Published on February 28, 2014
345 HRM [2881014 ] Human Resource Management “Reward Management” Presented By : Maen Aloquili Business Administration 1
345 HRM [2881014 ] Introduction The first purpose of this Essay is to demonstrate an understanding of human resource management. Nowadays, organisations follow different modern approaches to gain a competitive advantage. As a result, there are a variety of definitions for Human Resource Management. (HRM) is a very important issue. It is based upon the human side of management, and concentrates on employees as vital assets within their firms. According to Price “human resource management is aimed at recruiting capable, flexible and committed people, managing and rewarding their performance and developing key competencies.” (2007: 31) However, in (HRM) most organisations are concerned with satisfying employees, in order to increase their potential and performance, by selecting and recruiting the right candidates for the right positions. In doing so, according to Beer et. al., (1985), “human resource management involves all management decisions and actions that affect the nature of the relationship between the organisation and employees, its human resource.” This Essay will evaluate and review the current performance management and reward system at DIY. It will also Identify and Discuss the possible changes required to the existing performance and reward procedures at DIY, to achieve its goals and competitive advantage. In order to reach to the most successful approach in Reward and performance management, we will demonstrate the aim and importance of both aspects, to help organisations motivate and satisfy their employees effectively. Critically review the current performance management and reward system at DIY Stores DIY (do-it- yourself) store is a large warehouse organisation in the UK, selling self assembly furniture, equipments, plumbing and garden tools. DIY is ranked in the top five within its competitors, and within its market share. Its annual turnover is above £50 million, and its profit is approximately £1 million annually. They have 250 stores across the United Kingdom, and employ 12,000 people; they serve more than 1 million customers weekly, DIY are now trying to make some improvements in performance and reward systems for their staff, in order to attain efficiency in competitive manner. 2
345 HRM [2881014 ] Before starting to review and analyse the case study of DIY stores, it is important to demonstrate what is meant by performance and reward management, regarding to human resource management (HRM) in organisations. According to Armstrong (2002: 373) Performance Management means getting the superior outcome from the individuals and teams in the organisation. It involves development plans and an agreement of skills, knowledge, objectives and core competencies. Performance management indicates how individuals should be rewarded in relation to their performance and their quality of work. On the other hand Reward Management is concerned with implementation of policies and procedures. It deals with maintenance of reward system issues, to meet both organisation objectives and its stakeholders, as it deals with long term strategies in order to reward people fairly and equitably, regarding their value and performance (Armstrong & Stephens, 2005). Referring to the case study of performance based pay at (DIY), it is apparent that this organisation brings a lack of motivation to the managers, who are working below store manager level, because they promote and reward them without measuring their performance, as they reward them less effectively for their jobs. The annual survey report (2007) points out that “55% of employers claim to measure the effectiveness of their reward strategy”. In that case, some of the managers that don’t have any interest in promotion should be rewarded in different ways such as provided incentives (bonuses in their salaries). If this problem continues it will lead to an increase in staff turnover, it will limit the performance from other employees, as well as affect the trust between employees and their supervisors, which in this case are their managers. On the whole this will have an effect on the company achieving goals and objectives. See figure (1) 3
