Reward Systems and Performance Management - Coursework Example

 Reward Systems & Performance Management: An Analysis Pay Schemes & Performance Many organisations establish pay schemes which link performance to compensation. However, it has been offered that individual performance results are not often attained under the best-intentioned pay-for-performance schemes in human resources management. Why is it, then, that companies maintain these pay schemes when these businesses are fully aware of their inability to deliver results? One of the main themes of HRM involves various motivational theories, which deals with the human propensity to value esteem, self-accomplishment, and even routine, positive feedback. Under theories such as Maslow's hierarchy of needs, attempts to generate increased employee motivation to work toward accomplishment of organisational goals is the basis behind pay-for-performance schemes. An organisation sets the firm's objectives and similar targets for expected performance levels by employees by appealing to a primary desire: Increased wages. It is a logical assessment to offer that that most of today's employees choose to work for a company in the primary pursuit of generating a quality income. Under Maslow's theory, the security offered by increased job-related compensation is a primary element behind employee motivation. In essence, without granting the employee additional incentive pay, while appealing to their motivational needs, generating any measurable increases in performance toward business-related targets is quite difficult. For instance, a company cannot motivate an employee by utilising rigid and controlling management policies, such as management by threat, therefore companies must establish a system by which employees can work toward targets and guarantee a reward for meeting these expectations. This is a significant reason why companies continue to maintain pay-for-performance schemes, as there are very few methods to appeal to the employees' personal desires. It is basically implied that many employees cannot be sufficiently motivated without the use of monetary incentives, therefore simply offering additional performance-related compensation gives the employee a strong motivational objective to meet the company's long-term strategic goals. Additionally, to appease the external shareholders, many organisations continue to use pay-for-performance schemes despite their ineffectiveness. Shareholders maintain a significant influence in today's businesses as they are highly invested in, therefore interested in, ensuring that a firm meets its organisational objectives for growth and profitability. Companies issue their annual reports to offer investors a snap-shot view of the company's current position and their long-term aspirations for sustained performance. Shareholders want to know how an organisation is going to reach their tangible goal of performance, therefore, in essence, the pay-for-performance schemes look good on paper. By sending the message to the shareholder (or external stakeholder) that the business has established a performance-based employee compensation plan, it gives the interested parties the acknowledgement that the company maintains a significant interest in driving employee performance levels so as to boost dividend payout and create a unified culture that is driven to succeed. Under pay-for-performance schemes, many organisations take an individual approach to compensation, generating additional remuneration for achievement on an individual basis. As an employee succeeds in his or her unique job position, they are rewarded for meeting job-role expectation and increasing the individual skills and competencies required of their specific job function. This is probably the most workable pay scheme, as it sets the target of key learnings and skills-development as the primary objective toward the receipt of additional compensation through personal job development. This type of individual performance compensation can be measured by the employee's willingness to adopt a broader skill-set associated with their individual job functions as well as by measuring increases in worker productivity. For instance, in a manufacturing environment, an employee in the purchasing environment might be offered a target of reducing total purchasing costs by 20% in a six month period, leading to a 5% increase in total base pay. Such targets would be relatively easy to monitor, as the employee's willingness to adopt low-cost procurement and distribution alternatives would be reflected when purchasing expenditures are reduced. Moreover, creative solutions to cost-reduction in this department, identified by the employee, would be ample justification for a performance-related increase. Organisations, today, also consider team-based compensation to be a motivational tool to build staff performance levels. Consider an organisation that requires multiple projects to be developed fairly routinely in order to streamline total organisational performance. For instance, one team is established to build a stronger inventory system, while another team is directed to create a strategy to reduce operating expenditures. Team-based compensation is intended to provide a sizeable incentive if the targets set for the individual team are met, which is thought to establish increased motivation in a group environment. This type of performance-related compensation can be measured by the output generated by team members. Consider a situation in which a business requires a team of eight professionals to develop a system to replace manual inventory systems. Their target: Identify and implement an electronic inventory system with a proposed budget allowance of £500,000. If the team proposes and implements the required objective without going over budget, team-based compensation would reward all members of the team with a pre-determined bonus. Despite the objective of building motivation using performance-related compensation, experts believe that establishing performance targets do not bring the expected benefits to the organisation. Why? In many instances, performance targets require significant investment on behalf of management to monitor whether these targets are being met. Meeting with employees or team members to discuss progress toward the company objective would be a significant investment on behalf of leadership, a potentially costly responsibility as this type of progress-monitoring could leave the manager with considerably less time to concentrate on more strategic objectives associated with the role of manager. They primary key to ensuring a quality pay-for-performance scheme is to set the incentive at a level that is appropriate for building long-term motivation to succeed. For instance, a 1% base pay increase offered to an employee for reducing purchasing costs by a rather unattainable target of 50% would be ineffective in building motivation. Therefore, target