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Do you think it is a good idea on the part of any management to award employees with merit issues? Why or why not? Discuss and debate.
In today’s world, people are considered as the most important assets for the company and so it is very important to keep them motivated. The success of any company is backed by the hard work and dedication of its employees at all levels.
Paradoxically, whilst Management works hard to keep the external customers of the organisation happy, satisfied and, even delighted, they tend to put lesser efforts towards satisfying their employees, who are an integral part of their overall success.
Successful business persons, such as Richard Branson, Steve Jobs and Bill Gates underline the importance of the human assets in their empires.
Example “You have to be very good at finding wonderful people to run your company, properly incentivise and properly motivate them and give them the freedom to go ahead and make good things and make mistakes”- Richard Branson
Example “We have attracted great people and everything that has been done at Apple and at Microsoft has been done by remarkable people” – Steve Jobs and Bill Gates
Indeed, whilst only few decades ago, the trend was one job, or at least one employer for life, the new generation displays the tendency of staying for shorter period with one employer. The average stay with one employer has significantly shortened over the years, and there is no sign of any reverse trend in the coming years.
Example Our 2010 Resourcing and talent planning survey reported the overall employee turnover rate for the UK to be 13.5%.
Coupled with this is the increasing competition, especially from China and other emerging economies, arising from the inexorable globalization of trade, which compels companies to cut cost to enable them to stay competitive, and … alive!
Example “Davis (1998) shows that the increase in unemployment, due to international
trade, in a minimum-wage economy like the EU is exacerbated in the presence of a flexible-wage economy like the US.”
Irrespective of whether Management aims at reducing labour turnover of increasing the productivity of its workforce, the finality is to have a motivated workforce.
At different points of time, different Researchers and Theorists have come with different insight on the complex issue, which is motivation of employees.
Before proceeding further, it would be most proper to have a look at what motivation is all about, but keeping it mainly in the workplace context. Motivation is to give reason, incentive, enthusiasm, or interest that causes a specific action or behaviour. It can be broadly classified as either intrinsic or extrinsic.
Intrinsic motivation is internal, where an employee chooses to do something mostly out of pleasure, importance, or desire.
Example A group of computer programmers trying to crack a code just for fun or perhaps a worker doing more than what was asked of them just because they’re energized by the particular task they are doing.
Extrinsic motivation occurs when external factors influence the employee to do something or behave in a certain way, such as through rewards, bonuses, commissions, and other perks.
As such, Management needs to understand what motivates the employees, and find innovative ways towards retaining them, especially the talented one, and also making them become more committed and motivated, and, hence, even more productive.
Whilst it is not the main topic of this paper, it would still be proper to understand the underlying principles of motivation so as to implement the proper scheme.
Different theorists have come up with different approaches describing what does and does not motivate people in a work place.
Frederick Winslow Taylor (1911), known as the father of ‘scientific management’, came up with the time and motion study, and advised that employees should be paid on the basis of their output, giving birth to the “piece rate” method of pay. He laid emphasis on the monetary rewards, which, according to him, motivate workers to be more productive.
On his side, Abraham MASLOW introduced his concept of hierarchy of needs in his 1970 paper “A Theory of Human Motivation”. He advocated that people have different motivational levels. He identified five different need stages that an employee goes through. The needs of the people are hierarchical and shows which needs must be fulfilled before the next need is experienced.
Example Motivate Your Employees like Jack Welch “Follow the former GE CEO’s advice and energize your staff by helping them believe in the mission and understand how to achieve it.”
Victor Vroom’s Expectancy Theory, presented in 1964, is based upon the following three beliefs:
Valence, which refers to the emotional orientations people hold with respect to outcomes [rewards]. The depth of the want of an employee for extrinsic [money, promotion, time-off, benefits] or intrinsic [satisfaction] rewards).
Expectancy (Employees have different expectations and levels of confidence about what they are capable of doing). Management must discover what resources, training, or supervision employees need.
Instrumentality is the perception of employees as to whether they will actually get what they desire even if it has been promised by a Manager. Management should ensure that promises of rewards are fulfilled and that employees are aware of that.
“Herzberg’s Two Factor Theory”, “McGregor Theory X and Theory Y”, “Alderfer’s ERG Theory” and many more. Some of the motivational theories have been taken into consideration for the purpose of this assignment.
Frederick HERTZBERG came up in 1959 with the ‘two-factor’ theory of motivation, which are the “Motivators” and the “Hygiene” factors. Motivators being the satisfiers and the Hygiene factors being the dissatisfiers.
