Effective Management Issues - Assignment Example

Institution : xxxxxxxxxxx Title : xxxxxxxxxxx Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2011 Introduction The main goal of all compensation programs is to motivate workers to perform at their best level. As one of the compensation program, pay linked to performance is a system in which decisions for payment are normally based on defined levels of performance rather than entitlement, tenure or other factors that are not related to performance. Several organizations are adopting pay linked to performance program as a better way to attract, retain and motivate workers. The adoption of pay linked to performance program normally eliminates the problem of having low performers in an organization, thus increasing its effectiveness. Organizations need to know how pay linked to performance program can be employed so as to improve their effectiveness. This paper therefore seeks to assess how companies can use pay linked to performance to enhance organizational effectiveness. How companies use pay linked to performance to enhance organizational effectiveness When designing a total reward system such as pay linked to performance, it is important to think strategically. This implies that the implemented system needs to pass a clear message that the company is focusing on high performance and is willing to pay or reward for it. Linking pay to performance motivates employees to effectively execute their tasks. Effective execution of task by employees due to high pay normally enhances organizational effectiveness. Organizations, therefore, in order to enhance their effectiveness they need to create a positive working environment by linking payments to performance (Bratton & Gold, 2007). Bratton and Gold (2007) argues that creating a working environment in a company implies concentrating on skills and performance of workers. Pay linked to performance should therefore be formulated in such away that it concerns with results, measurement of performance, open communication, skill and competence that add value to the business, nurture talents, create opportunities and career paths and creation of a strong relationship between the company and the workforce (Becker,1996). In order to enhance organizational effectiveness, companies need to ensure that the strategies used in pay linked to performance program are different from the company’s business objectives and specific situation. According to Becker (1996), objectives of many businesses are always about cost minimization and profit maximization. Therefore the strategies used in pay linked to performance should not revolve around profit maximization and cost minimization but rather to performance (Becker and Gerhart, 1996). Companies need also to ensure that the adopted pay linked to performance program is uniformly applied across business units and variables that are linked with the company overall performance, thus improving its effectiveness. The adopted pay linked to performance should be used in such away that it develops a positive and natural reward experience that enables workers to understand, accept, support and commit themselves in company’s operations (Beardwell and Claydon, 2010). The company can use pay link to performance to enhance organizational effectiveness by developing appositive and natural rewards experience so that workers can be able to understand, accept, support and commit themselves to the developed reward system. Pay linked to performance can also be employed by a company through extending individual’s line of sight (Bratton & Gold, 2007). This can be done by relating the payment offered to employees with key measures of business success. The key measures can include company financial performance and customer satisfaction. Employees always desire to know what the company expects from them and how they suit in the entire plan for company success (Beardwell and Claydon, 2010). As away of utilizing pay linked to performance program to enhance organizational effectiveness, companies need to include workforce in the process of designing reward system via focus groups or design teams. Involving employees in the process of developing pay linked to performance program is very essential. Employee involvement makes firms to be able to determine the amount of pay that can make workers to perform at their best level (Kessler, 2001). The program should also be aligned with business goals so as to develop a win-win partnership between the company and the workforce. It should be developed in such away that it increases workers productivity and is not too costly to the company. Both the company and the employees should benefit from the program (Huselid, 1995). Companies, through profit sharing, can employ pay linked to performance to enhance organizational effectiveness. Many companies in private sector normally employ profit sharing as a way of motivating their employees. Under profit sharing, a given amount of profits obtained above and beyond target measures can be used to reward workers for their good job (Bohlander and Snell, 2009). This normally encourage workers to work harder so that they can earn more from the high profit realized by the company. Similar to profit sharing, companies can also practice gain-sharing. Gain-sharing is normally applied to attain particular goals that make workers feel better about their job since they have a stake in the team (Randle, 1997). Pay linked to performance can be used not only in private companies but also in public companies. In public companies, various pay linked to performance plans can be formulated in such away that it encourage employees to perform better. The plans can aim individual or group performance. The most common incentive plan that can be applied is the merit-based pay plan (Bohlander and Snell, 2009). This plan enhances a worker’s base pay on positive performance evaluations that are normally based on productivity of the worker. The base pay of a worker is normally enhanced after evaluating his or her productivity. The productivity is usually improved by the established standards of performance that should be attained so as to get the incentive (Banfield & Kay, 2008). Banfield and Kay (2008) argue that Companies can use pay linked to performance by focusing on skills of employees. By formulating skill-based plans, companies can reward their workers for their years of service or expertise on a particular job. Individuals with a lot of experience and skills need to be paid more so that they can continue giving effective services thus improving organizational effectiveness (Belfield, 2003). Company can also provide a certification pay to a person who has attained an accredited certificate for a particular skill that relates to his or her field. As away of enhancing organizational effectiveness through pay linked to