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Recently, the whole world is experiencing period of economic downturn. It is easy for employees to feel insecure and expect more from the company. Therefore, human resources strategy is more crucial at this time, as for retaining talented people and the competitive advantage within the corporation. There are many means to maintain workers, however we will focus on the role of reward management during period of economic downturn.
To a large extent, I agree that reward management plays a less important role during recession, but managers still need to combine reward management with other strategies. Due to the fact that managers should communicate other strategies, for example using talent management to motivate workers, with reward management, then it is a better way to keep workers and utilize their skills for the company during the depression.
What is reward management?
Reward management is about managers utilizing strategies and policies to reward employees in a neutral and fair way according to their contribution. This is mainly to motivate and retain people in the organisation. Reward management includes many aspects, for example: reward system, reward strategy, intrinsic reward and extrinsic reward. Managers should consider all of these factors to achieve the ultimate goal, which is satisfying employees and attaining better performance for the company. There are special techniques to work out a superior reward system, for example design and implement the special payment method. However, different companies need different techniques, because every employee has diverse needs and skills, whereas every manager has many aims to achieve. Therefore, managers are required to think about all factors, and try their best to maintain the better employee-employer relationship. (Armstrong, 2006).
What is economic downturn and how will it affect on HR strategy in managing employees?
During economic downturn, all economic activities are slowing down. The GDP of the country will decrease, and the unemployment will increase. In the view of managers, they want to minimize the production cost by any methods, for example they will arrange more redundancy. Thus, employees feel more anxious about their posts, they hope the company can prove to them how vital their role is for the company in a recession. It is better for managers to motivate workers with the aid of HR strategies. As employees bargaining power is higher than employers during a recession, employers should apply superior human resource strategies to show the company cares about the employees. However managers cannot use much financial rewards during recession, as being controlled by the adverse economic circumstances. Hence, managers should combine financial and non-financial rewards to motivate employees. Therefore, the role of reward management is extremely crucial during recession, as with the reduced salary to workers is not enough to motivate them.
What are the roles of reward management in human resource strategy?
Reward management plays a vital function from human resources strategies, as it represents how the employers encourage employees and how they view employees’ contributions for organisation. In fact, every worker brings different significance and employers need to figure out methods to evaluate them reasonably. Reward management can let employers show to employees which kind of behaviour they appreciate, and can illustrate how the rewarding method works to workers. Since they understand the systematic structure of rewarding, workers are motivated to do jobs that are expected from superior level , there will be higher chance for them to work in the right way .In such a way, employee- employer relationship should be improved, conflicts will be reduced, then operating cost should be reduced too. Managers also need to consider about the financial and non-financial rewarding factors, as workers want to have both incentives provided. So reward management is the combination of expectations from both employees and employers, and they can achieve the mutual goals. (Armstrong,2006)
What elements are contented in reward management?
Managers need to set an appropriate reward system for rewarding workers fairly, it should include clear instructions stated how to calculate the reward and managers must make sure both financial and non-financial rewards are included. Moreover, people at superior level are required to take account of job evaluation and manage performance of each individual. Job evaluation is about a systematic way to assess whether the job is crucial or not. Performance management is for managers to evaluate the employees ‘accomplishment, and to sort out special ways to improve performance. They should ensure the system is working effectively and professionally and they are obligated to set the targets to implement the goals. (Armstrong, 2006)
Total reward means the organization provide direct or intrinsic, indirect or extrinsic rewards to workers, these include base pay, benefit for employees, contingent pay and empowerment, etc. As Thompson(2002) suggests that “Total reward encompass not only traditional, quantifiable elements like salary, variable pay and benefits, but also more intangible non-cash elements such as scope to achieve and exercise responsibility, career opportunities and learning and development.”Managers expect this can provide workers a more motivating working environment. They also hope that employees can be more committed to the company and become more actively involved in matters .Total reward consists of two categories, which are total remuneration and intrinsic rewards. For the tangible rewards, we can group pay and benefit into this categories. There are many different kinds of payment methods; base pay is one of the methods. This is usually providing the fixed amount in yearly, monthly or hourly basis. Obviously, this is the basic way for paying for workers’ contribution. Sometimes, managers may pay more as bonus or incentives to employees if they work overtime. Apart from base pay, contingency pay is also from transactional rewards. It means the money provided by employers for high achievement workers. It is evaluated from their working experience and techniques, not only simply from the output. (Armstrong,2006)
Why financial rewards are not enough and how can the non- financial rewards motivate people?
