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When comes to managing talent, the overnight sensation of Susan Boyle is a good lesson for managers. She is a phenomenal person from UK to keep in mind when managing employees. In all her awkward ordinariness and amazing extraordinariness, she is talent discovered. The challenges for manager now is that how can he or she uncover the "Susan" in employees, draw her out, support her fully, put her on the right stage and performs in front of the right audience.
Talent management is about the attraction, management, and retention of high-worth individuals or "the talented". Having an outstanding talent management program is extremely important as it creates a better pool of people from which suitably experienced and trained candidates can be drawn in future. Just like any other big firms, Standard Chartered Bank, one of the world's most international banks in terms of diversity of their people, never take their human resources for granted. This can be seen when they have incorporated talent management into their corporate philosophy. As specified in the Standard Chartered website, the bank aims to attract, develop and retain talent, create a strength-based organisation, maintain a diverse and inclusive workplace and drive performance through increase engagement, as part of their philosophy.
As part of their talent management, Standard Chartered bank is constantly looking for best and the brightest talent in the market to join them. International Graduate Programme is a two-year programme that designed to develop participants into "the talented" who can help the bank achieves its aim of becoming the world's no.1 international bank after the duration of 2 years. The programme seeks to develop the participants' knowledge and help them to think in a global context. Once the participant has developed the right mindset and necessary knowledge, he or she is more than likely to be offered a variety of international roles within Standard Chartered. Another talent management programme offered by Standard Chartered is Management Associate Programme which only accepts participants with MBA or a postgraduate degree. Upon the participation, there are number of Associate Roles available to candidates. This programme is designed to build and develop participants' strengths, network, and understandings of the wider organisation alongside their initial focus on their role, as well as to offer opportunities for participants to apply what they have learned during their MBA studies. All these are done through ongoing coaching and mentoring. According to University of Sunderland workbook on Strategic Management of Human Resource p.305, the benefits of a "coaching and mentoring culture" include attraction and retention of talent, and the encouragement of employees to think and work better together. These are the reasons why Standard Chartered is so keen to keep this culture alive.
Besides developing newly recruited talents, Standard Chartered also constantly develop its existing talents as the bank believes that building their employees' innate strength is the best way to achieve their potential and encourage them to take control of their development - "strength-based" philosophy. As specified in the bank's website business overview section, "strength-based" philosophy is one of the cornerstones of their approach to talent management. By identifying and leveraging an employee's natural talents into world-class strengths through different training development programmes, and then creating the environment in which these strengths can flourish, it enables its employees to do what they do best, every day. This strength-based approach has contributed to a high performance work environment and also transformed the role of HR from a primarily administrative function to strategic role that adding a great deal of values along their means in achieving the organisation's strategic aim of becoming world's no.1 international bank through its strengths-based applications.
According to their website, the bank has been recognised for their talent and learning practices by Harvard Business Review 2008 (HBR). The bank was also one of the three organisations featured in the November issue of the HBR on 'Winning the Talent Race in Emerging Markets'. All these show that Standard Chartered is highly reputable as a great place to work in terms of staff development. Such reputation will definitely attract and create a high quality, loyalty, and motivated workforce, which is essential when the organisation is striving for an extremely challenging aim of becoming world's no.1 international bank.
Standard Chartered believes that leadership is extremely important as well as it is one of the main issues in different features of strategic human resources. As stated the case study, Harley, group head of talent management, believes that improving the performance of leaders and managers with big regional and global roles by only 5 per cent, the impact will be significant. The organisation has catered to this by constantly developing its managers and leaders through Great Manager Programme. This programme is designed for leaders and managers to engage and inspire employees to achieve stretching individual objectives. It is a way to better develop managers and leaders to reinforce culture, instill values, and create a sustainable "leadership pipeline". Managers and leaders play an important role, perhaps the most important, when comes to organizational development. According to University of Sunderland workbook on Strategic Management of Human resource pg.305-306, in order for organisational learning and development to be successful, its people at all levels of the organisation need to understand the criticality of life-long learning. Unless the organisation as a whole embraces it, such efforts will fail. Managers and leaders are the one who instill the importance of the organisational learning, development, and change, and ensure that the employees understand the criticality. As specified in the workbook pg.306, In order for managers and leaders to perform this, effective communication and role modelling are vital. Managers may need to demonstrate the importance of learning and development by demonstrating this through his or her own behaviour and actions. All these show how important a manager or leader plays in his or her strategic role in improving the workforce and to assist organisation in achieving its mission and goals. Standard Chartered is fully aware of this and perhaps this is the reason why they are constantly developing its managers and leaders.
