Reward strategy and todays business climate - Essay Example

Reward strategy and today’s business climate BY YOU YOUR ACADEMIC ORGANISATION HERE HERE HERE Reward strategy and today’sbusiness climate Introduction An organisation’s reward strategy is designed to offer a statement of the specific reward target or development of future reward processes which are aligned to the HR strategies of the organisation, the unique culture, and the business environment in which it has relevance (Armstrong, 2002). A reward strategy generally outlines the specific rewards linked with a particular business function or job role and the methods by which companies communicate these future rewards to internal staff members, potential employees as part of a recruitment promotion, or the external stakeholders. Reward strategies have been cited as being critical in order to motivate employees and make their job roles more satisfying (Au, 2009). However, despite the apparent importance of reward strategies and their proper development, current economic conditions have given some companies new approaches to identifying reward strategies as a means to link cost-reductions with HR policy. This paper highlights the changing methodology of reward strategies in today’s businesses, in light of current business and economic climate, offering three examples of real-life companies who have recently considered revamping existing reward strategies. Meeting business needs There are many types of reward strategies, which are completely different based on the unique environment in which the company operates. For instance, if the organisation has found that previous reward efforts such as the distribution of a company vehicle had found significant success in motivating senior-level executive performance, this would be something in future reward strategies which should not be amended. Another company which has found that various training and development packages have promoted better employee performance would want to consider these elements when redesigning a new reward strategy to meet modern business needs in today’s economic climate. There is a significant linkage between cutting-costs and the HR function in today’s businesses, with one part of business leadership attempting to retain talented workers by providing them with better reward compensation and the other part to ensure that long-term business strategy is achieved; especially in terms of finance (Logan, 2009). One recent survey, the Reward Management Survey, conducted by the Chartered Institute of Personnel and Development, found that four out of 10 employers were expected to modify existing bonus and incentive policies in order to recognise business value and reduce costs (Logan). This is a very large percentage of organisations which appear to realise that in order to remain competitive, in terms of working capital, bonus structures and the development of reward strategy must be adjusted to avoid over-compensation. However, because retaining top talent requires the ability to motivate performance, which is often something which cannot be accomplished without suitable reward schemes, this poses a difficult scenario for the modern human resources professional when costs become crucial. The challenge in modifying existing reward strategies, in the face of higher economic costs, is to do the appropriate research and ensure that what has been lain out for future reward is congruent with the needs of the specific business culture (McKeever, 2009). It would seem that there must be a clear understanding of what existing rewards have motivated the best performance prior to developing or modifying a new reward strategy. This involves knowing what goals the company wants to achieve, such as maintaining a competitive edge in recruitment and retention, and then identifying the costs of achieving these goals to determine whether they are appropriate for satisfying new budget guidelines. To highlight this, fashion retailer Lee Cooper, a UK-based organisation, has developed a specific reward strategy for its blue-collar production staff which involves overtime and extra shift allowance (McKeever). From the HR perspective, these would seem to be relatively common reward targets, however at a period where consumer incomes are much less disposable than in recent years, which is vital to corporate revenues, can overtime and extra shift allowance actually be congruent with long-term strategy and cost-reduction efforts? The evidence would seem to suggest that basic reward strategies for blue-collar workers have been effective in previous years and could not bring future motivation to these workers unless offered as a means to build loyalty to the company and the motivation to succeed. In the international division of Lee Cooper, specifically in India and China, workers prefer non-financial rewards such as family days, appreciation from managers, and simple birthday cakes (McKeever). In this specific division of the company, future reward strategies would be much easier to develop as the costs associated with a thank you and baked goods is well within existing (and likely future) budgets and can easily be coordinated even in the face of an economic downturn or drop in sales revenue because of diminished consumer incomes. However, in other companies, the goal is to reduce absence rates which can take away from divisional performance or even reduce business efficiency. There are also costs associated with higher absenteeism. At Denso, an automotive manufacturer of air-conditioning systems in the UK, health-related absence was one of the biggest problems, which led the company to look at its current healthcare programme to determine whether the health benefits offered as part of the firm’s reward strategy should be improved (Davis, 2008). Though Denso did not publicly outline its specific budget for health-care spending, it is clear that the company is well-aware of corporate HR strategy regarding the reduction of absenteeism and also the needs of the employees when deciding that future benefits structures related to health-care should be expanded. Denso’s drive toward improving health care benefits would seem to indicate that the current financial strength of the specific company is largely linked to how current reward strategies are being modified. Denso maintains 1,450 employees, which would be a sizeable payroll obligation to virtually any company today. Offering these employees expanded health-care services, as a means to motivate reduced absence ratios, is likely very costly to the business. However, since the firm is currently