Increasing the Effectiveness of Reward Management - Literature review Example

REWARD STRATEGY By [Your Name] [Your Instructor’s Name] [Your Class] [Date] iNTRODUCTION Across the board in all industries and territories, organizations are under pressure to restore profitability in the wake of the recession. Due to the difficulty of growing revenue, the focus is on containing costs and enhancing performance as a way to generate profits. The recession has hastened the rate of current macroeconomic changes on a very elemental level. The focus has shifted toward emerging markets like Brazil, China and India that have proved more resilient to the effects of the financial crisis. This rapid change has escalated across every industry as organizations use innovation to guard their niche in the market and utilize technology to uncover better and novel opportunities. There has also been increased regulation and scrutiny of activity of corporates, decision-making and reward. The article by Cox, Brown and Riley (2010) emphasizes the ongoing efforts aimed at designing and putting into operation a thriving and reliable reward strategy. They aver that the main and overlooked factor that brings this about is the inadequate design and execution of reward strategies as they pertain to employee preferences for various kinds of rewards. They put forward the notion that the problem lies in the design of reward systems as well as the manner in which models of reward strategy are constructed. In order to have more effective reward strategies, a better comprehension of holistic rewards and more attention to roles of line managers in implementation. Whether or not this premise is accurate is the subject of this report. We will be looking at critical assessment of the expectations linked to reward strategy. We look at the article from the angle that what it says is correct and it brings up critical issues in the area of reward management. However, there are strategies that can be used to address these weaknesses as identified by Cox, Brown and Reilly(2010). This area of literature is a contentious issues that is connected to a wider academic area that seeks to explore the relationship between reward management and organisation performance. Several treatises written on it hold different views. Some feel the subject is extremely straightforward while others say it is more intricate. We shall be studying some of these authors in order to get a complete picture on the status of reward management. The key pay issues according to Zingheim and Schuster (2007) include: Personal vs. group performance total or comparative performance Pay based on teams. Short vs. long term performance Distinguishing between performance and compensation for performance. Reward is not a money issue anymore. When asked what the top five ‘wants’ were, employees cited work quality, the opportunity to train and develop themselves, work-life balance, the environment, reputation and values of the company and leadership, feedback and recognition or reward. In contemporary work environments there is a new paradigm as pertains to employee contracts. The employers want a workforce that is just in time, has rapid creativity, is highly productive with good morale and have ability to retain the motivate the best. They wish to compensate employees for performance while expecting some flexibility and recognition of change to their contribution as well as minimal job security. Employees want an environment that is entrepreneurial with robust skill development prospects. They want high visibility in the organisation that offers career mentoring as well as the discretion of job development. They also would like some flexibility in order to achieve work-life balance as well as competitive reward and benefits as well as recognition for their contribution (Schlechter, 2006). The two are sometimes mutually exclusive. Total Rewards Approach Figure 1: Total Rewards Approach. Source: CIPD, 2012 Direct Financial Direct financial benefits include the basic salary, incentives, ownership or shares as well as cash recognition and premium pay. Work Environment Commitment and support from the organization, a good work environment and citizenship in the organization. Work Content The work should have variety, be a challenge, be independent and have meaning. They also need feedback. Career There should be career advancement, personal growth, opportunity for training and employment security. Indirect Financial This includes benefits, non-cash recognition and creative rewards (CIPD, 2012). Literature review Introduction In order to create an effective work environment, there are certain questions that need to be addressed. These include whether or not the organization’s reward and recognition policies and habits exclude employee preferences. Does the organization achieve balance between initiatives to bring about reform and recognition that are formal vs. informal or is it flawed in implementation? It is necessary to find out whether or not the work environment is focused too much on performance pay at the expense of total rewards. The management style is important to facilitate growth and development and personnel need to believe in the firm and its leadership. Lastly, whether or not the organization has in place systems for reward and recognition. Lawler (1990) outlines the ‘new pay’ in which the pay is people rather than job based. People are paid according to the value they add to the organization. These issues will be examined in literature. Becker and Huselid (2006) have a resource-based view (RBV) of the firm which gives guidelines on the core hypothetical foundation for the potential role of human resources as a strategic asset in the firm according to Wright and McMahan, (1992). The idea is that a competitive advantage can be built by organizations leading to higher than average returns based on important and incomparable internal resources. This adds weight to the idea of the strategic importance of human resources. The integration of SHRM tends to focus more on human capital and recognition of existing assets rather than development of new ones. This theory has had little effect on evidence-based SHRM literature. RBV theory affects strategy literature by the provision of a context to look at the implications of HR in the performance of a firm according to Barney (2001). Recognising employees is a valuable management tool that is used to boost the engagement levels and performance of employees. Recognition is a way to communicate approval from companies in a way