According to him, if an employee’s basic needs, such as a good working environment and a basic rate of pay are not met, then that would show a lack of satisfiers. On the other hand, the absence of more intangible factors, such as recognition and possibility of growth would lead to dissatisfiers.
The different theories and research carried out demonstrate that motivation of employees is not a simple issue at all. As such, there is necessity for Management to properly identify the different drives of each one with a view to applying the right tool.
Pay and Reward Methods
Money, being the main reason why people work, therefore, becomes an important feature that the human resource management has to look into. This is one of the most sensitive and controversial topics that has been debated at length at both practical and theoretical levels.
Milkovich et al (2001: 6) state that: “Employees may see compensation as a return in exchange between their employer and themselves, as an entitlement for being an employee of the company, or as a reward for a job well done”
The several different types of reward methods available for managers to chose from are “Individual incentive programs”; “group incentive programs”; and “profit-sharing plans”.
A commonly used incentive method is a cash reward, but there are several other ways of inspiring employees to perform beyond the call of duty.
Merit Pay – this refers to a pay rise based on performance appraisal (Heneman, 1992). The higher the employee’s performance, the larger is the increase in pay granted to him.
Example Now, however, political leaders such as Barack Obama have supported merit pay for teachers.
Incentives for Professional Employees – The work of a professional employee involves the use of academic expertise to come up with solutions to the firm’s problems, for instance, lawyers, doctors, economists and so on. These employees are usually well paid and hence it becomes very challenging to design incentive pay for them.
Example One study on recognition was carried out by the Minnesota Department of Natural Resources. Respondents were professional employees, who acknowledged that they greatly appreciated recognition from supervisors, peers, and team members. “Other members’ appreciation for your work is really important”, more than two-thirds admitted so during the research process. An overall 30% improvement in performance in service levels was noticed when financial rewards were backed by non-financial ones (recognition).
Piecework Plans – this is a plan where the employee is paid a set amount for every unit produced.
Straight piecework maintains a balance between the results and the extras while ignoring the output. A standard hour plan, on the other hand, sets up a fixed time for completion of a task. As such, the employee receives his salary for the standard unit of time taken to complete the job without paying heed to the actual time needed.
Example Assume that in an automobile repair shop the standard time for replacing a muffler is one hour. Under a standard hour plan an employee would receive one hour’s wage for replacing a muffler, regardless of the actual time required.
Example Waiters at a restaurant get paid in tips for a job well done; Telemarketers get bonuses per call or sale completed; Seamstresses gets paid per item altered or dress completed; Carpet cleaners are often paid per room. (Initial Author: Debbie LaCroix)
Recognition-Based Awards – this is one among the several other types of non-financial incentives. It usually refers to formal programs. Studies show that recognition has a very positive impact on performance, be it alone or in conjunction with other financial rewards.
Example “Outstanding Achievement Award”, “Excellent Customer Service Award”, “Excellence and Teamwork Award”, “Length of Service Award”, “Employee of the Month Program”. (Stacey Price, August 23, 2010).
Commission Plan – this is more of a results based plan; hence, this helps firms in attracting high-performing people who know that hard work leads to high rewards.
However, a major disadvantage of this plan is that it discourages employees from looking after less income generating jobs like catering for small accounts, look after loyal customers, and pushing slow moving items.
Example In some sales jobs the compensation plan includes a certain amount as bonus for achieving budget during a quarter and another additional bonus for achieving the annual budget.
Bonus Pay – for this plan to work a specific target is to be set. It is important that the employees understand and appreciate this target set. Before this incentive program is created, it is important to carry out a study on the department which they are planning to give the incentives to.
Example If the management is thinking about giving an incentive to the accounts payable department, then they will have to see the number of invoices that are generated in an average month. Based on this figure, the incentive can be provided for exceeding that figure.
Example Every end of year, employees who have met the targets receive a stability payment that represents a small part of their base annual wage (such as 2.5 percent of annual earnings after 5 years of employment, 3% of annual base pay after 6 years, 3.5% after 7 years, etc.)
Employee Stock Ownership Plans (ESOP) – Some schemes tend to favour more the retention of employees rather than increase in productivity. Employee Stock Ownership Plans (ESOP) is one of such type, where the employee becomes owner of stocks either after being so granted and also after acquiring same. The employee tends to stay within the organisation, and work therein as productively as possible, since in the long run this would be beneficial to him.
Scanlon Plan – This incentive plan came to be in 1937 by Joseph Scanlon. The basic characteristics of this plan include: competence, philosophy of co-operation, involvement system, identity and sharing of benefits formula. Scanlon Plan is primarily a productivity-boosting scheme, whilst it also helps towards labour retention. Employees are encouraged to make suggestions on ways to improve the productivity of operations, and, hence, that of the organisation.
