Linking pay to good management, it is essential that the employee feels that there is a correlation between their own performance and the pay they receive. Clarity about what kind of behaviour and what kind of work is being rewarded and recognized is necessary to ensure employees model the right behaviour and the right path to achieve peak performance. Effective appraisals are essential here to review performance and evaluate achievement of objectives, together with looking forward to set new goals that both stretch employees and contribute to overall company objectives, whist combining training needs to achieve those objectives.
Generally, appraisals help in succession planning and career of the individual. Once an employee’s contribution has been assessed fairly, there are choices as to how to reward performance. One common way is the bonus. Bonuses are related to the achievement of set objectives which benefit the organisation. Bonuses are seen to act as a motivator, but are not the only type of monetary reward. In some industries commission based incentives are preferred. This type of reward system is generally seen in Sales and Marketing. Generally the percentage of commission is directly related to sales made.
Inter-firm comparison plays a crucial role in designing the reward system. This information derived from benchmarking is helpful to ensure that a firm’s rewards system is positioned correctly within the industry framework. An effective reward system has several benefits. It can clarify job roles and duties, and can link effort explicitly to organisation objectives. Through the management discipline needed to manage the system it both improves communication and reinforces management control. Through improving motivation it can have a positive influence on individual and corporate performance.
Finally, it does have a role in attracting and retaining good performers (Taylor, 2000). Rewards relating to teams or individual tend to have similar effects. To get maximum benefit it is essential for any reward system to consider the individual preferences of the employees. Every employee has different needs and desires, so employees need to be incentivised with something that satisfies them. Finally, as mentioned, reward systems need to be thought of as more than a once yearly event of allotting pay rises and bonuses. Like any type of feedback, it needs to be timely.
They should be rewarded soon after they have achieved peak performance and not delayed, so cannot wait for the annual review. This is why a reward system should include small appreciations to recognize effort and success. Best practice is to reward as many employees as possible to avoid ill-feeling between them and also to increase a raise expectations. Management should seek to recognise and celebrate success no matter how small, and reward employees directly responsible for success. Public recognition allows employees to be recognized in front of their colleagues.
Boyens notes that employees should be punished in private and be appreciated and rewarded in public. (2007). It is important to note, however, that reward systems do have a shelf life and do need to be regularly reviewed to keep them effective. Once a reward scheme is implemented, employees may expect to receive it each time they achieve, so introducing new ways to reward and recognize them helps keep it fresh and meaningful. Retention is being seen as crucial to a modern organisation, and far more cost effective that recruiting. Reward systems have the implicit objective of increasing motivation and therefore increasing retention.
There are significant costs associated with staff turnover: recruitment costs; overtime and costs of hiring temporary workers; development costs… (Taylor, 2005). This is especially the case in highly competitive industries, such as that that Commerzbank operates in. Of course, some turnover is healthy- when the “poorer” employee decides to depart from the organization leaving the effective ones and therefore improves organizational performance. However, it is how to keep hold of top talent in an organization than needs to be a priority for management.
Finding the right incentives to retain and motivate the workforce is the real challenge with each industry requiring different solutions. Research into staff turnover shows certain themes that mesh with motivation theories. Surveys show that staff turnover varies by industry with the highest typically in those industries requiring un-skilled labour, performing unskilled tasks – those with the “fewest industry-specific sills”. (Taylor, 2005 pp. 341). This links to the importance of job design in motivation. A method for improving retention is the development of employees. Training feeds into the need for growth by individuals.
Carolyn Martin also made a point of this fact in her “Nurse Management” article. She points out that not all employers make use of the full range of skills that employees have to offer. “When you encourage individuals to maximise their strengths and spend more time doing what they love to do, you’re actually creating the ideal job position. Not just a “job”; it’s a customized professional opportunity that’s hard to walk away from” (Martin, 2004). Essentially what this means is that if an employee goes to work every morning to a job he/she loves and is happy, this will translate in to enhanced organizational performance.
