The Strategic Objectives of the Organization and Reward System in Organizations - Assignment Example

?Performance and Reward Management Table of Contents Introduction 3 Problems Associated With Reduction of Payroll Cost 4 Problematic Links between Reward Policies and Practices 8 Current and Emergence Practices With Regard To Reward 11 Conclusion 15 References 17 19 Bibliography 21 Introduction Organisations across the world need to adapt feasible strategies and utilise the opportunities available in the market to achieve the organisational goals. Human resource personnel must ensure that the reward system is properly aligned with the strategic goals of an organisation. According to Armstrong & Murlis, “Reward Management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization”(Armstrong & Murlis, 2007). The challenge to any organisation is to formulate a fair reward system that can motivate employees to work with enthusiasm. In the present context, implementation of proper incentive system along with well defined performance appraisal system is primarily convened by HR personnel. Reward management is important in order to achieve organisational strategies, to build up the psychological bond with employees and to act in accordance with legislation. Reward management is related with performance appraisal of an organisation as it motivates employees to perform better day-by-day. Performance appraisal is the other tool to measure performance of employees which increases motivation level and determines the training needs among others. By implementing reward system in an organisation and recruiting the best talents of the industry and by retaining the top performers’, competitive advantage can be maintained. The paper also reveals the challenges that HR personnel may face with respect to reward management (Best Practices LLC, n.d.) Problems Associated With Reduction of Payroll Cost In near future, managers have to face an impending challenge to reduce payroll cost. In recent years, global economy has been influenced by recession. Due to the recession, organisational earnings are negatively impacted and it has been found that the organisations have to cut down its operational cost to sustain in global economy. Employees are the backbone of any organisation and an organisation has to pay a substantial amount to the employees for rendering services. While facing cost pressures, organisations are bound to implement major cost saving measures by cutting the jobs of the employees. Consequently, it affects on the service quality of organisations. Organisations may face unforeseen circumstances. Organisations have to implement strategies incredibly decisively so that it does not hamper the operations. Otherwise, it may be detrimental for the organisation for long-term period. The influence of downsizing can not be kept away totally but it can be reduced. By reducing the cost, managers facilitate the organisation to generate profitability. Downsizing of employees affects a company in social as well as economic perspective. As after downsizing employees face tremendous challenge to survive. A company must consider the available alternatives and calculate the feasibility with applicability of cost-reduction options before deciding on layoffs (Gandolfi, 2008). Cost reduction stages are framed by the assumption of certain periods of time to make cost adjustments which affect the HR practices. Short Range Cost Adjustments: The primary stage of the ‘cost-reduction framework’ signifies ‘short-range cost adjustments’ in order to arrest a short-term decline in business operations. The business slowdown is anticipated to be a period for six months. Companies face such type of challenges by virtue of sudden decline of sales (Gandolfi, 2008). Framework of Cost-Reduction Stages Source: (Gandolfi, 2008). The preliminary cost-reduction techniques must allow an organisation to focus on its activities in a cost-sensitive approach for an immediate improvement. The top management has to make the business process efficient and put emphasis on short-term strategy. HR manager has to present cost-effective measurement decisions taken by higher authority to employees and implement the method at prompt. Hence, a company’s success in context of short-term cost adjustments depends on its ability to respond to the change and amend its expenses. Recommended HR practices to deal with short-term adjustments are as follows: Cut in Overtime Compensation: Minimising the overtime payment is a popular method to trim down operational expenditure for short time. The company may decide to cut down the overtime payment for the employees. The management generally decides to trim down the payment of blue-collar employees and other administrative employees. In 2004, General Motors and Ford decided to cut overtime pay for the entire workforce. Temporary Facility Shutdown: Temporary facility shutdown takes place when management decides to close down a few operations except administrative operations in an establishment. As a result, the production declines and the company can earn a considerable cost savings. Salary Reduction: Salary reduction techniques have been benchmark exercise for companies under economic pressure. However, it can negatively affect on employees’ loyalty as well as morale. High performers can leave the organisation and join the competitors which can hamper the previous organisation. In the year of 2006, a group of Intel managers decided to take a provisional 100% pay cut to stay away from permanent layoffs as Intel had declared that it intended to slash 10,000 employees together with 1,000 managers (freepatentsonline, 2011). Requesting Cost-Effective Ideas from Employees: Organisations often seek cost-reduction ideas from employees, who are innovative in fabricating solutions. This HR practice can be effective when employees are competent to formulate proposals in the primary phases of cost cutting. However, many employers have still not comprehended that employees are best source to be familiar with reducing the wastage of operational cost (Gandolfi, 2008). Medium Range Cost Adjustment: Medium range of cost adjustment is the second stage of effective cost measurement and this operation is expected for business slowdown exceeding six months up to twelve months. If these challenges are appropriately acknowledged and carried out, a company may be able to switch to mid-range cost adjustments and accordingly avoid long-term forced downsizing. Approving HR practices in the second stage could modify the working environment for the employees. Extended Salary Reduction: Extended salary reduction can be a process to deal with the economic downturn which exceeds more than six months. The reduction may cause adverse