that encourages conduct that mirrors the values and objectives of the organization. Recognition is a useful way to motivate performance and engagement but cash rewards may not always suffice to achieve this (Fleetwood and Hesketh, 2009). It is common error in many firms to attempt improvement of these two factors viz. engagement and performance, using cash awards. Statistics however, show that this may not be the best way to proceed. A survey by Watson Wyatt in which employees were asked to point out which motivators for performance they considered ‘very significant’, 66% cited ‘appreciation’ contrasted with 15% who chose ‘financial reward’. Furthermore, in a study conducted by American Express Incentive Services, 32% of employees reported that cash rewards were not a motivator to improve performance. Industry surveys have shown that half the recipients of cash awards use the money to settle bills or have no memory of how the money was spent. A common goal of recognition programs according to WorldatWork and Recognition Professionals International is the motivation of high performance. Attempting to do this with money has been found to be futile. A small discernible gift coupled with recognition has been found to be more effective at increasing engagement of employees and enhancing performance rather than cash rewards (Sparrow et al, 2008). Strategic Side of Rewarding According to King et al (2011), there is no universal solution to rewarding employees especially in the current workforce that tends to be multi-generational. Salary is the standard reward for work done, and tends to be the most prominent element of the remuneration package. It is important that these salaries adhere to industry standards. This can be measured through benchmarking (Brewster et al, 2011). Other issues include the interdepartmental salary harmonization and what effect hiring and tenure will have on salaries. Answers to these issues can be found in data analysis, a situation in which technology can assist greatly (Marsh et al, 2008). Other benefits include health savings accounts and employees prefer to have a plan which is commensurate with their needs. The more youthful employees may desire deductibles that are higher while the older generation could prefer further coverage to cater for dependants (Burnett et al, 2011). The problem comes in because while dealing with employee expectations, companies are also under pressure to keep cost down. This disconnect can be handled by having a proactive communication plan that informs workers of the magnitude of contribution that the company makes to benefits, hence increasing employee satisfaction ( Gilboa et al, 2008). Rewards can also be individualized to deal with the demographic. Training is a key motivator for young workers while older workers may also appreciate training as a way to increase their knowledge and keep interested in their work. Other workers may appreciate flexibility in working hours to spend time with their families (Schlechter, 2006) while others may be happy with formal recognition. The key is to understand what is important to employees in order to keep them happy. Operational Side of Rewarding The process of managing compensation, absenteeism, training, benefits and other aspects of the reward system can be intricate. Should a manual system be used to deal with all of this, it could have an effect of levels of productivity, increase avoidable costs and lead to more human error. This has resulted in many firms turning to technology for an effective management process (Marsh et al, 2009). The system could be improved through importation of an aggregated market salary spreadsheet which can then be mapped to the firm’s occupations. When this labour-intensive task is automated, it vastly improves the ability to track internal trends and benchmarking of other personnel (Sparrow, 2008). These developments could be further refined by administration of benefits, computation of eligibility and organization of open enrollment. Training also comes with its own complications and management of these with technology is advantageous. Organizations can use software which contains the catalog for training, is a list manager for pertinent skills and competencies required by the firm, keeps tabs on completion and other areas. This also gives human resources a tool to generate reports for the benefit of auditors to show how much training has been completed by employees. Operation of payroll can be challenge for many especially tracking gross to net pay for employees as well as ensuring correct taxation is tendered in the different jurisdictions. These processes are better managed by automated services which means long term savings from reduction in human error (Sparrow, 2008). Efficient operations within the workplace however do not just save on processing and money but also result in increased employee satisfaction. This is because the level of satisfaction experienced by personnel can be deeply affected by errors in their paychecks. A smoothly running organization means satisfied employees leaving human resources and accounts more time to deal with other issues to do with long term strategic plans (Gilboa et al., 2008). These firms are then able to devote their time to reflecting on future endeavors, and growing the workforce they require to achieve their goals. Unless operations are efficient, the risk of being swallowed by paperwork becomes very real as well as correcting errors and dealing with backlog. All of which leave the firm in a weak competitive position. discussion Cox, Brown and Reilly (2010) come to the conclusion that the obsession with financial incentives in the workplace is an erroneous ideology and should be replaced with maximizing their position as pertains to certain management practices. According to the evidence examined and supported by literature and industry surveys as pointed out in the literature review reflect the pitfalls of fixating on financial incentives as the main means of conferring reward. They continue to aver that reward strategy ideas should emphasize planning over processes, concepts over communications and intent over impact. Financial compensation is key to recruiting and retaining staff but it is not the issue here. What needs to be examined is the wider total rewards mechanisms which bring about greater engagement and better performance from employees. As has been seen from the literature review above this varies depending on the employee’s demographic. Detailed analysis is needed according to the article in order