Motivating Employees in Australia using Flexible Benefit Packages in a Gloomy Economic Environment - Literature review Example

Motivating Employees in Australia using Flexible Benefit Packages in a Gloomy Economic Environment: A Review of Literature Introduction A gloomy economic environment such as that which was experienced during the 2007-2008 global economic crisis can present challenges to employers. Notably, the 2007-2008 global financial crisis resulted in financial problems for many organisations. Although Australia was not hard hit by the crisis because of its strong performance, there are sections of the country’s population and organisations that were affected by the crisis (O’Loughlin, Humpel & Kendig 2010, p. 88). In many countries that were hard hit by the crisis, many organisations had no option but to reduce the number of their employees, and this resulted into high unemployment rates. Such organisations took drastic actions because during the crisis, they could not sustain some of their employees and were accordingly compelled to downsize in order to have smaller numbers of employees that they could manage in terms of their remuneration and giving them the necessary employment benefit packages. It is common for companies to resort to downsizing whenever they encounter financial difficulties because of a gloomy economic environment to ensure their survival. There are also those organisations that opt to implement pay reductions to reduce the wage bill during when economic environment becomes unfavourable. Although downsizing and reducing employees’ perks may work for the concerned organisations in the short run, they pose challenges to the affected employees. This is because the employees who are laid off are forced to look for other jobs elsewhere and those whose pay is reduced are forced to look for other alternatives to seal the gap in their income. Additionally, the organisations that implement downsizing and pay cuts during difficult economic times can be perceived to be unstable. Consequently, such organisations may fail to attract new talents in the future since potential employees may consider them to be unpromising. Organisations that frequently lay off their workers or reduce their pay because of financial challenges may also face mass exits of employees who will be seeking to be employed in organisations that look more promising. Since gloomy economic environments are inevitable in any market, organisations need to be prepared to cope in such times. Managers of organisations can look for ways to motivate and retain employees. Since it is usually difficult for companies to increase employees’ basic pay packages, organisations can look for alternatives to ensure that their employees are happy. The aim of this project is to investigate how employees can achieve this. In the project, it is proposed that employers in Australia can better motivate their employees through flexible benefit packages. Using appropriate theories on motivation, the report discusses the various ways in which a gloomy economic environment affects both employees and employers and how employers in Australia can motivate their employees during such times. The 2007-2008 global economic crisis is used an example of a gloomy economic environment scenario. Objectives of the project The aims of the study are as follows: 1. To study the effects of a gloomy economic environment on employers and employees, using the global economic crisis of 2007-2008 as an example. 2. To investigate how flexible benefits schemes can be used to motivate employees better. 3. To study various theories on motivation and the relevance of flexible benefits. 4. To find out various examples of flexible benefits. Research questions Based on the aims of the study, the research questions adopted are as follows: 1. Using the global economic crisis of 2007-2008 as an example, what are the effects of a gloomy economic environment on employers and employees? 2. How can flexible benefits schemes be used to motivate employees better? 3. What various theories on motivation are relevant to the use of flexible benefits in organisations? 4. What are the various examples of flexible benefits that managers can use to motivate their employees? Research method The research adopted the use of literature review as a research method. Literature review is defined as “…a written document that presents a logically argued case founded on a comprehensive understanding of the current state of knowledge about a topic” (Onwuegbuzie, Leech & Collins 2011p. 186). Further, the purpose of conducting a literature review is to establish a persuasive thesis that can be used to answer the questions proposed in the study (Onwuegbuzie, Leech & Collins 2011, p. 186). A literature review can also be defined as an interpretation of a selected range of published as well as unpublished materials that are available from different sources on a particular subject or topic, which ideally involves summarisation, analysis, appraisal and synthesis of the materials (Onwuegbuzie, Leech & Collins 2011p. 188). A literature review process is regarded as a qualitative research method because of the role it plays of collecting information (Onwuegbuzie, Leech & Collins 2011, p. 188). This is because the collection of information that involved in a literature review is comparable to the process of collecting data in qualitative research (Onwuegbuzie, Leech & Collins 2011, p. 188). Various sources of information are used in literature reviews. These include abstracts, journal articles, books, dissertations, essays, Internet websites, monographs, company reports, newspapers, and government documents among others (Onwuegbuzie, Leech & Collins 2011, p. 188). There are various advantages of using literature review to collect data. One of these is that the information is readily available from the aforementioned sources. This enables the researcher to save the time that would have been used in conducting primary research through other methods such