The monetary gain resulting from productivity improvements are shared among both the employer and the employees on the basis of a ratio defined at the start of the scheme. Whilst, same appears to be simple and fair, it is, for sure, not an easy task to reach a consensus on the sharing, on the one side, between Management and employees, and on the other side among the different categories of employees, and employees themselves.
Milkovich/Newman: Compensation, Ninth Edition
Profit Sharing – “This is a variable reward policy whereby employees are given an income based on the profitability of the entire organization or selected subunits” (Florkowski, 1987: 622). “Profit sharing gives the firm’s managers some flexibility to reduce its labour costs when resources are scarce and profits are low by reducing employee earnings, as an alternative to using layoffs” (Gomezâ€Mejia and Balkin, 1992). This plan helps in establishing a sense of job security among the employees. The three main types of profitâ€sharing plans are (1) cash, (2) deferred, and (3) combination cash-deferred plans (Kruse, 1993).
Example “Profit-sharing plan was developed by Chrysler Corporation for its union and non-union employees during the economic recession of 1988. This plan was included in the union contract against the wage compromise that was made by the workers. Although harsh economic times made contributions small, by 1994 (when the economy had recovered) Chrysler was paying an average bonus of $4,300 per person to 81,000 employees, for a total of about $348 million.”
Kevin Nelson, Revised by Laurie Collier Hillstrom
Gain sharing Plan – This is a group pay-incentive plan which is designed with the main aim to motivate workers to improve the output of their workgroup through a more efficient use of resources (energy, labour, materials and so on). Any savings are then distributed to all the members of the group by using a formula which measures the current improvements against past results or a benchmark. However, gain sharing can only achieve substantial improvements with the participation of the top management.
Advantages of gaining sharing:
Helps companies achieve a sustainable upgrading in key performance measures
Rewards only for improvement in performance
Payouts are funded generally from savings generated by the plan
Matches employee goals to organization goals
At-Risk Variable Pay Plans – Under this plan, part of the employee’s weekly pay is put at risk so as to help the firm to meet its financial goals.
The above reward methods also depend on the company’s readiness to let the trade union have access to the many “secrets” and accounts of the organisation. On its side, the trade-union should be able to command adhesion of its members to the plan.
A scheme of profit sharing is one whereby employees receive shares, fixed in advance, of the profits. The objectives of profit sharing and employee share-holding will tend to vary according to its particular proponents or initiators.
Managerial proponents expect the scheme to enhance organisational outcomes such as productivity and profitability. Profit sharing and employee share-holding schemes can improve employee productivity and organisational profitability, improved employee relations, reduced absenteeism and labour turnover. In general, it will result in some economic benefit or competitive advantage for the company. The adoption of a particular perspective or approach is to some extent determined by the type, size and market situation of the firm.
It has a practical benefit in that it is likely to widen the pool of potential recruits, thus facilitating management selection of the most talented. With this approach to financial participation its primary objective appears to be the attraction and retention of staff. In addition, Management in non-union firms uses financial participation as part of a unitary strategy to exclude trade unions. Profit sharing or employee share-holding is used as a defence or deterrent against union organising drives.
In the light of the above, the tendency would be to advocate for the introduction of such schemes where employees become co-owners of the organisation they work for.
Consequently, it is believed that, anyhow, any attempt from Management to implement any such tool for the benefit of the organization, and hence the employees or that of the employees, and ultimately that of the organisation.
Factors Affecting Pay decisions
There are many factors affecting Pay that have to be taken into consideration. These are as follows:-
Legal considerations – Companies have to take in to consideration the “The Fair Labor Standards Act (FLSA) which prescribes the basic minimum wage and overtime pay”.
Hours of Work
Equal Pay Act (EPA) – Equality of sexes has to be taken into consideration by the companies as it is prescribed by the “The Equal Pay Act 1970. This includes things other than the wages, that is, things like holidays, pension rights, company perks and some kinds of bonuses. This legislation has been amended to incorporate a simplified approach under European Union law that is common to all member states”.
Union membership: – The Davis-Bacon Act (1931) and Walsh-Healy Public Contracts Act (1936) require federal contractors to pay employees no less than the prevailing wages in the area. The prevailing wage is set by the Secretary of Labour and is greatly influenced by relevant union contracts in the area. This shows how labour unions influence the wage levels set by the companies.
