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Reward is an important part of managing organization and the management of employees. It can be defined as an organization is ready to pay for to accomplish its strategic objectives. Therefore the review of reward system starts from understanding of organizational strategy and HR strategy supports this. Strategic reward objectives should be aligned with business objectives in the same way as other key business areas such as finance, marketing, administrating and IT.
In the broad way, there are two ways of reward such as tangible and intangible. The definition of these two rewards are in a way ambiguous as it could vary according to the viewers' standpoints, but most of rewards can be classified as the tangible, which includes competitive salary, promotion, good benefits, incentive, better working environment, recognition awards and all other fringe benefits for higher performance. Whereas, intangible rewards is none monetary reward for high performance, not always requiring recognition of others in the workplace. Examples are when a sales manager gives the sales person recognition by a "pat on the back, send an appreciation e-mail and usage of bulletin board" to show appreciation for job well done.
In order to implement the reward system the most appropriate way, performance appraisal, evaluation, accomplishment rating should be done the most fair and objective way, but it is sometimes easier said than done. Due to the unfair or unreasonable evaluation, employees get depressed over the total reward system of the organization. In addition, the subjective appraisal is often taking place because of the managers' personal preference or subjective views on some employees in particular, in the Asian traditional corporate cultural as they count personal relationship relating hometowns and graduated schools. However, to get this done the way it should, managers should have the most fair and objective views with regard to the evaluation of employees. By doing so, organization can reach to the final goal pertaining to the HR strategy such as retaining the indispensible, key employees or high performers, motivating average performers work harder and redundancy management for underachievers, who do not fit the organization, by which company can have the sustainable competitive advantage.
Reward strategy is the key step in the design of a reward system to keep high quality staff and motivate average level staff to work harder. And it is to set up the mechanisms help in recruitment, retention, engagement and development of employees so that they perform and deliver at their highest potential and therefore make the organization successful. Such a competitive business environment of these days, it is very important to have the decent reward strategy initiatives by the maximum utilization of the organization's financial and nonfinancial resources as the competitors are looking for the opportunities to scout the high quality employees all the times. The competitors' better reward strategy initiative can be good reason for high quality employees to leave for the competitors.
People work because they gain an income to spend on their individual, family and community needs. Some people needs are the essentials of lives, what humans needs to survive physiologically. Maslow defined the hierarchy of needs with fundamental physiological needs at the base and rising through safety, social needs and culminating in the need for self-fulfilment. Herzberg distinguished between firstly hygiene extrinsic factors such as pay and organization policy and procedures that will cause dissatisfaction in the workplace if absent or insufficient. Satisfiers, which are intrinsic responsibility and potential for growth which will positively motivate people. Since Maslow and Herzberg were published over 50 years ago, other like expectancy theory identifies two factors of value and probability. People value reward in terms of how well it satisfies their needs of security, social esteem, fulfilment and autonomy. Inevitably people value different elements differently, which suggests reward must include a mix. Expectancy is the probability that reward depends on effort like the more effort, the higher the reward. For that effort to be helpful to the organization, individual needs to have the appropriate ability and the correct perception of their role. This emphasizes the need for clear role definitions and understanding, effective development interventions and a link between performance and reward.
Strategic human resource management is different from traditional human resource management in its focus on organizational outcomes, its integration of the various functional areas of human resource management, and its concern with more macro perspective on the topic. The field has progressed significantly, however, inadequate definitions and spare theoretical development continue to plague it. Extensive research and studies on reward strategy has shown that people are complicated and motivation is a complex process. What is clear is that while financial reward is important , for most people other factor are also, and can be more important. These can be brought together under three sections:
Equity - the perception of being treated fairly both in comparison to others and in terms of the effort and skills brought to the role
Self-fulfilment - that people are recognized for what they do and encouraged to reach their potential through effective learning land development processes and given feedback on their performance
Organization culture - roles are clear and organizational and personal values are alignment so that employees engage and enjoy work
Total reward strategy addresses this complexity in bringing together financial aspect of reward of basic pay, any bonuses and additional financial benefits with the non-financial benefit at the personal and organizational level. This is a helpful concept, especially because it acknowledges the limits of purely financial reward and identifies other areas that can be addressed, in particular when salary budgets are limited for economic reason. Reward is more than pay and benefits. Therefore a reward strategy must consider many aspects of the workplace in order to both attract and keep high quality people doing the right things in the right way so that they flourish and the organization is successful.
