Comparison of the United States and Chinese Reward System - Term Paper Example

Comparison of the United s and Chinese Reward system Introduction Workers render their services for wages and salaries, also called, ‘compensation’. Wages and salary form the financial reward management system of the organization. The system also incorporates the non financial rewards such as recognition, praise, promotion, achievement, responsibility, and personal growth. Employer’s objectives of the reward system are: enable an organization to have the quantity and quality of staff it requires, retain the employees in the organization. It also motivates employees for good performance for further improvement in performance. The other objective is to maintain equity and fairness in compensation for similar jobs. It achieves flexibility in the system to accommodate organizational changes as and when these take place. Above all it makes the system cost-effective. Thesis statement Different organizations have different reward management systems based on various cultures. For example the reward system in China and United States are different due to different cultural backgrounds. Whereas the Chinese system is more collective as a result of socialism and ancient traditions, the American system is more individualistic as a result of capitalism. These cultural differences have impacted greatly on the reward systems in the United States and China. This paper compares the reward system in China and the reward system in the United States. Whereas the reward system in United States are performance based reward system, in China they are not performance based. Description of Reward systems in china China transformed from a socialist economy to a capitalist, a more market led, open economy which has attracted a pool of foreign investors in the huge Chinese market. Before the foreign invested companies in China introduced new reward systems, the systems in china were based on seniority, collectivistic beliefs, political position and political loyalty (Warner 2001). China thus does not reward performance and therefore leading to low motivation and productivity. Retaining employees in China is a very important issue. This is the most important goal of HR department in China because there a huge shortage of skilled employees in the country (Lewis, 2003). To understand the reward system in China it is important to understand the previous system from 1990 an how the reward system has evolved over years, before going to the current reward system in China. Three old irons In 1949, Mao seized control of China and introduced a new employment system which was Soviet based and which was known as ( jiu san tie) ‘three old irons’. Mao had found the other system not sufficient for socialist development. The ‘Three old irons’ is made up of The Iron Chair, The Iron wage, and the Iron Rice Bowl ( Ding, Warner 2001) The Iron Rice Bowl This basically is the Chinese idea of a lifetime employment. It is made up of three pillars which are namely- guaranteed lifetime employment, unified job allocation by the government and thirdly cradle-to- the – grave welfare. This idea was based on Chinese earlier experiences, the Japan experience of Manchuria and soviet practice before the reign of Mao China had a dual reward system which consisted of material and monetary rewards (Warner 1996). The unified job allocation system started to come up in early 1950s. Mao began his first labor market reforms with socialist transformation between 1950 and 1956. All the private owned companies were converted into collective and state owned enterprises. The government started to organize labor planning and placed very many workers in the expanding transportation, construction and industrial sectors so as to cope with economy’s employment problem which was caused by shortage of skilled workers and the effects of civil war in which communism gained command. Centralized recruitment and allocation was established so as to fulfill the needs of the labor market and curb the employment problems which were facing the country. External labor market was as a result dampened. The state controlled and unified the regulations and procedures for labor bureau at all levels. The labor allocation began with the local and central annual plan on labor quotas. These were forwarded to the labor bureau which then allocated the enterprises which were under their supervision. When the enterprises required more workers they would write a recruitment plan which specified the qualification and number of workers they needed (Warner 2001). The enterprises were prohibited from hiring workers on their own. The workers were guaranteed a lifetime job security as a ‘benefit of socialism’. Unemployment was regarded as an idea of capitalism. An employee could only loose is job if he or she broke the law or greatly damaged the work unit for his or her misconduct. The government had prohibited the enterprises from firing employees. It was not important to achieve performance goals. An employee received the base pay even when he or she was suspended for misconduct. The final pillar was the provision by enterprises of welfare benefits. These ranged from retirement home to baby- minding facilities, from health insurance to schools and housing. Job transfers were impossible and almost rare. This system in general seemed to work