Managing Pay and Performance - Literature review Example

Managing pay and performance 1.0 Introduction As employees are performing their duties within an organisation, their performance can be seen through provision of rewards, pay levels, benefits and pay for their administration. In a sense of every organisation, the aim of performance related pay is to motivate the employees and is a way of communicating the corporate goals as well as putting emphasis on the importance of delivering results. It is also viewed as an economic necessity in a world of turbulent change and intense competition. It also results improves the efficiency of the organisation by retaining a large pool of talent (Boxall, & Purcell, 2000). According to Williams (2002, p. 192), performance management reflect the means in which organisations ensure that managers do what is required to be done by good managers, ensures employees are aware of what they are supposed to be doing, have adequate skills to do it and complete it within the standards. Thus, it is carried out if various activities are apparent which include vision communication to all employees, setting individual and departmental performance targets, evaluation of the entire process to improve effectiveness, and linking the requirements of performance to pay. According to Lawler (1996, p. 528), reward management is very essential for the success of the organisation and it involves various objectives which include motivating performance, attracting and retaining employees, development of employee skill and knowledge, contribute to the culture of corporate, and determine pay costs. However, management of pay and performance is underpinned by various elements which include motivation, best practice, talent management, and psychological contract among others. Motivation usually created in a workplace where the size of the reward in regard to relevant cultural and social norms, is appropriate to the level of performance that justified it among other factors (Pfeffer, & Velga, 1999). This report analyses the management of pay and performance in the Commonwealth Bank of Australian and the link between reward and performance by considering the relevant concepts which include performance management, motivation, best practice, talent management, and psychological contract. 1.2 Background of the organisation Commonwealth Bank was established in 1991 under the Commonwealth Bank Act. It began its operations in 1992. The empowerment of this bank was to conduct both general banking and savings business. Currently there are more than 800,000 shareholders and more than 52,000 people that work in the Commonwealth bank group. In Australia, the bank provides financial services in order to all Australians to manage and build their finances. It is the leading provider of financial services in Australia which include premium banking, retail banking, finds management, business banking, superannuation, institutional banking, insurance and share broking services among others. It also one of the Australian Stock Exchange’s largest listed companies (Commonwealth Bank of Australia, 2012). The bank’s performance management system is aimed at providing its staff with an opportunity to engage in conversations regularly in regard to job performance. This system aligns closely to the bank business objectives. It is focused on ensuring excellence in customer service and individual’s own performance. The system also reinforces the relationship between the performance of the team and individuals, and recognition and rewards (Commonwealth Bank of Australia, 2012b). The system’s framework in regard to performance feedback and review focuses on the bank’s vision as well as development and growth of a performance culture which engages the employees by linking rewards to performance, linking clear expectation to business objectives as well as provision of a timely and regular feedback. In addition the framework on performance focuses on coaching to enhance improvement in performance as well as future development (Commonwealth Bank of Australia, 2012c) 1.3 Organisation goals and strategy The key goal of the Bank is to have Total Shareholder return in the top quartile of the bank’s listed peers in Australia over each rolling period of five years. However, the bank’s goal towards the people is to achieve a culture of trust as well as team spirit in the commitment to: flexibility, diversity, employee benefits, health and safety wellbeing, leadership development and an ongoing commitment to the community (Commonwealth Bank of Australia, 2012). The strategic strengths of this bank are its Brand, Scale, and Diversified business mix. Its brand is the most recognised one in the financial services industry in Australia, in terms of scale, the bank holds a strong domestic presence with the largest base in regard to any bank in Australia and finally, it operated the largest distribution network of financial services in Australia with the most access points (Commonwealth Bank of Australia, 2012a). 2.0 Analysis of issues 2.1 Reward system 2.11 Motivation Shields (2007) describe motivation in the place of work as a set of energetic forces from beyond and within the individual in order to initiate a behaviour that is related to work. According to Pinnington, & Edwards (2000, p. 124), it is easier to motivate staff when the work seems challenging and satisfying, when at the completion of work, the rewards are contingent, when the employees value the reward, and when there is a clear set of goals that need to be achieved over limited time. In addition, the staff must have a significant influence in regard to goals setting, and the size of the reward must be appropriate in regard to the level of performance. Based on motivation, Commercial Bank of Australia engages the employees in setting both individual and team goals in order to improve performance. The employees of the bank are also rewarded differently as a way of an exchange in order to appreciate the employees’ quality and efficient services. These rewards are based on both individuals and as a team (DeMatteo, Eby, & Sundstrom, 1998). For instance, there are employee equity plans where the bank grants its employees up to $1,000 worth of free share if the bank has achieved its set targets. The bank has also been offering its employees regular increases in salaries, a move that the bank trusts as the right procedure of motivating it employees (Commonwealth Bank of Australia, 2012c). 