affects on commitment of the employees and they would choose lesser earning rather than losing permanent jobs. The organisations generally have innovative pay options. High performers prefer to look for external employment prospects. Exit incentive alternatives provide employees the choice of leaving the organisation and taking voluntary retirement. It is a renowned and it is known as ‘golden handshake’. The initiative can be quite expensive (freepatentsonline, 2011). Long-Term Cost Adjustments: The third phase of the cost-reduction outline stands for long-term adjustments that are required if a company faces a long-lasting business downturn which exceeds 12 months. The stage may be identified through extensive decline of present as well as proposed customer demand or else impulsive financial conditions. If a company continuously faces the challenges even after downsizing, the management may feel to re-instate the employees. Re-Hiring Bonuses: It is quite common to re-hire laid-off employees. In certain cases, it is observed that organisations lay-off an employee wrongly, so they may decide to reinstate the employee. Internal Job Fair: Every organisation tries to retain high performers. In this method, companies host proceedings in order to reorganise downsized employees within the company (Gandolfi, 2008). Problematic Links between Reward Policies and Practices Reward system is applied to motivate the employees to perform better and it should be suitable to achieve organisational strategies. Motivated and committed employees represent the organisation with competitive advantage. Reward management is concerned about implementation and evaluation of reward policies and practices to motivate employees on basis of their performance. Therefore, there is a requirement to formulate reward systems simultaneous to organisational strategies. The reward management is the benchmark for individuals and teams in addition to organisational development. The contradiction arises when there is vague design regarding individual performance along with team performance. Generally, there is remarkable requirement of consistency in reward systems stated by companies with high performance or high commitment. Several organisations have applied the reward. It is found that several companies have implemented the reward policies which are not feasible in relation to practical issues. The organisations at time might not focus on the pay structure and they mix up the reward system with the monetary benefits making it complex which in turn adversely affects the operations (CIPD, 2011). The challenge faced by most of the organisation is related to complex pay system which hampers to strategise reward system. The organisations want to build emotional link between employees and line managers along with reward and performance. The organisations generally at times fail to pay attention in pay structure for concentrating on the reward system (Bevan, 2000). Reward management acts as accelerator to the employees for their performance. Organisations’ aim is to build up reward strategies which ensure that reward policies are associated with human resource goals. It also facilitates in accomplishing organisational objectives in an efficient way (PBS Consultants, n.d.). Scholl observed payment system to be an important factor in enhancing motivational level of employees. A payment system is a method which is designed to decide amount of pay given to the employees. Compensation design is based on several factors such as seniority of the employees, cost of living in the region where the employee works, performance of the employee, enhancement of individual qualifications. Pay satisfaction is a major factor of employee retention and employee attraction for an organisation. If employees are not satisfied with the compensation system it may cause absenteeism and high turnover rate among others (Scholl, 2006). Incentive, which is perceived to be a part an effective reward system, might fail to stimulate a positive behaviour among the employees. Empirical evidence in this context can be stated as the case in which the UK Department of Health decided to demonstrate to pay the NHS team. The teams were being allotted with certain tasks such as improving the environment, developing better experience for the patients among others. The team was rewarded by cash payment and they were directed to put it in a fund to use on staff development. By demonstration, it was found that the result was encouraging. However, several researchers have questioned whether the scheme is feasible or not. As there were certain limitations for succession of the scheme such as all the teams could not accomplish their targets. The researchers doubted whether the team-based pay was incapable to motivate members to perform. Researchers put certain points for failure of the scheme such as team structure was not appropriate, there were a number of difficulties to achieve the target, there were a number of factors which were uncontrollable for the team members. On the other hand, Luminus Group, one of the 100 Best Companies to Work For (as observed by The Sunday Times), celebrated a decrease in staff absenteeism on medical grounds. The employees were awarded ‘98 lifestyle day’ for not remaining absent for a single day due to sickness in 2007 by Luminus Group. The company offers health care plan in collaboration with Westfield Health that involves free employees check-up and 24 hour free counselling (Luminus, 2008). Toyota Motor Manufacturing Plant in the US uses the equal pay structure. It helps to strengthen the relationship between team members. Better performance of employees helps an organisation to generate profitability. Organisations can offer profit sharing schemes and share ownership schemes to encourage employees so that the employees recognise to be committed with the organisation. Reward system suggests that the employee motivation can create competitive advantage for organisations. Reward system relies on different motivational theories such as Herzberg’s Two Factor Model which categorises ‘salary’ as ‘hygiene factor’ which can direct towards frustration. High pay stimulates employees and they realise that they are appreciated by employer. Collective incentives that reimburse workforce for well-built organisational performance are optimistic. Payments to employees who enhance their ‘human capital’ by skill acquirement may be paid as bonus (Morris & Maloney, 2003). Herzberg’s “motivation-hygiene’ theory describes the reasons for job satisfaction and dissatisfaction among the employees. Reward system acts as a motivator to the employees so that they can perform better. Over a period of time, salary as well as incentives may loose the importance as