Employers also offer special benefits to employees other than financial ones, for example they will pay for workers’ sick leave, providing holidays regularly. Actually, it is not enough for companies only providing tangible rewards, because it is necessary to provide it to workers and attract them to work. Besides, it is so easy for other companies to copy and improve the format, then they will try to recruit the talented human resources. Moreover, during recession, managers cannot provide favourable financial rewards. There are theories proved that financial reward cannot act as a good motivator. As stated by Hertzberg (1994)” Money is so- called ‘hygiene factor’, it can only act as potential dissatisfier if not present in appropriate amounts, but not as a potential satisfactory or positive motivator.”(Armstrong & Murlis,1994, p.37). People cannot be satisfied by money, although it is the most obvious way to evaluate workers. Money cannot act as a motivator in long-run, just as Pfeffer (1998)suggests “People do work for money, but they work even more for meaning in their lives. (Wright, 2004, p.11).Companies that ignore this fact will make employees lack of loyalty and commitment.”Therefore managers mostly provide non financial remuneration to show their care for employees.
Superior level managers will offer chances for learning and skill development combined with improving the working condition as the non financial reward. Managers should realise that employees need recognition and they should satisfy employees’ expectations. First of all, employees want to attain a certain level of achievement as they want to gain more sense of accomplishment when working in the organisation for a longer time. Workers want to prove how they can deal with challenging tasks, so managers should allow workers to take the lead of different events, create better communication between customers and other colleagues. There are many means for managers to increase employees’ achievement, for example assess and assign a suitable job for the person can carry it better.(Armstrong,1996)
If the employees can attain a certain level of achievement, they hope to get recognition from senior level. As Maslow writes in Hierarchy of needs(1954)” The desire for achievement, for adequacy, for confidence in the face of the world, and for independence and freedom. Also the desire for reputation or status defined as respect or esteem from other people, and manifested by recognition, attention, importance or appreciation.”(Armstrong , 1996, p.321). Most common way to recognise employees is to give appropriate praise and response to them as the support for the outcome they achieved. Empowerment and job enlargement are the advanced ways to recognise employees, these are related to the reallocation of power within the organisation.(Armstrong, 1996)
Personal development is the underlying requirement for employees to achieve the tasks allocated by managers, as different levels of tasks require people to utilize different skills. According to Alderfer (1972), personal growth is” the chance that depends on whether a person finding the opportunities to be what he is most fully and become what he can.”. (Armstrong , 1996, p.323). Although employees should take the initiative on improving their knowledge, managers can do something as encouragement. For example, it is more common for companies offer a subsidy for employees to apply for Phd or MBA courses, as this can help release the financial pressure for employees, and can let them know they should take more chances to upgrade themselves. Indeed, this is what employees always expect from managers nowadays, as the competition is fierce between employees. So managers should put more emphasis on provide training, as companies may reduce their salary a bit during recession. (Armstrong, 1996)
However, there are some shortages of only using total rewards to encourage people to work for you. Even though it is more widespread in businesses to use the reward system, there is still not much clear guideline provided. As nowadays companies still cannot find prepared package from HRM companies for improving their reward systems, there is still a high possibility for them to be risky during implementation. Besides, companies need to design their own system which co-operate with the companies’ goals, this is a complicated procedure, as there are not much professionals in such a field. Indeed, the most important conflict is that it is difficult for managers to draw attention to both individual needs and the goals of company. Managers do not really understand how to get the balance between these two, as there are many grey areas. (Jean Richards,CIPD,2009)
Why and how can other HR strategy (Talent management) co-operate with reward management during economic back down?
To improve the satisfaction of employees and retain the competitive advantages for the company, talent management is another strategy that managers can corporate with the reward management. Talent management can act as a tool to “retain, attract, motivate and engage talented people it needs now and in the future.”(Armstrong,2006, p.390). This strategy covers all employees in the organisation, no matter if they are highly skilled or not, and it emphasises everyone to get their own talent to make some contributions. Besides, during economic downturn, the focus of companies change from rewarding employees as much as they can to retain the talented employees in own companies and attract other talented people from competitors. Moreover, companies need to understand more about their employees’ skill level, as they want to ensure employees are worthwhile to retain in the organisation. In fact, the role of talent management is similar with reward management, but talent management stresses more on “develop and maintain a talent pool of skilled and engaged workforce.”(Armstrong,2006)
During economic downturn, companies will change their direction for ensuring they can survive, and they will concentrate on certain talent management rules. Performance management, total reward and learning and development are the common elements for reward management and talent management. Thus, managers are rather focusing on talent audit, role development and talent relationship management. Talent audit is mainly for managers to notify which employees have the potential to improve their skill with more training and preparing them to achieve the difficult tasks in future. It is also for senior level to put more emphasis on talented people who do not have strong sense of belonging, and retain them during recession.