All these development programmes designed and the learning, coaching, and "talent-appreciating" cultures practised by Standard Chartered are able to attract talents to the organisation, retain them, and keep them motivated. Given the opportunities to learn and develop through the programmes and cultures, the talents can become even more talented. When Standard Chartered is fully occupied with talented people and leaders, not only the improvement of productivity, effectiveness and efficiency can be seen, but the strategic and globally thinking of these people will definitely move Standard Chartered into a brand new level. Hence it can be said that the development programmes designed and the cultures practised by Standard Chartered as part of their approaches to talent management have display the features of strategic human resources management to a high extent and show an explicit linkage between the practices and overall organisational strategic aim of becoming world's no.1 international bank.
Standard Chartered Bank corporate website, Great place to work, viewed 17 March 2010,<http://www.standardchartered.com/sustainability/great-place-to-work/learning-and-development/en/index.html>
Armstrong, M (ed.) 192a) Strategies for Human Resource Management: A Total Business Approach. London:Kogan Page
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Amy Hengst, 2007, Talent management FAQ, viewed 17 March 2010, <http://www.hrworld.com/features/talent-management-faq-112007/>
University of Sunderland workbook: Strategic Management of Human Resources version 2.0, 2004, Human Resource Development Strategies, University of Sunderland, p.305-306
Question 1.2: Comment on the relevance of this approach in the light of the recent banking crisis.
Speaking of crisis, the most notable one would be the financial and global credit crisis triggered by liquidity shortfall in the U.S banking system. The crisis has resulted in the collapse of many large financial institutions; most notable one would be the bankruptcy of Lehman Brothers, a global financial-services firm back in 2008, which marked as the largest bankruptcy in U.S history. However, not all the players in the financial market are losers during the crisis. Standard Chartered Bank is one of the very few winners of the financial crisis. Its strategy of focusing on risk management and key markets has able to solidifying its position as a leader in the global financial arena and risen the organisation from the ashes of crisis. The group is also one of the few global banks that enjoyed profit growth in 2008 and 2009 when the world was mired in financial turmoil.
During the crisis, the quality workforce and the talented key people of Standard Chartered have made a major contribution to the success of the bank, thanks to its systematic talent management. As specified in previous answer, the approaches to talent management in the organisation, which include different employees and leaders development programmes and practising learning and coaching culture, are able to produce a high quality of workforce where employees are with global and strategic thinking, which is essential when developing plans and strategies to cope with the crisis. Standard Chartered has weathered the storm relatively well by developing strategies to continuously focus on the basics of banking and to seek opportunities from the challenging economic turmoil while their competitors were busy in minimise the shocks. These strategies were done through maintaining a strong risk management and balance sheet, controlling costs, and keeping a high level of liquidity across its markets. This has enabled the bank to take market share from competitors by supporting its customers throughout the crisis and deepening relationships in a way that others have been unable to match. These strategies in the light of crisis have contributed to the resilience of the bank throughout the crisis.
The talents of the bank not only contributed to their own organisation in dealing with the impacts of crisis, but also to the economy as a whole. Although Standard Chartered was able to keep its competitive position during the crisis, but they decided to act. During the financial crisis, Peter Sands, chief executive of Standard Chartered, and Richard Meddings, finance director of the bank, convened a small team to put some thoughts together on how to arrest the deterioration, and present the document to some senior treasury officials which later on has become the basis for the plan unveiled by the government to cope with the economic situation. These talented executives of Standard Chartered have played some major roles and were the quiet architect of Britain's bank rescue.
