Employee Motivation And Retention Commerce Essay

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Employee motivation and retention is a key focus for companies nowadays. What policies and practices do you consider might improve motivation and retention? Is there any evidence as to what practices work?


Nowadays, employees often leave jobs for more money, opportunities and more experience to work abroad or in a better work environment because it is much easier to move round. However, employers are suffering from these situations. Because, when employees quit their jobs, employers have to hire new employees. In this case, managers must train new staff and the new staff needs time to get used to job.

In every company, there are many problems between employers and employee, and among the team members or sex. To solve the problems many researchers have studied Human Resource (hereafter HR) systems, such as service delivery, procedures how to carry HR in practice, performance management systems, reward systems and many strategies. However, even though there are many strategies and systems, the most important things are employees' satisfaction in working environment and how employers offer good environment to employees to give satisfaction. So that, to maintain good working environment and retain employees some specific strategies are needed to promote and give motivation to employees.

There are a number of policies and practices which help companies to motivated and retain employees. As well as this, there are three levels to understand the complexities of stimulating employees at work: 1) Management needs to recognise what motivates people that affect work performance, recruitment and retention. 2) People should recognise their expectations and how they feel like happiness, satisfaction at work. 3) HR professionals must implement systems to motivate employees (Gratton, 2004). One of these systems is the reward system and there is substantial evidence to show it is very successful. In many situations, reward system is the best strategy to retain and motivate employees at work. The reward system is defined by Armstrong and Brown (2001) as a statement of the organisation to develop HR strategies such as future reward system in practices. Lawler (2000a), Kessler (2003) and Lewis (2006) said that money is a factor to motivate and retain people at work and that monetary reward is important symbolically and it can help people to get benefits from being at work and is therefore a strategy to inspire and retain employees. According to Hendry (1994), the actual payment system is needed to develop people's motivation and it is related or a part of the manager's payment strategy.

This essay will examine the policies and practices of the financial and non-financial reward systems and look at evidence for employee motivation and retention. The evidence shows these systems are sometimes successful and sometimes they are not.

Theory of reward system

Up to the 1920s, there was a scientific management school of thinking. Then the HR management system emerged where the 'social' man and was opposed to the 'economic' man. This development came initially from research studies and was linked to productivity. Rewards were suggested by this school as employee objectives, rather than earnings. Then in 1940s, Maslow had amplified the hierarchy of needs to include motivation. The hierarchy of needs theory is important for employers to understand employees. At the lower end of the hierarchy people need to earn money for things such as food or housing. This is what people have to pay for with low wages. In contrast at the top end of the hierarchy there is disputing over executive rewards policies. Lazear (1998) said, in America, CEOs have recently come under attack for their very high salaries, particularly in comparison to their European and Japanese counterparts. While their salaries may be too high, focusing on their salaries alone misses the entire point of the compensation structure. The CEO's salary is there not so much to motivate the CEO as it is to motivate everyone under him to attempt to attain that job. Lawler (1984) defined that motivation could be a more individual matter but Adams (1963) suggested equity theory that people can make up their inputs versus outputs like rewards with colleagues.

Equal payment policy

One of the equity policies is the equal payment. The equal payment policy is also important. Because, employees may eliminate sex prejudice and it is very positive message to reduce sex bias in the equal payment system (Equal Opportunity Commission, 2003). There are equal payment reviews. Large companies where they have more than 500 employees, carry out an equal payment system. On the other hand, small companies where they have 25 to 99 employees have not got equal payment plan. In addition to this, public organisations have completed equal payment policy around 70%, but private services sector 55%. The reason for this was that the public organisations wished to be shown as good employers well and there was no equal payment system activity for the private sector (Equal Opportunity Commission, 2006).

Reward system at Work

There are some factors of reward system. It can influence salary and wage levels. First, job size is the main factor of payment system. This factor includes responsibility, level of hierarchy, knowledge, decision-making and so on. Especially, the hierarchical position is significant factor of pay structures for promotion. Individual characteristic is a second factor. The characteristic signify age, experience, professional certificates and performance. The third thing is that product market states and the structure of employer's cost influence on pay strategy. As well as this, labour market factors are also important such as the going rate in the specific labour market. Lastly, the remuneration system influences wages and salaries. Thus, the reputation brings higher wages for being a good employer (Kessler, 2005).

Reward policies may affect many HR methods and practices: 1) recruitment and retention, 2) the method in reward systems for employees on corporate culture, 3) payment in reward systems and service sectors, 4) various activities or behaviours. The most significant strategy of reward system is overcoming the tendency towards short-termism (Pfeffer, 1998). In reward system, there are two aspects of the strategic design; structural decisions and process dimensions (Lawler, 2000). Structural decisions strategies are formal procedures and practices and process dimensions strategies means communication and decision process parts.