Organization is about 100 people employed medium sized patent management service providing company, which has been in the market place around 20 years. It has been enjoying its prosperity ever since it was established in 1992 as there has not been any major competitors until a couple of years ago. Recently one of major clients made official complaint that the service charge was way too expensive, invoice system was not transparent and the partner in UK was not flexible toward client's requests. However, organization was not making serious effort to follow up with the client's complaints since it believed that major client was not likely to leave for any other minor service providers. However, surprisingly, the subjective major client decided to move to the other small competitor, which made the organization shocked as it thought it would have never happened.
Due to the periodic gathering of delegates of most of clients in nation they share the information that the subjective organization has left to the small service provider because of service fee, transparency of invoice and overseas partner's unreasonable attitude toward domestic clients. Soon after the organization lost another medium size client for the same reasons. And market was in risk, for which organization should have speeded up for the innovation in terms of working process, system, and the most importantly employees' service mind set. But for the long time, employees have been familiar with the stable business environment as there had been no major competitors' threats. As a result, corporate culture was only family like atmosphere, which lead employees to be reluctant to change or innovate. Board members of organization found it was very serious problem and decided to implement the fair reward strategy along with innovation of working process to make existing clients happy in terms of price and other conditions, as well as start to market overseas to complement income loss caused by cutting service fees for the existing domestic clients. In addition, company strategically started providing the domestic existing clients with the new and customized services as the competitors will be more aggressive to take the existing clients by utilizing the already won the big client as a reference. However, company faced the unexpected obstacle that most of employees are not sharing this desperateness with the senior managers and did not make sincere effort to get changes and innovation implemented. Since they thought they were the best with the longest history in the domestic market, the most of clients were not leaving for the minor competitors. In addition, employees did not see any motivation to work harder as there was not big discrepancy of the total reward system in the end of year. Senior managers found that employees' mannerism was problem, but shortage of motivation was even bigger problem.
Senior managers also came up with a consensus that company should go to the global market to win more clients, from overseas as the domestic market is already saturated, to have stronger buying power toward the local agents of the various jurisdictions. In that way, company can be more competitive to become having various clients group as well as lowering agents' service fees. Company categorized two main clients such as domestic and overseas. When it comes to the domestic clients, company put it as the strategically retaining clients group to maintain the stable and continuous income as well as have the descent buying power toward agents of all different jurisdictions. In order to accomplish this, employees' service attitude and mind set toward the domestic clients should be changed radically. Secondly, overseas clients are classified as the additional income center, which is treated based on the service standard, which company has been implementing so far. Not much flexible service toward the clients' request. However, employees are not motivated to work more for the additional clients from overseas unless the strong motivation is implemented to the all working level and managerial levels of employees.
As far as the current reward strategy is concerned, employees can enjoy the family like, nice and friendly working atmosphere, which has made very low labor turn over. As a result, HR people don't have to worry much about recruiting and training new comers. And company can have many experienced employees, for which company has the good reputation among people in the same industry. However, it seems to be the big huddle for company to innovate and move forward to catch up with the external demanding of rapidly changing business environment. And employees are relaxed all the time as they had not been motivated by anybody or any rewards as they received pretty much same financial reward and intangible reward regardless of amount of their work or their achievement so far.
The reward management system needs to support the business strategy. As such there are a number of different approaches, but they all break down into a small number of common overall methods. One of the key determinants in deciding which approach will work best is the extent to which the business wants integration between its reward system and the other HR systems and policies it utilized. Arguably, the opportunities to leverage real competitive advantage comes from integrating the reward management, performance management, career management and personal development systems into a cohesive whole, rather than seeing each as a separate and disjointed system in isolation. The key step in redesigning the reward management system is to determine the reward strategy and the level of integration with other HR systems. This provides an overall framework for the reward system and must be closely linked to the business strategy.
To develop a reward strategy, there are three underlying premises. Firstly, in order to meet its strategy, the business must exhibit certain characteristics. It needs to behave in certain ways, for example treating its employees in an open and honest fashion or creating co-operative relationships with its customers and suppliers. Secondly, organizations are made up of people, and as such it is how the people behave that will determine how the organization behaves. Thirdly, the integrated approach to people management starts off with individual behavior expectations and examines how these will be measured (performance management), developed (personal development) and rewarded (rewarded and career management).
