Total Rewards Approach in Human Resource Management - Term Paper Example

Executive Summary Total rewards approach incorporates all kinds of rewards including both direct to indirect, intrinsic and extrinsic rewards. The total rewards approach is hyped as the ideal remedy for meeting the requirements of a varied workforce of the contemporary workplace produced by aspects such as shifting immigration patterns. The core motivation of total rewards approach relates to the maximization of all the strengths offered by incentives in pursuit of employee retention and employee motivation. The adoption of total rewards approach can transform an organization into an employer of choice by combining high satisfaction with benefits and pay, which in turn minimizes staff turnover. Table of Contents Executive Summary…………………….…………………………………………………………2 Section I: Introduction……………………………………………….……………………………4 A. The Rationale of Total Rewards……………………….. …...…..………………….4 B. The Benefits of using Total Rewards……………..………………………..…………5 C. Key Aspects on Total rewards………….…………………………..……………….5 Section II: Theories and Models of Total Rewards……………………………………………..5 A. Rewards: Theoretical Perspective………………………………………..……….……6 B. Weaknesses of Total Rewards Approach……………………………..……………......7 C. Critique of Total Rewards Approach ….……………………………………………..8 Section III: Research on the Efficacy of Total Rewards Approach………………………..……8 A. Total Rewards Approach: KPMG Experience.………………………………………...8 B. Lloyds TSB………………………………..……………………………………….......9 C. Royal Bank of Scotland (RBS).……..………………………………………..…….....9 Section IV: Recommendations……...………..…………………………………………..……10 Conclusion……………………………………………………………………………………….11 References List …………………………………………………………………………….…….12 Appendix……………………………………..………………………………………………….15 Section I: Introduction Total rewards approach represents “a collection” of incentives to employees that seeks to enhance employees’ job satisfaction in such a manner that the employees’ productivity to the employer is heightened at an satisfactorily modest cost” (Wright 2001, p.27). The approach can be regarded as holistic based on the fact that focus is not laid in a single reward element, but rather focus is laid in a set of reward mechanisms that emphasize on all means by which employees can be rewarded so as to derive job satisfaction. The paper examines how companies such as KPMG and the Royal Bank of Scotland and has managed to implement the total rewards system, which has enabled the companies to attract and retain talent. This is done in light of the condemnation that, “total rewards system is merely the latest fad, which is unlikely to stand the test of time.” To this effect, the paper concludes that, this assertion is misleading since total rewards system is more than a fashion statement; indeed, the total rewards approach has proved crucial in guaranteeing that employee benefits are flexible and optimal, which has enabled companies to retain highly skilled, highly motivated employees. The Rationale of Total Rewards Approach Increasingly, companies have come to recognize the significance of a well configured, and implemented total rewards approach as the basis of company success (Miller and Hartwick 2002, p.26). This is informed by fact that, a poorly designed or misaligned system may make the elements of the rewards system to conflict, which in turn, threatens the effectiveness of the entity’s business strategy (Thompson et al. 2002, p.57). Benefits of using Total Rewards A total rewards strategy avails a number of advantages to an organization including enhanced congruency, flexibility, and employee retention, besides providing direction and foundation for streamlining HR policy. Moreover, total rewards approach presents a competitive edge during the recruitment of staff, enhanced business performance, and ensure that the entity incurs reasonable labour expenses (Armstrong 2007, p.12; O’Neal1998, p.6). The approach also yields to improvement of organizational performance via increased workforce commitment and motivation. Some of the other benefits heralded by the approach include gaining competitive edge during recruitment, fostering flexibility within pay delivery, the repositioning of reward to reflect employee requirements; and facilitating administration of costs and increasing of return on investments (Thorpe and Homan 2000, p.4; Silverman and Reilly 2003, p.3). Core Aspects on Total rewards Approach The model of total rewards incorporates five core elements, namely: total pay (base pay, durable incentives, cash bonuses, shares, and contingent pay) and benefits (such as pensions, paid holidays, and health care insurance for employees and their families). The other elements highlighted by the total rewards approach entail performance and recognition; learning and growth (productivity management, career growth, and on-job training); and, work-life balance (emphasis on observing work/life equilibrium and talent management and job design/achievement). The latter seeks to recognize and recompense employees for their excellence in work, reinforce observation of the company’s core values, and demonstration of leadership skills by employees (Kaplan 2005, p.32). The total rewards approach seeks to maximize employees’ autonomy — sense of initiative and mastery, — which are pertinent aspects shaping job