An employee reward system consists of an organization’s integrated policies, processes and practices for rewarding its employees in accordance to their contribution, skill, competence and their market worth. It’s developed within the framework of the organization’s reward philosophy, strategies and policies and contains arrangement in the form of processes, practices, structures and procedures which will provide and maintain appropriate types and levels of pay, benefits and other forms of reward. (Armstrong, 2007)
A reward system consists of financial rewards (fixed and variable pay) and employee benefits, which together comprise total remuneration. The system also incorporates non financial rewards (recognition, praise, achievement, responsibility and personal growth) and, in many cases, performance management processes.
The main components of the system are:
Processes for measuring the value of jobs, the contribution of individuals in those jobs, and the range and level of employee benefits to be provided; these processes consist of job evaluation, market rate analyses and performance management.
Practices for motivating people by the use of financial and non financial rewards; the financial rewards consists of base, variable pay, employee benefits, allowances , and non financial rewards which are provided generally through effective management and leadership and is dependent on work itself and the opportunities given to employees to develop their skills and careers
Structures relating to pay benefit level and the value of positions in the organization for providing a scope for rewarding people according to their performance, competence, skill and /or experience.
Schemes for providing financial rewards and incentives to people according to individual , group or organizational performance
Procedures for maintaining the systems for ensuring that it operates efficiently, flexibly and provide value for money.
A reward policy indicates how reward processes should be designed and managed within the context of the reward policy. It provides guidelines for line managers and personnel or pay specialist on how particular and recurring reward issues should be dealt with. It enables consistent decisions to be made where appropriate while recognizing the need for flexibility and the perils of rigidity.
The purpose of performance rewards are;
To motivate employees to contribute to the best of their capability.
To retain the best people by recognizing and rewarding their contribution
To attract the right people at the right time for the right jobs, tasks or roles.
The problems of cutting payroll costs are multifold beginning with the fact that it does not take much business acumen to eliminate jobs and lay people off. The risks involved are that the most talented and most marketable people leave on their own accord and whereby the aftermath of downsizing costs leaves a workforce that is unmotivated and fearful waiting for the next personnel to leave the organization. (Angela & Michael 2007).
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Severe downsizing can lead to financial losses rather than gains. The confusion, inefficiency, cost of early retirement, severance pay, legal expenses accrued due to court cases usually offset the gains got from savings in payroll costs. Even though payroll cost may depreciate, they may not bring increased revenue for example, the organization maybe understaffed and unable to capitalize from new ideas or rapid recovery.
Main body 1
The challenges that the managers face during performance and reward management is finding a way of undertaking performance management that will make sense to both the employer and the employees also, while doing their work in order for the company to achieve its goals. If they set a process that could not work with their employees’ dissatisfaction may arise from the perceptions of reward inequity between the employees who could certainly lead to increased employee turnover and reduced motivation. (Brooke, Russell, & Price, 139-145 1988).
Motivational approaches- workplace motivation can be defined as any influence or inner drive that will make the employees achieve the organizational goals. In order to do this the HR manager needs to understand individual needs and fulfill them. In our changing workplace and competitive market environment, motivated employees help the organization be able to achieve its competitive advantage.
Control and measure results – A HR manager must conduct regular organization assessment on issues like pay, benefits, work environment, management and promotional opportunities among other issues in order to assess the progress after sometime. It is also important to develop appropriate measuring tools to measure the impact of the diversity in an organization through feedback survey and any other method whereby, if there is no assessment some of this workplace diversity might lead to conflicts.
Gain sharing programmes- it refers to incentives plans that involve employees in a common effort to improve employees’ performance in a common effort to improve organizational performance and they are based on the concept that the resulting incremental economic gains are shared among the employees and the organization. This program encourages the workers to participate in management and to take responsibility willingly since they are aware that they will benefit if the organization meets the set goals.
Reward and performance management practices is not keeping in pace with the demand facing businesses today. Despite enormous shifts in the business landscape over the past years, most companies have made minimal changes in design and delivery of their design and delivery of their base pay, incentive and performance management programs. As a result, current programs do not appear to be meeting talent and people management needs effectively.