2.12 Talent management According to Lawler (1996), the reward system’s ability to attract as well as retain employees is very crucial to any organisation. During economic expansion, the organisations struggle to fill positions as well as to hold their large pool of qualified employees. However, during recessions, the organisation is also concerned with securing its large pool of talent since the organisation may be faced by future challenges if it laid-off some of its talent during recession. Shields (2007) view the management of talent as organisation’s commitment to manage, hire as well as maintain its talented employee. It requires processes and work systems that are related to development and retaining of a superior workforce in the organisation. The Commercial Bank of Australia has enhanced talent management systems. This is evidenced through the broadening of executive review of talents for the bank in order to ensure that the assessment of the potential for high performers is enriched (Commonwealth Bank of Australia, 2012b). 2.13 Best practice Best practice consists of a set of principles which are applied in management of human resource with an aim of increasing the performance of the organisation and also achieve better results for all stakeholders (Shields, 2007, p. 89). According to Pfeffer, & Velga (1999, p. 42), best practice is applied in specific policy area of reward systems where it explains the way reward policies as part of general human resource policies can led to the effectiveness of the organisation. Best practices view human resource as having a crucial role in the support of the strategy and objectives of the organisation. Thus, the reward practices should coincide with human resource practices. Based on best practice, a competitive rewards system plays a crucial role in attracting and retaining employees as well as reinforcement of the structure and culture of the organisation. In regard to the Commonwealth Bank of Australia, the best practice is evidenced by a wide range of team expertise which ensures attracting and retaining employee and involving them in order improve the capability of employees to perform. The performance of the employees is also based on their discussions through regular and consistent feedback (Edwards, & Ewen, 1996) with appropriate reward system for the achievement of targets (Commonwealth Bank of Australia, 2012c). 2.14 Psychological contract Shields (2007, p. 49) view psychological contract as an informal understanding of expectations in regard to a part of an employment relationship. That is, what the employees provides to the organisation and what the employees get in return. Based on Commonwealth Bank of Australia, it manages the psychological contract by ensuring that all employees clearly know what the bank expects from them and in turn, what rewards are available to them for better and improved performance. 2.2 Performance management According to Shields (2007, p. 23 - 24), a better performance management involves achievement of the four key functions which include employee evaluation, strategic communication, employee development, and relationship building. 2.21 Employee development The development of employee in Commonwealth bank of Australia involves a professional team which is responsible for developing the careers of employees. In every team, there is a wide range of expertise where each of them has a range of responsibilities ranging from supporting and coaching in order to ensure that the bank has the best teams which support the strategic goal of the bank. It also involves partnering with clients in order to achieve the business outcomes (Commonwealth Bank of Australia, 2012c). 2.22 Employee evaluation According to De Haas, & Kleingeld, (1999), effectiveness of a performance management is enhanced by ensuring maximum participation of employees and their managers where the targets and objectives are clearly defined and agreed upon. For the purpose of employee evaluation, the bank has a set of expectations clearly set for each member and as a team based on combination of employee’s behaviour and outcome. The bank enhances regular and consistent feedback as a way of enduring that every employee understands his or her duties and responsibilities. 2. 23 Relationship building According to Shields (2007, p. 24), relationship building is enhanced by meeting with stakeholders regularly for performance review as well as planning for further development. Internally, the performance review discussions between the management and employees are usually held within the bank in order to agree on the expectations of the performance as well as reviewing and assessing the behaviours and outcomes. As they discuss the formally about the feedback, the employees are in a better condition of identifying and development various opportunities which ensures that the bank is continually improving (Commonwealth Bank of Australia, 2012c). 