There are a few factors to be included in a reward strategy. With regard to underlying structure, there are number of ways in which a grading structure could be developed according to your business needs, which include single structure, career families and job families, which provide a common grade framework that supports a drive for consistency. Common threads are the policies, systems and procedures that operate across the business. For example, since pay rules, benefit allocation rules such as cars, pensions and private medical insurance and procedures such as holiday or absence notification and promotion. They are there to make everyone's life easier because there are clear rules and every one sticks to them. Included in this area would normally be decisions about flexible benefit schemes, choice of carriers for insured benefits, and so on.
When it comes to base pay structure, there are three decisions that need to be made such as market alignment, number and shape of the salary scales and access to and use of market data, which recognize the market value of rules and nay role-specific needs. Variable pay takes three main forms. Firstly, annual schemes which are normally bonus arrangements where there is some link to underlying business performance. Secondly, commission type arrangements where the main link is to individual performance. Thirdly, long-term schemes that might be cash or shares based and are typically used for the more senior employees, although all-employee profit related schemes sometimes fall into this category.
Recognition schemes are either non-cash or low-value cash equivalent schemes that recognize behavior that reinforces the organization's values. They tend to be "award" based with some form of nomination process, either from other employees or line managers. When it comes to non-financial reward, from an individual's perspective the total reward of working for a particular organization is made up of four elements such as cash, benefits, personal development and growth and environment (culture and physical working conditions). Finally integration is about creating a common theme throughout the people management processes. For example, it may be about ensuring performance management and performance-pay processes are consistent, using common factors for measuring job size and determining employee development needs, creating a common language which is used consistently throughout all people management processes, developing structures that manage more than one people management process at a time-for example the career families approach discussed above attempts to integrate job grading and career tracks.
Company is currently in desperate to change employees' attitude and service mind set by differentiating reward strategy such as much greater discrepancy of the pay raise ratio, incentive amount, empowerment and working responsibility among indispensible employee group, average performance group, poor performance group, of which did not get much different total reward in the past of stable business environment times. With regard to the ratio of pay raise, the average ratio of increase is 10%, which is allocated to the different group differently. As a result, the highest raise ratio is 20% and the lowest is 0%. On top of that the poorest appraisal received employees who get 0% pay raise will be interviewed by the HR director if they got same appraisal in the following year. And they can be laid off in the worst case. Since the organization needs internal innovation in terms of working process, employees' mind set and service quality to survive in the most competitive era than ever, employees should be treated in the fair way by the appropriate total reward strategy. In order to implement the "Total Reward Strategy Development Map" the organization strategy should be set up the most appropriate way based on the accurate analysis of current organization culture and climate. Also company should understand what kind of employees they have based on analysis of demographics data including age, gender, educational back ground and martial status.
Company is now trying to expand its business scope from domestic market to the overseas, which means company will still make the best effort to retain the domestic clients as they give company the stable income and buying power for the various agents in the all different jurisdictions. At the same time, company try to market in the overseas clients to diversify the range of clients as well maximize its profit occurring from the same service as the international clients tend to be more profitable than domestic. However, the current company's culture is passive/defensive and conservative as employees have never experienced any threat by the major competitors or any means. And the domestic clients can be satisfied by a bit more effort since there wasn't any standardized service manual in this industry. Company has very low labor turnover, which seemed to be good sign during the stable business era, but when the aggressive marketing activities are necessary, old employees who have been passive are very much minus factor as they are much ingrained with passive working attitude for the long time and it is hard to change it. In addition, due to the nature of task, which require static and accurate nature rather than active and aggressive ones, company has hired more female employees, who have married during their employment and became the middle managerial positions, which put company in the even tougher situation to find any task experienced managers, who try hard to change the company's culture radically to survive and make progress by winning the overseas clients.
