in Vroom, 1970). According to Vroom's theory, individuals work or act according to certain expectations of outcomes and have certain perceptions on the attractiveness of such outcomes. Thus even in explanations of employee motivation, motivation could be explained on the basis of expectations of certain outcomes of behaviour and the general attractiveness of these outcomes whether in terms of rewards or benefits in the employment situation. Performance is also related to motivation and expectations of rewards and the attractiveness of such rewards given by companies which can vary between individuals. Efforts are thus linked to performance, expectations of rewards and general attractiveness of the rewards given. Maslow's theory of Hierarchy of needs, Vroom's Expectancy theory, Adams' Equity theory and McClelland's Three Needs theory can collectively sum up the theories of motivation that could successfully explain human needs, expectations and motivational factors in employment and general life situations. In a recent study Hollister, (2004) showed that lager firms tend to pay higher wages than smaller firms to workers who do similar work although Hollister points out that there has been no explanation on firm size effects. The nature of the new economy and competing theories show that sorting of workers by traits and industry factors are important but has failed to provide an explanation on firm size wage effects. Explanations on market power do not necessarily explain firm size effects. Hollister claims that there has been a shift in organizational structures and a decline in internal labor markets suggesting changes due to the new economy and in employment opportunities. Wright (2004) suggests that an organization's work context influence work motivation to a considerable extent and social cognitive theories could be used to explain this. Organizational work context along with goal conflicts goal ambiguity and procedural constraints can have detrimental effect on work motivation and can cause job difficulty. Work motivation is directly affected by work context and in turn affects the productivity of any employment. 2. Employee Retention Employee retention and engagement remain the major tools to increase company profits. Woodruffe (2006) suggested that thoroughly motivated and truly engaged employees can be the most competitive weapon of an organization and employees could be engaged to an organization in many ways. Employee engagement is also associated with employee retention as more engagement with a company's purpose and goals would motivate employees to work in a company for long period of time. Engaging talented people is one of the major challenges of any organization and Woodruffe points out that employees who do not feel a sense of purpose, self worth or job satisfaction in any particular work are more likely to find some other work. A company's success is largely dependent on its employees' discretionary efforts. Andrews et al (2005) discuss employee management and retention in case of nurse managers and suggests that shortage of nurses may worsen, calling for the need to promote recruitment and retention of nurses. Andrews et al discuss the relationship between job turnover, influences on job satisfaction and employee retention. Within the health care sector, Scott (2002) provides a picture of the strategic issues at management levels in organizations especially within the NHS. Scott points out that middle managers in the NHS are given more responsibilities and power of control. Scott's study examines the relationship between length of time that managers spend in an organization, their participation in decision making and their own perceptions of being valued in an organization suggesting the importance of all these factors in employee retention even at management levels. Small and medium sized companies as well as large business organizations seem to have gone through several workplace transformations in recent years, mainly to compete successfully on a global scale. Kickul (2001) suggests that the ability to develop and retain effective and talented employees provide a competitive advantage to companies. In this context the tools used by companies to retain employees as for instance the role of the psychological contract and the types of promises made by the employees and employers are examined. Kickul used a sample of 151 employees to show that perceived unfulfilled promises can have a considerable impact on workplace attitudes, commitment and intentions either to stay with or leave an organization. In a study by Mak and Sockel (2001) the relationship between the retention of IS workers in an organization, and productivity of IS operations was studied. Their study showed that latent motivation has an impact on latent retention with job satisfaction and perception of management as indicators for loyalty to a company. Stredwick (2000) discussed innovative ways used by companies for rewarding employees keeping in mind increased competition in a global market and changing needs of markets and organizations. Stredwick points out that companies should follow reward strategies that should be congruent with business objectives and rewards should be seen as a step towards greater flexibility and variability and an important part of basic pay systems. Stredwick describes the case study of a multinational pharmaceutical company which has changed its centralised over-rigid pay control system to create a flexible pay system that can meet the requirements of the European markets. 3. Reward Systems Reward systems used by any company can be used for providing incentives, benefit or compensation. Rewards can be merit based, bonus based, commission based or performance based. Companies reward their employees on the basis of performance and provide incentives in cash or kind and also provide added benefits, discounts, rewards, pay rise and special offers. Promotions and awards are also given based on performance and in some cases for meeting sales targets and company objectives. Reward systems act as primary tools for increasing motivation among employees although several research studies already discussed have suggested that alternative rewards as geared towards more active employee participation in decision making and providing greater responsibilities may be more effective in improving company performance and in providing job satisfaction to the employees. Giving managerial responsibilities to employees can also be a very effective method in increasing employee engagement and encourages greater involvement at work improving chances of employee retention in companies. Thus reward systems could be summarized as 1. In cash - cash rewards could be given for performance and this could be an increase in pay or commission or bonus 2. Special offers and discounts given to employees - as also used by M&S 3. In kind - as in verbal or written encouragement and acknowledgement 4. Awards and promotions 5. Greater involvement and enhancing employee participation in decision making is also seen as reward Fisher and Yuan (1998) studied the effects of reward systems given to US and Chinese employees and have suggested a relationship between employee preferences and rewards given. Good wages, rewards, good working conditions and personal loyalty from the boss and organization were found to be important. 