The Links Between Organizational Justice and Reward Strategy Within An Organization - Research Paper Example

Introduction Developing competitive edge has always been an organizational strategy which has been heightened by present contraction in global markets due to global recession. The earlier strategies of stakeholder involvement by offering intrinsic and extrinsic rewards appear insufficient to motivate the workforce as the new age worker is more opportunistic and eager to upgrade his status in life. The conventional worker usually had a singular skill and was uncomfortable with change. He had standard education, few training and up-gradation opportunities and had little motivation. The modern worker known as Generation X became recognized as having multi-skills, better educated, more aware, and motivated for career enhancement. He is constantly looking for up-gradation and is willing to change. Globalization has evolved a new set of workers known as Generation Y that are now replacing the earlier types in many industries and they are the new knowledge workers. He is highly mobile, widely networked with similar workers, highly opportunistic, working odd hours, believes that change is best for him and has an attitude of boldly speaking out his identity and aspirations in life (Perloff 2003). Strategic Human Resource Management has therefore become a central force for competitive edge and managements are now wondering if the previous simpler system of rewards and justice are sufficient for enhancing productivity and improving performance. This paper will first critique the literature on the subject and then showcase an exemplary case where modern technique is practiced as a new link between justice and reward with exceptional results over more than a decade. Literature Review Performance management has for long been recognized as important for the health of an organization. This resulted in development of various options like Total Quality Management (TQM), Lean Technologies and Organizational Excellence models like the Deming Prize of Japan, the European Excellence Model (EFQM) and the Malcolm Baldrige National Quality Award (MBNQA) of USA. However performance has little to do with the above methods which are based on systems. Performance outcome is the result of the contractual relationship that occurs between the employer and employee at the time of appointment for the job. The contract is a social exchange and described as a short term transactional contract by O’Neill and Adya (2007). It is short term as in the beginning the relationship is at best tentative, with both sides having both expectations and apprehensions. The hallmark of this relationship is based on organizational justice and ensuing rewards for performance based outcomes. Abraham Maslow (1954) described this in a hierarchical manner starting with human psychology, safety and security, belongingness, self esteem and finally self actualization. According Maslow, employees have a basic human need and a right to strive for self-actualization, just as much as the corporate directors and owners do and by this fulfillment the organization becomes stronger, competitive and profitable. The fact is that development of organization-based self-esteem is beneficial to both employers and employees. Managers need to consider both the personality of employees and employees' work experiences in trying to enhance organization-based self-esteem (Pierce and Gardner 2009). This is in consonance with the present day workforce that looks forward for up-gradation and understands that changes are necessary to bring this about. Being fair has been seen as the best indicator of well-meaning intentions. The results of an empirical research by Klendauer and Deller indicates that people reacted positively to fairness because it conveys positive relational signals, and because one can gain personal advantages through fair outcomes and processes (Klendauer and Deller 2009). The organizational justice approach pays for itself in the equal and subjective response of the employees to fairness displayed as a result of the contractual relationship. This contract has been termed as a psychological contract as the study of the employment relationship through psychological evaluation is decidedly compatible with the psycho-profile of an individual as people tend to be involved in a more personalized deal with their employers (Rousseau, 2001). Indeed Sturges et al (2005) believe that traditionally the fulfillment or violation of this contract is the outcome to measure the commitment of the organization. However from the employee standpoint the fulfillment or violation is a perceived cognitive assessment of the terms of employment. This can be either positive or negative and the employee behavior and performance relate with either in different ways. The perception that promises have been kept creates a sense of being valued and results in positive outcomes (Coyle-Shipto and Kessler 2000) and makes the employee respond with enhanced performance in return for inducements and rewards (Coyle-Shapiro 2002). Conway and Briner (2002a, b) also confirm that positive affective states such as enthusiasm, self-worth, and being cared for are a result of obligations that have been fulfilled. Although the psychological nature of the contract is the foundation for building a two way relationship and is the driver for ensuring enhanced productivity there has to be a driving force to see it through. This is the role of the leader of the organization in his role as a visionary who will strategize how the human capital of the organization can be put to optimum use. It is his role to involve the present generation of aware workers as enablers of competitive edge. Leadership Motivation is a great factor in productivity and when performance measures accurately value a person’s role in the organization then this evaluation turns into a motivator instead of plain rewarding or punishing tool. The need is to convert these performance evaluations into motivating tools. There are three assumptions to all HR theories. Organizations serve human needs, the prime being self actualization; people and organization need each other for this service; and it is critical that people and the organization are in complete harmony to fulfill this purpose. However the level of performance of employees is not just a result of their skills but also the result of motivation each person exhibits. There are two sources of motivation, intrinsic and extrinsic. When there is an