Intrinsic rewards concern work design, aiming for a job that is both fulfilling and contributing to an individual’s self esteem. This has had major attention from theorists, particularly Herzberg, with a belief that through job design, work can be “enriched”, evolving into the concept of a “high performance work system”. Herzberg claims that pay, working conditions and supervisory style are but “hygiene factors” (potential demotivators if lacking). To actually motivate, the job content needs to contribute to the individual’s feelings of achievement, advancement and growth though recognition and responsibility. This can be achieved only if the job content itself supports achievement of the above (Huczynski and Buchanan, 2007, pp.258).
Extrinsic rewards are what is classically thought of as the reward policy of a company. These can be classified into monetary and non-monetary. Whilst financial rewards are a hygiene factor, increasingly there is recognition that non-financial rewards may play an important part in attracting, and more particularly retaining employees.(Armstrong 2002). Non financial rewards can lead to the opportunity for personal growth higher than financial rewards (Redman, Wilkinson, in Bach, 2006). Generally it is non-financial rewards that are used to motivate the employees and develop positive attitudes amongst them. Increasingly the trend in monetary rewards is “linking reward to performance, skills or profit; these include merit pay, team performance incentives or profit related pay (Thorpe, Horman, 2000). Performance-related pay recognises employees individual contributions and rewards them as such.
However, it must be stressed that this system is not a substitute for effective management and intrinsic job satisfaction. Instead, according to HRM principles, in the well designed payment system employees are not driven to “compensate for their dissatisfaction with intrinsic rewards by demanding improvements in extrinsic rewards, particularly pay”(Beer et al.,1984). It should complement a new “corporate culture” through the management pay systems, with pay systems “prais[ing] those who serve the new values”. (Bell, 2000).
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 £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.
The third reason Gregory (2007) has identified as a reason why people leave their job is related to their relationship with their manager. This is, predictably, also one of the most important reasons why people stay in the same organisation. Seven out of ten people leave their job because of their manger (Martin 2004). This goes back to the importance of effective management in companies, both in satisfying hygiene factors that cause dissatisfaction, and through influencing the factors that cause motivation. A professional management team, supported by training, can ensure a happy and motivated workforce and hence give a better performance. (Powers, 2007). A way of achieving this could be by taking them under your wing, coaching them and helping them develop in the workplace and as individuals. “...talented people no longer want a “boss” at work. They want a coach. They want someone that sets clear expectations, teaches them how to get and stay on track, and helps them master the competencies that will make them more successful” (Martin, 2004). She goes on to say this is probably one of the best methods of retention. A motivated workforce that is giving its all and doing it proudly, happy that they have the job that they do. Some may argue that you can’t pay for what you get out of a motivated employee hence the management skills employed are so valuable, they will give the organization something money can’t buy and in return make it profitable.
There will be a number of people that believe that the only way to retain talented staff is to give them more money and/or a large number of bonuses at the end of the year. This might be true, and surveys will show that offering more money might keep the staff longer. In the city of London, where Commerzbank operate, bonuses are a way of life. Because they are so ubiquitous, we argue that they are more of a hygiene factor for the staff working in the City and do little to retain staff in a positive way, and always has the danger of becoming a demotivator if the reality of the scale of the bonus does not reflect the reality (as illustrated by expectancy theory). Whilst we do not recommend removing bonuses (which would be a severe demotivator, as is any pay decrease) we believe that it is the inherent job interest and the management skills that act in this situation as a powerful retention force. It is a fact that when people leave their job it’s more likely to do with lack of personnel skills by senior management and the lack of job satisfaction. More money might keep them there for a period but it won’t guarantee that in a year or two the same thing won’t happen. It’s important that there is a balance where the employee is receiving the right pay and the work environment is right. People spend on average 1920 hours a year in their place of work; it’s very important that they are comfortable and they are in a place where they can develop skills, grow and learn. This will be, in the long run, an investment for the organization. People are the main resource and happy people work better together bringing the organization to its peak.
“Pleasure in the job puts perfection in the work” (Aristotle)
Research Summary
As a group we used a variety of secondary data including newspapers online, journal articles, government reports, academic books, text books and television programmes. These relevant texts were found by searching online through newspapers, recommended reading from Voyager Catalogue, references from text books, notes from lectures in Organisational Behaviour, Industrial Relations and Personnel Management.
Bibliography
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