Analyze your organizations current performance reward program

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Introduction

Employee Reward covers how workers are rewarded in accordance with their value to an organization. The need for a reward system in any type of human service organizations is strong. Reward Management (RM) has been defined as the distribution of monetary and non-monetary rewards to employees in as effort to align the interest of the employees, the organization and its shareholders (O' Neil, 1998). In addition O' Neil (1998) also suggests that a RM system can serve the purpose of attracting prospective job applicants, retaining valuable employers, motivating employees, ensuring legal requirements relating to direct and indirect rewards are not violated, helping the organization in attaining human resources and business objectives, and ultimately assisting the company in obtaining competitive advantage. Therefore, employeses reward is about both financial and non-financial rewards and embraces the strategies, policies, structures and processes used to develop and maintain reward systems. The way in which workers are valued can make a considerable impact on the effectiveness of the organization and is at the heart of the employment relationship.

The wage and benefits package offered to employees in return for their service, if well-designed, can attract and assist to retain good workers. However, to motivate workers to perform at the highest levels possible, reward management comes into the picture. Various conflicts in the reward management system can affect the benefits that can be obtained. Although the reward management system can have some shortcomings, there is strong argument for the benefits and nevertheless, it is a credible strategy to assist in improving employee performance.

Human resource in Action

Bata is more than a household name in Malaysia. It is a big organization and every year Bata holds a long service dinner for its employees. In February 2007, 30 employees received awards for 15, 20 and 25 years service. They and their colleagues dined in a 5-star hotel in Kuala Lumpur and were fated by managing director who described these loyal employees as the 'backbone of the company'. One of the workers who joined the company as a clerk in 1980 and worked his way up to sales executive said, "Before I was married, I was working here and the company has given me the opportunity to lead a comfortable life, having three children and a happy family. I grew up in Bata and so did my family."

Thus, rewards, both financial and non-financial, can serve the purpose by reinforcing desirable behavior and spurring the employee on to higher levels of productivity. A reward is a form of recognition. Kanter (1987) says, "To the employee, recognition signifies that someone noticed and someone cares…Recognition creates role models…-heroes- and communicates the standards. Lavish use of recognition is associated with higher levels of innovation."

The aim of employee reward policies and practices is to help attract, retain and motivate high-quality people. Getting it wrong can materialize a significant negative effect on the motivation, commitment and morale of employees. Personnel and development professionals will be involved often in reward issue, whether they are generalists or specialize in people resourcing, learning and development or employee relations. An integrated approach to human resource management means that all these aspects have to be considered together so that a mutually reinforcing and interrelated set of personnel policies and practices can be developed.

Rewards can be given to individuals or to groups of workers. Where it is difficult to isolate the individual's contribution, group rewards would be more suitable. For example, a well-known British clothing store operating in Kuala Lumpur has a sales incentive scheme whereby a fixed percentage of the profits on sales per department are shared equally amongst the shop assistants in the department concerned. In this way, all the staff in the department, no matter what their position, work towards pleasing the customers and generating more sales. Cindy Ventrice (2003) indicates that recognition and rewards must be delivered to employees by their managers, not by the Human Resource specialists in the organization. She emphasize that as managers are responsible for the performance of their subordinates, so they are the ones to provide recognition to deserving employees. According to Ventrice, the HR manager's job is to give support to managers and make certain recognition is given appropriately.

This can be done by :

Conducting a survey of employees and managers to determine their attitudes towards recognition.

Training managers how to provide meaningful recognition.

Help management provide a variety of recognition programmes.

Track the results of recognition programmes.

Organizational rewards include all types of rewards, both intrinsic and extrinsic, that result from employment with the organization. Intrinsic rewards are rewards internal to the individual and normally derived from involvement in certain activities or tasks. Extrinsic rewards are directly controlled and distributed by organization and are of a tangible nature.

Though intrinsic and extrinsic rewards differ, they are closely related. Frequently the provision of an extrinsic reward provides the recipient with intrinsic rewards. For example, an employee who receives an extrinsic reward in the form of a pay rise may also experience feelings of accomplishment (an intrinsic reward) by interpreting the rise as a sign of a well done job.