Besides financial crisis, which is already at the end of its stage, Standard Chartered now is facing another issue in banking industry, which is the fierce competition to hire the top talented bankers. According to Thisislondon.co.uk, Peter sands says that the bank is under increasing pressure seeing its people move to rivals. As part of the retention plan, Standard Chartered has paid out a total of £732.1 million in bonuses last year, which was 32% of revenues. This problem faced by Standard Chartered indicates that its talent management approaches may still need to be improved to attract talents and to prevent its existing talents from leaving the organisation.
In a nutshell, Standard Chartered which is occupied by some talents with global and strategic thinking thanks to its talent management has sustained through the financial crisis and helped the economy as a whole dealing with financial crisis problems. However, the arising problem on employee attraction and retention indicates that the approach of the bank to talent management, which covers the attraction and retention of the talents, is not perfect. The talent management of the bank may still need to be improved to cater to this issue. It is suggested for Standard Chartered to alter the reward system, employee's remuneration and benefits to more favourable, increase employee engagement and empowerment to keep them motivated and improve the developing programmes as specified in question 1.1's answer, in order to retain its talents.
Griffiths, 2009, Britain Banking Crisis: How it happened, TimesOnline, viewed 21 March 2010, <http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6868827.ece>
Griffiths, 2008, Standard Chartered chief Peter Sands was quiet architect of Britain's bank rescue, Telegraph.co.uk, viewed 21 March 2010, <http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3205088/Standard-Chartered-chief-Peter-Sands-was-quiet-architect-of-Britains-bank-rescue.html>
Kim, 2009, Standard Chartered Steps Up Amid Crisis,KoreaTimes, viewed 21 March 2010, <http://www.koreatimes.co.kr/www/news/nation/2009/11/288_55192.html>
Goodway, 2010, Standard Chartered finds competition 'red hot' to hire best bankers, thisislondon.co.uk, viewed 21 March 2010, <http://www.thisislondon.co.uk/standard-business/article-23811451-standard-chartered-finds-red-hot-competition-for-best-bankers.do>
Standard Chartered Bank corporate website, From The Chief Executive Officer, viewed 20 March 2010, <http://www.standardchartered.com/sustainability/ceo/en/index.html>
Wikipedia.com, Financial crisis 2007-2010, viewed 21 March 2010, <http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010>
Question 1.3: Why is it important to measure the impact of SHRM? What might be included in an evaluation strategy to measure the impact of SHRM in an organisation to achieve strategic integration?
Strategic human resource management can be perceived as some sort of investment that seeks to maximise the return from investing in organisation's human capital strategically. Unlike traditional human resource management which basically studies employees and employment practices at the individual level, a strategic approach to managing people looks at wider perspective to entire workforce and emphasis the linkage between the approach and organisational strategic aim and goal. This requires an even higher level of financing (i.e. investing) than traditional HR function to ensure that its human capital contributed to the improvement of the organisational performance and achievement of the organisational aim and goal (i.e. return on investment). The fundamental knowledge of making an investment is that, the need to carry out an evaluation on the return on investment (ROI) is of the essence, to make sure that a particular investment is worth to invest. Similarly, organisation is required to measure the impacts, both positive and side effects, brought by any decisions on strategic human resource management first before develop any strategy on managing people. This is the only way to determine how worthy a particular strategic decision would be and how much value it added to the mean by which an organisation undertook to achieve its goal through its workforce.