external reward like money or praise attached to performance the motivation is extrinsic. But it is not always possible to have external rewards for all activities and therefore the management has to promote intrinsic motivation that is the outcome of internal factors like self satisfaction or the pleasure of satisfactory performance. (Hagedoorn & Van Ypreren, 2003). This calls for a determined and encouraging leadership that values the workers as human capital and give it the same respect as given to the financial capital of the organization. In fact this human factor is more important as the core competency of the firm evolves and improves with the active help of this capital. Just as the financial capital is exploited with diligence and care the human capital is utilized through motivation. Traditionally leadership ruled by diktat. Under it, subordinates were rewarded for compliance with the leaders’ wishes. The leader preferred experience over training and promoted “Homosocial Reproduction” and hired and sponsored individuals who were similar to him (Ragins & Sundstrom, 1989). Obviously in such a scenario innovation and imagination took a backseat and the psychological contract did not exist. Parallel to this was the upper echelon type of leadership that created a sense of elitism surrounding leadership positions. The top executives responded to situations based on their own interpretation values of the situation through a mixture of personal experiences, personality type and behavior (Mason & Hambrick, 1984). This involved their cognitive base, inadequate values, limited field of vision, selective perception, interpretation, managerial perception, and strategic choice (Hambrick, 2007). The result was a myopic view of employee outputs and inability to cope with external challenges. This also failed to fulfill the psychological contract. When these perspectives failed to respond to competition, a new leadership was born. They believed in empowering the workforce and in the power of team leadership (Gabrielsson, Huse, & Minichilli, 2007). This became popularly known as the servant leadership and strongly believed that the leader was not the only force that shapes an organization (Greenleaf, 1977). Consequently it was envisaged that the role of the servant leader is to empower one’s employees as opposed to using their power to control the workers (Yukl, 2006). The outstanding qualities of such leadership were recognition of the importance of a positive leader-follower connection as it relates to a more productive work environment and contentment (Northouse, 2007). This was developed by listening to followers and showing empathy towards them; thereby creating a peaceful, healing environment, community building, and growth (Spears, 2004). This became a great pusher for psychological contracts. Transformational leaders influence their sub-ordinates to do more than they were originally expected to do thereby they subtly give them room to self actualize. This is their objective and they work on it through persuasion (Perloff, 2003) and transformational leadership. Armstrong (2001) has described four main characteristics of a transformational leader and they are: Ethical behavior, sharing of visions and goals, improving performance through charismatic leadership and leading by example. A successful business is about collaboration and stakeholder interests have to be shared, they must be working for the same purpose, otherwise business will come to an end and new collaborations will be formed (Venkatarman, 2001). Effectively this means that when leadership shares the vision and goals with subordinates and encourage them to participate in them as a team, the outcome is a bond that brings out the best from everyone. The result is all round growth for the individual, the team and the organization. Executive leadership has three key roles in transformational change. The first is envisioning which involves articulating the new strategic direction and standards for performance. The second is energizing i.e. executives must demonstrate excitement for and be examples of the expected change. The third is enabling, meaning that leaders must provide the resources necessary to accomplish the change by developing new management practices and using rewards to reinforce new behaviors (Cummings & Worley, 2001). The perception of empowerment becomes meaningful only when it is perceived as an enabler by the worker. The psychological advantage is phenomenal as he perceives it as power, self-control, efficacy and competence (Psoinos & Smithson, 2002). The four dimensions explained by Lee and Koh (2001) elucidate this concept further; and they are meaningfulness, competence, self determination and impact. The results of these can bee seen as powerful measures to improve performance. This is also the height of the fulfillment under the psychological contract. In another empirical study by Lee Yiing and Bin Ahmad (2009) it was established that generally, and with a few exceptions, leadership behavior was found to be significantly related to organizational commitment, and organizational culture played an important role in moderating this relationship. Organizational commitment was found to be significantly associated with self actualization opportunities offered to the employees. The Critique While the concept of psychological contracts and empowerment have been accepted by leaders and managements to be the strategies for competitive edge and success it has to be understood that these must be perceived similarly by the employees too. It is the mindset of the individual employee, his attitude towards the psychological contract, his experience of the fulfillment or violation and his evaluation of the outcome will determine the success or failure of the strategy. This means that theory has to be converted to practice. The social exchange theory on which the contracts are entered works on the simple mechanism of reciprocity (Aselage and Eisenberger, 2003). The ensuing fulfillment and the rewards display the justice and confirm the trust placed by the worker in the contract and motivates him further to outperform himself. This is his self-actualization which he cares and values above all else. But this is way above the justice and reward system of the yester years. The difference is that he now needs to be involved and to participate in some decision making to make this self actualization meaningful and valued for him. This is not really a new role but the revival of an old one. Before the