Intrinsic Versus Extrinsic Rewards

Intrinsic Reward Extrinsic Rewards

1. Achievement Formal Recognition

2. Feelings of accomplishment Fringe benefits

3. Informal recognition Incentive payments

4. Job satisfaction Pay

5. Personal growth Promotion

6. Status Social relationship, work environment

Bata, a shoe producing company in Malaysia, practices a rewards system which includes non-financial rewards and financial rewards. Pay is a key factor affecting relationship at work. Paying workers based on job size often have the wrong impact on development because this type of program encourage to move a higher-level job but does not reward lateral moves and behavior of cross-functional learning or experiences that help how to do one's present job better.

Non-Financial Rewards

Performance Awards

Employers recognize the value of performance awards which can be given for a variety of special achievements. 'Worker of the month', 'Most Promising Executive' and other such citations may be given. The awards may be in the form of a certificate, a cash prize, or a souvenir item. Publicity is given to the winners through the in-house journal, photographs and a write-up on company notice board and a special prize-giving ceremony may be organized at which top company executives are present.

Letter Of Appreciation

Praise is a potent source of employee satisfaction. Exceptionally good performance may be rewarded with a letter of appreciation, preferably signed by at least a Head of Department or higher ranking manager. Kanter (1987) quotes a successful manager who says, "You need to make everyone a hero."

Sponsorship to seminars, conferences and overseas tours. It can be beneficial to both the employee and the employer if high achievers are sent to attend seminars, conferences and possibly on an overseas tour to visit a parent company, supplier or customer. The worker benefits from the paid 'holiday' and he may bring back new ideas useful to the company or he may make contacts that may be of use.

Rewards for long service

Traditionally, employers valued loyalty and recognized long service with some token of appreciation which may or may not have economic value. A gold watch, a gold bar, a trip overseas, a special dinner event or combinations of these items. Today, however, increasing numbers of employers are hiring people on flexible short-term contracts and workers themselves no longer have an expectation of a long stay. There is little available evidence to show that such rewards actually encourage loyalty. Employees leave their employment for many reasons and are not likely to be influenced to stay simply because they are due for a long-service award.

Financial Rewards

Financial rewards maybe given in a variety of forms, ranging from salary increases, bonuses, profit-sharing plans and commissions.

Salary increases

Pay systems provide the foundation for financial reward systems. There are basic rate systems, where the worker receives a fixed rate per hour/week/month with no additional payment..

Pay systems provide the foundation on which an organization rewards workers for their individual contribution, skill and performance.

Pay systems fall into two main categories :

Pay does not vary in relation to results/profits/performance, (basic rate system)

Pay, or part pay, does vary in relation to results/profits/performance (including the acquisition of skills.)

Basic rate systems are the easiest to operate in which the worker receives a fixed rate per hour, week or month. They are straightforward but may not provide incentive to individual workers.

Basic rate systems have the advantages that :

They are relatively simple and cheap to administer and allow labour costs to be forecast with accuracy.

They lead to stability in pay and are easily understood by the workforce, who will be able more readily predict and check their pay.

There may be fewer disputes and individual grievances than under systems linking pay to performance or results.

However :

Basic rate systems do not provide incentives to improve productivity or performance. Nevertheless employers may prefer to operate simple basic rate systems and improve the design of jobs, so that the jobs provide the necessary interest, motivation and satisfaction.

Basic rate systems may be critised by individual workers, who wish to see their own abilities specifically rewarded.

Basic rate systems can lead to a rigid, hierarchical system of spot-rates or pay ranges.

Basic rate systems are likely to be suitable in circumstances where :

All workers do identical or similar work

The volume or quality of work is difficult to measure, or where the workflow is uneven

Where the volume and/or pace of work is outside the workers' control

As Bata can be considered a big company, salary scales exist with fixed annual increment with the manager exercising the discretion to give subordinates two or more merit increments. If salary increases are to motivate employees they should be given frequently. A number of issues have to be divided by employers wishes to motivate workers with salary increases. The first issue will be how much increase will be sufficient to motivate an employee to continue to work well or work harder. If insufficient increase is given, the increment will have no motivational value. If too much is paid, the employer's costs will increase without any returns on the payment. A second problem applies to higher paid workers who are in a higher tax bracket. If they are granted a merit increase in pay, they may actually revive little extra at the end of the day because of having to pay higher rates of income tax, hence the increase will not be appreciated by the employee.