to find empirical data to support what has been averred above about the types of rewards that have the most impact on employees in the organizational setting. The key is to find out the differing responses according to demographic to different types of rewards. This means development of better tools and methods for evaluation of attitudes and inclinations toward rewards. The implication of these conclusions is that the field of reward management is a much more individualized field rather than a one-size-fits-all proposition. In order to properly gauge the appropriate type of reward for any worker or group of workers, the exact caliber of work done in terms of planning, concepts and intent need to be known, as opposed to measuring results produced by this work. This is supported by Brown (2008) who avers that a lack of adequate measurement tools is a bottleneck when it comes to accuracy in calculation of adequate reward leading to what he calls a ‘HR Rhetoric/Reality Gap. Armstrong, Brown and Reilly (2011) came up with a model based on their case studies as to why human resources departments do not measure performance adequately when calculating recompense and reward as set out in Figure 2. Figure 2: A model of the inter-relationships between components of evidence based reward management. Source: Armstrong et al, 2011. The model outlines a complex system that nevertheless can cure the weaknesses outlined in Cox, Brown and Reilly (2010) in which too much emphasis is placed on monetary benefits and not enough on developing an effective system to foster employee satisfaction through a truly motivating reward system. Figure 2 gives solutions in that the core of the system is to set up a criterion for a rewards system which involves communication with workers to gauge their preferences which are then factored into the development process. These are then subject to measurement, evaluation, implementation and review in a continuous process that is interdependent. conclusion The assumptions linked to reward management are that monetary rewards are the most popular. However a study of literature citing evidence such as surveys and other non-empirical case studies have shown that monetary rewards may not be the most motivating although many workers, if asked which alternative they want would certainly choose this one especially in a situation such as the current depressed economy. However, the feedback elicited by those who have received monetary compensation in the past is that they barely remember what they did with the cash and most likely it was used to settle bills. A tangible gift on the other hand, however small, is a physical reminder of the reward which can be displayed for others to see and therefore acts as a more effective motivator for workers. This premise is supported in literature and by the fact that in the face of the emphasis on cost cutting in which firms find themselves, non-fiscal rewards and other ways in which employers are thinking outside the box might be a more effective means to manage rewards. This includes crafting reward packages that are not one size fits all for different demographics within the organization, using the evidence based model as a baseline to work with. This foundation can be built on by crafting automated technology to track workers’ progress in an efficient manner. This can be used as real time feedback in a way that cannot be done manually especially in such a labour intensive manner. This feedback can then be the fodder with which the HR can work to dole out appropriate rewards. References Armstrong, M. Brown, D. Reilly, P. (2011). "Increasing the effectiveness of reward management: an evidence-based approach", Employee Relations, Vol. 33 Iss: 2 pp. 106 - 120 Barney, J. B. (2001). Is the resource-based “view” a useful perspective for strategic management research? Yes. Academy of Management Review, 26(1): 41-56. Becker, B.E and Huselid, M.A. (2006). Strategic Human Resources Management: Where Do We Go From Here? Journal of Management. 32: 898 Brewster, C., Sparrow, P.R., Vernon, C. and Houldsworth, L. (2011). International human resource management. 3rd Edition.  London: Chartered Institute of Personnel and Development. Brown, D. (2008). Measuring The Effectiveness Of Pay And Rewards: The Achilles' Heel Of Contemporary Reward Professionals. Compensation & Benefits Review 40: 23 Burnett, S., Gatrell, C., Cooper, C.L. and Sparrow, P.R. (2011). Fatherhood and flexible working: a contradiction in terms? In S.Kaiser, M.Ringlstetter, M.Pina e Cunha, and D.R. Eikhof (eds.) Creating balance? International Perspectives on the Work-Life Integration of Professionals.  Berlin: Springer Publications CIPD. (2012). Strategic reward and total reward. Viewed 8-Nov-12 from: http://www.cipd.co.uk/hr-resources/factsheets/strategic-reward-total-reward.aspx Cox, A, Brown, D & Reilly, P. (2010). Reward Strategy: Time for a More Realistic Reconceptualization and Reinterpretation? Published online in Wiley InterScience Wiley Periodicals, Inc Fleetwood, S. & Hesketh, A. (2009). Understanding the Performance of Human Resources, Cambridge: Cambridge University Press. Gilboa, S., Shirom, A., Fried, Y. and Cooper, C.L.  (2008). A meta-analysis of work demand stressors and job performance: Examining main and moderating effects, Personnel Psychology, 61. King, E., Dawson, J. F., West, M.A., Penny, C., Gilrane, V., & Bastin, L. (2011). Why organizational and community diversity matter: The emergence of incivility and organizational performance. Academy of Management Journal. 54: Lawler, E.E. (1990). Strategic Pay: Aligning Organizational Strategies and Pay Systems. Jossey-Bass Management. 1st Edition. Marsh, C., Sparrow, P.R., Hird, M., Balain, S. and Hesketh A. (2009). Integrated Organisation Design: The New Strategic Priority for HR Directors.  Centre for Performance-led HR White Paper 09/01. Lancaster University Management School.  Sparrow, P.R. (2008).  Performance management systems in the UK.  In A.Varma, P.S.Budhwar and A. De Nisi (eds.) Performance Management Systems: A Global Perspective.  London: Routledge. Pp. 131- 146. ISBN: 978-0-415-77177-1 Sparrow, P.R., Hesketh A., Hird, M., Marsh, C. and Balain, S. (2008). Reversing the arrow: using business model change to tie HR into strategy.  Centre for Performance-led HR White Paper 08/01. Lancaster University Management School. Wright, P. M., & McMahan, G. (1992). Theoretical perspectives for strategic human resources management. Journal of Management, 18(2): 295-320. 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