The changes imposed by global competitiveness make organizations more receptive to the implementation of measures for rapid adaptations to new market demands. This will make the organizations have a growing interest in implementing reward systems for incentivize workers to commit themselves to organizational goals. These systems consist of variable reward practices based on recognition of the worker’s contribution to the results of the business through their work performance and in an effort to increase their motivation and productivity.
Reward practices based on profit sharing have a negative influence on the workers’ satisfaction. This is a contradiction given that reward systems seek to promote the encouragement, appreciation and recognition of the worker with regards to the needs of the organization. However, since profit depends not only on workers’ performance but also on factors external to the organization such as, seasonal products, government policy, the economic situation or the use of financial resources- the reward system may lose its purpose
Profit – sharing has a negative influence not only on job satisfaction but also on procedural fairness and interactional fairness. Regarding procedural fairness, it is possible that an organizational decision can be based on a criterion, but may be perceived as unfair by the employees who are affected by the decision. The perception of procedural fairness is related to the workers’ participation and involvement in processes, as well as to the use of consistent criteria and procedures that are based on accurate and precise information. This as a result, the importance of communication, integration and trust determinants for the practice of rewards based on profit- sharing.
Main Body 2
The external environment in the shape of globalization, increased competition, government interventions, the industrial relations scene and the characteristics of the organization’s sector can influence the reward policies and practices.
The aim of reward policies and practices is to help attract, retain and motivate high quality people. Getting it wrong can have a significant negative effect on the motivation, commitment and morale of employees. Personnel and development professionals will be involved frequently in reward issues, whether they are generalist or specialized in people resourcing, learning and development of employee relations. An integrated approach to human resource management means that all aspects have to be considered together so that a mutually reinforcing and interrelated set of personnel policies and practices are developed.
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The reward practices and policies are linked through an employees’ point of view where the reward management should take into account the aspirations, expectations and needs of employees as stakeholders in the organization. (Armstrong, 1999). Considerations have also to be given to the needs or views of other stakeholders, especially owners in the private sector and governments, local authorities and trustees.
Employee involvement is crucial to the development of reward policies and programs. The wishes of the employees need to be ascertained whereby their comments on existing practices should be listened to and acted upon. They should be involved in the development of new reward processes, for example job evaluation, performance management and contingent pay for instance, the British Airways is transforming their way of working by focusing on creating a diverse, challenging and rewarding workplace where the employees across the airline feel part of the organization. This is could be achieved by offering those incentives plans to offer rewards for improved performance, use of management bonus schemes using a mix of financial and non-financial performance metrics which are designed to improve overall performance and to reward individual effort.
Organizations are finding it essential to introduce a sense of balance between standardization of corporate practice in order to communicate strategic business priorities to employees wherever they may be located, and to provide a sense of ‘corporate glue’ – while at the same time being responsible to the need for a differentiation in terms of local culture, values and market practice. (Buehler, Griffin and Ross, .67, no 3, (1994) pp. 366-38.)
There has been an increasing move in a number of parts of the world to a geocentric approach, where regional trends and practices, accompanying the mobility of international executives and professionals, not only globally but intra-regionally need to be considered and accommodated. Such issues demand an analytical approach, patience to collect and analyze the relevant information to inform strategic options, and then the sensitivity to manage what they may be potentially conflicting corporate and local reward policy requirements.
The emerging trends in total remuneration reflect the growing number of globally mobile senior executives; moves towards increased simplicity, and cost and tax effectiveness of expatriate reward management; and the increasing importance of talented ‘local nationals’ who will make a difference between winning or not within a specific market place. Thus this will include reference to the new breed of entry level employees who will develop global skills and experience which will lead to the organization developing new rewarding practices and policies.
Organizations are recognizing the imperative of more effectively integrating their expatriate and local national remuneration due to the emergence of truly international total remuneration. These emerging trends will suggest an increase in demand on the human resources function and the professionals of which it will be comprised leaving those capable of rising to the challenge; there is a tremendous opportunity to position them at the heart of internationalizing business strategy development and application.