Just as increment or merit increases in pay may be granted to reward high performers and motivate to keep working well, it is possible to withhold the increment of an under-performing worker. It is vital that employees perceive such a system as fair. To prevent jealousy between workers, some company prefer to keep wages a secret. Such a policy can do more harm than good and discontent arises.

Bonus and profit sharing

A bonus is a lump sum of money awarded for outstanding performance and it can be given on a group or individual basis. A number of companies pay contractual bonuses of one or more month's salary to all employees at the end of the year. These are payments agreed to in the employees' contracts of employment, or where a trade union has negotiated the workers terms, are included in a collective agreement. A contractual bonus is not tied to individual, group or organizational performance. It has been the practice in Chinese business to give an 'ang pow' to staff and these bonuses are not tied to the performance of the individual but more as a form of recognition and thanks to employees rather than a motivational tool.

The flexiwage system is to motivate staff to be as productive and competitive as possible by paying them a wage which is sufficient for minimum daily needs and a bonus element tied to organizational profitability and to individual performance as evaluated through a formal appraisal system. The flexibility in the payment system is that the total wage bill will rise and fall with the profitability of the company. When the economic scenario is bad, it will automatically be able to reduce labour costs as bonuses will decrease or be non-existent. However, when profit is increased, the workers will get increased income.

A variation on the bonus system is the profit-sharing scheme where a predetermine percentage of the organizational profit is set aside to be paid out as bonus either yearly or on a deferred plan whereby the employee will only receive his share of the bonus fund when he retires. This is, therefore, an effective method of encouraging workers to remain loyal to the company as they stand to lose their bonus funds if they leave the organization before retirement. The long time lag between workers' performance and payment of the bonus may significantly reduce the motivational effect of the system. Moreover, the link between performance and profitability is not strong. Workers may work very hard, but factors outside their control may affect the profitability of the organization. For this reason, many trade union are against linking employees' wages to profitability of the organization.

Rewards for the salespeople (commission)

Salespeople have reward system which are different to that provided for other employees in the same organization. A sales representative who needs to go out to canvas for business may require the incentive of a commission to ensure he is motivated to put in effort needed. When establishing a reward system for salespeople, target setting becomes a key skill. The worker expect a fair system of remuneration whereby the rewards they receive are related to the effort they put in and equitable in relation to the reward that other workers get for the same effort. Langley (1987) points out that, "The scheme should not end up encouraging the sales force to act unethically in pressurizing customer to buy goods they do not want, nor should it result in sales staff concentrating solely on the easiest product to sell, thus boosting income, to the detriment of other perhaps more profitable products."

Apart from commission and bonuses, special competitions with attractive prizes are frequently used to motivate salespeople. Paid holidays and consumer electrical goods are offered as incentives to salespeople to encourage them to greater efforts. The above approaches of the current reward management of Bata are good but can do better with some recommendations to further improve the system.

Individual payment by results (PBR)

The aim of any PBR scheme is to provide a direct link between pay and output: the more effectively the worker works, the higher their pay. This direct relationship indicates that incentives are more effective than in other scheme. However, traditional bonus, piecework and work-measured schemes have declined in recent years, as many employers have moved to all-round performance rather than simple results/output based on pay.

Earning may fluctuate to no fault of the individual. Supervisors and managers may fail in their responsibilities towards workers by inconsiderate allocation of work or utilizing the incentive scheme to control output. Targets may not be accurate enough resulting in the perception of easy or difficult jobs. Material shortage or delays can affect production. Individual skills are not rewarded and indeed the most skilled may be put onto more difficult and potentially more less rewarding work.

In instance where workers regulate their own output to satisfy their individual needs production can be affected and forward planning made more difficult.

Appraisal/performance related pay

Appraisal/performance related pay is generally used to link progression through a pay band to an assessment of an individual's work performance during a particular reference period, often a year. Alternatively, the reward may be an additional sum of money paid in the form of a bonus.

Assessment usually relate to an individual's achievement against agreed objective relating to output and quality of work but may also encompass on element of evaluation of personal characteristics, such as adaptability, initiative and so on.

Advantages of appraisal-related pay :

It may provide a 'felt fair' system of rewarding people according to their contribution.

