Business Culture
There is clearly a strong culture of greed, wealth, and mistreatment of customers. Such is the strength of the present banking culture the response essentially amounts to, “greed is good and anyway we can afford it” (HRZONE. 2010). The current culture is being influenced strongly by PRP. PRP rewards people not only for what they do but how they do it, can also spell out what behaviors are valued and will be recognized (Armstrong and Brown. 2006). PRP strategy is ultimately a way of thinking that can be applied to any reward issue arising in an organization, to see how you can create value from it (Armstrong, M. 2004). Creating value from rewarding staff is know to be effective, although the benefit of the value has got to be greater than the costs induced. Affordability looms large in the minds of chief executive and financial directors, who will need to be convinced that any an investment in PRP will pay off(Armstrong, M. 2004). Nevertheless, in the financial sector it’s clearly gone too far with The Guardian reporting, more than 100 bankers at RBS were paid more than £1m last year, and total bonus payouts reached nearly £1bn, even though the bailed-out bank reported losses of £1.1bn for 2010 (Treanor, J. 2011). Even though they’re reporting massive losses, RBS will keep rewarding their employees so they can retain the best staff and continue to be a top job choice for new employees.
The provision of financial benefits enhances the value proposition and contributes to the employment brand in the pursuit of becoming the employer of choice (Gilmore and Williams 2009). Earning recognition is a necessity not an option in a marketplace driven by the search for competitive success. It can help foster an emotional connection between employees and the organization, thereby enhancing employee loyalty and performance (Armstrong and Brown. 2006). The financial sector is a very competitive market, many banks will benchmark their organization performance related costs against their competitors. So they’re constantly competing for the best staff in the market. Also employees in the labour market from which the employer recruits may expect a certain range of benefit provision (Gilmore and Williams. 2009). This is certainly the case for those employees working in the financial sector. They have come to expect that their highly trained skills will be acceptably rewarded, and they do this by benchmarking against their company’s competitors in the sector. If all the banks paid a much lower rate then that would be the level bankers would accept - the market rate (BBC News 2010). The chief executive of Barclays bank said, the banks had to balance banker bonus responsibilities with "the environment we operate in", referring to the fact that if Barclays were to unilaterally reduce bonuses, top staff could leave to join competitors (BBC News, 2011). Research by Barber and Bertz (2000) suggests that money is among the most important factors for people when deciding on a job.
Motivation
Even if the financial rewards were not important to that person, the perceived lack of fairness in treating them the same would be a demotivator (Rankin, N. 2003). Everyone wants to be recognized for their hard work, so PRP acts as a motivator for employees. Evidence suggests that PRP payments may need to be of the order of 10-15 percent to have any impact on motivation (Gilmore and Williams. 2009). This shows PRP as a motivating strategy is only effective if the reward is high enough. Also clearly defined goals and a well defined link to business objective can have a motivating effect on the employees (Armstrong, M. 2004). If structured right PRP gives employees a good idea of where the company is aiming and whats expected of them, this reassures, motivates, and increases confidences amongst employees. However, people react in widely different ways to any form of motivation. The assumption that money in the form of PRP will motivate all people equally is untenable (Armstrong and Brown. 2006).
PRP can demotivate some employees who are earning less PRP than their co-employees, or if they feel they’re being treated unfairly. These and other negatives of the individual PRP can effect the dynamics of team work. Research collected from employees at a major pharmaceutical group revealed that 80% felt that PRP did not encourage teamwork, 50% indicated that the PRP amount did not reflect performance and 50% did not think PRP was a fair system for all levels of staff (Pilbeam, S. and Corbridge, M. 2006). The most effective reward systems occur when individuals satisfy their extrinsic and intrinsic goal by performing the task required by the organization, this is called congruence (Hunt, J. 1992). Although generally rewards are a employee motivator, intrinsic needs must also be considered to determine the weight of the pay element as a motivator for a given individual.
Balance
There is a need to balance three perspectives: those of the employer, the employee, and the cost perspectives. The employer perspective involves achieving a reward strategy that fosters the knowledge, competence, and behaviors necessary for business success, the employee perspective involves ensuring that the reward strategy is attractive, and the cost perspective has to ensure the reward strategy is affordable and sustainable (Gilmore and Williams. 2009). The PRP attached with UK banks is certainly an attractive offer to any potential new employee. However there’s arguably an acute problem with bankers bonus. Especially at the top of the system with the highest earners receiving excessive multi million pound bonuses. It’s increasingly become more difficult to understand why the chief executives are taking home massive PRP when they’re actually, reporting enormous losses.
Fairness
One of the problems concerning the impact of financial reward on performance is fairness or ‘distributive justice’ (Armstrong and Brown. 2006). A reward system is one in which people are treated justly in accordance with what is due to them, their value to the organization (Armstrong and Brown. 2006). PRP may discriminate unfairly against women, because, in practice, it is primarily male managers who measure performance, and they may tend to reward performance characterized by male values, with equal pay implications (Gilmore and williams. 2009). In a building society there was a perception that men were paid more than women at senior levels, and that the appraisal process was not consistent across the organization, resulting in potentially unfair decisions on bonuses (Armstrong and Brown. 2006). PRP rewards certain values and beliefs as discussed in paragraphs four and five that can be discriminatory. Therefore women in the financial sector can receive inequitable PRP for a similar position filled by men. So PRP can have the potential to lead to prejudice in the work place, which can negatively effect the performance and motivation of employees.
Conclusion
In conclusion managing employee reward is a crucial element in encouraging flexibility, leveraging performance, and competing for talent in tight labour markets (Gilmore and williams. 2009). It’s clear that PRP has many positives for the financial sector, such as attracting new, obtaining and motivating employees. PRP is a good method used in the Banking industry to encourage increased performance to meet the organizations objectives. On the other hand there are side affects on the culture of the organization, that can lead to greed, disjointed team work, and the mis-selling of products/services as discussed in paragraph two & three. Ultimately however, despite the advantages and disadvantages of PRP in the UK financial sector, it would be ineffective and even destructive for the government to curtail the bankers bonuses. To do so would as Copeland (2010) states, will result in that country losing the skills and the business that goes with them. As a result the UK’s financial sector would lose business to other countries.
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