Applying the "investment theory" to the standard Chartered bank, according to the case study, the bank is facing the problem of high turnover rate of new recruits within 12 months, indicating that there is a need to fix or improve its approach in people management. One thing for sure is that the reason why new recruits are leaving the bank is definitely not because of the unfavourable remuneration package and benefits, as the new recruits should have already cleared how the bank is going to pay them during the interview. The reason perhaps is because of the unexpected, unpleasant working environment. To retain them, Standard Chartered needs to develop a solution, and the important thing is, critically evaluate the "return" as well as the side effects of the proposed solution before implement it. For e.g. organisation may try to keep them happy to reduce the turnover rate, by creating a fun working environment, frequently organise some parties or celebration in the office. However, such approach may weaken the power and authority of managers when they are too close to the subordinates, and eventually leads to an undisciplined workforce. Every strategic decision made has its double-side effects, so it is crucial to measure and evaluate the impact first to ensure that the right decision is being made so that the organisation is on its right track to success.
To achieve strategic integration, that is, attempting to integrate the use of human resources to the wider business strategy of the organisation, an evaluation strategy to measure the impact of SHRM is extremely important. Having discussed the importance to measure the impact, now we will look at what should be included in the evaluation strategy when measuring the impact. As mentioned earlier, every strategic implication has its double-side effect, so it's important to measure and evaluate not only the positive side, but also the negative implication of certain SHRM decision. The next thing we need to evaluate, perhaps the most important factor, would be the ability of the impact of SHRM to demonstrate the value of workforce's strategic contribution. This simply means that to what extend the strategic approach used in managing people contribute in helping organisation as a whole in achieving its goal. Using the same example of Standard Chartered in creating a fun working environment as an approach to reduce turnover rate, if such approach, despite its side effect that mentioned above, is able to retain employees, while also keep them motivated, and eventually lead to a highly productive and quality workforce which is essential in order for the organisation to achieve its strategic aim of becoming world's no.1 international bank, it can be concluded that the impact of such approach has demonstrate strategic integration.
In a nutshell, in order for Standard Chartered to achieve strategic integration, not only the need to design strategic approach to manage its human resource is required, a comprehensive method to measure the approach is important as well in order to understand its drawbacks and relevance in demonstrating the features of strategic human resource management.
Fitz-enz, Davision, 2002, How to Measure human resource Management third Edition, Mc-GrawHill.
Cabrera, 2003, Strategic Human Resource Evaluation, viewed 22 March 2010 <http://www.questia.com/googleScholar.qst;jsessionid=LmXZ8LNtjYQXn9g0z7n8TpzRMvjSZBWNzLYkLfqvPGc6ghSMfWQJ!144947719!-2000885492?docId=5001901027>
QUESTION 4 & 5
Question 4: What are the main features of a Performance Management system? In what ways can organizations ensure that such systems fulfill strategically useful outcomes?
Although the significance of human resource management to organisations has always been recognised, the evolution of such field as a profession in recent years has highlighted a range of issues, such as the ability of human resource department to add value and contribute to the corporate strategy, and to optimise the contribution of its people. Performance management system is a system that has emerged to embrace these challenges by integrating various human resource management functions such as performance appraisal, compensation, policy development and objective-setting. Its aim is to focus attention on all aspects of individual and group performances, and to successfully integrate the various processes involved.
An effective performance management system has become a strategic influence within any organisation as it possesses a number of positive features and qualities which are contributive in achieving strategic human resource management. First, the system is one of the motivators. Performance management system can be viewed as a process that consists of different stages, with development of reward system as one of the critical stages. Such system pays a great deal of attention and understanding of how rewards motivate people and ultimately improve organisational performance. The process will be discussed in detail later on. Secondly, a performance management system is about constant learning and development, which foster a learning organisation culture. Peter Senge has defined learning organisation as:
â€¦organisations where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to see the whole together (1990: 3)
A learning organisation will continually ensure their people competencies are upgraded through ongoing learning, training and coaching, which is essential to ensure high performance to thrive in the new knowledge economy
Thirdly, a performance management system also provides a vital link between the organisation and its staff as it creates a context in which staff member can speak regularly to the organisation through its managers so that expectations, aspirations and goals are clarified and any discrepancies are worked out. The practising of management by objective, which involved a participative goal-setting and decision making carried out jointly by managers and employees, as part of the performance management system, also reinforces a solid commitment and communication between the organisation and the staff member. Lastly, a performance management system is integrated with interlocking procedures and flows of information. In order for organisation to improve its performance, the importance of developing integrated support system for developing organisational competence must be recognised. An effective performance management system attempts to make positive connections between performance appraisal, training and development, and compensation practises.