4. Links between reward systems and employee retention The Marks and Spencer Group plc has focused strongly on employee retention and is aimed at improving their employees' ability to fulfill roles. Allowing and encouraging employees to do their best seems to be the basic success factor in improving the company output. The company states in its latest annual report that to achieve full employee output and to improve employee ability, it has simplified the way to train, motivate and pay the employees by laying down a clear structure. Marks and Spencer has introduced a four point pay and career structure for customer service assistants and has also created best and highest rewards for employees within the retail sector providing different rates, rewards and incentives through the different stages of career progression and new roles. The company reiterates that changes in its rewards schemes suggest that they are in a position to recruit and retain the most talented people in the industry. The company has built a new retail management structure and M&S Career Path to ensure that only the most talented people manage the key stores that are expected to perform very well in terms of profits. The staff is trained to maintain consistently good standards in every store and with customer service training program, many employees work as coaches to train new recruits for ensuring product knowledge, work methods and customer service at highest levels. Marks and Spencer also maintain Business Involvement Groups or BIGs and 1500 employees are part of the groups that serves as the vehicle and main organ for communication between employee and management and promotes employee involvement, communication and consultation. Employee engagement helps in promoting responsibility and is an effective tool in improved company performance and job satisfaction. M& S also conducts regular employee surveys to find out employee satisfaction scores and compare tem with other retailers suggesting the company's active concern for employee benefits and job satisfaction. The case study of the company provides a definite indication of the relationship between rewards and training or incentives offered by a company and business performance in terms of profits, general output as in sales growth or in terms of providing job satisfaction of employees. Employee recruitment and retention of the best expertise and talent show the focus of the company is based on improved relationship between employee and management and greater focus on employee involvement and engagement in decision making. Motivational theories could be used to explain the importance of employee engagement and increased employee responsibilities in employee retention and general company performance. Bakan et al (2004) studied the direct and indirect effects of financial participation and participation in decision making within a company on job attitudes and they proposed that both financial participation in a company's policies and participation on decision making can have significant effects on job attitudes. Increased financial participation (FP) and participation in decision making or PDM can develop certain qualities in the employees including integration and honesty, involvement and commitment in the job, performance reward contingencies, perception on pay equity, job satisfaction and motivation. Bakan et al consider combined effects of FP and PDM and describe this as employee participation or EP model in which the basic assumption is that participation in decision making and financial procedures produce favourable effects on employee job attitudes. The results indicated that combined employee participation in financial aspects and decision making do not have any greater favorable effects than only participation in decision making suggesting that participation in decision making may be highly responsible for favorable job attitudes and may be a contributory factor in increasing job satisfaction. Considering that participation in organizational decision making is an important element of job satisfaction, the focus of this research study would be based on understanding the underlying factors that enhance motivation at work and aid in providing job satisfaction and in turn help companies to have high employee retention. Participatory decision making would be one of the aspects studied in the questionnaire along with measures on job satisfaction and employee retention in general. The importance of rewards and incentives being the central concern of this research, it is essential to define what rewards would mean and how rewards affect employee performance and satisfaction. In this context, it would be interesting to examine whether participation in decision making could also be considered as a reward. Buck and Watson (2002) examine different factors for employee retention and suggest that employee retention depends on levels of organizational commitment. Employee retention thus depends on several issues of job satisfaction and rewards, participatory decision making as also on the general efficiency of the human resource management system of an organization. Buck and Watson focus on the potential influences of human resource management or HRM strategies on organizational commitment levels among the staff employees. How effective are HRM strategies in promoting organizational commitment and job satisfaction among employees Data was used from institutions of higher education and measures were obtained on normative organizational commitment levels of staff members. Buck and Watson's study performed statistical analysis of the results obtained and indicated that HRM strategies of any company have significant effects on organizational commitment of the employees and potentially influence company profits and turnover. McCausland et al (2005) investigates whether there are significant differences in the job satisfaction of individuals receiving performance related pay or PRP as compared to job satisfaction of individuals with alternative compensation plans. The study revealed that performance related pay exerts a positive effect on the job satisfaction index but is only applicable for very highly paid