[Table 1 Two Dimensions of the Strategic Design]

Structural Decisions

Process Dimensions

Basis for rewards

Pay for performance

Market position

Internal management

Centralised organisations

Degree of hierarchy

Reward mix

Communication policy

Decision making process

[Information from : Lawler E. (2000) Rewarding Excellence: Pay strategies for the new economy]

ACAS offered guidelines to support selecting and installing a pay system (Advisory, Conciliation and Arbitration Service, 2006).

Accepting - Cost involved.

Avoiding - Most potential problems with a systematic, well-timed and carefully planned approach.

Re-examining - To change and take advice for organisation and expert help needed

Looking at possible new systems and considering alteration

To involve - the workforce, its representatives, possible joint working party

Developing - proper discussion and consultation with the workforce and their representatives.

Being simple new systems and not directly discriminate between and women

Making arrangements - maintenance, monitoring and evaluation.

To review the system regularly

To ensure performing as required.

Types of Reward system - PBR & PRP

There are two types of payment system. One is payment by results (hereafter PBR) and another system is performance related pay (hereafter PRP). The PBR type schemes to set up a relationship between reward and effort for motivating. The PRP aim is for providing rewards linked to an assessment of performance (Armstrong, 2002).

There is advantage of individual PBR system to encourage employees because of the individual effect and earnings. However, major disadvantage is expensive to install, maintain and to establish this system. The most common situation for PBR system is piecework which is a long tradition in the UK industry. Lazear (1998) reported a productivity improvement of 44% after the introduction of a piece rate plan, half of it the result of an incentive effect and the rest because of sorting. However, Millward and Bryson (2000) said that piecework survives in some industries but has declined over the last 30 years. But a few new industries have emerged using cellular manufacturing. The reason is an issue had been about commission. The commission based pay system was hit by mis-selling of pensions in the 1990s. Also, in telephone directory enquiries services case, bonus system was reduced by call time and employees provided wrong numbers to meet targets and receive bonus payments.

Three major aspects should be considered in PBR systems: 1) control, 2) erosion, 3) complexity. Firstly, control has to be examined in PBR. It is necessary in the worker's own interest to be productive. However, that is not from their effort. According to Druker (2008), the system motivates speed not quality and managers check only short-cuts. So that, as a result, is led to lower quality, health, safety risks and hazards. Secondly, erosion may cause decline in the learning curve, opportunity to use new technology and worker corruption. This may make hide slack rates. Lastly, complexity standards to operate properly should be established for work-study and personnel maintenance, not a quality department in new methods and changes such as product, material and specification.

There are some disadvantages in PBR. First, employees only focus on the relationship between their own efforts and the reward system. As well as this, this makes competitive pressures as management decisions in levels of reward (Kim and Arthur, 2005). Second, with the PBR scheme groups can feel anger and disappointment if the bonus is less than they expected. Third, some companies' managers may feel afraid that gain-sharing plans will make them progressively marginalised in their role. It can also make declining wage levels seem less important. The most important thing is managers are not prepared to accept employees' modified role, to consider employees suggestions and ideas.

These days, PRP has been used in two thirds of organisations for managers and staff. PRP system confirms a useful incentive effect for employees in British public services such as government, the NHS, and schools. Studies found out the evidence of payment system to improve results and teachers' motivation. Dolton (2003) said that for instance, a bricklayer may lay more bricks if paid a bonus, but it cannot apply to teachers who have high motivation. According to Wragg, Haynes, and Chamberlain (2004), it appears that the best feature of this performance management system was the opportunity to explain their job and feel that is valued.

Armstrong (2002) explained the benefits of the PRP system.

Motivating - Employers are working for themselves and for the organisation

Can cause change

Creates a link to specific results

Attracts good people, but people with poor performance do not stay

Shows that achievement is recognised a rewarded

(Source from : Armstrong M. (2002) Employee Reward, 3rd edition)

On the other hand, there are some damages in PRP system. A study of US multinationals discovered that the PRP system controlled most employees. It is important to follow strategic and corporate-wide logic. However, the system often mixed objectives in sales targets and cooperation in the team. Almond said that line managers often resisted forced distribution practices (Almond, 2006). In H.J. Heinz Company, employers offered a bonus to employees individually when they made profits compare to the previous year. However, managers tried to manipulate profits and then always showed improvement. It means that money of company cannot have flexibility, so that it brought out a reduction of long-term growth and undermining of the value of the company. As well as this, in Sears, mechanics working for the company's car repair operation were paid to the profits earned on repairs asked by customers. With this, the mechanics carried out unnecessary repairs which the mechanics talked success experience to customers. This dishonesty threatened closing down all this car repair shops. Thus, the company avoided PRP system (Fry and Osterloh, 2002).

