Since the Industrial Revolution the approach of HR changed from a pure financial approach to a core function within the business1. Human Resource could be considered nowadays as the most precious resource a company holds as it constitutes the link between the people and the company’s strategy and goals. HR fulfills this role through 4 main activities: staffing, reward management, employee development and employee maintenance.
This paper will focus on reward management and the challenges the company faces in finding the best way to implement a reward management strategy that suits it. Different theories and practices exist; however the company has to consider the needs and desires of its own people and environmental context in order to find the system that best suits the company. Theories and approaches One way to illustrate the link between different HRM activities is the Fombrun, Tichy and Devanna model. According to this model, HRM has 4 key activities: Selection, Performance, development and Rewards.
Even though this model is said to leaves out the notion of management’s strategic choice, it shows the coherence of internal HRM policies and the importance of matching internal HRM policies and practices to the organization’s external business strategy2. Source: John Bratton, Jeffrey Gold (2000), Human resource management: theory and practice, second edition 1 See appendix I – source : Jean Moisset, Pierre Toussaint, Jean Plante(2003), La gestion des ressources humaines pour la réussite scolaire, presse de l’université du Québec 2 John Bratton, Jeffrey Gold (2000), Human resource management: theory and practice, Second edition Thereby, it can be said that reward management is very closely linked to employee retention, training and development and strategic HRM.
And without a clever practice of these activities, a reward management cannot be successful. Reward management was born because managers had to motivate their employees in order to reach company’s objectives. “A great deal of the ideology of work is directed at getting men to take work seriously when they know that it is a joke”3 . Motivating the staff became a concern as soon as a positive relation between motivation and high performance was demonstrated.
Motivation is not only used to achieve a certain amount of output needed to align with company’s goals, but also put in the work of the employees an humane and selfsatisfying aspect. Throughout the last centuries, many studies have been made. Some studies focused on what people value as a decent reward, thereby “how to reward” (content theories) and others focused on the effect of a certain reward system, “why” implementing this system (process theories). Among content theorist Taylor can be mentioned. For him, people were rational and only driven by financial rewards.
Then, the Hawthorne studies showed social needs were as important as economic needs. Abraham Maslow developed a pyramid expressing a hierarchy of needs: physiological>safety>belongingness>esteem>self-actualization. Each person stands at a certain level and will need specific motivators. Some other content theories are motivation factors of Herzberg or Mc Gregors’ theory. From the simple idea of economic motivator, theories have moved towards the idea of needs. Secondly, process theories of motivation explain why a reward system has to be implemented.
A first theory, the organizational justice, gives that employees need to perceive the organization as fair. Either through the fairness of the rewards which are distributed (distributive justice) or through the procedures used to allocate rewards (procedural). The equity theory relies on the idea that individual assess fairness through the comparison with others who are in similar situations. Some also say that employees’ behavior depends on what they expect to occur. This is the expectancy theory. Employees ask themselves three questions in order to decide how to behave: What’s in for me?
How hard I have to work to get it? What are the real chances of getting the reward if I do what my boss wants? And finally, the goal- 3 Thompson, A. & Ryan, A. J. (2010) “Employee reward” in: Beardwell, J. & T. Claydon, Human resource management: A Contemporary Approach, Harlow: Prentice Hall, 6th edition, pp. 490-530. 3 setting theory stipulates employees want to work towards challenging, yet not impossible, goals. Process theories underline that behavior is affected by individual differences, experiences and features of the organization.
Employees evaluate the rewards obtainable for behaving in a certain manner and act consequently. However, people do not always behave consciously and when they behave in a certain way, they may not be aware of the behavioral options. Practically, there are two steps in the development of a reward management strategy. First, there is Assessment of capacities, position and potentiality of the individual. Then, focus is set on the remuneration. This can be monetary or not. Employee’s surveys are used to develop HR policies and practices.
Through those surveys, it has been found that “pay is only one of a number of factors that motivates staff, and may not always be the most important one”. 4 The monetary reward system is simply defined as the salary increase which can be calculated by different available systems (payment by result, performance related pay, financial participation) whereas the non-monetary type refers to the motivation and gratification of the employee. This is done through a psychological contract based on the concept of mutual understanding of obligations and promises made between worker and employer.
There are two different types of psychological contracts: transactional, based on the monetary aspect and relational, rather based on people. This shows the importance of the environment in which people work. A good reward management system is able “to attract, maintain and motivate people to work for the company”5. 4 Armstrong M. , Thompson P. , Brown D. and Cotton C. (2006), Reward Management, Symposium Report, ereward and Chartered Institute of Personnel and Development, February 5 Henry L. Tosi and Massimo Pilati (2008),”People management” in Compertamento organizzativo, Egea
• basepay • contingency pay (for performnace, competences or contribution) • variable pay (cashbonus) • share ownership • benefits non finanlcial rewards financial reward • arising form the wprk itself and environment • recognition and responsability • meaningfull work • autonomy • opportunity to use and develop skills • carreer opportinities • quality of working life • work life balance • COMPONENTS OF TOTAL REWARD Source: Michael Amstrong, Helen Murlis, Reward management: a handbook of remuneration strategy and practice, Hay Group, 5th edition
The main problem of reward management is that both the Assessment and remuneration process are dependent from market forces (comparisons, competition, unions, types of regime) and from internal management forces. The variation of the pay system can therefore cause a state of compression or dispersion of the employees which is translated in homogeneous or diversified payments within the company. These systems have both benefits and costs. As we have seen, reward management systems can be characterized by different approaches and theories.