Company policy: – Company policy is a very subjective matter and is usually worked out in order to benefit the employer. The employer decides what salary to pay, he has a choice of candidates and who to chose, the salary grades and bands are decided upon by the employer, etc. This all and more forms part of the company policy
Competitive strategy: – An effective pay policy is an important aspect of a company’s overall competitive strategy. Just as organizations compete to sell their products and services, they also compete with one another for talented employees. Toward that end, a competitive pay policy is the cornerstone of an organization’s human capital investment strategy. How a company competes depends on three recruiting market conditions:
The extent to which qualified employees are available in targeted recruiting markets.
The aggressiveness of other employers competing within those same recruiting markets.
The company’s clout in the marketplace to recruit qualified employees (e.g., financial resources to pay employees, perception)
Equity: – This is the factor where people evaluate the fairness of their pay as compared to other people.
A comparison between his or her ratio of expected outcomes (e.g., pay, benefits, etc.) to expected inputs (e.g., education, effort, experience) to the ratio of a comparison other.
Employees make external equity pay comparisons, which focus on what other organizations pay for roughly the same job. These comparisons influence decisions to join and remain in the organization. A market-pay survey is used by organizations to examine the level of other organizations’ pay.
Internal equity pay comparisons focus on what employees within the same organization, but in different jobs, are paid.
Employees make internal equity pay comparisons with others performing the same job.
Some examples of PAY AND INCENTIVE PLANS in ASIA
The political structure, state of economic development and cultural tradition vary from country to country, and so is the case for the Asian countries. As such, there are also differences in their remuneration and reward practices.
China: The wage system is undergoing changes due to the economic reforms. The concept of performance-pay is gaining support.
Hong Kong: Pay and benefits are negotiated based on market forces.
India: Link between pay and performance is being established in the steel sector.
Japan: the annual Spring Offensive is a wage determination process in the private sector. The process plays the role of setting a national leading wage rise standard.
South Korea: Collective bargaining is the most common method for determining pay in unionized companies. While seniority remains an important criterion, performance-based pay is gaining acceptance.
In the face of the above discussion, management is required to devise quite a number of tools to minimize this high labour turnover and also ways and means to increase productivity.
However, it is widely known that despite utilization of the best equipment and state of the art technology within the workplace, there is no guarantee of reaching the desired objectives if the workforce is not motivated.
Implementation of a merit issue is surely a potential motivator both towards retaining talented employees, and motivating them, the challenge remains the setting up of a proper performance appraisal system, which would enable fair assessment of the performance of each employee.
Indeed, whilst this is rather straight forward in some organizations with not much variety of operations and categories of employees. The latter might become quite complex where activities are more diversified. Still, this hurdle should in no way mean that such a system should not be implemented.
However, the other challenge would be to also ensure that it does not frustrate the “unrewarded” employees, out of misunderstanding of the appraisal system, thereby leading to the perception of unfair treatment vis-à-vis their colleagues. As such, any such tools need to be implemented after a thorough explanation of its functioning to employees, describing each criterion, and the weightage of each one of them.
There are a variety of tools that can be applied to retain employees and/or make them become more productive, still, whatever has succeeded within one company, need not necessarily be as much successful in another one.
Many aspects need to be taken into consideration when deciding upon and eventually designing the tool selected. The culture of management and that of employees and/or trade-unions within the organization, the motivating factors of individuals, the company objectives, the type of operations, the financial status of the organization, the nature and intensity of competition will definitely be decisive factors.
Pay and merits are a very important part of any industry. Various theories of motivation have been considered for the sake of this assignment. An understanding of what theories are relevant and in what situation and how the management can use the knowledge of the above to reward their employees. Employees are internal customers and so knowing what they like and what not, will give the management an upper hand while dealing with them. Management can design “Golden Handcuffs” in order to retain key employees by giving them the right incentives.
This research also identifies the different types of merits that can be awarded in order to motivate the workers and further develop their productivity. The merit plans for individuals, experts and for teams has been looked into. The various issues that may be faced when designing these incentives have also been provided for.
As a result, it can be concluded that merit issues are justified and hence should be considered when motivation of the employees has to be addressed.
Some organisations do a thorough job analysis first and then human resource planning as part of a restructuring process. What makes more sense to you? Why?
It would be too simplistic to qualify the validity of carrying first a thorough job analysis and then human resource planning when an organization undergoes a restructuring process, since the purpose differs. Hence, it is wise to pause and ponder over the very reason for undergoing such a process. At times, such exercises are carried out following a lasting adverse economic situation, fierce local or international competition, resulting to decrease in sales figures, necessitating cost-cutting exercises, including restructuring of the organization.