A performance management system is much more than improving and keeping performance. It deals with different organisational aspects including reward system, training, development and learning of staff, communication network and even information system of the organisation. All these highlight the potential of a performance management system to influence an organisation as a whole strategically.
Besides the positive features mentioned above, the distinguishing features that make up performance management system can be seen as a series of steps linked to an overall business strategy, as specified in University of Sunderland workbook on Strategic Management of Human Resources p.173. The process starts with objective setting, describing what to be accomplished by individuals, departments and organisation over a period of time. The performance objective may suggest what is expected on employees to be done in order to improve or to keep quality performance, for e.g. achievement of specified sales targets, or speed of response to request from customers. While setting these quantitative objectives to ensure productivity, organisations now are begin to realise the importance of objective setting as an approach to change or reinforce culture. Organisational culture can be reflected in objectives and thus bring about cultural change or reinforcement. Thus, an organisation wishes to nurture a teamwork culture might place objectives on individuals to measure the work's contributions across functional or business unit boundaries. Performance objective must be communicated to employees in a way that their understanding of the criticality of such objective can be assured in order for performance management system to be successful.
After the objectives are being properly set, formal ongoing reviews of progress towards target objectives must take place to ensure the employees are performing toward what have been expected on them. Performance reviews also can be used to identify training and development. Upon the reviews process, manager is able to identify what areas need to be improved, what skills of employees need to be developed and trained in order to achieve the performance objectives.
Performance appraisal is the central part of the process of reviewing performance. In fact, it is central to the whole performance management system as it can be used to serve a number of purposes such as motivating staff, provides a rewards formula for different employees, identifies performance gaps to be filled by training and development, and so on. There are different ways to appraise a staff, such as top-down approach and upward approach where the measurement information is counted from generally one source such as the immediate supervisor who is appraising the performance of the staff member, or vice versa. In contrast to these tradition approaches, a 360 degree system is becoming increasingly widespread in recent years. It is based on multiple sources of ratings including subordinates, superiors, peers, internal and external customers, in order to achieve a more comprehensive understanding of the performance relationship and overcome the criticisms of impracticalities and lack of knowledge of a single appraiser. It also brings potential to develop more open communications within the system, which is crucial to achieve a quality organisational performance. However, it is advised that although 360 degree system can be effectively used for appraisal, care should be taken in its implementation as it can be complex and expose staff to potentially hostile views, which may be outside of their total control.
After the performance reviews, the result of performance appraisal will help the organisation in designing its pays and rewards package. Upon the performance appraisal, organisation is aware that who is with significant headroom and need to be motivated by rewarding, and who is underperformer that needs a distinctive kind of reward as target to encourage improvement, or perhaps a pay-cut. Performance management is often linked with performance-related pay. It is an important element in many performance management systems because it is believed to motivate; it is said to deliver the message that performance and competence are important, and it is thought to be fair to reward people according to their performance, contribution or competence.
The distinguishing feature about performance management is that it is a process, not an event. It operates as a continuous cycle, as illustrated in Figure 4. Thus, evaluation of the effectiveness of the entire process need to be carried out to identify areas for improvement, as the process will define the organisational performance.
