“Critically analyse the appropriateness of reward systems and explore to what extent these strategies incentivise employees in the workplace”
Table of Contents
REWARD SYSTEM AND EMPLOYEE MOTIVATION.. 1
The purpose of this essay is to evaluate the appropriateness of the reward system applied within organizations and analyse how much the reward system’s strategies incentivize employees’ motivation and performance in the workplace. In few words, the topic focus on the level of motivation and personal needs satisfaction that certain financial and non-financial benefits, deriving from the company’s policies, could bring into an employee’s life and to what extent these benefits contribute to the employee’s performance and productivity.
In order to develop this topic various motivational and satisfaction theories will be applied. Among them, Armstrong’s, Maslow’s and Herzberg’s theories will be introduce by contrasting the different thesis on motivation they support and by evaluating which positive effects each motivation factor could bring.
Finally, Shell Company will be used as a case study of the topic to allow a better comprehension of how the reward system influences employees’ motivation and to what extent it improves the overall company’s performance.
THE REWARD SYSTEM AND MOTIVATION
Being in a 21st century where fast-growing labour markets with high-skilled workers and the organizations’ competition operate with each other, the HR Manager’s job is always more complicated but at the same time significant inside an organization’s management sector.
Retaining high-skilled employees inside the organization for a long-term period, preventing them to change company, is a very important strategy as the managers will benefit from the overall performance and the general contribution that these employees will bring over the course of years. Therefore, a strategic and robust rewarding system should be implemented within an organization that strives to reach this objective. Hence, the reward system implemented by the HR Manager is a fundamental strategy that will help the company to retain employees by motivating them and satisfying their needs and to increase workers’ performance towards the core company’s goal (Mondy et al, 2005).
An employee reward system refers to the employees’ rewarding process in correspondence to the value that the organization sees and receives from them. The reward system is made up of the organization’s policies, processes and practices of rewarding its own employees in accordance with their contribution, skills, competence all together integrated with their market worth (Armstrong & Murlis, 2007). Commonly, many assume that an employee reward system refers only to financial reward; however the employee reward system covers both the financial and non-financial rewards. In fact, a reward system rotates around fixed, variable financial pay and the employees’ accumulated benefits which together indicate the total remuneration owed. Beside this, there are also non-financial rewards that encompass benefits such as recognition, achievements, increased job responsibilities and career advancement.
According to (Brewster et al 2007) the main components of this system include:
Processes: through which management is able to measure the value of the job itself, the contribution of the employee to the success of the task and in return the level of employee benefits that are to be provided for success; processes in an organization consist of evaluation of the job and performance management;
Practices: are applied to motivate people by the use of rewards; they are either financial pay, benefits, allowances or non-financial benefits such as opportunities given to employees to develop new skills and advance in their own careers;
Structures: through which are established financial pay and benefits in respect to the value of positions gained within an organization; they provide the scope on which the reward system is based; that is rewards according to performance, skill, competence and experience;
Procedures: are applied to maintain the reward system; they ensure that the system in itself is operating efficiently.
According to (Storey 2007 and Perkins 2008) all people’s needs rotate on money and therefore all reward systems must be based on some form of monetary reward. Money brings the following advantages in a reward system:
- It provides a strategic and achievable goal or objective which the employees can strive towards;
- It can also act as an instrument through which employees can express valued outcomes;
- It is often interpreted as a symbol of how much the organization values the employee;
- It can also reinforce positive behaviour among employees since it often takes on the value of reward value itself;
It can therefore be argued that money is the most likely motivator in a reward system because is directly or indirectly linked with the satisfaction of many other intrinsic and extrinsic needs. However, (Armstrong 2011) contrasts this theory by stating that whereas money can indeed motivate employees, it is not the only motivator. In fact, he continues to state that over-reliance on money as a motivator is likely to lead to a reward system that is not sustainable. He suggests that organizations need to find new strategies through which to engage employees and motivate them towards success. As Maslow showed in his hierarchy of needs theory, employee motivation is often determined by how much the reward system assists them in meeting the various needs. Financial rewards meet the basic needs of living and survival (physiological needs) like food, water and shelter, and the needs of safety, like security of body, resources to live, security of employment, home. These needs are guaranteed especially if the rewards are regular, (Grant 1990 and Whitely 2002). The upper-level needs of Maslow’s hierarchy, love, self-esteem and self-actualization, realize their satisfaction through intrinsic values/rewards (Miner, 2007). Although, it is argued that money also satisfies the self-esteem needs, this is because it is a visible mark of appreciation that is recognizable not just to the employee individually but also to others.
Herzberg’s two factor model however, differs from this point of view. He states that while lack of money may indeed cause dissatisfaction among the employees, money in itself does not result in lasting satisfaction. Once employees have received perhaps an increase in pay or even commission for a job well done, they are instantly euphoric and for a short while are generally motivated to work hard. However, the feeling of euphoria soon dies off leaving an even more unmotivated employee than before. In fact, financial rewards are considered among the hygiene factors, called dissatisfiers, by Herzberg’s theory. These are: salary, company’s policy and practices, supervision, job security, interpersonal relations. He argues that these factors can serve to remove dissatisfaction and improve performance up to a certain point, if appropriately provided, but they cannot produce positive feelings and high level of performance as the motivator factors do (recognition, achievement, work itself, responsibility and advancement) (Miner, 2007).