2.24 Strategic communication Commonwealth Bank of Australia exposes strategic communication between the bank and employees at high levels, in particular, during the development and planning of both individual and team goals as well as the management of talent. The team which consists of a wide range of expertise shows an exceptional communication and influencing crucial in partnering with other employees, teams as well as the client. According to Armstrong (2000, p. 41), communication is one of the most important factors of improving performance within an organisation. This is evidenced in the bank as the employees show that an open and a genuine two-way dialogue in regard to performance management is very valuable and productive (Commonwealth Bank of Australia, 2012b). 2.3 Linking reward and performance According to Williams (2002, p. 192), the evidence of performance management within an organisation is communication of the vision of organisation to all employees, setting departmental as well as individual targets that are consistent with the overall organisational goal, and liking the requirements of performance to pay. From the bank, it is clear that the performance management system closely aligns with the objectives of the business; there is a two-way communication between the bank and employees. This has led to a regular and effective feedback where the performance of the employees has been linked to rewards where the employees are rewarded appropriately according to their achievements in different activities either as individuals or as a group. The reward system of the Commonwealth Bank of Australia has been designed in a way that the performance of the employees is motivated. This is evidenced by continuous improvement of the bank in Australia, effective management of talent for future development as well as an effective communication between the management and employees. This is the main reason why the bank has remained as a leading provider of financial services in Australia (Commonwealth Bank of Australia, 2012a). 3.0 Recommendations According to Pfeffer (1998, p. 204), the main barrier in linking reward to performance is based on the following grounds: rewarding political skills rather than performance, undermining teamwork, lack of concern for the performance of the organisation, encouragement on short-term focus, and tendency of the systems to create fear in the place of work. According to the Commonwealth Bank of Australia, these challenges are well catered for as the reward system focuses of performance, there is promotion of teamwork, there is encouragement on long-term focus through management of talent, and both systems encourage two-way communication, thus eliminating fear. In regard to human resource practices, it seems challenging to make recommendation based on what the bank is currently doing. One of the signs is the current rapid and continuous growth of the business. In regard to the performance management system, the bank observes all the four pillars. The bank shows effectiveness of teamwork due to a variety of experts who share knowledge and improve each member’s skills. The bank also shows a regular and consistent provision of feedback where the employees are engaged through formal discussions. The company also shows a high level of management of talent where executives usually review the talents to pave way for the potential of high performers. Continual development of talent within the bank is ensured by provision of teamwork of a combination of a wide range of expertise that allows sharing and gaining of more knowledge for future success of the bank. However, the motivation due to the success in the achievement of the targets of the bank includes the entire employees with the organisation but not necessarily on the performance of each team. Since working in the bank is based on teamwork which has proved to be strong and effective, it is recommended that further motivation should be based on each team’s contribution rather than all the employees within the Bank. References Armstrong, M 2000, Performance Management, (2nd ed), Kogan Page, London, p. 40-51. Commonwealth Bank of Australia (2012). History. Retrieved from common wealth bank website: http://www.commbank.com.au/about-us/our-company/history/ Commonwealth Bank of Australia (2012a). The Bank's People: Annual report 2005. Retrieved from common wealth bank website: http://www.commbank.com.au/shareholder/2005annualreport/the_banks_people_cr.asp Commonwealth Bank of Australia (2012b). The Bank's People: Annual report 2004. Retrieved from common wealth bank website: http://www.commbank.com.au/shareholder/2004AnnualReport/the_banks_people.html Commonwealth Bank of Australia (2012c). Performance Feedback and Review. Retrieved from common wealth bank website: http://www.commbank.com.au/about-us/careers/our-workplace-and-you/performance-feedback/ De Haas, M, & Kleingeld, PAM, 1999, “Multilevel design of performance measurement systems: Enhancing strategic dialogue throughout the organization”, Management Accounting Research, vol. 10, p. 233-261. DeMatteo, JS, Eby, TE, & Sundstrom, E 1998, “Team-based rewards: Current empirical evidence and directions for future research:, Research in Organizational Behavior, vol. 20, p. 141- 183. Edwards, M, & Ewen, A, 1996, “How to Manage Performance and Pay With 360- Degree Feedback”, Compensation and Benefits Review, p. 41-46. Lawler, E 1996, The Design of Effective Reward Systems. In Motivation and Leadership at Work, sixth edition, eds. R. Steers, L. Porter and G.Bigley, New York: McGraw Hill International Press, p. 527-550 Pfeffer, J 1998, The Human Equation: Building Profits by Putting People First. Boston: Harvard Business School Press. Pfeffer, J, & Velga, J 1999, “Putting people first for organizational success”, Academy of Management Executive, vol. 13, no. 2, p. 37-48. Pinnington, A, & Edwards, T 2000, Introduction to Human Resource Management: Motivating employees, Oxford University Press, Oxford: 122-144 Shields, J 2007, Managing Employee Performance and Reward: Concepts, Practices, Strategies. Melbourne, Australia. Cambridge University Press. Williams 2002, Managing Employee Performance: Design and Implementation in Organisations, Thomson Learning, London, p. 191-196. Read More