For role development, it plays a vital part for assessing whether the right role is playing by the suitable person. During recession, employees hope they are not being left behind, they expect they can be encouraged and take a more important role in tasks. Therefore, managers should be able to recognize the appropriate skill of employees and allocate the role to them respectively. For talent relationship management, it supposed that managers should have better communication skills with employees during recession, and they should be able to have more honest conversations towards their working issues.
Moreover, managers should also be obliged to provide a better working environment, not only in terms of layout of offices. They should try to have fairer treatment to every individual, and try to encourage employees to develop a better career plan in the long term. Apart from employee- employer relationship, managers should also provide more chances for employees to share their ideas, and encourage them to work and learn together. This can provides a better sense of belonging to employees as they can feel the whole company are fighting against the unfavourable circumstances. (CIPD, 2009: Armstrong,2006)
Case Study and analysis: BT
BT is an international telecom provider who always aims at providing the better service out from the competitors, and they also want to act as a “responsible business”, and this is their main differential aim from other competitors. They hope that they can be a business which can be innovative and be beneficial to the society, and they can keep their sustainable development as the competitive advantage. BT has special techniques to develop the employees to achieve the mutual goals and retain their competitive advantages. They focus on talent management and combine it with reward management even during recession.
Since 2005, BT organised the programme “Talent Deal” which is mainly concentrated on how managers can cope with different employees’ needs with good communication. BT believes that even if they provide superior rewards, either financial or non-financial, it is still easy for others to copy it. Therefore they focus on developing their “Talent pool” in many ways, for example career planning and movement, opportunities for networking and meeting top executives. Even now BT is operating in the deteriorating economic circumstances, they still focus on talent development with other approaches. They have regular review towards the talent development program, evaluating whether the program works effectively and whether it is cost-saving or not. For example they have “Talent Academy,” which is a program aimed specifically at developing employees to be multi-skilled, that is the reason why BT proposed to produce in bulk rather than to outsource. After all with the positive result of managers’ steadily increasing talent engagement, the talented employees find it more encouraging.
(CIPD, Fighting back through talent innovation,2010)
From the case of BT, we can see how important are the redirection of HRM strategies for businesses during recession. It is because employees become more important for companies; companies cannot take any risks to lose the faith of employees. That is the reason why BT changed their focus to talent management; they fully understand employees want to have more chances to show their ability during a economic downturn. As stated in the case, BT provides much more communication opportunities for workers and managers, and this is better than providing rewards to them. Employees can see the future of their career better with more communication and have a better understanding with the senior level. In the management team’s view, employees can contribute much more to the company with significant outcomes. With the better development of talented employees, this can fight against the adverse economic circumstances. Moreover, with the special talent development scheme, BT can develop and maintain the competitive advantages from their talented pool of employees in the long run, instead of providing rewards and retaining them in the short-term.
(CIPD, Fighting back through talent innovation,2010)
To summarise, it is vital to redirect the HRM strategies during the recession. Reward management becomes the fundamental strategy to show how managers value the employees, the better way is to evaluate different aspect of talents from employees and allocate people in the correct role. This is the role played by talent management during recession, and this can combine the ultimate goal of reward strategy. After all the aim of HRM strategies during economic downturn is to increase the engagement, motivation and loyalty of employees. However, managers cannot provide much rewards under such conditions, mostly they can provide non financial rewards, which is not a significant way to retain talented people. As other competitors may create a similar and improved reward format, like provide higher promotion chances, and then the talented employees may leave the organisation if they feel the competitor can provide better career development after recession. Therefore, HR managers are required to redirect the reward strategies and focus more on providing non financial rewards and provide more talent management. With the combination of reward and talent management, this can provide the businesses with a long term approach to retain and create competitive advantages, as they can keep the talented employees and develop their skills, so they can have better recovery than competitors when the recession comes to an end.
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