as interviews of use of questionnaires. As noted above, there is a wide range of sources of information that can be used in a review of literature. Another advantage of using literature review as a research method is that the information that is collected is generally accurate. This is because in many cases, literature sources such as journal articles, newspaper reports, books, and company reports have been reviewed and verified. There are also disadvantages of using literature review. To start with, it is noted that although the information that is gathered in a review of literature is generally accurate, it has limitations because it is taken from other sources (Onwuegbuzie, Leech & Collins 2011, p. 186). The limitation arises from the fact that all sources of information are written with particular aims, and these aims may not necessarily be similar. It thus follows that one a previous study may have had a bias towards one side of an issue, which is not necessarily what a new study may intend to pursue. Another disadvantage of using literature review is that it ay limited in scope. For instance, companies may not post some information that they regard to be confidential, especially details about employment challenges or financial problems, on their websites. Literature review and analysis Effects of the a gloomy economic climate on employers and employees Impacts of financial crises on employers When faced with turbulent economic times, employers look for different ways of managing their organisations so as to survive. An example to illustrate this is the 2007-2008 global financial crisis, which caused many companies to reconsider every aspect of their operations, including their ways of operation as well as their business models (Australian Psychological Society Ltd 2009, p. 1). Australian Psychological Society Ltd (2009, p. 1) also notes that direct labour costs account for between 30 and 80 per cent of an organisation’s total costs depending on the industry in which the firms operate. This means that labour costs can be regarded as one of the biggest costs that employers incur, and therefore, managers of organisations will always seek to decrease them at any given time that they encounter financial difficulty. It is because of this that it is pointed out the cost of labour (wages, salaries) acted as a soft target for lowering costs as the 2007-2008 global financial crisis hit various economies amid the plummeting profits that organisations encountered (The Australian Psychological Society Ltd 2009, p. 1). As it was noted above, Australia is not one of the countries that were hardest hit by the global financial crisis of 2007-2008. However, during and after the crisis, Operating costs in Australia were considered to be comparatively high and over 50 percent of the multinational corporations (MNCs) operating in the country cut their local labour force and about 30 percent of the MNCs noted that they had amplified their utilisation of casual and part-time workers, which provided evidence of a growing workforce casualisation. However, apart from cost reduction through aspects such as use of casual and part-time labour, significant downsizing was not experienced (Nardelli 2012). On a wider scale, the UK is one of the nations that were hard hit by the global financial crisis, especially because of the significance of its financial sector (Lin et al. 2014, p. 17). One of the effects of the crisis is that home prices fell sharply, there was increased consumer debt, and the economy experienced a deep slump towards the end of 2008. As well, the UK’s GDP shrunk sharply in the period 2008-2009, with the least quarterly GDP growth (–2.6 per cent.) being witnessed in the first quarter of 2009. In addition, the UK’s currency depreciated by over 30 per cent and investments dropped by about 10 per cent. Furthermore, growth in private consumption fell and persisted, implying that many firms could not sell their merchandise. The implication of these effects is that there was a reduction in production, which caused massive layoffs since many firms could not sustain high staff numbers. However, there significant effects on employers when they lay off their workers. According to Tennant (2012, p. 302), the drawback of knee-jerk sacking of employees due to crises does lead to create positive outcomes. Tennant asserts that when companies reduce costs in panic or without carefully considering their strategy, they hurt their own competiveness. Overall, because of the difficult economic times, many organisations have faced challenges in obtaining finance as a result of tight bank lending conditions (Lin et al., 2014, p. 17) a condition that implies that many employers are not in a good position to implement pay rises, devote some resource to the training and development of their staff, or even hire more employees. This denotes that many employers are finding it difficult to motivate their employees through traditional incentives such as higher pay packages. In Australia for instance, companies such as Rio Tinto have had to reduce their workforce in order to reduce their operating costs (Hagemann 2015). Similarly, the CMA group of companies reduced the pay that its workers received during the period of the global financial crisis, but this effort to cut operating costs backfired when the group was investigated by the Fair Work Ombudsman and asked to pay back the amount that it had reduced (ABC.net 2011). Such occurrences undoubtedly mean that employers in the Australia as well as in other countries across the world which are affected by economic downturns need to find alternative ways of motivating their employees in order to retain them and hence maintain their competitiveness. Since managers may not always be in a position to implement pay increases, they can resort to other measures, such as flexible benefits, to motivate their employees without having to undertake drastic actions such as downsizing or reducing employees’ pay. Impacts of financial crises on employees