Reward Systems: Labour Organization Essay Example

natural self-interests with the organisation’s objectives and provides three types of management control benefits, informational, motivational and personnel related. Firstly, rewards should catch the employees’ attention and at the same time it works as a reminder for the person in charge of what results should be completed in different working areas. Organizations use reward systems to emphasize on which parameters their employees should exert the extra effort on by including them in their reward program.

This is a good way to emphasize and convince the employees of which performance areas that are important and create goal congruence within the organization and signals how the employees should direct their efforts. To motivate is the second control benefit. People sometimes need an incentive to perform tasks well and work hard. Last but not least we have the personnel related control benefit. Organizations give rewards for many different reasons e. g. to improve recruitment and retention by offering a compensation package that is competitive on the market.

Reward systems refer primarily to things that employees value. It is important to bear in mind that a reward system can contain both positive and negative rewards. The negative rewards, often seen as punishments, usually manifest themselves through an absence of positive rewards. Examples of positive rewards would be autonomy, power, salary increases, bonuses and some negative rewards would be interference in job from superiors, zero salary increase, and no promotion. The three purposes mentioned above can be related to what have been said about the different generations.

The Baby Boomers respond more to the informational purpose by valuing directions on how to make the most of every opportunity. The Generation X consider the

third purpose, personnel control, important since training and development are significant attractors and retainers for this generation. When it comes to attracting the Xers they want to be evaluated on merits and not on years of experience. When it comes to recruitment of the Baby Boomers they want to know that their experience are going to be valued and they also want to get credit for their accomplishments.

Different parts of a reward system While constructing a reward system there are certain criteria to consider, and commonly these are considered in most outspoken reward systems. A reward can be either an “add-on”, meaning that the employee has a normal salary, and the reward is just added on top, or the employee may go down in pay and have a greater variable reward. Corporations have, just as humans, different life-stages, and depending on where the corporation is at the moment it has different needs and this affects the reward system, needing to create goal congruence.

What goals the company have in regards of profitability and growth, are the parameters you measure to see if a reward should be paid or not. This usually requires a break-down of the goals, making them easier to measure and more understandable for the employees, and there you also need to show them how their behavior affects the measured goals and parameters. Here the incentive system becomes a tool for management control and the choice of which goals you measure is important, since these are the ones the employees will put their focus on.

Sometimes a monetary reward is given based on individual or on departments’ performance, although the company has losses. This can

be avoided by adding a threshold requirement for the whole company, which then needs to be fulfilled before a bonus can be paid out in any departments. Factors such as when and how the reward should be paid out and if there should be a roof (a higher limit of the reward-amount) are things that always should be specified while designing the system. Monetary It is certainly not the only form of reward, and it is not necessarily always the best one, but it's use is so common that it deserves special mention.

People value money and therefore making money an important form of reward. Monetary reward systems can be classified into three main categories, performance-based salary increases, short-term incentive plans, and long-term incentive plans. The latter two rewards are common on managerial levels and are often linked to performance during a specific time period. The first one, is often considered to be the greatest motivational factor of them all. Each and every organisation gives salary increase to employees at all organizational levels.

This is normally a small portion of an employee’s salary, but has a significant value due to its long-term perspective. Short term incentives in some form are however commonly used in organizations. A cash bonus is usually based on performance measured on a time period of one year or less. Why a company primarily uses a variable pay is to differentiate it among the employees, so that the most successful employees will be rewarded. By recognizing the employee’s contributions to the company it makes it easier for the organization to encourage excellent performance.

The employees appreciate the possibility of receiving a reward for their performance.

Using a variable pay can also be an advantage for the company in terms of risk-sharing. This means that the expense for compensation varies more with company performance when the total compensation is partly variable, making the cost lower when no profit is made and when there is a profit this can be shared with the employees. Rewards based on performance measures over time periods larger than one year are long-term incentive rewards.