Employment trends- an increasing demand for skills and qualifications is taking place, especially for managerial and professional workers, knowledge workers, customer service staff, technical and office staff and skilled manual workers. This, coupled with the skill shortages associated with low levels of unemployment, influences reward strategies design to attract and retain people.
Demographic trends- one of the most factors that reward and HR strategies have to address for the future is demographic change. Just as traditional labour pools are shrinking, traditional rewards practices and mindsets have been encouraging a further reduction in employment, with early retirement through defined benefit pensions arrangement. Resourcing and reward strategies which are heavily focused on both recruiting young “dynamic” staff and getting rid of “old” employees at a fixed retirement date or before; or the opportunistic poaching of staff with the requisite skills and experience from competitors are therefore becoming increasingly outdated and undesirable from both an employer and national perspective.
Conclusion
Employee reward system refers to programs set up by a company to reward performance and motivate employees on individual and / or group levels. They are considered separate from salary but may be monetary in nature or otherwise have a cost to the company. A reward system consists of financial rewards (fixed and variable pay) and employee benefits, which together comprise total remuneration. The system also incorporates non financial rewards (recognition, praise, achievement, responsibility and personal growth) and, in many cases, performance management processes.
Employees are motivated by both intrinsic and extrinsic rewards, to be effective, the reward system must recognize both sources of motivation. All reward system is based on the assumptions of attracting, retaining and motivating people. Financial rewards are an important component of the reward system, but there are other factors that motivate employees and influence the levels of performance.
An increase in reducing payroll costs would demotivated the employees thus the organizational objectives would not be achieved due to less work force. Due to the reduction of payroll costs some employers will be forced to use their profitable units to cover loses of uneconomical units.
The reward practices and policies are linked through an employees’ point of view where the reward management should take into account of the aspirations, expectations and needs of employees as stakeholders in the organization. Considerations have also to be given to the needs or views of other stakeholders, especially owners in the private sector and governments, local authorities and trustees elsewhere.
The challenge that the managers face during performance and reward management is to find a way of doing performance management that will make sense to both the employer and the employees, what they need to do their job and help the company achieve its achieve its goals. If they set a process that could not work with their employees’ dissatisfaction may arise from the perceptions of reward inequity between the employees who could certainly lead to increased employee turnover and reduced motivation.
Motivational approaches- workplace motivation can be defined as any influence or inner drive that will make the employees to achieve the organizational goals. In order to do this the HR manager needs to understand individual needs and fulfill them. In our changing workplace and competitive market environment, motivated employees help the organization to be able to achieve its competitive advantage.
There has been an increasing move in a number of parts of the world to a geocentric approach, where regional trends and practices, accompanying the mobility of international executives and professionals, not only globally but intra-regionally need to be considered and accommodated. Such issues demand an analytical approach, patience to collect and analyze the relevant information to inform strategic options, and then the sensitivity to manage what they may be potentially conflicting corporate and local reward policy requirements.
Recommendations
Payroll processing is in the midst of a revelation that presents companies with new opportunities as well as unexpected challenges. For those companies willing to renovate their payroll practices the potential cost saving can be enormous. The following are some ways in which a company can reduce the costs of their payroll operations;
Centralizing Operations
Companies can achieve savings by changing the structure of the organization in order to centralize previously disparate tasks. Companies in the past that have a diverse and decentralized payroll operation have consolidated them into a shared service environment. These companies might be doing HR, payroll, benefits or accounts payable; depending on the need at that point of time thus more payroll costs are incurred. The company would be more efficient if the employees are used more effectively.
Standardizing procedures
Many companies reducing payroll costs by standardizing policies and procedures where, the more ways used by the companies were calculated and benefits are provided in the end the company causes the cost to produce the payroll increase almost exponentially. To reduce these costs the company should reduce the complexity by eliminating different pay and benefit policies for different groups of employees.
Employee self-service
An increasing number of companies are reducing costs by transforming the role of the payroll operations from that cash. This will be convenient and easy to access and it eliminates handling of significant portion of the payroll environment by separate environment by separate staff. Through this the company is able to reduce their payroll costs.
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