Employees have to feel challenged by their job, current skills must be used and there has to be some sort of opportunity for advance within the organization. This can be essentially called Job Enrichment. Where a variety of skills are used, where the individual feels like the job he/she is doing is significant they reach a degree of individualism that gives them responsibility. (Taylor. 2005) However, over the past few decades, not only has work become more insecure through the rise of redundancy, today’s workforce is changing, with a “a job-hopping market…
taking off” (Gregory, 2007). Gregory postulates that employees decide to leave their jobs for three main reasons: the first one, whether people like it or not, is money. The second one is if there has been a conflict with a supervisor or a co-worker, and thirdly the poor people skills that management have. (Gregory, 2007). Reward systems have a crucial role to play in the first reasons why people leave- pay. However, it is important to note that the “right” level of pay is an individual perception. Process theories of motivation have implications for pay-setting and bonuses.
Equality theory believes that there is an innate need for fairness in us, as perceived by ourselves. People make social comparisons, both with direct colleagues, and also with the wider community. As inequality judgements are based on perceptions, Huczynski and Buchanan indicate that “the circulation of accurate information about rewards, and the links between efforts and rewards, it crucial” (2007, pp. 250). This has implications in the world of the City in two ways. Firstly, the logic and processes for the allocation of bonuses much be very clear in an environment where “a successful trader might net a i??
2 million bonus while a loss-making trader would get nothing” (P. M. article no. 17). Secondly, the “office rumours” about scale of bonus payments mentioned in the article by Ian Davidson can lead to unrealistic expectations- the reality may fall short and the resulting disappointment may have an adverse effect on motivation and retention. Expectancy theory also has important lessons for pay and bonuses. It states that individual effort is based on two things: – the rewards for performing well and the expectancy that rewards will follow.
There is also a feedback loop to job satisfaction, which has implications for retention: “Good performance… appropriately rewarded, is likely to lead to job satisfaction” (Huczynski and Buchanan, 2007, pp. 253). Therefore it is crucial in reward design that there is a clear link between performance and monetary rewards, with fair, accurate, transparent and consistent ratings determining reward, and that there should be adequate resources for achieving goals. Otherwise both equality theory and expectancy theory predict that a reward system could have the opposite to the desired effect.
It is important at this stage to discuss the issues of fairness in relation to women in the workplace. Whist the The Equal Pay Act and the Sex Discrimination Act have been in force since 1975, it is argued that indirect discrimination still happens in the pay of women and distribution of bonuses (Why Women Earn Less Than Men, 2007). Pierella in 1996 claimed that a woman working full time earned only 77% of what a man doing the same job was. Whilst closing, the wage gap remains throughout business, from a small job to the corporate level.
One crucial factor which might explain pay disparity is length of employment experience as women typically interrupt their employment records for dosmestic reasons (like maternity leave, leave for household purposes) where as men do not. Within work organizations, one of the biggest career obstacles for women managers is the attitude of men and, to a lesser extent, the attitude of women towards women as managers (Pierella,1996). The disparity of bonus payments can be less easily explained by this however, as they are rewards for recent performance.
Explanations need to look deeper into the behaviours that are being rewarded. If a company has a long hours culture, with an emphasis on “face time” then women are likely to be penalized due to outside-work commitments. Also, “softer” skills that women tend to outshine men in are often not included in performance measures due to difficulties in objective measuring. It is crucial that both men and women feel that their efforts are being fairly rewarded, so bonuses must be designed to cover a spectrum of behaviours and outcomes.
Otherwise there will be a negative effect on women’s retention. It is also particularly important that women feel a company is supporting them in the dual-roles that they often occupy. Policies that help in this goal include the flexibility of the employer towards a specific family situation. Increasing importance is being put, particularly by women, on work-life balance, and supportive family policies that minimise work-family conflict can help retention, particularly for women that may feel that when children come along that work and family commitments are not compatible.