looking to expand these rewards, it is likely that Denso maintains a strong financial position and can provide these expanded benefits to its employees in difficult economic times. Other companies probably do not have this flexibility when determining how to bring value to strained budgets whilst keeping employees healthy and at their jobs. One professional in HR offers that all reward policies should “support flat and flexible organisational structure and recognising and rewarding higher levels of added value” (Dive, 2004, 27). Again, it would seem that when identifying potential modifications to existing reward strategy, the business must determine whether the existing rewards are congruent with both business needs and with the overall job design at the company. For example, there seems to be a great deal of competition in today’s markets which is making companies consider new methods of using human capital as a means to outperform competing firms. Added value could be measured in terms of motivation to perform, offering additional job role responsibilities, personal staff development and training as a career-path programme, or any number of job role-related rewards. In this case, reward strategy could be accomplished relatively inexpensively by simply changing managerial values in regards to people management and offering them higher annual increases for meeting specific performance management targets. Essentially, if the manager meets a corporate goal as outlined in the reward strategy, it is only then that they receive the additional compensation. Basically, it seems that reward strategies, in today’s economy, can be developed in a way that measures cost and also achieves the business’ hopes for cost-reduction at the same time. However, this would only occur if the business understands specifically how to motivate its employees and can get away with a reward strategy which is not extensive, such as including a company car or massive cash bonuses. Some companies seem to also be using their rewards strategy as a means of building an employer brand with a marketing focus linked to HR strategy (Giancola, 2006). It seems that many companies have remained, in recent years, focused on having the best talent possible as a means of ensuring competitive advantage. This is often accomplished by convincing workers that the business will provide an array of programmes which will meet employee career needs (Giancola, 2006, 28). Once these programmes have been identified and developed, and can be incorporated into the reward strategy, it becomes a matter of marketing these options to employees so that the company brand name is strengthened. In today’s economy, with the high levels of competition, new reward strategy development or revamping of existing reward strategies, marketing seems to be the new method for bring value to reward schemes. So, in this sense, it is not so much about cost recognition but more of communication. Two HR experts offer that organisations which understand the “power of effective communication invest time and resources to ensure employees understand the many facets of their employment deal” (Kapel and McNab, 2007, 28). With this in mind, reward strategy is much less linked to costs but becomes more of an internal marketing scheme to remind others of their reward options continuously. Rather than adding new benefits to make the company seem more focused on its people, they can simply focus on communicating existing benefits as a portion of the total reward strategy and can therefore avoid high costs in the process during slowdowns in the economy. For other companies which do not have the option of simply marketing existing reward strategy and also do not have the financial resources, today, to give employees higher volumes of rewards, there are difficulties with the possibility of upcoming layoffs. Blyth (2008) suggests that employee benefits will be substantially reduced by most organisations in the coming months, therefore it would become difficult to retain key people who might be coerced to look for other employment with a different company which offers better benefits. However, what would a company do in the face of difficult economic conditions and with the inability to provide any additional benefits (or simply must cut existing reward schemes by a substantial margin)? There is no research evidence which seems to provide the solution in this scenario. It is practically a common understanding that retention is linked to the ability to provide workers with a stable and autonomous work environment with extended benefits. However, how can a business retain employees when benefits must be slashed simply to avoid layoffs? Oxfam, a major international charity organisation, has recently had to slash spending on accident and group protection insurance as a means to reduce costs during the economic downturn (Logan). Says Frances Richardson, head of reward at Oxfam, “The people who work for Oxfam are naturally engaged” (Logan, 2009, 1). This statement would seem to suggest that leadership at this charity organisation believe that they have created the culture and rewarding business environment necessary to sustain higher levels of staff motivation to the degree that Oxfam does not need to worry about slashing benefits compensation and similar rewards. However, is this a somewhat naïve philosophy where leadership can rely on the laurels of the business and its structure to ensure higher levels of retention in the face of benefits reductions? It would appear so, however this does tend to illustrate that some companies seem to be relying on their own positive culture, existing organisational structure and leadership capabilities to ensure that employees will not jump the proverbial ship in favour of new employment opportunities when they are informed that extended benefits are being reduced. The Oxfam example seems to illustrate that some organisations are not fully aware of motivational theories regarding what drives employee loyalty and are amending existing reward strategies without giving thought to the potential long-term impact of these cost-reduction efforts related to HR policy. It has already been established that there is a strong linkage between HR strategy and motivational policies designed to build higher staff performance levels. Employees are most definitely not going to be motivated and delighted by having their benefits slashed in this difficult economy, which would seem to suggest that organisations like Oxfam are not taking the correct approach to reward strategy and they may be in a form of denial about the