(Thomas 2002) challenges what he calls the behaviourist dogma about money and motivation. He states that the more an organization continues to rely on financial rewards the more likely that employees will continue to become dissatisfied and de-motivated within a short time. Furthermore, Cameron and Pierce (2002) state that financial rewards tend to corrode the intrinsic interests of employees in their own jobs and tasks. Such interest can only be revived when employees are provided with a reward system that is diverse enough to include other forms of rewards. If the managers’ purpose is to persuade employees to perform determined tasks in order to achieve high level of performances, out of their own motivation, then the managers must find a strategic approach to satisfy the intrinsic goals which money cannot reach, according to Cameron and Pierce (2002). The intrinsic values are those that have been formulated by Herzberg’s theory as the motivator factors that produce satisfaction and by Maslow’s Hierarchy of Needs theory as self-esteem and self-actualization. These include: higher job position where job responsibilities increase (recognition), achievements, the possibility of having more flexibility and autonomy, possibility to travel and gain more experiences (self-actualization), the possibility of challenging the employee (work itself) and enriching his skill set.
Companies that have a history of outperforming their rivals regardless of the industry and economic climate have two things in common: first a long term strategic view of their employees and two, stability in the same. They have developed integrated plans for total employee compensation so that rewards are based on achieving the company’s long term goals. Such incentive systems encourage the efficient use of existing assets. They are usually based on the corporate performance, (Armstrong 1996 and Arthur 2001). However, (Arthur 2001) states that many management policies are to blame for the poor employee attitudes. Managements often fail to reward employees either for working hard or for working smart. Many powerful tools lie within the management’s control but the tools have to be applied consistently and within the overall framework of overall strategy for performance improvement. Such a reward system must coordinate the various elements of human resource into a unified program whose focus is to enhance employee’s motivation to work.
The views on how a reward system can be designed and used to motivate employee are as diverse and differ on many grounds. There are those who believe that financial incentives in a reward system will always generate motivation, (Torrington and Hall 1998). Likewise, (Tropman 2001, Langley 2011 and Armstrong 2007) concede that some employees will generally be motivated by money more than others, and if handled properly this reward system can convince them to do even more. However, for some the financial rewards would generally fail because they lack the element of motivation in itself. In fact, motivation often arises where a judicious mix of both financial and non-financial rewards exists; the rewards being offered should be worth the effort and worth having to the employee in order to motivate them. For motivation to come from the reward system, employees need to link certain actions to this system. A multiplicity of inter-dependent factors are involved in motivating people, and therefore there is need for generation of a suitable and yet simplistic reward system. Suitable to the needs of the employees within the organization and simplistic enough so that the employees know exactly what to do in order to receive the rewards, (Gilmore and Williams 2009.
While many other companies were talking about changing and strategizing their success through HR, Shell Company was already doing it. It is therefore not surprising that the company’s reward system is one of the most successful. In the year 2012, shell had the lowest turnover among international operating businesses. Hugh Mitchell, the HR manager for the company was quoted saying that maintaining a satisfactory reward system may seem costly, but in time such system pays itself through the motivated workforce, (Omoweh 2005.
Extrinsic and intrinsic motivating factors: extrinsic factors such an increase in salary are used by Shell to attract ad retaining employees, and for the short term influence an increase in the efforts at work. On the other hand, intrinsic factors, which include an increase in responsibilities, acknowledgement and satisfaction in the job itself, may have a longer and deeper impact towards motivation. Therefore, Shields (2007) concludes that annually the company rewards hardworking employees with promotions including a new range of responsibilities where employees can feel more important.
Satisfaction of needs: people will be more motivated if the job meets their own needs, majority of the organizations focus on financial needs. As (Geus 1997) states, Shell was the first company to seek ways through which employee social needs and psychological needs could be met. This includes rewards on family vacation, and changes in schedules to cater for a healthy social life. Because employees are happy outside the work place, they are more motivated and excited to work.
Goals: in the year 2007, Shell was revamping its own HR system. With the help of researchers and consultants, the company found that employees work better if specific goals are laid out. In addition, such goals should present some form of challenge to the employee. The company has since then included employees in assigning challenging tasks. Team members are asked to nominate themselves and assign tasks for which the greatest challenge equals the greatest rewards. Surprisingly as noted by (Thomsett 2007) the rush is for the most challenging tasks with simple tasks being left to newcomers.
Expectations: shell has definitely gotten it right when it comes to managing and meeting expectations of its employees. While other companies may not be strictly aware and knowledgeable on the expectations of their employees, the shell reward system summarizes the expectation pool as: people are aware and calculate what they will receive in return for particular achievements and efforts, the employees understand and feel that what they expect to get is worth having and they in turn expect to have the reward. Mendenhall et al (2010) conclude that Employees are therefore highly motivated to change behaviour, put in more effort and achieve more in their work place if they know and can control the means of getting and attaining their goals.
Self-efficacy: Shell has a system set in the reward scheme where employees can get advice and encouragement at work. In addition, the system also provides coaching and guidance for the employees not just with regard to work but also other matters of life, (Sjostrom 2007). The result is a more well-rounded employee, who can adjust well, manage challenges and risks because they believe they can do better and have the support to indeed do better.
The performance of any organization is highly dependent on the quality of how it manages its own employees. A reward system is designed to improve the quality of work the organization gets from its employees and also the talent the same organization attracts. Unique talents among the employees including superior performance, high productivity and flexibility and the ability to deliver excellent services at all times are the ways through which employees provide a critical ingredient in the development of a competitive position of the business. One of the keys to competitive advantage is the ability to differentiate between what the business supplies and what its competitors offer. Such differentiation can be achieved by having higher quality human resource. Employee reward practices can make an important contribution to getting and keeping such people, and to providing them with incentives which will motivate them to achieve higher performance.
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