MGW 2430 |
LITERATURE REVIEW |
STRATEGIC REWARD MANAGEMENT |
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5/23/2011 |
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By definition, a reward system is one that is “put in place to provide a systematic way to develop positive consequences” (Wilson, 2003, p. 29).
O’Neill, (1995) suggested that employee remuneration represents significant expenditure in any organization.This review aims to firstly,define strategic reward management and explain the underlying principles of a reward strategy,secondly, to explain how a reward strategy helps to meet organizational and employee needs as well as explain the essential building blocks of a total reward management needed to establish a reward strategy. Finally, it will explain the performance pay and show its links with performance management and training and development as well as explain benefits and non-financial rewards.
Strategic Reward Management
Strategic reward management is an “approach to the development and implementation of reward strategies and the guiding principles that underpin them” (Armstrong, 2010, p. 63).
Rewards can be financial, that is, cash-based for example a basic salary, indirect (benefits) or incentives or they can be non-financial in nature (Chiang, 2007).
They are sometimes used by companies strategically in order to gain a competitive advantage over other firms (Chiang, 2007).
Reward management has shifted dramatically over the years from a micro-behavioral approach to a more large-scale or stratgeic management orientation (Chiang, 2007).
Armstrong, (2010) states that reward strategies in the past have sometimes put more focus on the needs of the business, however if employees fail to see fairness and equality in their rewards, the strategy is unlikely to be delivered in practice. In addition to that, reward management is an important factor in establishing a good and healthy employment relationship, where there is affinity between management and employees and this helps to develop a good foundation of trust (Armstrong, 2010).
Underlying Principles of a Reward Strategy
Different authors present the principles of a reward strategy in different ways. Zingheim & Schuster, (2005) state that “a critical element of evolving creative reward strategies is a redefinition of the responsibility of managers for actually managing the pay and reward process in their organizations.” In addition to that, Zingheim & Schuster (2005), also believe that equity and equality are two central reward allotment principles and when equity is being pursued, rewards are allocated differentlly according to performance. However, Chiang, (2007) suggest that the motivation theory provides the guiding principles behind different reward systems, where performance-based systems reward employees acording to their respective performance results and contributions towards the firm’s success.
Linking reward strategies to business strategies, lack of assumption about what employees value and never underestimating the importance of the work environment are the three principles that Estes, (2001) thinks should be considered when preparing a reward strategy. Whereas Wilson, (2003) maintains that operating the reward system fairly, justly, equitably and transparently in the interests of all stake holders, rewarding employees according to their contribution, creating an attractive employee value scheme as well as recognizing the value of everyone who is making an effective contribution and not just the exceptional performances are some of the principles of a reward strategy.
Reward strategy: How does it help meet the organisation and employees needs?
By definition reward strategy is a business-focused explanation of the organization wants to do about rewards in the next few years and how it anticipates doing it (Wilson, 2003).The aim is to provide the organization with a sense of purpose and direction in conveying reward programs that support the achievement of organizational and employee needs. With a good reward strategy adopted by an organization, it can first be used to satisfy the employee needs and then lead into fulfilling the organizational needs. For instance, base pay or monetary reward is an employee need for the work they do and some of the organizational needs are high performers are rewarded and also ensure competitive rewards at the workplace (Wilson, 2003).What an organization can do is use performance pay were by the employees receive money based on the work they do, such as discretionary bonuses, incentives, profit sharing etc. With performance pay as part of the reward strategy, this will instigate a competitive atmosphere at work thus ensuring competitive rewards at work which is one organizational need (Wilson, 2003).
In addition, another organizational need that will be fulfilled is the one were high performers are rewarded with the competitive nature at work and the promise of rewards for good performance, the organizational will first be able to identify the high performers in the organization and will be able to reward them thus fulfilling the needs.
Essential Building Blocks of Total Reward Management
In order to establish a reward strategy all elements of the reward management had to be taken in to consideration. A reward strategy has to be balanced in order to avoid conflicting goals or needs (Spitzer, 1996).Under reward management there are four essential building blocks that are incorporated whilst making a reward strategy.
The first building block is Base Pay- this is an employee’s initial rate of compensation for turning up at work.eg wage, salary etc. An employee’s base pay can be expressed as a base hourly rate, monthly etc. Base-pay can be established through internal and external equity. There are three popular payment used 1.Lead-Lead policy, 2. Lead-Lag policy, 3. Lag-Lag policy (Spitzer, 1996).
Performance pay is the second block. This is when individuals are rewarded based on the work they have done.eg bonuses, commission etc. for an individual to receive performance pay, it is determined through an annual performance review (Mavor et. al,1991).Another important aspect of performance pay is through training and development. Training has its benefits such as the obvious improved performance by the employees, developing group and team skills needed to achieve organizational goals, with training given to employees the motivation level is also increased (Mavor et. al,1991).
Performance pay has to be in tune with the organizations culture and goals, the personnel practices etc for them to work (Mavo et. al, 1991).
Employee Benefits is the third block that also needs to be taken seriously, they are given to the employee but not necessarily in financial terms.eg health insurance, all expenses trips paid for etc (Employe Benefits Programs).
Non- financial rewards play an important role.eg office transportation, training and development etc. the correlation between monetary value of rewards and motivation is not very high. Monetary rewards have some serious motivational limitations (Spitzer, 1996).