performance, companies can decide to not only concentrate on specialized skills but also on general skills. The company therefore can formulate competency-based plan that only concerns with general skills. In this type of plan, the company normally provides a huge amount of bonus once a year. Certain kind of long term incentive plans can also be reserved for executives or administrator who needs to be assessed for their long term goals achievement (Brown & Heywood, 2002). Concentrating on super-keepers is very essential for a company that is using pay link to performance to enhance organizational effectiveness. Super-keepers refer to high performers in an organization. It is believed that companies that do perform well normally depend on only 20 percent of the workforce so as to generate the desired outcomes (Heneman & Werner, 2005). The few high performing workforces normally generate eighty percent of the company good outcomes. It is therefore important for a company to identify super-keepers and pay them well. Companies, when using pay link to performance, should attract and retain more super-keepers as their best available talent. Super-keepers do always want to work in companies that reward them well for making a different. Their behavior can well be explained by expectancy theory that was established by Victor Vroom in 1964 (Mathis & Jackson, 2010). Mathis & Jackson (2010) highlights that the expectancy theory suggests that workers normally behave in a certain manner due to expected outcomes that are linked to that particular behavior. Therefore, the motivation that individuals obtain is normally determined by the expected results. When using pay linked to performance it is important for companies to give workers good salaries so as to make them give their best at work. Workers after realizing how much they are going to get from the tasks they will ensure that work is done perfectly thus increasing organizational effectiveness (Robertson & Callinan, 2002). One of the main reasons as to why workers are motivated using the expectancy theory is based on the idea that many workers are motivated by pay linked to performance. One view that supports this claim is that workers are motivated extrinsically by basing on psychological aspect of the goal theory. According to the theory, the question that normally runs through the minds of all workers is mainly ‘’ what do I gain or benefit out of this task?’’ As a result the practicability of the theory rests on the expectancy theory whereby a worker cognitively determines his selected behavior/ performance based on external returns or pay associated to the job (Williams, 2011). If workers happen to know that they are going to be paid well on the task, they will ensure that the paying organization receives the best services from them. Vroom therefore argues that workers make decisions to behave in a particular way by basing on the end benefit that they receive from the task (Muller-Carmen, et al., 2008). For example, a study that was conducted by Sonnentag (2002) to assess workers commitment within the public sector; suggested that the expectancy theory gives a good theoretical basis of understanding the independent contributions of workers towards task performance, which denoted their level of organizational commitment. The study displayed that the public sector workers contributed a lot to the tasks that were related to well-paid extrinsic rewards. Their commitment to work was based on the expected benefits or results ‘’ what benefits do I get from the task’’. What is evident from the study is that the expected extrinsic rewards did increase the level of performance and employee commitment (Sonnentag, 2002). It is believed that employees normally get motivated by Expectancy theory due to the fact that individuals always want to believe that the effort they put into their work provides them with the desired outcomes. Vroom therefore came up with three variables from his expectancy theory that entail; instrumentality (I), which is based on the view that in case an employee gets the desired results, he or she receives a greater reward (Torrington, et al., 2005). The expectancy likelihood on the other hand is based on the expectation that the effort of the people can give out the required performance. Valence entails the values that a person puts on the rewards. This incorporate his or her goals, needs and values, for instance do I want a better pay? Torrington (2005) therefore argues that in order for an individual’s effort to yield the desired results, motivation is influenced by the three variables proposed by Vroom; MF (motivation forces) = Instrumentality x Expectancy   x Valence. Conclusion From the discussion, it is clear that companies can use pay linked to performance to enhance organizational effectiveness in a number of ways. Pay linked to performance need to focus greatly on performance. Companies need to pay employees well for their high performers. Linking pay to performance motivates employees to effectively execute their tasks. Effective execution of task by employees due to high pay normally enhances organizational effectiveness. In order for an organization to enhance their effectiveness they need to create a positive working environment by linking payments to performance. Companies need also to ensure that the adopted pay linked to performance program is uniformly applied across business units and variables that are linked with the company overall performance, thus improving its effectiveness. As away of utilizing pay linked to performance program to enhance organizational effectiveness, companies need to include workforce in the process of designing reward system via focus groups or design teams. Companies, through profit sharing, can employ pay linked to performance to enhance organizational effectiveness. Pay linked to performance can also be used by focusing on skills of employees. Companies need to ensure that super-keepers are paid highly for their excellent performance. Behavior of super-keepers can be explained well by expectancy theory. References Banfield, P., and Kay, R., 2008. Introduction to Human Resource Management. Oxford: Oxford University Press. Beardwell, J. and Claydon, 2010, Human Resource Management: A Contemporary Approach, (6th ed.), Harlow: Prentice Hall. Becker, B, 1996, ‘’The impact of human resource management on organizational performance: Progress and prospects. Academy of management journal, 9(2), p45-46. Belfield, R, 2003, ‘’Performance pay, monitoring environments, and establishment performance’’ International Journal of Manpower, 13(3), P98-102. Bohlander G., and Snell S., 2009, Managing Human Resources, London: Cengage Learning. Bratton, J., and Gold, J. 2007, Human Resource Management: Theory and Practice, 4th Edition, Houndmills: Macmillan. 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