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Introduction
There exists a wide controversy on why companies have a poor communication on matters regarding their reward programs. Studies have shown that only 35% of employees have a clear understanding of how their organizations reward the employees in their various job capacities (Scott et al., 2008). Additionally, critics and commentators, as well as compensation professionals, have pointed out that organizational effectiveness is enhanced when employees are made to understand and engaged in the reward programs. One of the most important steps in enhancing a better reward system involves communicating the objectives of the program that is in line with the job; performance of the employees and their level of motivation. It is not surprising in the current job market to notice an employee with a wide base of experience in a particular job being underpaid while a fresh graduate who is viewed as a ‘techie’ receiving a higher amount. The question that arises is why are there disparities in the reward management system? Is there any way that a given firm can formulate a good reward management system that put into account all the factors affecting job performance of their employees? What are some of the long-term impact of keeping an employee’s pay a secret? Does communicating the reward system used by an organization to the public or even internally to its employees affect their corporate image and performance? To answer these questions, the essay will first explore the existing literature on reward management and then embark on a case study review and analysis of a given firm in the USA before giving recommendations on the best approaches that firms can use to tackle the reward management systems in their operations.
Reward Management System Defined
A reward management system in an organization refers to the various ways in which employees in the entity are compensated for their work. The reward management system of an organization should be based on pillars of equity, competence, and fairness (Scott et al., 2008). In other words, basing on the Abraham Maslow’s hierarchy of needs the reward system should serve to fulfill the psychological, safety, love and belonging, esteem and self-actualization in individuals to ensure that they are well satisfied with the efforts that they put in the workplace. If the reward system does not meet all these needs, the employee might show signs of underperformance and lack motivation at work that in turn affects the company’s overall operation. The human resource is one of the most viable components of any organizations that should be rewarded appropriately as it drives the capacity and ability to perform the specific objectives that the firm intends to achieve. Studies have revealed that a good reward system should be in line with the organization’s operations and should be aligned with both the external and internal environment for which the organization thrives.
The main objective of any reward system in an organization is to give incentives to the workforce in accordance with the value they add to the organization (Scott et al., 2008). However, the process should be fair, equitable and consistent as mentioned earlier and should be aimed at harmonizing the human resource and not creating disparities among the employees. Employee participation is one of the vital steps geared towards enhancing a good human resource management system that takes into account the psychological, social-economical and financial needs of the employees. In a nutshell, employee participations helps human resource managers to embrace better ways of managing their pool of labor especially through motivation, training, and development, seminars and workshops as well as giving them incentives and recognition for their performance (Hutchinson & Purcell, 2007).
However, in most cases, employees’ participation in financial strategies involving the payroll and review of their performance is limited with most of the HR officers opting to do analysis and evaluation of their workforce without involving their employees and thereby leading to discrepancies in the pay structures. This has led to most companies to keep their payroll a secret, a factor that tends to undermine performance in the long run particularly when such information is leaked. Previous research has pointed out that for a successful financial management system, it is important for the HR to involve their employees in the daily running of their operations and keeping an open system of reward program that is well-embraced by all the stakeholders in the organization. Competition is also an invariant that makes most organizations fail to disclose their compensation strategy on the assumption that if their employees are underpaid as compared to their rival companies may opt to quit their job and join the rivals in the industry (Scott et al., 2008). Despite all these challenges, there is a need for companies to restructure their reward program in such a way that it fulfills the strategic objectives of the company giving each employee an opportunity to perform their role comfortably without feeling discriminated or underpaid.
Why is communication an important aspect of a good reward system?
In a study conducted in 2002, Mcinerney found a positive correlation between the information and knowledge employees had about their reward program and the amount of satisfaction they derived from their job and organization (Scott et al., 2008). Other studies have pointed that most of the high performing organizations have a competitive advantage than their peers in the reward management system. The reasons given out for this include communicating the purpose and intention for each reward program with their employees, frequent communication of the value of each reward program, engagement of managers more directly in the reward-communication process and the evaluation of the reward program after some time. In a nutshell, communication is an important aspect in implementing reward management objectives as it ensures that both the management and employees are fully aware of the compensation policy that a given organization has embraced. Additionally, it ensures that employees take part in the reward programs directly, and the management addresses their issues and thereby giving them a reason to improve their performance. Additionally, studies show that it is not the ‘total value’ of a reward program that matters but frequent communication of the given value to employees is effective in enhancing the rewards and motivations (Scott et al., 2008). There has also been a controversy question between whether an organization should embrace an open reward communication program or keep the reward system disclosed. The proponents of this belief argue that an open reward communication allows for employees understanding and motivates them towards achieving business objectives .However, critics argue that employee privacy should be kept and thus observe that a completely open reward program would foster some jealousy and resentment among the employees.
Case Study-Right now! Retail Chain
Hank Adamson and his senior advisors are facing a dilemma from the leaked information about the employee compensation that had been kept secret (Case, 2001). The case is a typical example of the many cases that most organizations are currently facing basing on the secret reward program policies. From the case, one can easily notice that there existed disparity on the reward program with most of the employees being underpaid where the senior management cites performance as the challenging factor that made some employees get more earning than others in the same job category. However, the management had failed to address the challenge of management and opted for a reward system where those seen as ambitious and hardworking are rewarded more than their counterpart. This method of performance evaluation is biased since the management should have come with a better strategy that ensures all its employees are well motivated and committed to achieving the company’s objectives.