Precipitation of higher performance within the organization.

It provide a tangible means of recognizing achievements.

People understand the performance imperatives of the company

The link between extra pay and extra performance is clear.

Disadvantages :

Appraisal-related pay can prove difficult because measurements of individual's key performance maybe wide and lack objectivity and maybe inconsistent.

Such scheme usually involve only a yearly assessment and payout, which may weaken any incentive effect.

Many appraisal-related or performance pay scheme pay quite in term of performance pay progression or annual 'bonus'. While such scheme may encourage workers to focus on organizational objectives, they are unlikely to provide much individual motivation and may even be demotive.

Linking pay to appraisal can also be disadvantageous by training the appraisal in to a backward looking event where assessments are made and where workers may become defensive, as opposed to using the appraisal to look forward and agree new objectives, discuss developments and any training needs.

Any organization that chooses appraisal related pay should have good industrial relations and good communications systems in place. Recent surveys have shown that individual performance related pay schemes are popular especially for senior managers in the private sector. Managers need to be trained in this kind of scheme and should be aware that team-working may be adversely affected - such scheme may prove divisive as employees seek their own performance improvements without consideration of any effect on the work-team and perhaps withhold help and information from co-workers.

Competency and skills-based pay

Competency is defined as the ability of an individual to apply knowledge and skills and the behaviors essential to perform the job well.

Competency and skill-based schemes measure input, that is, what the individual is bringing into the job, unlike traditional performance based schemes which measure outputs. Examples of competencies may include leadership skill or team-working ability. Competency-related pay fits well with an overall organizational philosophy of continuous improvement.

Both competency-based and skills-based pay have similar advantages and disadvantages :

Advantages :

Increased skill and flexibility in the workforce.

Reduction in traditional demarcations.

Increased efficiency.

Tangible benefits for workers in return for change in working practice.

Disadvantages :

Payroll costs will escalate as workers gain higher rewards for increased skills

Increased training costs (time and expenses)

Employers may be paying for skills/competencies rarely used

Queuing for training-if staff cannot be released, then there might be resentment and questions of fairness

Can demotivate once workers reach a ceiling of their training opportunities or there are no higher grade position available when they have completed their training.

Highly trained employees will be more marketable and may be 'poached' or tempted to leave.

Team-based pay

Team based pay - in the shape of departmental or group bonus systems - has become more important with the increased interest in team working. Payments reflects the measurable goals of the team. Team working may be most effective in situation involving high task interdependence and creativity.

The aim of team-based pay is to strengthen the team through incentive - building a coherent, mutually supportive group of people with a high level of involvement. The team achievements are recognized and rewarded. The performance of the whole team can also be enhanced by peer group pressure.

As with any other pay scheme, workers' involvement is vital in the design of the scheme. They must be involve especially in the way the objective are set, how performance is measured, and the basis on which team rewards are distributed.

Team-based pay has both advantages and disadvantages :

Advantages :

It can encourage team working and cooperation between workers.

Team goals can clearly be integrated with organizational objectives

It encourages less effective performers and acts as an incentive for the whole team to improve

It may assist in developing self-management within the team

It enhances flexibility of working encourages multi-skilling

Disadvantage :

Difficulty in defining the team.

It can take time for teams to become well-defined and work together effectively.

Individuals may feel their personal self-wrath is diminished.

Peer pressure could be oppressive and lead to comformity rather than creativity. Pressure on individual perceived to be under-contributing or not 'fitting in' can degenerate into bullying and or harassment.

Inter-team competition may become dysfunctional for the organization as a whole.

Once effective the team could prove difficult to change or break-up in response to changing processes, markets or competitive pressures.

Each team should have equality of earnings opportunity or inter-team movement will be restricted.

Introducing a new member to a team may be problematic, if the team perceive that their earnings could be affected by a less skilled operator

Reduced flexibility because individuals in high performing teams are often reluctant to move to other teams conclusion

Conclusion

The implementation and application of reward management within the subject organization has provided many opportunities for increased performance. The positive effects on a successful reward management system can provide to employee performance and in turn organizational success and competition advantage to clear. Limitations and inequities here been recognized in the system employed, mainly due to the lack of assessment and changes to the system in order to align it with organizational objectives. Many organizations take up reward management as part of their performance management stratagem.

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