1. Objectives- setting
.2. Ongoing reviews of objectives and performance
4.Designing pay and reward package accordingly
5. Evaluate the effectiveness of entire process
3. Formal appraisal feedback
Figure 4 : The Process of Performance Management System
Performance management system is a complex process that integrated different organisational aspects as a way to impact organisation strategically. Such strategic impacts can only be seen when organisation is running an appropriate performance management system. In other words, top management or HR practitioners need to evaluate the organisation first, before develop an appropriate performance management system that fits well to the organisation, in order to ensure that the system will fulfil strategically useful outcomes. The structure of the organisation is the important factor. For example, a large organisation with "tall" structure characterised by a long chain of command running through a multiple levels of management layers, for e.g. public authorities, emphasises development of highly formalised relationships between managers and employees as well as trade union. This type of organisation will have to adopt a very formal performance management system which objectives-setting and performance appraisal system are highly formalised and flow from the top down to ensure the system works. The distinctive factor to be considered when developing performance management system is the organisation's high emphasis on relationship with trade union, which results in the exclusion on pay system in the process of performance management system, as this is a matter for separate collective negotiations. Thus, the use of pay and reward in ensuring quality performance might not relevant. This example should serve to illustrate the necessity of fitting appropriate performance management system to the structure or situation of the company in order for it to be effective.
Besides, to ensure the performance management system fulfil strategically useful outcomes, managers play an extremely important role. Repeatedly, we hear that it's the managers who make or break the system. Managers with poor communication or interpersonal skills are often the downfall of a company's otherwise sound performance management program. Training and development need to be conducted on managers and all employees with supervisory responsibility to develop their skills on communication as well as how to conduct fair, nonjudgmental and consistent appraisals so that their responsibility for coordinating the elements of the performance management system can be clearly assigned. It is suggested that the organisation should designate a separate group of persons as performance management coordinators with sole responsibility of coordinating the development and revision of the performance management policy and the implementation and ongoing administration of performance management system, to fully ensure that the system is able to help organisation in achieving its strategic aims by improving the organisational performance.
The study of ergonomics is crucial as well as it will contribute to the improvement of employees' occupational safety, health and well being, which are necessary to create a high performance workforce. According to the International Ergonomics Association, ergonomics is concerned with the understanding on interactions of the human and other working system components in attempt to improve human health, well-being and performance by applying appropriate methods. Ergonomics is employed to fulfil the two goals of health and productivity. It is relevant in the design of such things as safe furniture and easy-to-use interfaces to machines, which are necessary especially for manufacturing company. By designing a proper and safe working environment, productivity will be increased because of greater efficiency and reduced time off for injury. It also helps in reducing cost as the money paid out in worker's compensation decreased. Ergonomics is concerned with the "fit" between people and the environment. In order to create a high organisational performance and to ensure the effectiveness performance management system, a working environment that fits to its people perfectly is required as it will ease the process of performance management system and improve the performance of people.
An outstanding performance management system contributes a great deal of value to organisation's mean in achieving its strategic aims and goals by improving the performance of its people. Setting up a good performance management system doesn't happen overnight or by accident. Organisation need to consider its design and carefully plan how it will work before it being used to make contributions.
Cipd.co.uk, 2010, Performance Management: an overview, viewed 30 March 2010<http://www.cipd.co.uk/subjects/perfmangmt/general/perfman.htm>
Smallbusiness.dnb.com, Setting up a performance management system, viewed 30 March 2010, <http://smallbusiness.dnb.com/human-resources/workforce-management/1384-1.html>
International Ergonomics Association website, What is Ergonomics, viewed 31 March 2010, <http://iea.cc/browse.php?contID=what_is_ergonomics>
Infed.Org, Peter Senge and the learning organization, viewed 01 Apr 2010, <http://www.infed.org/thinkers/senge.htm>
University of Sunderland workbook: Strategic management of Human resources, 2004, Performance Management, University of Sunderland, p.172-177, 187-189, 213-216, 222.
Question 5: Why are reward management systems critical to SHRM? How can organisations develop reward systems strategically?
Majority of labour problems and disputes are directly related to pay and reward system of the organisation. The efficiency of employees and their interest and involvement in the work depend on wage payment. Even their attitude towards employer depends on wage payment. These issues can be tackled by carefully design the reward system that able to achieve a win-win solution and brings benefits to both employees and the organisation.