However, there is a trend towards transparency and homogenization and some key factors are repeated: balance between pay and benefits, work life balance, individual growth and development, and positive workplace. These can now be observed in some important companies such as Yorshire Water, Severen Trent Water and Das Legal Expases. Nevertheless, the theories and approaches are not always used in practice. This was due to a gap between evidence and practice, known as the “knowing-doing gap”. It has been shown that although theoretical reward strategies exist, business do not have enough time to implement them6 .
Reward case In our specific case we can observe how Yorkshire Water, Severn Trent Water, Yahoo Europe, DAS Legal Expenses, Carlson Wagonlit and Isotron, who were not using the 6 Jean Moisset, Pierre Toussaint, Jean Plante(2003), La gestion des ressources humaines pour la réussite scolaire, presse de l’université du Québec 5 appropriate reward system, changed their systems. They tried to adapt to their employees and give them the right motivational factor to work for the company. In each company there are some elements that were not taken into consideration.
So, for an effective strategy the enterprises should analyze their environment and take into consideration all the players that can influence or that can be an obstacle to implement the right payment. Some of these can be unions, external factors, employee conditions, health and security, motivation, competences and retiring. Only after a broad vision of needs and conditions, companies can set up the right payment system. Ideally, it should also be flexible so that it can be modified according to the business development and environmental changes7.
Wal-Mart Wal-Mart is listed as one of the worse companies to work for. As we can see from different sources8, it has a very poor view of its employees and they have several problems when it comes to rewarding them. Their reward system doesn’t take into consideration the motives and needs of its people. There is no link between performance and compensation. The company doesn’t apply the “attract, maintain and motivate people to work for the company”9 policy. We also note discrimination, favoritism, no respect for the individuals and their private life in Wal-Mart’s work conditions.
The key factors of reward management “balance between pay and benefits, work life balance, individual growth and development, and positive workplace” are absent in Wal-Mart. All of these observations have a direct impact on the company. Previous employees organized a protest against the expansion of the company in New York, and attest of the bad work conditions in shops. Due also to a high turnover; people don’t want to work under these conditions and the lack of communication leads to short term relationship between the shop managers and employees.
Wal-Mart employees’ are not integrated in the company, they don’t feel like they belong to it and it hinders goal achievement. From a theoretical perspective, Wal-Mart’s reward system doesn’t match neither Taylor theory (the pay is not high enough), nor Hawthorne’s, (it doesn’t take into consideration the 7 Gilman, M. W. (2009) “Reward management”, in: Redman, T. ; Wilkinson, A. , Contemporary Human Resource Management. London: Prentice Hall, 3rd edition, pp. 170-172 8 See Appendix II: Glassdoor , Wal-Mart salaries, , (30 November 2011) and Aling, channel of NYJWJ, Walmart workers speak out about busive th working conditions, , (19 February 2011) 9 Henry L. Tosi and Massimo Pilati (2008),”People management” in Compertamento organizzativo, Egea 6 social needs of the employees), nor Maslow’s pyramid, (basic needs, safety, belongingness, esteem and self-actualization are missing), nor Herzberg’s, (there is no the motivational aspect). To redesign this reward system, we propose one that is based on payment by result, where employees are rewarded according to worked hours.
Workers will thereby perceive the company as fair, and Wal-Mart will keep its policy of “as low wages as possible”, both sides will be satisfied. As monetary reward is not really the most important kind, non-monetary compensations should also be used. There should be an emphasis workforce’s needs by implementing a decent health care plan. Paying attention to their physiological needs, social esteem, self-fulfillment, possibility of growth, will answer their expectation and make them do their best and work at their highest potential (the expectancy theory).
Thus, the strategic goals of the company would be more easily reached. Instating a corporate culture would be another recommendation; it will create a togetherness spirit and will ensure that the employees work in line with the company’s vision. The firm is also encouraged to ask for feedback from its staff, so it will identify the most important problems and try solving them. Moreover, applying the goal-setting theory could increase employees’ motivation. Wal-Mart can determine some challenging goals with reward given on achievement, employee of the month or special prizes for instance.
As far as the equal treatment of the employees in terms of reward is concerned, there has to be a difference of pay between different types of employees according to differences in terms of work and responsibilities. Those with more responsibilities could be given extra perks for example. By doing so, Wal-Mart will have a better workplace environment, reduce the negative impacts that we stated above, and enhance the commitment of its employees to the firm. Conclusion In the fast-moving and changing globalized context nowadays, companies face fierce competition and pressures.
Reaching strategic goals becomes increasingly challenging. In order to do so, a company needs its people, from top managers to employees to be “engaged 7 and productive”10. Reward management motivates staff with financial compensations and benefits but in certain contexts, these reveal to be insufficient to retain talent. Workforce also takes into account the learning and development opportunities and the work environment. Although a good reward management enhances business performance, the Wal-Mart case illustrates that, some companies present a complete lack of reward management and have to cope with negative consequences.