345 HRM [2881014 ] Plan Identify Problems/ Issues Do Act Stand arise and apply new system Review and look for alternatives Gather information Analyse Check Check results Check wider effects Source: By Researcher The case shows that managers can improve their financial positions throughout promotion only. By ignoring the other employee’s efforts, rewarding them with limited reward packages, not involving them in performance based rewards and by not succeeding to maximise employee’s performance within the group, will lead to dissatisfaction, demotivation and a breach in achieving the target they planned for. It will also put the company in an embarrassing situation. Therefore, Motivation is an important principle, to enhance people’s behaviour and monitor the direction they take within their jobs. There are two different types of motivation: (1) Extrinsic motivation, which means what, is done for people to motivate them, this includes pensions, promotion and pay increases. The other type is (2) intrinsic motivation, which is based on the quality of the work. This means that when staff do their job, they can feel that the work is challenging and that they are developing skills and capabilities. This kind of motivation is powerful and useful, because it is effective long term, and works for what it is planned for. This doesn’t mean that extrinsic motivation is bad and intrinsic motivation is good. 4
345 HRM [2881014 ] We can use them both in different roles, and in different situations. This just depends on what the company are aiming for in their strategy (Armstrong & Stephens, 2005). Therefore, successful motivation will guide the employees to perform efficiently, to reach organisation goals and to fulfil their needs. There seems to be some equal pay policy issues regarding the case study of (DIY) and their preferences between different employees and managers inside the company. It is clear from the case study that one group of people receive more generous incentives and promotions than others. It is also clear that these preferences can lead to the loss of cooperation between employees and managers, which will influence company performance overall, and will create tension inside the organisation, which may result in a higher staff turnover. See figure (2) As a result of equity, it has to be obvious to all staff and workers who are involved in this process. Adams (1963) comes up with a theory on equity which means “efforts and rewards and other similar 'give and take' issues at work respectively 'inputs' and 'outputs’. Inputs are what we give or put into our work. Outputs are everything we take out in return. These terms help emphasise what people put into their work, including many factors besides working hours, and what people receive from their work including many things aside from money.” This theory concludes that employees will put less into their job, if they are not equally treated comparing to other people, and it will create another kind of de-motivation to the job (Businessballs.com, 2007). Last but not least, it has been noticed from the case that, Performance Related Pay system (PRP) in (DIYs) does not work properly, because of these reasons: it limits the store managers, and doesn’t give them any time to concentrate on other jobs; moreover, managers do not concern themselves with the corporate performance in achieving targets, and increasing customer satisfaction. In addition, Performance Related Pay system (PRP) relies on meeting a specific target without linking these targets with the actual overall performance of employees. Promoting managers and other employees to store manager, is not an effective way to encourage all staff to do their jobs effectively. It is also not possible, because there is limited availability to promote people, especially when we are talking about DIY stores, as there are 250 stores across the country; this means the store doesn’t have a wide range of branches to 5
345 HRM [2881014 ] cover this promotion. According to Randle (1996) “it is right and proper for people to be rewarded in accordance with their contribution.” On the other hand, the case study outlined that the disciplinary measure tool has been used in order to reach a specific target; this tool in management terms is not a modern way, as it forces people to do their jobs under threat. Therefore, this way is not the right direction to motivate people; they may only motivate themselves to avoid punishment. So, by giving the employees a clear vision and the right direction, it will help them to achieve their target, and will create a healthy environment. 6
345 HRM [2881014 ] Figure (2) Source: Herzberg, F. (1966) “Work and the Nature of Man”, Cleveland: World Publishing MAINTENANCE FACTORS Salary Job safety Working situation Level and quality The Dissatisfies JOB Fulfilment The Satisfier Intelligence of achievement Recognition Responsibility GROWTH FACTORS 7