Restructuring follows the decision of an organisation to drop one line or more lines of activities. This can also result from increasing or new activities following corporate acquisition, a joint venture or a merger exercise, where a restructuring exercise aims at reducing duplication of activities. In any case, the very purpose of any restructuring exercise is to achieve organisational effectiveness. Indeed, this means having the right people, in the right quantity, in the right jobs, at the right cost, and in the right time.
As such, the right sequence when undergoing a restructuration would rather be to identify the main objectives that are being aimed at. That is to say, where the organization is currently, and where it would like to go, and when. From this perspective, it is more logical to make a prior study of the process involving the different activities. This study will help in revealing the improper balance between the resources and the activities, whereby, at times too many employees are carrying out too less activities, or fewer employees are overloaded with too many tasks. It reveals where activities suffer from bottlenecks.
Still, a slowing of activities does not necessarily mean that there is overload. Indeed, there could be many other explanations, such as improper tools and equipment, inadequate training, poor work environment, improper supervision, undefined processes, poor quality of materials, too much bureaucracy, and many other reasons.
After determining the proper number of employees currently required for each operation or set of operations, there is a need to also forecast future needs. In fact, human resource planning calls for ensuring that both the current requirement, as well as the future needs for at least one year be cater for.
Job analysis is a primary process used for gathering current information about the job through observation, surveys, questionnaires, interviews and so on. It involves the assimilation of all the information that is used to develop two important documents, namely Job Description and Job Specification.
Job Description helps to define a job by emphasising on its content, requirements and context, providing a written brief of the different aspects of the job, such as duties and responsibilities. This gives an insight to managers and current and prospective employees about the job.
A job specification, on the other hand, describes the knowledge, skills, education, experience, and abilities that the prospective or current employee needs to possess to perform a particular job. It provides detailed characteristics, knowledge, education, skills, and experience needed to perform the job.
Job analysis helps in analyzing resources and establishing the strategies to accomplish the business goals and strategic objectives. It can be used in compensation exercise to identify or determine skill levels, compensable job factors, work environment, responsibilities and required level of education.
Job analysis is also used for performance review to identify or develop goals and objectives, performance standards, evaluation criteria, length of probationary periods, and duties to be evaluated.
A proper job analysis enables a proper hiring, training, appraisal, and compensation of the human resources of the organization.
Moreover, the information produced by job analysis is mostly used in Human Resource Management. Without a proper job analysis, it would have been extremely difficult to effectively hire, train, appraises, compensate or utilise its human resources.
The uses of Job Analysis may be summarised as follows:
Job Descriptions – helps to define a job by emphasising on its content, requirements and context. It provides an insight about the job is and what are the prerequisites.
a typical job description
Job Specification – places emphasis on the traits and abilities that the prospect must have in order to successfully fulfil the job requirements.
Example The job specification for a receptionist, critical skills may be having:
1) A professional and courteous telephone manner
2) Legible hand-writing if messages are to be taken
3) The ability to handle a multiple-lined phone system for a number of staff members
4) The patience and endurance to sit behind a desk all day.
Job Design – points on the area of the job, the method of doing it, the place where is it to be done and who will perform it.
Example “It is not necessarily incompatible for an operations managers to use work study techniques to estimate how long each element of the job will take to perform, whilst at the same time considering the ergonomic aspects of how the working environment should be managed, and also deciding on the relevant level of autonomy to design into a work team.”
HR Planning – job analysis helps in forecasting the knowledge and skills that might be required in the future. Recognising the different relationships between jobs assists in building a methodical promotion and transfer policy. It also helps in establishing the quality of workers needed in the company.
Recruitment – job analysis looks into the when and how to hire for future job possibilities. Knowing what skills will be required and the job opportunity that is available will help the manager to plan better.
Example – Expatriate training and development appears to have been focused on developing expatriates’ ability to adjust to the new culture. Certainly, cross-cultural adjustment has been shown to influence performance. (Black et al., 1992; Tung, 1982
Selection – without a proper knowledge of the job in question, it is not possible to hire the right person. Job analysis, thus, assists in the building of relevant selection techniques and the likelihood of finding the right candidate for the job.
Placement and Orientation – once the selection process has taken place, it is important to place the person on the job that best suits his interests, activities and aptitude. If we do not know what the job requirements are, we will not be able to find such a person. To teach new workers how to handle the job, we have to clearly define the job role.
Performance Appraisal – this is the phase whereby the actual output is compared against the required output so that the worth of the worker can be established.
Example – it has been suggested that performance criteria should emphasize sets of decisions and behaviours that focus on corporate
and regional performance in MNCs competing in global industries, whereas for MNCs competing in a multi-domestic industry, decisions and behaviours should focus on su
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