The management is also in a dilemma since the expose because most of the employees who felt underpaid had threatened to quit their job with others feeling that their salaries and compensation should be rewarded. Another factor that prompted the expose, especially from the suspected junior employees, is the fact that the CEO(as he admits) had developed a bunch of few trusted employees thereby making them enjoy hefty rewards than their counterpart by the simple fact that they could easily follow instructions and implement his policies. In other words, the senior management in this organization has failed in the reward program by sidelining the employee’s contributing and inefficient communication as to why they were entitled to certain privileges. Although the company was still doing well in revenue performance, the exposure may have a negative impact since most of the employees may feel demotivated when they view what their counterparts have been earning all along. Moreover, the company failed to establish a communication structure that involves all employees in the process with the CEO only rely on his senior most advisor. A good reward program as mentioned earlier should be aligned to the business operations of a given entity and should be fair, equitable and consistent. For this company, the reward system exhibits inconsistency, unfairness, and inequity in the distribution and award of employees’ compensation.
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What should Hank do about Salary Disclosure Debacle?
Although Hank and his senior management face a dilemma issue at hand, it is prudent that we acknowledge that the organization faces a failed reward management system. The first step towards clearing the mess is to agree to restructure the entire compensation policy in the organization by involving all employees in line with their job capacity and expectations. However, the law gives protection to the top executive salaries that allow for it to be disclosed which in this case can still be applicable. Moreover, the company needs to redefine its reward management system that allows for direct communication to employees in all capacities to ensure a fair and equitable system (Rogers & Marcotte, 2010). Additionally, he has to admit that transparency in job performance, assessment, and evaluation, close monitoring as well as supervision are some of the policies that the human resource has to adopt to ensure that the new system works.
The management should also collaborate with departmental managers to necessitate an open reward system that recognizes the effort of each employee and ensures that they get recognition for such. This bolsters employee motivation and thereby impacting on their performance. Additionally, in the new pay structure, he should embrace a value hiring approach that ensures that those recruited are fit for the job, and they can reach an agreement over a bargain about their salaries. Any increase in salaries should be mentioned and a given percentage agreed upon that favors all the employees. Although a formal pay structure is rigid in the market due to competition and other market dynamics, it is important that the firm adopts a basic compensation structure and reward program that will provide a framework for which all the employee’s compensation issues will be addressed. Once in a while, evaluation of the same can be done to keep at par with the competition and market dynamics. This does not imply that the company must expose all its employees’ compensation to the public, but the use of a compensation range for a particular job can be given. It will ensure harmony in the compensation policy and make the reward system flexible in that it will encourage performance and promotion due to its extensible features in motivation and incentives that are open for all employees.
Profit Sharing to boost the Employees’ Performance
Studies have shown that profit sharing is an important aspect of employee incentives that once embraced by an organization it will lead to better performance among the employees. The system allows for a scenario where employees are awarded basing on the achievement of the company’s profitability targets. These rewards are both economic and psychological in that most of the workers will feel part of the company’s achievement and will thus ensure that they work even better to enhance the profitability targets (Sweins, 2011).The financial participation schemes such as share bonuses and dividends among the employees ensure that employees can garner funds while still working at the company that they can use to invest in their firms. It increases the co-operation, commitment and motivation among the employees. The bonus schemes are also an important aspect of the reward system that organizations can adopt in the various department to ensure that targets are easily reached, and people are rewarded for their efforts (Sweins, 2011). Therefore, Hunk should also consider this approach to allow for salary redistribution among his employees while at the same time encouraging better performance from the employees. The reward management system is expected to be fair and equitable, and thus the adoption of these measures will meet its objectives.
Recommendations that Hunk should adopt to solve the Problem
He should make apologies to all his employees for the leaked information about their salaries.
He should be ready to usher in comments from all his employees to propose a new compensation structure.
He should tell his employees what the law dictates regarding top executive salaries
He should adopt a new system that is defined clearly and precisely about the remunerations and rewards that an employee at a certain level in the organization is expected to earn.
He should recommend a value hiring recruitment system
He should allow for motivation and incentives to his employees. For instance, by adopting a profit sharing system.
Frequent communication and evaluation of the reward program should be encouraged in the organization to avoid disparities, resentment, and jealousy arising from the compensation policies adopted by the organization.
Conclusion
A reward management system is vital in the compensation strategies that a given firm adopts. Although, there exists controversy on the best approach that a firm can manage its compensation policy, it is evident that the policy should be in line with its operations as seen in various studies. Where there exists no such policy, the form operations are greatly affected when the compensation information is leaked as witnessed in the case of Rightnow! Retail chain. In this case, Hunk, the CEO of the company has to come up with a new reward system program that will ensure that employees are given compensation in the fairest, equitable and consistent manner arising from the various flaws witnessed in their current reward management system. To achieve this, he has to maintain communication with all his employees and give them a chance to contribute to the new pay structure that will take into account the job capacity and responsibilities. Job evaluation and performance will be key once the new system has been adopted. Additionally, there is need to improve motivation and incentives to his employees by adopting a profit sharing system that leads to better job performance as pointed out by various studies. Therefore, a good reward management system is the first step towards achieving employee motivation and commitment that leads to a better performance and thereby increasing the firm’s profits.
References
Hutchinson, S., & Purcell, J. (2007). Learning and the line: The role of line managers in training, learning, and development. London: CIPD.
Case, J. (2001). When salaries aren't secret. Harvard business review, 79(5), 37-9.
Sweins, C. (2011). The impact of pay knowledge on organizational performance: investigating Finnish profit-sharing schemes.
Scott, D., et al. (2008), ‘A Study on Reward Communications: Methods for Improvement of Employee Understanding’, WorldatWork Journal, Third Quarter 2008, 17(3).
Rogers, S. & Marcotte, S. (2010), Communicating Total Rewards, WorldatWork, Scottsdale.
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