setting and the level of compensation must be congruent in order for the reward scheme to work effectively. Failure to do so will likely result in goals that are never attained. Performance Appraisals The performance management system involves a series of processes used to identify, measure, evaluate, improve and reward employee performance. In contemporary organisations, the performance appraisal is designed to assess an employee's overall contribution to meeting organisational objectives and communicating areas of potential improvement. In an ideal business environment, the performance appraisal involves managerial assessments of the employee using a variety of individual criteria, and then measuring whether expected performance levels have been reached. In most instances, the appraisal is the template by which an employee receives a fair compensatory reward based on the level to which he or she contributed to organisational goals. The main theme of a well-designed performance appraisal is to offer the employee motivation to continue to develop their core competencies, by highlighting various strengths and weaknesses associated with their individual job function. For instance, an employee who works in the manufacturing area of a production facility would be measured on criteria such as their safety record, their total daily output levels, and potentially even to the extent that they are able to work independently or within project groups. In some instances, a similar appraisal would be designed on a point system, where the employee receives points associated with each criterion, leading to a total performance score. Much the same as incentives, the performance appraisal is designed to build employee motivation to perform above and beyond the business' expectations. For instance, an employee who meets an organisational target for product outputs in the assembly area might be rewarded with a profit-sharing option as fair compensation for their outstanding productivity. In similar respect, a less-productive employee who did not reach the target output goal would not be offered the profit-sharing option. At the same time, this ineffective employee may witness the majority of his or her manufacturing colleagues receiving profit-sharing plans associated with their outstanding performance, which would drive the less-effective employee to increase their total output in the hopes of receiving the profit-sharing reward. In most instances, performance appraisals are conducted by administrative and managerial entities at the company, who conduct the majority of assessments associated with worker productivity. However, appraisals can include assessments of other team members in relation to their project team's opinion of how the employee has contributed positively or negatively to the team's objectives. Outside sources, such as customer contacts or external vendors, are often incorporated into performance appraisals to offer a broader picture of how the employee interacts with the internal and external stakeholder. Multi-source ratings, such as the 360 degree feedback system, involves appraisals from associates, customers, managers, and even self-evaluations. Such a system would ask a series of professionals within the business to offer insight into how the employee performs in all aspects of the company operations. Criteria such as positive relationship-building, co-worker interactions, customer decorum, and multi-tasking might be listed as the activities which are designed to measure total competence. The 360 degree feedback system offers a much broader picture of how the employee performs, avoiding issues such as managerial bias. A 360 degree feedback system stands to greatly enhance the total effectiveness of the performance appraisal. For instance, consider an employee who maintains a multi-faceted role in the business, with responsibilities including purchasing, project planning, sales, and quality control. In such a situation, this employee maintains a significant amount of contact with various personnel in the course of the routine business day. If a single manager is elected as the responsible party for appraising this employee's performance, there is a considerable weakness in this approach as it is quite possible that the assessing manager only interacts with this employee 20 percent of the time. This creates the opportunity for considerable rater errors in relation to the employee's total work output. A 360 degree feedback system allows for a greater culmination of thoughts and opinions from an entire group of company professionals, guaranteeing the employee a more fair and balanced appraisal of their competency. The idea of the 360 degree feedback is quite similar to the objectives of the performance appraisal itself: To ensure a fair assessment of an employee's total skill-set and offer additional compensation or other incentives which are proportionate to the criteria used to judge performance. For instance, with the idea in mind that performance management and the performance appraisal processes are designed to build employee motivation toward meeting company objectives, offering an across-the-board salary increase of 2% to the entire organisational staff is sure to meet with significant employee resistance. In any firm, there are achievers and under-achievers, therefore the performance appraisal identifies which employees are most productive and crucial to sustaining business objectives and offers compensation which is fair to individual work output. Using an across-the-board increase also rewards ineffective employees for under-performance, likely driving animosity between employee groups and diminishing total staff motivation. This is a significant reason why performance appraisals are used in today's businesses, to ensure that each employee or individual group is rewarded fairly for their motivation to succeed to organisational expectations. The use of the 360 degree feedback system might identify that an employee is considerably strong in co-worker relationships, but fails to grasp the fundamentals of their job function. Offering feedback to the employee which appeals to their inherent motivational needs (esteem) regarding their positive contribution to building staff camaraderie, while also identifying where the employee needs to improve in order to be considered highly effective in their job role, is a method to link the appraisal with performance. A business that relies on an individual assessing manager's opinion might have missed the motivational opportunity to identify positive co-worker relationships, thus granting this employee a dismal pay increase. Performance appraisals, by design, are of mutual benefit to the company and the employee as feedback systems provide opportunities for employee growth and improvement, and also establish a remuneration target which offers the employee a motivation to receive through their increased performance levels. Read More