By using this, a company can reward employees for their outstanding work performance to maximize the firm’s long-term value. This also works to attract and retain key talented persons. Types of these can be stock-option programs, restricted stock plans or by a reward that is put in a ‘bonus-bank’ that change according to result and runs over several years A stock-option program is usually when a person is allowed to buy stocks in the future, but for today’s price. This is an attractive way of rewarding a manager because the manager would want the value of the stock to increase and thus work harder on the long-term goals nd commitments instead of focusing on short-term profits.

Another advantage with this type of reward is, since the manager does not yet own the stock, he or she will still be taking risks with higher payoffs than they might had if they already owned them. There does, however, exist one great disadvantage though with the stock-option program. A manager does not have enough control over the value. Too many external and non-responsive factors influence the value, making it less appealing as an incentive. A very popular type of long-term incentive is some form of a restricted

stock plan.

This reward is shares given as a bonus to the employee, however, they can only be sold after certain time period. After for instance one year, the employee will be able to sell one fifth of the shares, after two years he or she will be able to sell two-fifths and after three years three- fifths etc. This is a way to retain competence within the company, not to motivate employees, since if they choose to end their employment before the fifth year, they will lose the remaining parts. Some firms take this even further by withdrawing the shares you already received.

Non-monetary Be given a thank you from you manager or to receive gratitude from your co-workers are both examples of non-monetary rewards. Monetary rewards are often accused of being too short- termed, and not creating a long-term commitment which is normally what you want from your employees. To achieve long-lasting motivation for the employees the organization must pay attention to both the financial and the non-financial motivators, in order to provide the best mix. When it comes to how the generations want to be rewarded, the Baby Boomers prefer the monetary rewards.

They work to be promoted and gain recognition. Further they prefer being given a bonus over extra vacation. Moreover, they want to receive appreciation for their long hours at work. The Generation X considers freedom to be the best reward in combination with working with likeminded people and greater pay equity. They also want immediate feedback meaning that it should be given as soon as possible while the Baby Boomers do not want feedback. Xers have great knowledge about balance between work

and leisure, they see work as work and they work to live and not the opposite.

Individual-based vs. group-based rewards For a group reward to provide a direct incentive effect, the employee to whom the rewards are promised has to believe that they can influence the performance on which the rewards are based on to a significant extent. Achieving something as part of a group usually strengthens the ties between co-workers. However, if someone has been part of the group without contributing in the same way as the rest, usually creates great dissatisfaction among the rest, and teaches employees that they get rewards without input.

This phenomena is called the free- rider-problem. In many projects and companies, it is not possible to carry out a task by yourself but the task-completing-process is a process through the company, engaging many different people. In these cases a group-based reward is preferable since everyone has “pulled their weight”, although it is hard to see the individual impact. Individual-based rewards often leads to sub-optimization. When introducing an individual- based reward system, employees tend to concentrate on their own performance instead of the company’s performance as a whole.

Asking co-workers and managers for help is suddenly something you think twice about, as you might need to share a future reward if you do. This leads to tasks fulfilled with an okay result, instead of a better result that might had sprung from a collaboration with co-workers more competent to the task or parts of the task, hence sub-optimization. However, an individual-based reward creates the greatest motivation and larger incentives for the individual. Increasing the responsibility for an employee usually tends to also increase

motivation. This because increased responsibility makes the employee feel more appreciated and skillful.

When in a group, people learn from each other, creating more and more positive actions, and also gets more effective. Rewarding a group using a monetary reward, often creates an intrinsic reward for the group-members, as they feel satisfied belonging to a group that has performed something extraordinary. There is also a possibility to combine these two kinds of rewards. This can be done by basing the total reward on group performance, and the individuals’ shares of this reward on individual performance. The Baby Boomers are so many and because of this they learned at an early age about teamwork.

It was common for them to share textbooks and school material with classmates, which have made them used to and comfortable with working in teams. They do not mind sitting in an office landscape while the Generation X prefer having their own workspace with walls and doors. Furthermore the Generation X prefer to choose their own team members and they are also perceived as more independent. Performance measures and goal setting The connection between performance and rewards are the goals set and the performance measured in contrast to these goals.