long-term impact to turnover rates when reward strategies show signs of benefits reduction. Clearly, the current business and economic environment has created the opportunity for today’s organisations to actively reexamine their existing reward strategies in order to avoid higher costs and remain competitive. Pinnington (2000) offers that reward strategies have to be absolutely consistent with HR strategy and business strategy in order to be completely effective. HR strategy might involve a heavy focus on training and development as a career path objective for employees whilst the business strategy may be for expansion into international marketplaces over a short period of time as part of strategic focus. In this scenario, it would seem that an adjustment to reward strategy which included cross-training in multiple job roles as a means of ensuring promotion would be effective. This is because it would provide the opportunity to motivate workers to perform and also satisfy the long-term goal of international expansion by giving the entire company a more well-trained staff with high human capital. However, an organisation which must remain focused on cost-reduction in order to stay afloat in their current business markets could not get away with this type of adjustment to rewards strategy because the costs associated with training multiple staff members in a wide variety of job roles would likely exceed financial capabilities. This might suggest that today’s companies should be more aggressively considering methods to alter rewards strategies in a style that is consistent with avoiding value-added costs and also showing employees that the company is still flexible to their unique needs even when times are difficult and layoffs are potentially pending. Perhaps this could be accomplished by offering job-related targets, and eliciting friendly competition between staff members in the process, but by setting the targets quite high so that attainment of these goals is not commonplace. If done effectively, this might be a way to ensure that rewards strategies are in-line with HR expectations regarding motivation and performance demands without the necessity to burden the corporate budget. The above is only offered as a critical analysis of how to ensure the development of an acceptable rewards strategy in the face of many HR issues and high costs of business. As there is not a great deal of research literature which focuses on how businesses are currently revamping existing rewards structures, but there is growing evidence that the current economic and business climates are dramatically impacting how companies do business and monitor costs, it seems an appropriate method for boosting staff morale and also not having to offer additional, costly benefits options to ensure that retention ratios are not impacted negatively. There is clearly a need to understand what drives employees to succeed in the business, as part of an HR research focus, prior to developing an acceptable rewards strategy which is in-line with corporate cost strategy. Those employees who are receiving rewards for individual or group performance are at the heart of the business in terms of building a more efficient system of human capital, therefore continuous reduction of job-related rewards is likely to only make employees feel under-valued and less recognised for their achievements. Perhaps then it is a matter of adjusting the existing culture, perhaps by promoting a new set of values and beliefs ahead of future adjustments to existing rewards strategies, as a means to prepare employees for a new brand of reward policies and processes. For example, a company which has created a positive culture, and has found significant levels of staff performance in this rewards-based culture, might have to rely on creative efforts with a focus on human psychology when it becomes impossible (due to costs) to create a more expanded rewards structure. Perhaps the key for today’s businesses which are struggling with these issues could look at revamping the company’s internal image, in terms of a new mission or vision statement, to adjust what drives employees to succeed by removing cultural focus on rewards as the primary motivator to a new brand of motivation based on increased job role autonomy as a reward for performance. This would satisfy cost-reduction and would also give companies the ability to change its internal culture for the future to one which is not driven merely by the receipt of employee rewards. Conclusion Companies like Denso and Oxfam have clearly been effected by the current economic environment and have made significant changes to existing rewards strategies as a means to remain financially-competitive in difficult marketplaces. Though Oxfam believed that reductions to existing rewards compensation was achievable simply due to the positive, engaged culture, it is likely not a sound method in today’s environment if retention (and future recruitment costs) have been considered. Denso, however, as a company with the apparent ability to provide extended benefits in the face of a strong budget, does not seem to have the pressures associated with redeveloping an existing rewards strategy which best fits employee needs because this firm has the financial flexibility to ensure that HR strategy is successful and the overall business goals are met. The current economic environment seems to be giving today’s companies the need to examine all aspects of the business in order to remain competitive, both in terms of finance and in human capital management. At a time when employees seem to be driven to perform based on the level of additional compensation they will receive as a result of superior performance, suddenly slashing aspects of reward strategy will likely only lead to diminished organisational efficiency and higher turnover rates. This suggests that today’s companies, especially those which cannot extend existing strategies related to rewards, must become creative and innovative in order to make sure that both the business and the employee emerge in a win-win business situation which fulfills human and corporate needs at the same time. Bibliography Armstrong, Michael. (2002). Employee Reward, London. CIPD p83. Au, Ellena. (2009). ‘Why HR needs a great leap forward’. Financial Management, London. Feb, 22. Blyth, Alex. (2008). ‘Rewarding in a recession’, Personnel Today, Sutton. 2 Dec, 20-23. Davis, Lissa. (2008). ‘Reducing absence rates at Denso’. Strategic HR Review, Chicago. 7(1), 50. www.ebsco.com. (accessed 3 Apr 2009). 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