Based on organization's strategy of becoming a "global player" to survive and become more competitive service provider in the global market place by retaining the domestic clients as well as winning the new overseas clients, the new HR strategy is inevitable. Company should transfer the active and key managers from the current departments including general affair, accounting and minor income generating department to the major income generating department, which is the main income center of company. So that company can centralize its HR power to the major department, which delivers the most income to the company. In addition, company will hire various nationalities employees to have different views from different cultural background employees. Also company is looking for the "catfish effect" that the existing experienced employees will be more motivated to work harder to keep their posts. Company's current total reward philosophy is not to make many employees depressed by giving them almost equal level of reward as company has been trying hard to harmonize employees to retain them for a long time. Also keep an eye on the rewards of other companies in the similar industry, company tried to maintain the average level of reward all the times, but give more incentive to the whole employees end of the year to keep the loyalty from employees. In this working environment, no one had to work really hard or made sincere effort to make things better. Innovation has been far away from this corporate culture.
It is obvious that company cannot change the whole employee's attitude toward internal innovation, which is really necessary since some major clients are ready to leave for the new service provider due to cost effective, flexibility and better quality service. Therefore, company should apply the innovative HR strategy for the whole change, one of which is "20:80 rule". Top 20% of hard working and competent employees should be treated the way they should be, for which 80% of reward source can be utilized for this top grade employees. Since the most important concept of HR strategy is not to lose any indispensible employee as it will be a great loss if any of them leave company. Even worse thing is that any of them is scouted by any competitor of same industry, the loss will be double. Therefore these star players should be treated a lot better than the rest of average performers. For this, "Total Reward Package" should be designed in the fairway and then test it before it is virtually implemented. There may be some obstacles such as financial affordability, replacement of absence for training and great resistance from the employees, who have been familiar with existing reward package between top level employees and the rest of employees. Therefore in order to avoid any chaotic reaction against the company's radical alteration pertaining to the total reward package, company should be careful and well prepared. For example, due to this sort of enormous change cause some depressed employees who is experienced and has much tacit knowledge in the daily working process, can make extreme decision, going to the competitors, which put the company in the double difficulties since daily task is not likely to be done smoothly as no one has shared the tacit knowledge with the left behind employees. And competitor can take advantage of this newly joined person's previous experience, information and unique knowledge. To prevent this disaster, company should prepare the strict new employment contract and try to come up with a consensus with as many employees as possible in this new change of reward package. More importantly, company should make the best effort to make the rest of employees understand and accept the reason why company is about to implement the new total reward package. In that way, they can be motivated more to become the one of top employees group or keep remaining same working attitude as before, but they can concentrate only on what they should do daily basis as the other colleagues can cover the rest of daily task, which will be better organized by the key managers group who will get much better reward via the new total reward system.
Once company is ready to apply the new total reward package, it should be clearly notified to employees and implemented in the most effectively and efficiently. And it should be monitored periodically if the employee evaluation is done in the fairway and the whole reward package is implemented the way it should. And this new reward package should be supported by the senior managers even if it did not go smoothly in the beginning due to the shortage of experience. However, error related with fairness should be treated the most strict way and company cannot afford to make any minor mistake even in the beginning as the some of the rest of employees are already up set due to fact that they think they are losing something because of this new reward system.
It is never too much to point out the importance of HR strategy for the successful organization. Effective HR management is maximum utilization of capacity of work force within organization by appropriate allocating of employees and effective motivation for the all different types of employees. In order to do so, analysis of each employee's nature, competence, stress endurance level and trait should be prepared. It is important to know each employee's character and motivation factor based on data base obtaining the daily working behavior of employees as well as their accomplishment from the macro perspective. This kind of accurate, thorough and fair data base can be applied to the company's redundancy management. Company can help employees to look for other jobs, which fit them better, by which company can have better productivity with same input resource, which company can have the sustainable competitive advantage over the competitors.
The HR strategy is directly connected with the reward strategy as we have been through so far, employees' motivation is heavily rely on the total reward strategy of organization, which should be designed not only by HR department but senior managers who are directly involved in the whole organizational strategy, by which the total HR strategy can be implemented, supported and reviewed consistently. Regardless of eastern, western, ancient time or modern time, the importance of HR strategy is always appreciated. This is because, even if any given organization has the best infrastructure in many ways, they are manipulated by human and this cannot be replaced any other system that are available so far. Therefore the right people for the right place based on the total reward strategy development map is more important than any other factors or than ever to maintain the long lasting successful organization.