It's true that the design and management of reward systems present the organisation with one of the most difficult human resource management task. However, its impacts on organisation to achieve strategic human resource management are huge. A strategic reward system can help organisation in achieving its strategy by influencing two types of employee behaviours: membership behaviours and performance behaviours. Membership behaviours refer to the behaviours of the employees as joining the organisation, remaining with the organisation, and coming to work regularly and punctually. It creates a sense of membership on the employees and influences them to demonstrate the behaviours of a good and loyal member by providing them a proper compensation and reward package in order for organisation to build and secure commitment to organisation and loyalty. According to Business Research Lab (2007), rewarding and recognising results is an important factor in retaining employees. This is extremely important especially when organisation is operating in a tight labour market or remote, undesirable location, to reduce turnover rate. Another type of employee behaviours can be influenced by a strategic reward system is performance behaviours, which comprise the entire range of behaviours required in order for employees to deliver an outstanding performance of a given job or role. We have discussed in earlier question that how pay and reward play a role that cannot be overlooked in managing performance, as the design of the pay and reward system is one of the process in a sound performance management system. Reward is certainly something that can motivate employees to work even better, which constant attempts at improving their performance in the organisation.
A sound reward system can also improve organisational performance by keeping employee morale. By properly rewarding employees, morale wills significant increase as they feel that their work is valued. When employees feel valued, they are more satisfied and happier at work, and in turn will provide better services to the customers, which is strategically important for organisation. Research has shown that people are increasingly getting unhappier with their job. A sound reward system should offer some creative rewards as an effort to improve the battered morale of employees. For example, manager could cook his team breakfast, or show up to work in pyjamas, or any rewards involve the managers serving his staff in some way or allowing himself look foolish. This might seems weird but I personally believe it is effective in keeping morale, and it's low-cost too. Reward system is also able to improve organisational performance by improving productivity of employees, through the use of performance related pay schemes, which cover the various methods of linking pay to a measure of individual, group or organisational performance. The main feature of performance-related pay is that organisational aims become the priority of individual. Setting goals for an employee with a clear reward at the end for achieving the goals will motivate employee to strive harder. When the reward is being perceived as worthwhile, it will form a workforce that is more motivated towards achieving the goals, and eventually make the organisation more productive and efficient. This also explains how a reward system serves as a motivator, which must be in place in achieving strategic human resource management.
Having a motivated workforce is one of the keys for business to success. The criticality of reward system as a motivator can further be seen by looking into the nature of reward itself and applying it into the theory of Maslow's hierarchy of needs. Basically organisational reward can be divided into two types, which are intrinsic rewards and extrinsic rewards. Intrinsic rewards are internal to individual and are normally derive from involvement in certain activities or task. It includes achievements, feelings of accomplishment, informal recognition, job satisfaction, personal growth and status. Extrinsic rewards are directly controlled and distributed by the organisation and are more tangible than intrinsic rewards. It includes formal recognition, incentives benefits, pay promotion social relationship and work environment. Both intrinsic and extrinsic rewards play a vital role to motivate employees optimistically to increase efficiency and effectiveness. According to Maslow, in order for a person to be motivated, lower order needs, i.e. physiological, safety, and belonging needs, must be satisfied before the higher order needs, i.e. self esteem and self actualisation needs, motivate the normal being. A sound reward system will able to arrange a set of motivating rewards that are targeted at these different types of needs, by using both intrinsic and extrinsic form of rewards. Figure 5 illustrates and suggests some rewarding options can be used by organisation in accordance to Maslow's theory, in order to fulfil motivating functions of a reward system.