The possible reward system of individual PRP system have made to interest in team payment. Team reward system proposes some benefits. This system encourages performance in team work, motivates cooperation, and controls what employees need to do it in teams individually. In contrast, the team reward system can be applied not very well in practice. Because, it is very difficult to adapt suitable strategy to each teams. The CIPD (2007) surveyed about dentists case in Morecambe bay, Lancashire. The dentists wanted to organise recording file for patients who have visited the hospital. This team work found out the patients did not need more waiting time. This result also based on team-based pay. However, the team wanted more fund than cash individually. This successful case is attributed to clear goals and good team work. (Source adapted from IRS Employment Review 732b (2001); Reilly, Phillipson and Smith (2004); CIPD (2007))

Non-Financial Rewards

Herzberg (1987) said that higher wages do not give motivation to employees and employees want more benefits and new status symbols. As well as this, employees get motivation by successful and challenging task. Hackman and Oldham (1976) emphasised job characteristics model. The characteristics are skill variety, task identity, task significance, autonomy and feedback. If these are satisfied, then it can bring job satisfaction and motivation.

Thompson and Heron (2006) explained innovation of workforce is needed at work: 1) long term payment system in pay system design, 2) employees opportunities and development individually, 3) collaboration, involvement, information-sharing and employees' skills, and 4) job design for encouraging teamwork. So that, innovation can speed up through the sharing of ideas. Big bonuses and higher wages may show quick fixing problems of work design, but it can get unstable fixing and unwelcome result at work. Stredwick (2002) suggested two aspects of formal recognition strategy. The first aspect is long-established suggestion. The long-established suggestion is:

Training and encouraging employees to continue improvement

Speedup in decision-making, instant wards and guarantee of response when employees suggest new ideas

Award systems - for many events

Encouraging teams

Successful company magazines

Campaigns of company strategies - health and safety, welfare and social responsibility and environmental

The second thing is a result of staff going beyond the duty required. For instance, the things are prizes such as vouchers or badges, holidays and day trips. There is one example at Claridge's Hotel (2004). The hotel introduced two employee recognition strategies; 'employee of the Month' and 'Going for Gold'. The employee of the month strategy is recognising of their extreme effort that employees achieved work in each month. The way of strategy is the winner has got prizes and the person's photo is displayed on the wall. The going for gold is to involve the opportunity of a 'lucky dip' of gold prize from HR director. Thus, these strategies are very successful and brought high value to the hotel staff.

Buchanan and Huczynski (2004) issued job redesign forms in practice. Firstly, job rotation may be basic strategy of the forms. When workers move to the other jobs, it aims to alleviate boredom. Secondly, job enlargement can decline moving jobs in short-time and try to give motivation for employees. Thirdly, job enrichment adds workers can take responsibility for maintenance, decision-making and keeping work schedule. Lastly, autonomous work groups enrich wider range of operative and production skills, acquired responsibility and choosing work methods.


This essay has explored that strategies and practices of the remuneration and non-financial reward system and evidences for employee motivation and retention. As well as this, it has explained important reward theories and examples, and advantages and disadvantages of reward system at work and types of reward system.

The important view is not only one type of system and managers so much depend on the conditions in each function. The employers tried to follow payment systems without analysis of the possible strategy in each option. According to Kessler (2005) and Zingheim and Schuste (2002), strategy of reward system is a rarity and it looks like that when employers faced problems just try to move from one strategy to the other strategy, rather than solve problems and develop a total reward system. Furthermore, managers and employers must recollect that the payment strategies cannot be adopted alone. Those have to be considered benefits and disadvantages of financial and non-financial strategy both in practice. The best point is the harmonisation of advantages between financial system and non-financial system.

Incentive systems can assume that remuneration gives motivation force of employees. However, non-financial system is also very important: training, welfare, prizes and recognising employee's position. Moreover, the systems need to take into a number of key factors in reward systems. First, analysing is important. Managers and workers have to understand problems what are wrong in already existing reward system. Second, it includes that employee' representatives and effort in development of the system changes. Third, preparing by communication system is also significant at work and in group works. Last, installing this system is complicated. So that, the system has to be checked and reconsidered to make sure whether it operates well and regularly. However, Peccei (2002) said that not only financial and non-financial systems are important, but also happy workplaces are also significant factor: 1) reasonable workloads and levels of control, 2) a good wage-effort bargain on balance, 3) job security and 4) value of work.

To motivate employees, the reward system should be well adopted in condition of fairness and equitableness individually. As well as this, well designed strategies included advantages need to encourage workers in practice. Then, employees will bring the synergy in their work. Above all, when employees feel happiness and comfortableness at work, their result of work will be improved. (2936 words)