The effects of any economic crisis on workers can be looked at in terms of employees’ living conditions and the incentives that they receive as part of performance improvement efforts at the workplace. One of the noticeable effects of an economic crisis on employees is the laying off of workers as discussed above. Notably many companies in Europe, especially those in the financial services sector, laid off a considerable number of their personnel (Gennard 2009, p. 452). In Australia, it has been noted that many some companies such as Riot Tinto have been downsizing, while others reduced their worker’s pay. The reason for the wage cuts and wage freezes that are implemented by organisations during any gloomy economic environments is that employers normally prefer to make savings on costs of labour using wage cushion by offering varying levels of pay. However, the most noteworthy impact of wage cuts and wage freezes is that they have negative effects with regard to the job engagement and motivation of employees. for instance, the groups that were most affected by wage reductions and freezes in Europe during global economic downturn include younger people with low skills and especially those who had low levels of pay (European Foundation for the Improvement of Living and Working Conditions 2013, p. 21). Similarly, Australian organisations (such as Rio Tinto) and employees are likely to be affected in a comparable way when they implements pay reductions. The effect of wage freezes and wage cuts that are initiated by employers during periods of economic slump is that implementing such strategies has a bearing on the affected employees’ wellbeing and hence their attitudes toward the organisation for which they work. Rynes, Gerhart and Minette (2004, p. 387) are of the view that the significance of pay is likely to be more prominent when organisations make changes to their pay systems. This is because when a pay cut is introduced in an organisation, it is likely to affect the decision of the employees to put up with their lower earnings or to leave their organisations and look for others that offer better pay. This is aptly captured by Rynes et al. (2004, p. 387) when they suggest that employees are very sensitive to reduction in their salaries. Further, according to Greenberg (cited by Rynes et al. 2004, p. 387), employees are more likely to develop deviant behaviour when they are subjected to pay cuts. Another important consequence of financial crises on employees is the risk of job insecurity due to laying off of employees. According to Chung and van Oorschot (2010, p. 6), employment and job insecurity have been found to have serious ramifications for people’s physical health and mental wellbeing. This is due to the fear, nervousness and worry among workers, which is linked to the notion that they may lose their jobs at any foreseeable time in the near future as a result of the financial difficulties that their organisations face (Chung & van Oorschot 2010, p. 7). The state of fear and anxiety results in lack of motivation even amongst individuals who still have their jobs since they are not able to plan for their future goals effectively. A literature review conducted by Probst and Brubaker (2000, p. 139) on the effects of job security on employees indicated that job insecurity brings about job dissatisfaction. In addition, employees who have concerns such as low job security are noted to be more likely to be involved in withdrawal behaviours, exhibiting low commitment to their employers, and are likely to exhibit high levels of absenteeism, which in most cases often results in them leaving the organisation in search of more a promising employer (Dekker & Schaufeli 1995, pp. 57-58; Probst & Brubaker 2000, p. 139; Wustner 2010, p. 251; Vangel 2011, p. 3). Another point that is worth noting its that employees who observe downsizing being carried out in their organisations oftentimes lose their self-confidence and become averse to taking risks (Wustner, 2010, p. 251). This means that they become less innovative because of the fear that they may have to leave their work at any time. On the contrary, some research findings have argued that job insecurity may lead to increased work effort and involvement (Galup et al. 1997, cited by Jordan, Ashkanasy & Härtel 2002). But it seems that more research finings have pointed to a relationship between job insecurity and poor work outcomes. For instance, in their analysis, Jordan et al. (2002) point out that feelings of low job security lead to emotional reactions such as low affective commitment to work and high job-related tension. Hence, on the basis of the ideas that have been discussed so far and the research articles that have been consulted, it can be said that job insecurity in deed has an effect (and a negative effect at that) on employee health in terms employees’ motivation towards work. How can more flexible benefits schemes inspire employees better? Based on the above discussion, it can be seen that employers often resort to measures such as downsizing and wage reductions as spontaneous responses in order to deal with challenging economic situations such as the global financial crisis or any other situation that causes financial difficulties. But it has also been noted that such strategies can possible cause harm to the organisations that implement them. based on the analysis, it can be observed that some negative impacts of downsizing on employees such as low job satisfaction, risk aversion, poor mental wellbeing and physical health, general lack of motivation to perform duties and absenteeism have negative consequences on employers or the companies for which the affected individuals work. In the same way, wage cuts can lead to high employee turnover, abnormal behaviour such as theft within the organisation, and lack of commitment from individuals to work for the organisation that cuts their pay. Therefore, in gloomy economic environments, organisations need to come up with other mechanisms to reduce