motivator to some other factors. Hygiene factors such as relation with others, working conditions and job security may act as catalyst to employees, which can motivate as well as de-motivate him/ her to perform better (Byrne, 2006). Current and Emergence Practices With Regard To Reward In present context, organisations use reward system to motivate employees so that they can perform efficiently. Due to globalisation and implication of advanced technologies, organisations are much organised. Constant innovation is essential for the companies to stay tuned in global context. Reward system works as career drivers for the employees. Reward system is linked with employees’ expectations and it is based on their preferences for career. The system should be incorporated with employee diversity. At present, it is quite difficult for organisations to provide ‘job security’. Companies endow with opportunities to the employees by providing them challenging assignments and on basis of performance they are rewarded by the organisations. Psychological contract may differ from person to person. An individual should be self-driven in his career and his performance should be continuously assessed by himself and he should be able to learn from his own mistakes. If he is committed to the organisation he may perform better and can get rewards for his performance. Incentive system can satisfy the security needs in accordance with Maslow’s Hierarchy Theory (Singh, 2005). Apart from financial form of rewards, there are several other reward systems prevalent in organisations. One of the other forms of reward is psychological rewards or intrinsic rewards which involves job satisfaction, a feeling of accomplishment, along with the social networking. These belong to the higher position in self-efficacy end of the Maslow’s hierarchy of needs theory. Reward system has chief objectives such as to motivate employees to elicit their performance and to build up organisational commitments. Violation of the terms and conditions may cause adverse rewards such as penalty and suspension among others. Reward system can also strengthen the commitments towards organisation. For instance, if an organisation concentrates on team work, they may pay team bonus for accomplishing organisational goal as a team (Koala Consulting and Training, 2008). Performance-based reward system is another form of reward system in organisations. The performance based pay can be individual, team and organisation based as well. In view of the fact that pay differs with performance, good performers are concerned with the large pay differentials that reward their performance and poor performers get word of warning to perform better. The organisations rely on base pay to determine reward systems. Reward systems should be flexible as the variation of pay in the reward system may differ at times according to circumstances so that the employees feel to explore new opportunities. Companies can often modify their incentive system to stimulate positive outlook towards their work from the employees. High pay, in conjunction with other practices can result in low labour turnover (Morris & Maloney, 2003). In modern day context, the reward is also provided in terms of fringe benefits apart from monetary rewards. Fringe benefits include cars and perks, telephone charges, club membership, insurance among others (Koala Consulting and Training, 2008). To summarise, it can be said that practices of reward system provide the organisations competitive advantage over their competitors. Rewards should maintain organisational behaviours directly associated with achieving strategic goals. Reward system is implemented to encourage the employees to perform effectively and not to threaten them by offering penalties or suspensions as punishment. Fear acts as escalator for performance but number of fears hampers the productivity of employees. For instance, if an employee is a poor performer for a long time, he has fear of losing job. The reward system also requires complying with government rules and regulations to sustain in present tentative business environment. Employees must be able to correlate the reward to their achievements without a doubt (McNamara, n.d.). The employees should be at ease to work with the organisation. The management should be communicative. Reward system should also be decided on customer feedback. The management should take into concern the motivating factors for the employees. To retain high performers the companies have to analyse the requirements of high performers. The companies should have feasible reward systems which are interrelated with organisational objectives (European Working Conditions Observatory, 2010). Conclusion The companies are practicing reward systems to get effective productivity and to retain excellent performers. It has been found that downsizing adversely affects organisations. Due to high labour turnover, companies may face unforeseen circumstances regarding profitability. Innovation in HR practices such as reward system can build a strong corporate culture. The HR personnel can generate new compensation model which attracts employees (Nacinovic & Et. Al., 2009). In this paper, it has been discussed whether reward systems encourage the employees. The main focus has been to investigate the relationship among reward practices and performance of the organisation. Employees prefer monetary reward as well as fringe benefits. However, both are interrelated with each other. Reward system may enhance the dedication of employees towards organisation (Allen & Helms, 2011). Source: (Brown, n.d.). Many organisations offer profit sharing reward system for the employees. It is also found that through profit-sharing reward mode, employees feel the belongingness in the organisation. HR managers have the opportunity to reveal the proposition of their practices, specifically the influence of reward practices on employees’ attitudes. The reward system has the competence to incorporate individual efforts and drive them on the way to accomplish the strategic objectives of the organisation. The reward system can enhance the motivation of the employees to take initiatives in order to accomplish organisational goals. Employee development as well as organisational development can be improved by practicing reward system in organisations. References Allen, R. S. & Helms, M. M., 2011. Reward Practices and Organizational Performance. Sage Journals Online. 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Reward, Recognition and Retention. Research. [Online] Available at: http://www.penna.se/contentfiles/pennaspain/content/research/c67b69b2-8594-447e-91a1-a72c3d7387a9/reward_recognition_and_retention.pdf [Accessed July 13, 2011]. Read More