quite well by the end of socialist transformation where over 4 million workers were allocated using this system by its end (Yuan, 1990). Soon however there were overwhelming bad results which came to climax during the cultural revolution of 1967-1977. The system was burdened with overstaffing, low work morale, loss of motivation for employees, absenteeism, waste of energy and raw materials, and inefficient use of work time. Another problem associated with the system was common mismatches of employees who were trained. This is because government officials sometimes allocated workers regardless of their training. The Iron Wages Before the reign of Mao China had a dual compensation system which consisted of material and monetary rewards. The system was regarded not suitable for socialism when Mao came to power. To end this system it was reformed in two phases between 1953 and 1956. The first phase ended the system by introducing a salary compensation system and a grading system which classified employee’s level of reward based on labor. In the second phase a soviet-style wage grade system was introduced so as to increase productivity and it embodied implementation of the pay scale system. The wage differences were decreased and wages in different sectors were leveled. The wage systems were under the government at the end of the reforms. It was made up of three subsystems: eight- scale wage structure for producing workers energy mining and heavy industries, the job –type wage system for service and light industries and responsibility wage system for technical and managerial personnel in the enterprises. Alongside the wage system, there was bonus and piece rate systems which were meant to motivate the workers and increase their productivity. But during the Cultural Revolution these systems were regarded as anti- socialist and were thus abolished. The material incentives were replacing by ‘spiritual encouragement’. During the Cultural Revolution the wage gaps between the intellectual and production workers were greatly reduced. It was not possible for enterprises to adjust wage levels. The rewards were not linked to performance and were no tools for worker motivation. The wage system after Cultural Revolution was too egalitarian, too low, too complicated and too inert (Korzec 1992). The wages were intentionally maintained low so as to keep the prices low. As a result everybody could afford to eat and the rural laborers were discouraged from moving to the cities. The adjustments on wages were very rare and scarce and when they turned up they were very low (Cooke, 2004). This is the reason for the term iron wages. The Iron Chair During the reign of Mao, the appointment of directors of enterprise was highly centralized as it was the government which appointed the directors. Every person’s ambition was to climb the social ladder very fast as political status, income and welfare benefits and information access was determined by a person’s ranking in the bureaucratic hierarchy (Yan, 1995). The criteria for promotion were based on redness meaning political loyalty and expertness meaning seniority. Redness led more benefits as well. As a result of this redness the directors had to implement the party policies at the expense of the enterprises policies. The system lacked sufficient system of punishing poor performance and nobody was demoted as they all climbed the ladder. The iron chair stems from the fact that the promotions and salary increases were only allocated by the government. The iron chair also stemmed from the fact that employees could not easily change their jobs. Better salary or other post were not valid reasons for wanting to switch jobs. The reasons for switching jobs were life matters which include working closer to home or family. The work unit leaders would decline the employees request to leave jobs. This is because of the difficulty in obtaining government permission to fill the vacant position. The state aimed to minimize labor mobility sake of labor control and state planning. The transition of China Mao died in 1976 and Deng Xiaoping came to power 1978. He recognized the problems of the Mao system and embarked on numerous reforms. In 1978 many young people went back to cites from the country where they had been sent during Cultural Revolution in Mao era. The unified job allocation system was not able to deal with them. The three in one policy was adopted between 1981 so as to encourage the enterprises to set up labor service companies. These were meant to provide job placement services. The private businesses were also encouraged and flexible employment patterns were also allowed. So many aspects of the system in China were change to reflect a more capitalist, open market economy. Analysis Decentralization started to take form in the mid 1980s. Enterprises could hire workers on contractual basis. They could also dismiss the unqualified workers or the excess workers. The first stage in change of reforms in reward system was in 1978 and piece-rates and bonuses were reinstated. The enterprises were granted more autonomy in distributing bonuses. In 1985 the reforms introduced a structural wage system whose main component was the position of employees in an organization. It was guided by knowledge acquired by an individual, worker intensity and responsibility assumed. The other aim was to increase the gap