Industrial Revolution the worker was his own master. He was the one who controlled production, quality, prices and delivery schedules. Taylorism robbed him of the roles and converted him into a single skill person with no decision making power. He was disillusioned and as a result became mechanical instead of innovative. Fordism realized the folly and gave him back some rights and the system of rewards was brought in for performance. Post Fordism it dawned, taking cue from psychologists like Maslow, that to get the best out of the worker was to empower him. However even this worked only to a certain extent. It is now realized that further recognition of his prowess is required to bring out the best in him for both competitive edge and organizational performance. Self actualization is achieved only when decision making, within his realm, is allowed and his role becomes meaningful for him and the organization at the same time. While the inducements provide material and psychological support, a sense of trust and justice generated or emanating from the organization bring about the self-actualization and self-esteem. This is indeed reverting of the older pre-Industrial Role of the worker. 1.0 Semco There are plenty of success stories that exhibit that when traditional shackles are broken and innovations replace conventions the results are remarkable. This is a case study of Semco (Brazil) and its leader Ricardo Semler. Semler has a unique strategy, that of empowerment. He inherited a company that was unable to face competition and that had several layers of hierarchy that could not use the aspirations of its labor force to overcome the difficulties faced by it. He therefore decided to reposition his company and took the enactment route to empower everyone on the rolls. He believed that in the importance of values and relationships with his workers as a critical part of success for his organization. The biggest stake was that of the employee and it was him/her that needed assurance that their jobs are safe but in return they had to ensure that the company was managed successfully and at a profit. Under the new strategy Semco workers have been empowered to hire managers who they believe will lead them to growth of their company as well as their careers. They have equal say in all appointments and at any one time as many as thirty five people interview candidates at least four or five times before confirmation. This gives both sides an equal opportunity to assess each other and find a proper fit. The workers also have right to fix their own wages and the salaries of their managers. This could have been a contentious area as each person would then look after his well being but the answer lay in the open access policy of revenue earning and distribution and that sobered up everyone as it was realized that without equitable distribution of wages the company would not make profits nor could face competition. It was the same in case of working hours and output. To overcome this difficulty top management put up its financial figures, both costs and expected revenues on an open board so that all workers know the financial constraints within which they are required to work and thus enables then to take positive value based decisions. As a result groups of workers undertook to be present at specific times in order to see that the assembly lines were kept in motion and costs, targets as well as quality matched each other. Flexibility was the watchword and a Sunday or holiday was equally important like any weekday; the priority in all case was work and productivity. As a result Semco is a truly democratized company with hardly any attrition. While Semco is a closely held company and owned by the Semler family, he was elected to be chairman due to his leadership abilities and not due to his shareholding. He has one vote like any other person and his recommendations have sometimes been turned down. Yet the workers realize that his contribution to decision making is vital for the company although not essential. Numerous decisions are taken in his absence. In fact he does not have a regular office in the company premises and works out of wherever he is. When a few years back he met with a serious accident and was in intensive care for almost nine months on account of multiple surgeries, the company carried on business as usual and there was neither a dip in the profit/growth path nor were the suppliers or customers worried over his absence. Semco does not face succession problems unlike most other corporates of the world. Semler has broken out of the mould to recreate and reinvent his businesses. Conclusions For survival organizations need to retain or obtain competitive advantage. For this they must have strategies. Human capital has become vital in strategies and without their active involvement organizations cannot hope to have sustained competitive advantage. However strategies are made by leaders who have a vision and a mission to accomplish. For achieving this they need to change the organization’s focus to the future that is more profitable, productive and provides a better quality of life to its stakeholders especially the workforce on whom it depends for productivity and profitability. Most leaders bring about changes in the organization and its culture in order to achieve transformation from a dormant, status-quo type to a more dynamic and vibrant organization. Motivation has for long been pegged to self actualization but what motivates the worker of today? Surely intrinsic and extrinsic rewards in the shape of recognition and better emoluments have become passé with the aware and informed workforce. They are hungry for power as much as their superiors. Power sharing is a heady feeling and converts an ordinary worker into a stakeholder. A very delicate situation arises here and opens up a conflict with the agency theory. However examples like SEMCO prove that if this power sharing is done with diligence and with dissemination of correct information, the workers can and will rise to the occasion and meet the challenge in a healthy fashion. The mental force of the employees cannot and should not be under-rated as psychologically they are equal to their mentors and are prepared to deliver what is required. What is required here is enlightened leadership, not just transformational one. Bibliography Armstrong, S. (2001). Are You a "Transformational" Coach? The Journal of Physical Education, Recreation & Dance , 72 (3), pp 44-47. 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