satisfaction (Mujtaba and Shuaib 2010, p.111). Section II: Models and Theories on Total Rewards Approach The Giancola (2009) model features five components, namely: compensation, benefits, work-life balance, recognition performance, career opportunity and development. The Hay Group’s model, on the other hand, emphasizes intangible rewards and the rights enjoyed by the employees of diverse organizations (See Figure 2). The WorldatWork model marries both monetary and non-monetary aspects, namely: work-life equilibrium, benefits, reimbursement, recognition of high productivity, and focus on employees’ personal growth and job prospects (Kantor and Kao 2004, p.7) (See Appendix 3). The other model of total rewards established by Towers Perrin features a variety of aspects inclusive of transactional rewards incorporating both benefits and pay (See Figure 1). These forms of rewards are monetary in character and pertinent to the staffing and retention of top/talented employees; nevertheless, transactional rewards can be reproduced with ease by the rivals (WorldatWork 2011, p.2). The relational (non monetary) rewards, on the other hand, are pertinent in heightening the potency of the pay and benefits and cannot be replicated with ease by the company rivals (Armstrong 2007, p.34). Rewards: Theoretical Perspective The efficacy and convenience heralded by rewards are marked in assorted theoretical approaches. The distinction between built-in and extrinsic reward was postulated by Herzberg et al. (1957) who outlined recognition, accomplishment, and progression as intrinsic rewards that highly stimulate employee relative to extrinsic incentives (p.8). Herber affirmed that the hygiene factors including working conditions and job security avert discontent among the employees, but cannot be utilized to engender enduring motivation. Motivators (including job interest, achievement, and recognition), on the other hand, are the foundation for enduring and profound employee satisfaction. The rationale of extrinsic rewards draws from the “utilitarianism” and suggests that individual behaviours are modifiable; hence, in providing extrinsic rewards, the productivity and commitment exhibited by the employees can be enhanced. The viewpoint of “Romanticism” stipulates that the intrinsic motivation can play a part in advancing originality and the inventiveness of the employees. Expectancy theory, on the other hand, affirms that, extrinsic and intrinsic constituents are distinct and should be analyze from a psychological point of view. Maslow (1954) specified that only unsatisfied needs elicit extra action since it generates imbalance. This theory contends that employers ought to elucidate the level to which the needs of each employee are met and then institute a rewards system and plan to match the set level. Instrumentality theory, on the other hand, postulates that only unrelenting and a considerable sum of pay can render employees to work hard and remain highly motivated provided that, the inducements are directly bonded to performance. Pfeffer (1998) postulated that employees work to gain money, while Latham and Locke (1979) presented goal setting theory that outlines that employee performance can be progressed when the objectives are difficult. Adams (1963), on the other hand, presents the notion of reasonable rewards in which employees are only motivated if they are treated equitably. Equity theory outlines that reward or pay is only fair if they are seen as fair. The principal-agency theory presented by Azasu (2009) asserts that employees are opportunistic and can only be motivates via monetary rewards. Socioeconomic theories outlines that individuals are neither inclined toward monetary reward, nor are they disposed towards a homogenous approach, but rather are captivated by interplay of both monetary and non-monetary rewards (Nazir, Shah, and Zaman 2012, p.3046). Weaknesses of Total Rewards Approach Some of the tentative pitfalls that majority of companies face in their execution of a total rewards system entail the impediment linked to the institution of total rewards approach, which is time-consuming. Moreover, it is mostly easier for an entity to deem that the strategy is valuable, but has difficult in proving so (Brown 2008, p.23). The outlay of some of the relational rewards is difficult to compute, which in turn hampers on its presentation as a business case. Critique of Total Rewards Approach In some cases, the rewards program emerge to avail motivation and retention influence in the short-term, but may have maximum influence on supporting employee behaviour to the company’s key values. Critics also argue that, the term “total” in the “Total rewards system” is a misnomer since it overlooks diverse rewards that may be made available by the organization. Critics also argue that, total rewards approach is best at raising anticipations relative to conveying the outcome, and often fail to present the criteria for gauging success (Giancola 2009, p.29). Section III: Research on the Efficacy of Total Rewards Approach Total Rewards Approach: KPMG Experience KPMG’s reward strategy philosophy details several approaches including market-leading bonus given for market-leading performance; performance-inspired reward; market competitive salaries; and, elastic, competitive benefits (Armstrong 2010a, p.226). The