345 HRM [2881014 ] Identify and discuss the changes you would make to the existing performance management and reward procedures As we discussed in the first section of this Essay, the current reward and performance system in the company doesn’t comply with what the company seeks. Therefore, the change has to be in place within the organisation structure, and company performance management and reward procedure, in order to improve its strategic plans in the long run. As a result the change is vital in this company. The new structure and view of the performance and reward procedures will concentrate on different aspects and factors, such as Competency-Related Pay (CRP), Total Reward, Performance Appraisal and training and development. Thus, this will help to make the essential changes recommended to the company, and turn business performance around, making it dynamic and strategic. Competency-Related Pay (CRP) can be defined as “paying for the development and application of Essential skills, behaviour, and actions, which support high levels in the individual, team, and organisation performance.”(Armstrong cited in Neathey, Reillys& IES, 2003) It can be argued that Competency -Related Pay has two main ways to link competencies with reward “Job Focused Process” which uses competencies to evaluate different tasks and jobs in the organisation, and “People Focused process” this will link individual pay with level of competencies, such as bonuses and pay increases (Neathey, Reillys& IES, 2003). The studies show that 75% of organisations use competency related pay in their framework, which is used in performance, and encourages competency progress. On the other hand 60% of organisations have used the same approach, to decide how they will distribute and split all pay rises into pay shares. (CIPD, 2010) As a result, paying for the competencies means the company is looking to move forward onto the next step, as pay based on competencies will prevent over stress in the PRP system, regarding to case of (DIY). The above system will encourage employees to work and achieve organisation goals in a flexible way. The benefits from Competency – Related Pay are: apply the equity into and play the role of fairness in all employees, build the cooperation and communication with all the staff in the company, establish a project team to build up the 8
345 HRM [2881014 ] process, as this will create cross culture inside the organisation, which will bring a healthy environment to the organisation. Competency related pay is used in many organisations. One of the companies who used this system is Volvo Group (UK). Before they were using this new approach, they adapted performance related pay (PRP). Because this approach doesn’t work well, and it gives them limited incentives to improve; they decided to choose a new system that will help them to improve and maintain the issues that occurred and make corrections. Competency -Related Pay enters into an organisation to give flexibility, encourage people to do jobs efficiently, and help companies gain a wide range of experience. Total Reward system is a mixture of elements and components that brings everything into one benefit package. Such as: learning and development, experience, positive environment, and employment relationship. Total reward is based on “all employees” equitably and their engagement in their jobs. It consists of tangible rewards and non- tangible rewards, which means in other words, (non financial rewards). Tangible rewards include transactional rewards between employers and employees, such as bonuses, pensions, pay rise and other benefits. On the other hand, intangible reward which is (non financial rewards) includes benefits such as career opportunities, experience, training and development. Relating total reward in the (DIY) case study; the purpose of total reward is to maximise positive job engagement, powerful motivation, organisation commitment and employees empowerments. It can be argued that the total reward system could be a tool that creates an environment that enhances motivation and performance in the workplace. To sum everything up, total reward is a holistic approach that meets individual needs, brings new and talented people into the workforce, and enhances employment relationships. See figure (3). Below are the components of the total reward system that any company can benefit from in the future, and it will add value in terms of business strategy. 9
345 HRM [2881014 ] Figure (3) Source: Achievement awards group, (2007) Available from: http://corp.awards.co.za:8000/what_we_do/enterprise_solutions/total_rewards.html Furthermore, the use of Performance Appraisal schemes help to review and examine the finical rewards in the organisation and its an helpful tool for development and motivation for employees therefore, the company in such circumstances as (DIY) have to initiate and illustrate new appraisal techniques and connect them with incentive reward systems. According to CIPD (2010), “performance appraisal one of the range of tools that can be used to manage performance because it is most usually carried out by line managers rather than HR professionals. So, it is important to understand that, performance appraisal contributes to the overall aims of performance management.” As a result it is recommended to involve performance appraisal into the firm because it will help to give a feedback to the individual’s performance, planning for future promotion and provide a clear vision on how the salary will be distributed between employees. Finally, Ndunuju (2009) point out, “to make performance appraisal successful tool in the organisation the goals must be set as “ SMART” this means that the goals must be Specific, Measurable, Attainable, Realistic and with a Time Frame. Individual goals must be associated with corporate organizational goals. Employee self-evaluation must be included in the assessment form. 10