their operating costs as opposed to resorting to unplanned layoffs and reducing employees’ pay. Coming up with flexible benefit schemes can help managers to motivate employees even when their salaries are not raised or when pay cuts become inevitable. Such a strategy can also help discredit the high value placed by many organisations on remuneration as a way of attracting and retaining talented people, particularly during periods of poor economic performance. In essence, pay is just one of the incentives that motivate individuals to work, but it does not stand for all the things that people want. In addition, different people have different perceptions regarding pay and other types of benefits in the workplace. Some points regarding different individuals’ perceptions towards pay are highlighted in the table below. Examples of conditions that affect individuals’ perception towards pay Individual difference conditions Situational conditions 1. Pay is more important to some people than others (e.g. extroverts attach a high value to pay more than introverts). 2. Pay based on performance is more important to people with higher qualifications than it is to people with lower qualifications. 3. High performing employees prefer significant pay increases while low performing individuals prefer low pay systems. 4. Pay appears to be more important to males than to females. 5. Individuals with high need to achieve prefer pay systems that match pay to performance more closely. 1. Pay is more important in a job when it varies widely between employers than when it is considerably more homogeneous. 2. There is a diminishing marginal utility to increases of pay. That is, people oftentimes reject low-paying jobs without making consideration for other factors. 3. Workers are especially responsive to pay cuts. 4. Reactions of employees to wage reductions rely significantly on communication of the rationale for the wage reductions. Wage cuts without implemented reasons and communication of the same to employees are more likely to lead to high deviant behaviour among employees. Proper communication reduces deviant tendencies. 5. People are likely to do little to increase performance when pay increases are equal irrespective of individual achievement. Performance-based rewards increase performance. Adapted from Rynes et al. (2004, p. 387) The points that have been indicated in the above table prove that different individuals have dissimilar attitudes toward the pay they obtain for the work that they do. Whereas some individuals prefer pay that is pegged on their level of performance, others would prefer to have their pay fixed. There are also people who seem to have a preference for high pay due to different reasons (such as by virtue of being an extrovert or being male) while others can only be inspired when they know that their pay is pegged on their level of performance. Another point that is interesting from the table is the matter of pay reductions. It has been suggested that when pay cuts are enforced with no adequate communication regarding why they are being done, employees are likely to become more hostile than when pay cuts are accompanied with proper communication regarding their implementation. This implies that employees are not totally against pay cuts during times when organisations go through financial difficulties since they also almost always identify with the situation. What comes out clearly from the table above is that employees are more often than not against unexplained and abrupt wage reductions. Thus, when wage increments turn out to be difficult to implement or when it becomes inevitable for organisations to implement wage cuts, managers can always find other ways to motivate their employees using flexible benefits in lieu of rushing to lay off some individuals. Flexible benefits are defined as benefits plans that allow every employee to enjoy a benefits package that is tailored to suit their own individual needs or situations (Robbins & Judge 2013, p. 259). Some theories on motivation and how they relate to flexible benefits Motivation can be defined as an internal state that gives people to a pressure or desire to act, directs them to particular types of behaviours, and helps them in sustaining that stimulation and action (Wiseman & Hun 2014, pp. 44-45). This implies that motivation is what drives employees to do their work well and to maintain types of behaviours that are necessary for effective work performance. For that reason, it can be said that what well motivated employees will perform better in their tasks and vice versa. However, motivation is not a fixed trait (Wiley 1997, p. 263) and is thus regarded differently by different individuals. Therefore, in a difficult economic environment, employers can use various types of benefits other than pay to motivate their employees in various ways. This approach is based on the notion that motivation is a complex phenomenon that cannot be achieved using one type of incentive such as pay alone. To achieve motivation in employees, it is noted that employers must realise that individuals have expectations or needs that they would like to satisfy (Ude & Coker 2012, p. 3; Griffin 2015, p. 298). Based on Herzberg’s theory of motivation-hygiene (the motivation-hygiene theory), the factors that contribute to job satisfaction are intrinsic to the job and are termed motivators (Singh 2007, p. 34). These include the aspiration to earn money, to establish a career, to have an impact, and to make a significant contribution among others (Atkova & Tuomela-Pyykkonen 2015, p. 106). Such factors are based on the individual attributes of people, and hence, it is relatively difficult for employers to fully satisfy them since they differ from one individual to another. The other combination of factors refers to extrinsic factors, which may or may not affect job satisfaction (Singh, 2007, p. 34). These are aspects such as organisational reward systems and benefits that are supposed to increase individuals’ sense