total rewards strategy has aided the entity to avoid some of the potential drawbacks heralded by high incentivization. The present elastic benefits scheme manifests a wide-ranging array of benefits (Armstrong 2010a, p.233). The company also incorporates non-financial rewards including work environment, recognition, quality of work-life considerations, and opportunity to learn and nurture skills (Medcof and Rumpel 2007, p.59). The approach emphasizes the overall development reward management as a calculated, integrative, and pioneering process that is structured to meet the growing needs of the organization and its employees (Effron, Gandossy, and Goldsmith 2003, p.151). Lloyds TSB Lloyds TSB underline the conception of “compelling employment offer” modified to satisfy employees’ interests and needs, and supported by the expectation of the diverse workforce (Armstrong 2007, p.44). This shapes Lloyd TSB decision to distinguish its reward package from that availed by its competitors by awarding it employees rewards that appeal to their lifestyle choices, beliefs, and personal values. Lloyd TSB reward scheme amalgamates all areas of the work experience and honour prominence to both remuneration and less tangible rewards (Armstrong 2007, p.44). Case-study highlighting implication of Total Rewards Approach Royal Bank of Scotland (RBS) The RBS can be regarded as one of the biggest financial institutions globally with a wide array of operations across Europe, North America, and Asia Pacific. Employees at RBS have the freedom of selecting a wide range of lifestyle benefits including childcare facilities and discounted shopping vouchers, as well as RBS financial products including mortgages, personal loans, currency exchange and banking at special employee discounted rates. The Royal Bank of Scotland policies are designed to guarantee that RBS delivers on its goal of being “the employer of choice” (Armstrong 2007, p.45). Although, the design of individual pay programmes is effortlessly duplicated, the manner in which total rewards programmes are amalgamated with other practices can be viewed as unique and tied to organization-specific dynamics (Gross and Friedman 2004, p.7). This means that, despite the fact that individual practices can be replicated by competitors, it would be tricky for competitors to duplicate RBS’ organizational personality (employee relationship and positive work environment). RBS appreciates that, the worth of generating programmes that support the organizational needs based on the appreciation of what improves employee satisfaction. RBS details that its approach to total rewards highlights the overall content and worth of pay and benefits package, especially based on the manner in which it supports the needs of the group, as a whole (Armstrong 2007, p.45). One of the crucial components of RBS approach to total rewards centres on the utilization of a concept called ValueAccount, which comprises basic pay for non-managerial staff, coupled with benefits funding for the managers. Recommendations In the implementation of total rewards system, a company may come across challenges connected to preservation of internal equity and consistency across jobs within the business model. Incentive weightings and program drivers should be rethought so as to improve reliability across jobs with parallel impact so as to attain success in the new business model (O’Neill 1995, p.103). Companies should integrate both monetary and non-monetary rewards so as to successfully motivate employees. Companies should structure a reward strategy recognizing that rewards go beyond a mere extrinsic remuneration, incorporating organizational culture characterized by intrinsic reward. Organizations should also sanction line managers to make some flexible intrinsic and financial rewards in appreciation of performance excellence. The execution of a total rewards approach demands that the organization institutes a coherent business case, which embraces what the organization is seeking to achieve (Thorpe and Homan 2000, p.4; Silverman and Reilly 2003, p.3). The organization should also establish whether the reward strategy complements its HR strategy. The success of total rewards approach depends on the organization succinctly communicating what it is attempting to conquer via corporate objectives, as well as the capability of line managers to actively motivate and engage their teams (Towers Watson 2012, p.8). The internal communications plan should recognize the implication of employees perspective on the model. It is pertinent to appreciate that some pay practices can be highly dominant and effective relative to others. This underpins the proposition that, companies should realize that they are different, and they should compensate differently. Indeed, some employees respond optimally to different rewards schemes relative to other employees (Gross and Friedman 2004, p.7). Conclusion The current competitive and global workplace necessitates that successful companies apply strategies that permit it to draw and retain qualified candidates, sustain a highly motivated labour force, and preserve top talent. The incorporation of a total rewards approach is worth every effort given that it connects the business strategy and heralds high-performance; generates maximum return on the rewards program; produces