There are two types of measures, financial and nonfinancial, although both are usually used, the financial reward is the most common. A company needs to understand what runs their returns to be able to manage the factors that create it. Financial measures, such as return on investment, tend to be short-term which makes them partially sub-optimized. The nonfinancial measures such as quality on the other hand, could be used by the company for long-run financial

performance. Financial measures are still however, very important since they correlate with the primary objective of companies, profit.

A performance measure’s purpose is to both make the employees focus on what is important, but also to be able to see and react when something is wrong. One way of connecting the non- financial measures and goals with the financial is by using a balanced scorecard for example. One definition of a goal is a description of a wanted, future state. This is usually an overall vision, that gets broken-down to different levels in the company, and if this process functions as it should, even at the lowest level and in the tiniest goals, there exists congruence with the vision.

A theory developed in 1979 by Latham and Locke suggests that motivation and performance increases when people set specific and achievable goals, when the goals are difficult but accepted and when there is some kind of feedback on the performance. This makes the participation of goal setting important, giving the employee possibility to influence his goals. Reward systems can shape the behavior of employees within the organization (Jaworski, 1998). More clearly again Pulendran (2000) states that there is a positive correlation between market-oriented reward system.

Based on the description can be explained that the organization implementing the system of rewards based on performance marketing will encourage the growth of market orientation within the organization. Research that examined the influence of reward system on performance is generally conducted at a large company with a background in advanced countries (Jaworski, 1998; Pulendran, 2000) therefore need additional studies to examine the influence of reward system of market orientation on Small and Medium

Enterprises (SMEs) with a background in developing countries like Indonesia.

This is because according to Jaworski and Kohli (1990) market orientation will be less useful in situations of limited competition stable market conditions, while in developing countries is characterized by intense competition and unstable market konsidi (Luo, 1999) so that research on market orientation becomes more important. Based on the above issues are based on the results of previous research (research gap) then the main problem can be formulated in this research is "How to explain the influence of market-based reward system and entrepreneurial orientation on performance marketing?

Reward Systems of Differentiation A differentiation strategy involves the development of a product or service that offers unique attributes that are valued by customers, and which they perceive to be better than or different from the products of the competition. An organization with a differentiation strategy focuses its efforts on a particular differentiated value. The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes. Product differentiation fulfills a customer need by tailoring the product or the service to the customer.

This allows organizations to charge a premium price to capture market share. The differentiation strategy is effectively implemented when the business provides unique or superior value to the customer through product quality, features, delivery systems, or after-sale support. The quality may be real or perceived based on fashion, brand name, or image. The differentiation strategy appeals to a sophisticated or knowledgeable consumer who wants a unique, quality product and is willing to pay a higher price.

The differentiation strategy hinges on organization’s ability to innovate and provide unique products or services. A human resource strategy

that recognizes and fosters the development of new ideas and innovations logically supports this type of strategy. Therefore, an innovation-oriented human resource strategy should be reasonable. One of the key aspects of this market-driven way of organizing work has been the adoption of pay-for-performance and performance-manage- ment systems to measure and reward employees’ merit and contributions to the company.

Organizations frequently implement formal and informal performance evaluations that, in the end, affect major employee career outcomes such as task assignments, training opportunities, salary in- creases, and promotions (Cleveland, Murphy, and Williams 1989). Even though the study of pay-for-performance programs promises to contribute to our understanding of whether contemporary organizations that adopt merit-based practices remedy gender and racial inequality, we know little to date about how these policies influence the distribution of salaries and other rewards among employees.

A few recent studies have looked at employee wages and careers within organizations, but in doing so they have ignored the role of merit and performance evaluations (for a review, see Petersen and Saporta ). The same omission occurs in the line of research on organizations and inequality in employee attainment.. In addition, this body of research is incomplete because it has not examined in depth how these organizational merit-based practices can create the “opportunity struc- ture” for gender and race discrimination (Petersen and Saporta 2004) he Scope and Concepts of reward This subject of reward or compensation may be variously termed, depending on which side of the Atlantic the user of the term is based.

The scope of the subject is variable in different definitional formats but tend to emphasize, first, extrinsic rewards—which stress the tangibility of the reward element

(Perkins & White, 2008). These elements include pay and benefits. In recent years, a second cat- egory, intrinsic rewards, which cover the more intangible rewards of work and employment, has seen a growth of emphasis.