of self-worth, achievement and recognition (Atkova & Tuomela-Pyykkonen, 2015, p. 106). Since employers can influence the extrinsic factors in the motivation-hygiene theory, they can use them to increase job satisfaction and hence motivation among employees. One way of doing so is the use of flexible benefits. Giving employees flexible benefits can also enable them to meet their needs based on Maslow’s theory of hierarchy of needs. This theory suggests that human beings continually want new things. Therefore, individuals, including employees in organisations, are motivated by the desire to meet their various needs, which keep on growing as they are satisfied one after the other (Samad 2006). According to Ramlall (2004, p. 54), these needs were classified by Maslow into five groups in order of their importance as physiological needs, safety needs, love or belonging needs, esteem needs, and self-actualisation needs. Once lower order needs are satisfied, an individual wants to satisfy the needs in the next level of the hierarchy. Flexible benefits are a good way of meeting needs at various levels of the hierarchy. Equity theory also lays emphasis on the importance of flexible benefits. This theory recognises that people attach value not only to the absolute quantity of rewards that they get for their effort, but also on the relationship of this quantity to what their colleagues get (Ramlall 2004, p. 54). This is to say that, based on employees’ inputs, for instance effort, competency, experience, and level of education, it is possible to compare outcomes such as pay levels, salary increases, recognition and so on (Ramlall 2004, p. 54). It is believed that when employees notice an imbalance in their input-outcome ratio in comparison to what their colleagues earn, there is likely to be tension in an organisation. However, the good side of such a situation is that it provides a basis for motivation since individuals work hard to achieve what they consider to be fairness and equity (Ramlall 2004, p. 54). Managers of organisations can utilise such scenarios to offer competitive flexible benefits to their employees as a way of motivating them. Expectancy theory proposes that motivation depends on the expectations of individuals in terms of their ability to execute tasks and receive the rewards that they need (Daft, 2009, p. 450). In other words, people expect that when they put effort in a given task, they will get a reward for it. Therefore, employers can make the most of this theory by offering flexible benefits that match the effort put by individuals in their tasks. Examples of flexible benefits Today, many companies across the world are offering flexible benefits to their employees to motivate them. According to Robbins and Judge (2013 p. 259), in the US, nearly all the major companies offer such benefits. It is also argued that flexible benefits are being applied in other countries as well. For example, a survey conducted on companies in the United Kingdom found out that virtually all major firms were providing flexible benefits programmes, with options ranging from insurance to discounted bus travel, holiday trading, as well as childcare vouchers (Robbins & Judge p. 259). In Australia, Adobe Australia provides flexible benefits such as wellness programmes, financial planning for the future, fitness subsidies, discounts on Adobe programs for personal use, paid vacations and flexible insurance packages based on individuals’ basic pay among others (Adobe Systems Software Ireland Ltd 2015). The exemplars above demonstrate that pay is no longer the only thing that can be used to motivate employees. More important is the point that employers do not of necessity have to incur additional costs so as to provide these benefits. This is because flexible benefits sometimes work on the basis of a salary sacrifice, meaning that a worker’s salary is reduced in exchange for the provision of the added range of benefits that they select. One advantage of choosing benefits is that they are not subject to income tax or national insurance deductions (Robbins & Judge, 2013, p. 259). Conclusion and recommendations In conclusion, the current research, which was conducted by use of a literature review, has found that managers can use flexible benefits to motivate employees even in situations when the organisations are operating in difficult economic environments. Thus, instead of taking drastic actions such as reducing employees’ pay or laying off some employees, managers need to identify the types of benefits that suit their employees best and provide them. Since such benefits are tailor-made, they promote job satisfaction by satisfying the requirements of various motivation theories such as Herzberg’s motivation-hygiene theory, Maslow’s theory of hierarchy of needs and equity theory. By doing so, managers can help avoid the negative consequences that are associated with kneejerk responses to gloomy economic times such as pay reductions and downsizing. Given the limitations of using literature review to conduct research, it is recommended that primary studies be conducted to determine how employees perceive the use of flexible benefits. For instance, by conducting further studies on organisations such as Adobe Australia which has been mentioned in the review, the findings will help in determining the merits and demerits of such benefits as well as how to package them better. . References ABC.net 2011, GFC paycuts backfire on recycling firm, viewed 21 July 2015, http://www.abc.net.au/news/2011-06-22/gfc-paycuts-backfire-on-recycling-firm/2767188 Adobe Systems Software Ireland Ltd 2015, Careers, viewed 19 July 2015, Atkova, I & Tuomela-Pyykkonen, M 2015, ‘Knowledge sharing barriers in procurement: case of a Finnish-based construction company’, in PO de Pablos, LJ Turro, RD Tennyson & JZ Zhao (eds.), Knowledge management for competitive advantage during economic crisis, Business Science Reference, Hershey, PA, pp. 100-116. 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