affordable and sustainable costs; and, reinforces the employment brand. Total rewards system should be perceived as a tested, noteworthy, and valuable approach towards optimizing employee satisfaction and productivity. References List Armstrong, M. (2007). Handbook of Employee Reward Management & Practice (2nd Ed.), London, Kogan Page. Pp.12 Armstrong, M. (2010a). Evidence-based reward management: Creating measurable busines impact from your pay and reward practices, London, Kogan. Pp.226-237. --- (2010b). Armstrongs handbook of performance management: An evidence-based guide to delivering high performance, London: Kogan Page. Pp.26-8. Effron, M., Gandossy, R. P., & Goldsmith, M. (2003). Human resources in the 21st century, Hoboken, Wiley & Sons. Pp.151. Giancola, F. L. (2009). Is total reward a passing fad? Compens, Ben. Rev., 41(4), pp.29-35. Gross, S. E. & Friedman, H. M. (2004). Creating an effective total reward strategy: holistic approach better support business success, Ben. Quart. 3rd Q., 20 (3), pp.7-12. Brown, D. I. (2008). Measuring the effectiveness of pay and rewards: the Achilles’ heel of contemporary reward professionals, Compens, Ben. Rev., 40 (5), pp.23-41. Herzberg, F., Mausner, B., & Synderman, S. (1957). The Motivation to Work, New York, Wiley. Pp.8. Kantor, R., & Kao, T. (2004). Total rewards: Clarity from the confusion and chaos, WorldatWork Journal, 13(3), pp.7-15. Kaplan, S. L. (2005). Total rewards in action: Developing a total rewards strategy, Benefits & Compensation Digest, 42 (8), pp.32-37. Medcof, J. W. & Rumpel, S. (2007). High technology workers and total rewards, ScienceDirect, 18 (1), pp.59-72. Miller, D., & Hartwick, J. (2002). Spotting management fads, Harvard Business Review, 80(10), pp.26-27. Mujtaba, B. G. & Shuaib, S. (2010). An equitable total rewards approach to pay for performance management. Journal of Management Policy and Practice, 11 (4): 111-121. Nazir, T., Shah, S. F. H., & Zaman, K. (2012). Literature review on total rewards: An international perspective, African Journal of Business Management, 6 (8), pp.3046-3058. O’Neal, S. (1998). The phenomenon of total rewards, ACA Journal, 7(3), pp.6-18. O’Neill, G. L. (1995). Framework for developing a total reward strategy. Asia Pacific Journal of Hu,an Resources, 33 (2), pp.103-117. Silverman, M. & Reilly, P. (2003). How flexible is total reward, Brighton, The Institute for Employment Studies. Pp.1-5. Stredwick, J. (2000). Aligning rewards to organizational goals: A multinational’s experience, European Business Review, 2 (1): 9-18. Thompson, P., & Chartered Institute of Personnel and development. (2002). Total reward, London: Chartered Institute of Personnel and Development. Pp.57. Thorpe, R. & Homan, G. (2000). Strategic Reward Systems, New Jersey, Prentice Hall/Financial Times. Pp.4 Todd, M. (2003). Creating a Total Rewards Strategy : a toolkit for designing business-based plans, New York, AMA. Pp.6 Towers Watson (2012). Total rewards strategies for the 21st century, New York, Towers Watson. Pp.1-4. WorldatWork (2011). Total rewards model: A framework for strategies to attract, motivate and retain employees, Scottsdale, WoldatWork. Pp.2-3. Wright, A. (2001). Reward management context, London: Chartered Institute of Personnel and Development. Pp.27. Appendix Figure 1 Towers Perrin Model Transactonal (tangible) Pay Cash bonuses Shares Contingent pay Base Pay Long-term inceintives Profit sharing Benefits Pensions Flexibility Healthcare Holidays Other perks Learning and Development Workplace learning and development Training Performance management Career development Work Envronment Leadership Core values of the organization Employee voice Recognition Achievement Job design and role development (autonomy, responsibility, and scope t use and develop skills) Relational (Intagible) Source: Armstrong, M. (2007). Handbook of Employee Reward Management & Practice (2nd Ed.), London, Kogan Page. Pp.34 Figure 2 Figure2: The Hay Group’s public sector total rewards model Tangible rewards Competitive pay and progression Good benefits Incentives for higher performance Recognition awards Fairness of rewards Quality of Work Perceived value of the employee’s work Challenge/interest Workload Quality of work relationships Achivement opportunities Appropriate freedom and autonomy Work/life balance Supportive environment Recognition of life-cycle needs Flexible work and retirement options Security of income Social emvrionment Future growth opportunity Learning and development beyond current one Career advancement opportunities Regular feedback on performance Enabling environment Physicla enviornment Tools and equipment Traning for current role Sound work processes Safety/personal security Inspiration/values Quality of leadership Public service values Promotion of diversity Organization’s reputation Risk sharing Recognition of achievements Dialogue, communication, consultation Source: Thompson, P., & Chartered Institute of Personnel and Development. (2002). Total reward, London: Chartered Institute of Personnel and Development. P.16 Figure 3 Total Rewards Strategy Compensation Benefits Work-life Performance & recognition Development & Career opportunities Source: WorldatWork (2011). Total rewards model: A framework for strategies to attract, motivate and retain employees, Scottsdale, WoldatWork. Pp.2-3. . Read More