Intrinsic elements include recognition, work satisfaction, and other aspects of the work climate, but the definition could be widened even further. The concept of “total reward” attempts to bring some strategic coherence to the traditional distinction between extrinsic and intrin- sic rewards (WorldatWork, 2007). The nature of reward is drawn widely, in this model, to encompass five separate elements—pay, benefits, work-life balance, performance review/feedback/recognition, and employee/career de- velopment.

While culture is not specifically included within the total reward model, if the definition of reward is drawn sufficiently widely, it may also be argued to be within the mix. However, whether or not one could see reward and culture linked in this way would depend on the conceptualization of culture adopted (see below).

Although organizational culture is a frequent topic for study and discussion in business and management journals and textbooks, and the “culture metaphor” is widely adopted in organizational analysis (Ogbonna & Harris, 2006, p. 62), compensation or reward systems hitherto have not been subject to the same degree of cul- tural analysis as have other areas of organizational study. While the literature of psychology has long encour- aged a view of the reward system that looks beyond the nominal value of rewards to the capacity of pay and bene- fits to hold some potentially deeper meaning for individu- als, the focus for much of this work has been at the level of the individual rather than the social level.

However, from a European

perspective, there is a new strand of more socially oriented research on reward that studies on reward and culture could complement. For example, Neu Moren’s (2008) case-study-based research in Sweden uses Giddens’ structuration theory from sociology to analyze communication issues relating to performance pay.

The latter subject has more frequently been researched from psychological and economic perspectives, but it may be argued that there is scope for more research deploying sociological and cultural analyses. This strand of research could build on earlier work in the United Kingdom. Examples of this work include Roy’s (1952/1972) partici- pant observer study of the operation and manipulation of a factory payment system, Lupton and Gowler’s (1969) sociotechnical work, and Bowey et al. s (1982) study of incentive scheme effectiveness. Also noteworthy in this context is the work centered on the concept of the effort bargain (Behrend, 1984) up on which the more recent study by Marsden (2004) in the British public service draws to explain the paradox that performance pay ap- pears not to be an effective motivating factor (if motiva- tion theory is relied upon) within the public sector and yet productivity is seen to have risen.

Hence, there are strands of research and theoreti- cal propositions that could provide a context for future research on reward and culture. Question 2 of the work Each organization has its own strategic style and each style requires a unique system for managing people. Its core capability is the consistent application of procedures that is, its focus is on efficiency and effectiveness. In the context of Strategic Human Resource Management, (SHRM) its practices are classified into three rational areas i. e.

Alignment of HR

solutions with business strategy, Evaluation of HR system from a cost-benefit and legal perspective and Effective interaction between HR specialist staff and HR consultant. Primary emphasis of the HRM role A question about the primary HRM role was based on the items used in both Dowling and Deery's (1985) and Dowling and Fisher's (1997) studies. Respondents were asked to indicate from a range of HRM responsibilities which one best described the primary emphasis of their HRM position where “primary” was de? ed as meaning 60% or more of their time.

Choices included HRM strategic development, recruitment and selection, training and development, industrial relations, employee relations, EEO,OHS, remuneration, performance management, HRIS, wage and salary administration and a broad range of HRM issues. Performance Management “Performance management systems make clear to employees what is expected of them and assure line mangers and strategic planners that employee behavior will be in line with the company's or organizational goals”.

In today's economy managing performance is of utmost importance to create a competitive advantage. The thinking of HR practitioners and other business leaders, that an annual performance appraisal is performance management, which must get obsolete. Effective performance management entails a process where each employee is fully aware of his or her role in the organization, what type of output is expected, and how the output will be measured.

One of the critical strategies in performance management is to understand the fundamental role of each employee in achieving the mission of the organization. By mapping a process through the identification of the purpose and role of each incumbent, one is easily able to identify where the deficiencies may exist and to develop corrective actions,

identify the strengths of each individual and to maximize each employee's potential and hence their contribution to the financial contribution to the bottom-line of the organization.