Performance pay
Numerous disciplines provide theoretical and empirical support for the efficiency of reward schemes that pay for performance. Social psychologists using experimental methods have found that performance-based pay serves to enhance effort and upgrade workforce quality; furthermore economic theorists have also argued that performance-contingent rewards motivate effort and attract talent when effort and talent are not easily observed (Zenger, 1992).
The above statement suggests that organisation use performance pay as a strategic way of stimulating employees to work hard when completing certain tasks and in doing so both parties benefit in such a sense that higher levels of productivity benefits both employees for they are receiving more than they are normally granted (extra pay) while on the other hand organisational goals are also being attained effectively, which in turn increases profits.
Performance management
On the other hand, performance management is an organized process by which an organisation involves its employees, in improving organizational effectiveness in the accomplishment of organisational objectives (Walker, Damanpour, & Devece, 2011).
Thus, managers plan work tasks and set expectations that need to be completed by all the other employees in the organisation. They monitor how progressive each worker is and if assistance is needed, they develop the performance capacity through training or the proposal of rewards for the best performer. As a result, employees are motivated to put in more effort through hard work, therefore performance is rated and the best worker receives the proposed reward.
Training and development
The primary objective of training is to produce change therefore; it can be interpreted as the development of an individual’s human capital which includes the enhancing of one’s knowledge and skills whereby it can in turn bring out desired change through innovation that can assist a company in achieving its long-term goals even though it does not motivate the workforce (Chapman, 2010).
Overall, performance management allows managers to assess worker productivity and if the organisational managers are not fully satisfied with work performance, then training and development can be introduced in order to enhance employee’s human capital. After the training stage, workers tend to be more competent therefore, through motivation arising from the introduction of performance pay workers will then put in more effort towards the attaining of organisational goals.
Employee benefits
Employee benefits are not paid directly to the employee as monetary units and usually refers to retirement plans, health life insurance, life insurance, disability insurance, vacation, employee stock ownership plans, etc. Benefits are increasingly expensive for businesses to provide to employees, so the range and options of benefits are changing rapidly to include, for example, flexible benefit plans (Mazurek, 2008).
Benefits are forms of value, exclusive of payment, that are provided to the employee in return for their contribution to the organization through the supply of that employee’. Some benefits, such as unemployment and worker’s compensation, are federally required (Mazurek, 2008).
Non-financial rewards
Recently, organisations are beginning to realise the need for new solutions that motivate and drive employee performance in order to increase productivity through efficient as well as effective working (Non-Financial Reward Motivate and Drive Team Performance, 1996).
In addition, companies have emphasized the significance of non- financial rewards including praise, promotion, alleviation of boredom, a sense of accomplishment, to hard working employees within the organisation (Guzzo, 1979).
To add to that, Non-monetary rewards should form one important part of a complete employee recognition program along with monetary rewards which encourages employees differently meaning that reward preferences differ because some favour non-financial rewards and the others financial rewards, however either one of them can help in boosting individual feelings of satisfaction and confidence.
It is evident from the above discussion that reward management plays a very important role in human resource management. Employees need to feel like their work and input is being appreciated and the best way to show it is through rewarding. This review has discussed several aspects of reward management including principles of reward strategies, building blocks of total reward strategies as well as performance management in relation to rewarding employees. Companies need to pay keen attention to the reward management so as to keep their employees motivated, as this leads to more productivity, which leads to higher profits.
References
Armstrong, M. (2010).
Armstrong’s Handbook of Reward Management Practice: Improving Performance. PA, USA: Kogan Page Publishers.
Britton, P. B., & Ellis, C. M. (1994).
Designing and Implementing Reward Programs: Finding a Better Way. Compensation Benefits Review , 26 (4), 39-46.
Chapman, A. (2010).
Training and Learning Development. Retrieved May 2011, from www.businessballs.com/train.dev.htm.
Chiang, F. F. (2007).
The transferability of management practices: Examining cross-national differences in reward preferences. Human Relations , 60 (9), 1293-1330.
Employe Benefits Programs. (n.d.).
Retrieved May 2011, from http://www.employeebenefitsprograms.org/employee-benefits-programs-advantages.
Employee Benefits: How competetitive is your Organization? (n.d.).
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Estes, B. (2001).
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Guzzo, R. A. (1979).
Types of Rewards, Cognitions, and Work Motivation. Academy of Management Review. , 4 (1), pp. 75-86.
Mavor, S. A., Milkovich, T. G., Widgor, A., & Broderick, F. R. (1991).
Pay Performance: Evaluating Performance Appraisal and Merit Pay.
Mazurek, S. (2008).
Field Guide to Leadership and Supervision. Retrieved May 2011, from www.managementhelp.org/pay_benefits/benefits.htm.
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Spitzer, D. (1996).
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Walker, R. M., Damanpour, F., & Devece, C. A. (2011).
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Wilson, T. B. (2003).
Innovative reward systems for the changing workplace. USA: McGraw-Hill.
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Why do Employees Only Reward Extreme Performance? Examining the relationships among performance, pay and turnover. Administration Science Quarterly , 37 (2), 198-219.
Zingheim, P. K., & Schuster, J. R. (2005).
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