Provides challenging jobs
Organising team-building holiday trips and activities
Safe working environment
Decent pay structures
A proper canteen
Figure 5: Maslow's hierarchy of needs & suggested rewarding options for each level of needs
As illustrated in Figure 5, each level of needs can be fulfilled by proving a combination of reward mix. A decent salary package is essential to fulfil the very basic need of people, as people are depend on their income to buy the items such as foods, houses, and clothes to have their basic needs met. A proper canteen in the workplace with tasty and healthy foods, perhaps free of charge to the employees is also a type of reward to fulfil the physiological needs. Safety needs can be met by providing employees a safe working environment. The study of ergonomics, as discussed in earlier question, is essential in fulfilling this level of needs. Moving on to the next level is the needs of belonging. Organisation can fulfil employees' needs of belonging by constantly organising company trips or parties that promote team-building, at the expense of the company. After these needs are fulfilled, employees will then seek to meet their self-esteem needs. Organisation can reward its talents with promotions and job titles, which are commensurate with their efforts, to fulfil their esteem needs. After self-esteem needs have been fulfilled, self-actualisation needs arise. These needs can be met by proving employees a challenging job. This might not be a reward, however upon the completion of such job, intrinsic reward, which is the only factor to fulfil these needs, will develop internally inside employees. It is concluded that Maslow's theory best define extrinsic rewards to fulfil most of the needs but in order to for employees to be motivated, intrinsic rewards should be in place to meet the highest level of employees' need. Organisation should study this approach and carefully develop its reward system accordingly to ensure it produces strategic outcomes, by understanding the critical link between rewards and motivation.
In today's rapidly evolving business world, employees are actually placing more importance on recognition and appreciation than impressive compensation package, as quoted by Mary kay - "There are two things people want more than sex and money-recognition and praise". A strategic reward system should include cost-effective measures to show the employees how much their efforts are appreciated, as failure to do so may lead to an unmotivated workforce, employees' self esteem needs as discussed earlier cannot be met and finally lead to a worsening performance. Recognition and appreciation are low cost high return ingredients, and they are not as complex as other reward mix as they only involve acknowledgement and expression gratitude of some accomplishments achieved. However, the impacts might be huge in motivate any employee to work even better when they know that their efforts and hard works they exerted are being valued. A simple yet effective way suggested showing appreciation and recognition is to have a message board in the office where employees are allowed to leave notes praising a colleague. When doing a good job at work, nothing beats getting a fat "kudos" from colleagues as well as managers.
Furthermore, in order for organisation develop reward system strategically, exercise of fairness is extremely important. Harmonising the benefits across all staff group is one of the overarching trends in human resource management, and there are even legal requirements to provide equal pay and benefits. Employees' perception of fairness is the defining factor. When employees perceive the reward system as being fair, attitudinal and role differences between employees and the organisational mission will be reduced, and eventually lead to an effective corporate culture. In the other way round, when employees see decisions about reward as being unfair they tend to be less satisfied, which will eventually lead to poor employee performance and higher rates of turnover and absenteeism. How the fairness of a reward system impact the organisation can also be seen through equity theory (Adams, 1965). According to the theory, employee perceives the fairness of the reward system by comparing the ratio of his or her outcomes to inputs, i.e. rewards given to efforts contributed, with the ratio of outcomes to inputs of some relevant other person. If the comparison reveals the two ratios to be equal, the employee will perceive the reward system as equitable and satisfied. However, if the comparison shows the ratios to be unequal, the employee will experience inequity which will lead him or her to either altering inputs, i.e. lowering performance in attempt to equate the comparison, or leaving the organisation. In order to establish perceptions of equity of rewards, procedural justice is important. It suggests that manager cannot consider the perceived fairness of the decisions themselves separately from the means by which those decisions are arrived at. This theory support that manager should involve employees during the process of designing and implementing of reward system and there is a constant two-way communication between managers and employees. The positive outcomes of procedural justice is that besides promoting fairness, when employees are involved in decision making on reward, they tend to be more accepting of the decisions made even if personally unfavourable. The level of acceptance will in turn, contribute to job satisfaction, which has positive relationship with the performance level of workforce.
Undoubtedly, a sound reward system is the critical factor in order for organisation to success. However, it doesn't ensure that the organisation will have a highly-motivated workforce from time to time. De-motivate factors like ineffective systems and offensive individuals should be removed in a serious attempt. Manager should also focus on constantly improving the work environment, for e.g. ease the ways of performing job, provision of bottomless coffee or other beverages and so on. There must be this perception that management cares and is concerned about employees' welfare and needs, instead of depend solely on reward system as motivator.