between the administrative, line employees and technical/professional workers. Wages and bonuses were also now linked with performance. Wage control was decentralized from the government. Fixed and flexible wage was introduced in the public sector in 1990s. The promotion system was also changed so as to curb the problems of poor performing managers. The directors were no longer protected y the state and were held responsible for performance of enterprises. China in the past few decades has undergone a transformation which is changing the nation from a socialist economy to more open market led economy. Despites the numerous changes over the years there are still problems facing China such as overstaffing and informal market which is characterized by a non competitive job market where most workers find their jobs through friends and relatives. The differences in reward are still low between technical and professional staff. The performance appraisals are still not held high as the managers are still not willing to differentiate their worker force and thus poor motivation. The managers are still using the traditional ways of progressing their employees on the basis of length of service and age rather than on training and education. The reward system in China is thus still tainted with socialism which saw into China ‘Three Irons System’. However since the reform began, there has been a clear trend towards the more western polices of human resources. This is mainly as a result of the decentralization of control of the human resource polices. The other main cause is the western management styles which were introduced by the foreign invested companies and the joint ventures. It is good to note that the Chinese history of the economy and culture have a big difference from that of the west. The western companies have been characterized by an historical revolution which moved from industrial relations to the employee relation, a revolution from personnel management to human resource management followed after. The companies in China took no part in this type of revolution. China started by a socialist society unlike the west which started with capitalist society (Warner 1996). The western systems are also base on individualism whereas in china is based on collective system, not only because of socialism but also because of the ancient traditions. Another difference in the reward system is caused by the fact that the Christian west puts the individuals in reference to God whereas the Chinese puts individuals in reference to their significance with others such as family and work relations. Description of United States reward system Whereas the reward system in China is still reeling from the bad effects of ‘Three Iron System’ which was introduced during Mao rule in the reign of socialism America having been capitalist state has a well established performance related reward system. The performance related reward system is based on three principles which are discussed below. External Equity This principle acknowledges that factors/variables external to organization influence level of compensation in an organization. These variables include demand and supply of labor and market rates. The principles of external equity ensure that jobs are fairly compensated in comparison. Similar jobs in the labor market. This enables the organization to attract and retain competent staff from the market Internal Equity Organizations have various jobs which are relative in value term. In other words, the values various jobs in an organization are comparative. For example pay levels of a Junior Legal Officer will be lower than that of a Senior Legal Officer which will be lower than that of a Principal Legal Officer and others. The differentials in payment here is determined by the relative worth for the job as found during Job Evaluations ( not the same thing as Job Analysis but Job evaluation can carried out at the same time as Job Analysis). Job evaluation is a systematic method of appraising the value of each job in relation other jobs in an organization (Havel 2006). Individual Worth According to this principle, an individual should be paid as per his performance. Thus, compensation system, as far as possible, enables the individual to be rewarded according to his contribution to organization; ‘Equal pay for equal work’. Based this equal pay for equal work the managerial reward system in the United States is far above the remuneration of the other employees. The objective of remuneration is to duly compensate employees for the services rendered by them. Therefore, employers need to pay a fair and satisfactory remuneration to their employees. Fair remuneration depends on one’s ability and performance. That is precisely the reason for remuneration. As managerial jobs require more qualification, skill, and knowledge and involve more responsibilities, they need greater incentives to ensure the greater commitment to their jobs. I n view of this, the manager’s remuneration cannot be decided on a general basis as for the rank and file workers. In case of the managerial remuneration, certain fringe benefits are given solely to the managers as added incentives to duly compensate for their skills and performance. E.g. School fees for children, paid club membership, paid house-help and chauffeur. Various criteria have been evolved to compensate the