workers. For lower paid workers, performance related pay is found to be pressurizing and controlling whereas highly paid workers perceive such pay as benefits and supportive reward schemes. McCausland et al suggest that PRP or performance related pay can be perceived as benefit and reward only by a group of workers and may not be seen as effective in improving performance of low paid workers. This study highlights the importance of difference in perception of rewards and pay schemes between low paid and highly paid employees. Even within our analysis of benefits and reward system used by companies, we may have to consider this psychological aspect of perception of differences in the pay and rewards system according to low and high paid employment. Rewards are perceived differently by different groups of employees according to various factors including income, work culture and organizational structure and management. Aims & Objectives of Research The aim of the research is to determine the relationship between reward systems and benefits given to employees and levels of motivation that affect work performance and overall company performance. This study would determine whether increased rewards help in providing job satisfaction and whether reward systems also aid in staff retention and work performance. The objectives of the research are given as follows: To determine whether rewards and benefits help in improving motivation in employees To determine the reasons for differences in employee retention within companies To determine the performance levels of employees with and without rewards To evaluate whether improved employee motivation and job satisfaction can also lead to improved company performance To evaluate whether rewards, incentives and benefits are effective tools in human resource management Background - Marks & Spencer Marks and Spencer is a reputed UK group with a chain of supermarkets across the country and sells clothes, food and household products. Between 2004 and 2005, the company employed around 70,000 people with 65,000 for UK operations of which 78% are female and 13% are from ethnic minority groups (MarksandSpencer.com, 2006). Along with a commitment towards equality and diversity, the group is also committed towards providing the right levels of rewards and incentives to its employees. According to Marks and Spencer workplace facts as claimed by the company, pay and benefits to employees are an important part of human resource management as retailers compete to provide the best remuneration for the best people (MarksandSpencer.com, 2006). As part of its efforts to retain its employees, Marks and Spencer conducts regular surveys and takes opinions from its employees on how best to improve job satisfaction for it staff members. The company also runs a number of training schemes to provide training opportunities to its employees that help its employees to develop new skills and maintain high standards in value and service. The company also has a pay and career structure at the levels of trainee, qualified staff, coach, and section coordinator. The staff members are also given 20% discount in M&S stores on all products which can be seen as a reward scheme. The company stated in its annual report that every employee is entitled to a personal reward statement that provides information about the range and value of the reward package. Employees are also provided with facilities such as fast and free referrals to physiotherapists, osteopaths and chiropractors, and access to confidential telephone advice and counseling to help them with physical and mental health problems which can affect their performance at work. To maintain health of employees at the workplace, Marks and Spencer has laid down a code of ethics and guidelines to be followed by all members of staff, shareholders and management for benefit of all. The company's policies show that the reward schemes offered are extensive and comprehensive involving all aspects of life including health and training at work. Performance and employee engagement are also given special attention and the questionnaire prepared in this research study is also accordingly based on various aspects of reward, from participation to cash incentives. The measures studied are on job satisfaction, years of service, expectations, rewards, participatory decision making, perception of pay equity, attitudes towards job and general company performance. Based on the responses to the questionnaires, an analysis will be drawn on the effectiveness of rewards in job satisfaction and employee retention and the types of rewards that are most effective for improving performance. The next part of the study would deal with methodology, preparation of questionnaire, distribution of questionnaire to staff members of Marks an Spencer and data collection followed by results and interpretation and general analysis of the findings of the study. The target of a 100 completed questionnaires is achieved and the questionnaires are tabulated for results on the implications of reward schemes and its relationship with job satisfaction, employee motivation, employee retention and general company performance. . Bibliography: Anderson, Valarie.(2004) Research methods in human resource management /Valerie Anderson. London :Chartered Institute of Personnel and Development. ANDREWS, DIANE RANDALL;DZIEGIELEWSKI, SOPHIA F.(2005) The nurse manager: job satisfaction, the nursing shortage and retention Journal of Nursing Management, Volume 13,Number 4, pp. 286-295(10) Arrowsmith J.;McGoldrick A.E. 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Woodruffe, Charles (2006) The crucial importance of employee engagement Human Resource Management International Digest, Volume 14,Number 1, pp. 3-5(3) Wright, Bradley E (2004) The Role of Work Context in Work Motivation: A Public Sector Application of Goal and Social Cognitive Theories Journal of Public Administration Research and Theory 14:59-78 Zemke R.(2002) Managing the employee connection Managing Service Quality, Volume 12,Number 2, April 2002, pp. 73-76(4) Marks and Spencer Plc, 2006, from http://www2.marksandspencer.com/thecompany/ Read More
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In order to attain a better understanding of the motivation and reward system of the present day organizations, we would initially accentuate on the theories of motivation and the types of applicable reward systems.... Some of the popular theories related to motivation such as Maslow's Hierarchy of Needs.... Tesco, being a giant retailer operating across the world, employs both monetary as well as non-monetary factors to enhance the motivation level of their employees....
15 Pages (3750 words) Research Paper
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