345 HRM [2881014 ] Conclusion This study shed some lights in details about the performance and reward system that has been used in DIY stores. Then it discussed and identified the recommended changes that help to improve performance and reward procedures and systems in the company. By discussing the application of key areas of HR practice that regards to reward and performance schemes, we found the company has some issues in strategic planning to develop existing employees more than to recruit new employees because they are well trained and they have the experience to achieve successfully, this itself will save money and time. Moreover, the company more focused in promotion by position that will prevent people to give their effort in the job and meeting the targets on time. As a part of human resource strategy is seeking for more employees to carry out active jobs and new jobs have been required by taking in account age, performance and qualifications, in order to meet the ordinary levels of the customer demand and sales, enhance the efficiency and create suitable team-work environment. Therefore, depends on the skills, performance, and well trained of motivated people to drive the Company’s recovery and deliver the maximum quality of better performance. Changes in the environment of the company has bring new opportunities and challenges for DIY stores, and the employees and managers performance being asked to turn out away from usual defined job descriptions in order to achieve the company objectives. At the end, we can see that performance and reward strategy is not appropriate to the size and type of the firm. For that reason as we mentioned before in this essay we outlined some suggestion changes that might help to improve and develop its way on rewarding people equally and create an team spirit to accomplish strategic goals and adding value in long term manner. 11
345 HRM [2881014 ] Bibliography Brewster, C, Sparrow, P.R. & Vernon, G. (2007) “International human resource management”. 2nd Edition. London: Chartered Institute of Personnel and Development. Cole, G. (2002) “Personnel and Human Resource Management” London: Thomson Learning. Dessler, G. (2002), “Framework for human resource management” 2nd Ed, Upper Saddle River, N.J., Prentice Hall. Digit, K. (2008) Recruitment & Selection & Retention Theory [Online] Available at <http://www.ehow.com/facts_5526903_recruitment-selection-retention-theory.html> [15 Feb 2010] Giancola, F. (2007) “Benefit Compensation: Skill- Based Pay- Issues for Consideration” The journal of the conference on Benefit & compensation vol. 44, issue 5. Kane & Palmer (1995). "Strategic HRM or managing the employment relationship?” International Journal of Manpower, Vol. 16 issue. 5/6. 12
345 HRM [2881014 ] References Armstrong, M. (2002) Employees Reward. 3rd ed. London: Cormwell press. Armstrong, Stephens, T. (2005) AHandbook of Employee Reward Management and Practice. 2nd ed. London: Kongan page. Acheivment Award group, (2007). “Total Rewards” [Online] Available at http://corp.awards.co.za:8000/what_we_do/enterprise_solutions/total_rewards.html> < [28 March 2007] Businessballs.com, 2007 “Adam Equity Theory” [Online] Available at < http://www.businessballs.com/adamsequitytheory.htm> [18 Feb 2011] CIPD, (2010). “Performance Appresial” [Online] Available at < http://www.cipd.co.uk/subjects/perfmangmt/appfdbck/perfapp.htm> [19 Feb 2011] Herzberg, F. (1966) “Work and the Nature of Man”, Cleveland: World Publishing. Mikander, C. (2010). “The Impact of Reward System in Employee Motivation in Motonet Espoo” [Online] Available at <https://publications.theseus.fi/bitstream/handle/10024/16956/carolina_mikander.pdf?sequen ce=1> [12Feb2011] Ndunuju, A. (2009). “What is Performance Appraisal?” [Online] Avialble at< http://www.articlesbase.com/human-resources-articles/what-is-performance-appraisal762764.html> [09Feb 2009] Neathey, F. Reilly, P. & IES (2003). “Competency Based- Pay” [Online] Avaliable at < http://www.employment-studies.co.uk/pdflibrary/mp25.pdf> [25 Dec 2009] Noe,R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2000) Human Resource Management: Gaining Competitive Advantage. 3rd ed. New York: McGraw- Hill. 13
345 HRM [2881014 ] Price, A. (2007) Human Resource Management in Business Context. 3rd London: Seng Lee Press. ed. Randle,K. (1996). “Rewarding failure; Operaqting Performance Related Pay system in pharmaceutical Research” Personal Review. Vol.26 Issue 187-200. The annual survey report CIPD, (2007). “Reward Management” [Online] Avaliable at<http://www.cipd.co.uk/NR/rdonlyres/08FE4AE7-7DD5-41859070F34225A6EB0C/0/rewmansr0107.pdf> [15 June 2007] 14
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