executives and managers. One such criterion suggested by a US Agency called the Hay Group, is based on three factors, namely, accountability, problem-solving and know-how. There are others who determine the managerial compensation depending on the market value of the job, its relationship to other positions in the organization, and the person’s value to the organization based on performance and experience. Analysis The United States reward system is governed by a process of salary and wage and benefit administration which has generally has two stages. Determination of Wages and Salary The following five factors that have a bearing on the formulation of wage/Salary- levels are cost of living, productivity, prevailing wage rate, ability to pay, attraction and retention of employees. Wage/Salary Structure Once all jobs are evaluated, then these jobs are placed in grades. The grades are then arranged in a hierarchical order starting with lower to higher. The steps may guide the preparation of a salary structure. One, ascertain and establish, on the basis of market rate surveys and studies of existing salary structures, the most senior and most junior jobs to be covered by the salary structure. Secondly, based on the first one, draw up salary grade structure ranging from the lowest limit to the highest limit along with the width of salary gaps between jobs and the size of overlap between different grades. Wage differentials As there are individual differences, so are wage differentials. An organization offers different jobs, thus, differentials in wages for different jobs are inevitable. Wage differentials are also known as inter-industry, inter-firm, inter-area or geographical differentials. Wage differentials may be due to following causes: Occupational Differences: Different occupations in an organization differ widely from one another in terms of skill requirement and the extent of responsibility. Accordingly, wages vary from occupation to occupation. It is the varying skill requirement for different occupations that shapes the manpower planning in an organization (Wylie, 2007) Inter-firm Differentials: There are wage differentials of workers in different organizations in the same area and occupation. Factors like differences in quality of labor employed by different firms, competition in the labor market and differences in the efficiency of equipments and supervision result in inter-firm wage differentials. Added to these are differences in technological advancement, managerial competence, firm’s age and size, availability of raw material, power and transport facilities also account for differences in wages among firms. Regional Differences: Not only wages differ among occupations, but these also differ in case of workers working in the same occupation at different geographical regions. These differences are the result of working conditions prevalent in different regions of the country. Sometimes, such wage differentials are used to attract people to serve in particular regions. Inter-Industry Differences: These differences in wages surface in case of workers working in the same occupation and the same area but in different industries. These differences are the result of varying skill requirements, level of unionization, nature of product market, ability to pay, the stage of development of an industry. Personal Wage Differences: These differences arise because of the differences in the personal characteristics (age, productivity, skill, ability, aptitude, knowledge, experience or gender) of workers working in the same unit and occupation. Though provision of ‘equal pay for equal work’ is certainly there, but it is still not the reality (Mondey, 2002). Conclusion Human resources are so far the most important resources and effective reward systems are very important in determining the relationship of humans with the organization. An effective reward system is key if a company has to ensure quality and quantity employees. The employees are motivated with a good reward system and they are in turn more productive. A lesson for Canada is that performance related reward systems are very effective and they enable the organization to retain the right quality and quantity of employees. This system also motivates employees and therefore increases their productivity. This as discussed earlier is clear from problems facing China labor market, which is still in the process of fully adopting a performance related reward system. References Ding, D. Warner, M. (2001). ‘China’s Labour-Management System Reforms’: Breaking the “Three Old Irons” Lewis, P. (2003). ‘New China – old ways? A case study of the prospects for implementing human resource management practices in a Chinese state-owned enterprise. Warner, M. (1996). ‘Chinese Enterprise Reform, Human Resource and the 1994 Labour Law.’ International Journal of Human Resource Management Warner, M. (2000), ‘The end of the ‘iron rice-bowl’: wither Chinese human resource management?’ Yuan, L.Q. (1990). History of China’s Labour Economy (Zhongguo Laodong Jingjishi). Beijing: Beijing Institute of Economics Press Havel,J. (2006) The reward system in United States . Michigan. Earlbaum Associates. Wylie, R. (2007) Motivation of employees. Oxford. Oxford publishers Mondey .W. (2002). Performance related reward system in United States. New York. Random House Value Publishing. Read More