Since 1990’s the dynamic link between performance and reward has been a topic of debate. The need of flexibility and cost effectiveness has lead to organizational restructuring of various kinds; including flatter structures with their focus on teamwork, broader roles and non-traditional work arrangements. Implementing a flatter structure is meaningless unless there is a degree of consistency between what is expected of employees in terms of working practices and systems, processes and the resources needed to do the job. All human resource systems especially pay; need to reinforce the forms of skilled performance required of individuals. However most of the companies believe in following the preferred model of paying market rates alongside schemes that recognize individual short-term performance but not long term development.
This is among the most challenging responsibility of human resource specialist, as there are many factors to be taken into account before revising a compensation system to make it reflect the diverse aspects of behavior, skills and experience which lead to the sort of performance organization requires. Many organizations are experimenting with more flexible packages which include elements of variable pay, linked to job performance, competence skill development and desired team and leadership behavior.
The symbolic power of reward systems
Reward schemes are required to meet both the organizational need of managing its salary bill, along side ensuring that it is getting good performance from its employees as well as the employee is been appropriately recompensed for their efforts. Reward schemes carry enormous symbolic significance for employees, as they are the powerful means of teaching employees what is actually valued in the organization, as well as what is not. As such they have a greater impact on employee attitudes and behavior than rhetoric or values statements which encourage, team work.
In theory, reward schemes are designed to be motivating, offering appropriate incentives for, and recognition of, desired performance. Whether schemes which focus exclusively on the financial aspects of reward achieves this aim is open to debate.
The need to revise reward strategies
In an attempt to move towards the performance culture, many organizations have introduced pay schemes which have intended to reflected performance in the job more than the job grade itself. In these changing times, reward schemes quickly becomes sources of discontent. In flatter structures in particular, there is often considerable pressure for reward system to be revised. However, in traditional hierarchical structure, being promoted was the only way of gaining status as well as earning more money or breaking through the ceiling for a grade. In some organizations, eligibility for promotion was based on age and experience rather than performance. In flatter structure where promotion is most unlikely, thus pay is obviously performance based. There’s no perfect pay system, thus a good system should be customized and tailored as per the need and the objective, rather than adopting any off-the shelf solution.
1. Performance-Related Pay (PRP)
Incentive schemes and performance-related pay continues to provoke debate. However some researches propagate the ineffectiveness of performance-based reward, recognition and incentive systems on the following grounds:
- There is no data to show long term benefits
- They setup internal competition
- Reward systems undermine teamwork and cooperation
- They often reward those who are lucky and pass by those who are unlucky
- They create cynic and losers
While devising such schemes care should be taken about their responsiveness to the business drivers, the changing technology, the new skills needed and the fact in a new environment, people need to perform on different parameters. In response to these business drivers some basic questions need to be answered:
- What, for instance, are t he critical roles, task, skills, which should be rewarded?
- What are the new working practices that t he organization wishes to encourage?
- Will team working be more critical to achieving business goals than individual performances?
- Is having one system the only way of thinking about the revised system?
Many organizations want people to be keen and willing to take on broader responsibilities, learn new skills and develop wider competencies. In addition, technology is bringing about a more fundamental change, switching the nature of the way work is carried out from directive tasks to process-driven activities.
In some organizations only outputs are assessed for bonus purposes while in others inputs are also taken into account. Typically, the new areas of providing incentives include ‘soft’ areas such as making creative suggestions, receiving positive feedback from customers, team working and demonstrating leadership. To support this approach there is usually an emphasis on competencies and various feedback mechanisms are used.
Read More: Performance-Related Pay
2. Competence-Based Pay (CBP)
Many organizations are experimenting with the competence-based pay (CBP), also known as knowledge or skill based pay which takes the notion of performance-related pay in a particular direction. CBP works on the basis of rewarding the skills an individual possesses and actually uses. The downside of such schemes that they tend to be very complex. The emphasis on individual competence can lead to a failure to reflect sought after organizational business goals such as team working and quality.
Read More: Competency Based Compensation System
3. Team-Based Pay
It provides financial rewards to individual employees working within a formally established team. Payments are linked to team performances or the achievement of agreed team objectives. One of the drawback is that every scheme is unique, it’s not possible to adopt some broad recommendations from other organizations, nor are such schemes easy to design or manage. For effective success of such a scheme it necessary that team stands alone with the agreed targets and standards, have autonomy, are composed of people whose work is interdependent, are stable, are well established and make good use of complimentary skills. The three basic elements of a team-based reward package (assuming that the basic pay is right) are:
- The individual element, the basic salary but varied in relation to performance or skills/competence.
- A team element related to the achievement of team targets.
- An organization element related to the business performance measured as a profit, or added value.
4. Flexible Benefits
Given the way the work environment is changing, continuing to offer benefits that are based on the ‘job-for-life’ assumption is unrealistic. The important thing is to find out how people perceive their benefits and whether these are valued appropriate to both the company and the employee needs. Items in this scheme include pensions, healthcare, childcare vouchers, annual leave, life cover and dental insurance for employees and their partners. Further emphasize should be there to ensure proper communication of these schemes by HR team.
5. Other Reward Techniques
The latest rewards techniques followed are as follows:
- Profit (gain) sharing
- Flexible benefit
- Bonuses payable
- Bonuses payable in terms of extra leaves rather than pay
- Bonuses payable towards prestigious qualification
- Long term incentives
- Deferred incentives
- Extending private health schemes to all employees and their families
- Longer holidays
- Sponsored holidays
- ‘Free” family holiday in company owned/tie-up resorts
- Enhanced early retirement
Research suggests that intrinsic motivators such as the chance to do something worthwhile, to have a development stretch, to increase job satisfaction are all as important as the financial package and represent ‘psychological’ rewards.