Every organization has its ways of managing rewarding strategies for its employees. Reward management refers to “formulation and implementation of strategies and policies that aim to recompense people fairly, equitably and consistently by their value to the organization” (Korezis & Panagiotis, 2008, p.25). This definition means that reward management is concerned with the control and analysis of remuneration programs for employees and other benefits with the main intention of enhancing motivation and performance of employees.
The subject of reward management has experienced skepticism over the years from various scholars. For instance, Lewis (2001, p.98) observes that the subject embraces “part of the turgid, unimaginative, and inflexible world of wage and salary administration.” However, this perception of reward system is inaccurate in the context of the modern business environment for global organizations such as McDonald’s.
Reward systems are tools for enhancing the success of organizations. This paper reflects on this new thinking about the purpose of reward management in an organization concerning the case of McDonald’s business. Upon considering the case, the paper first identifies and the analyses the key environmental changes that influence rewards in the organization and the business context that drives reward strategy.
It then identifies and evaluates the reliability of five different sources of reward intelligence besides providing examples of how these sources are used. In the last section, the paper explains the key perspectives that act as a basis for reward decisions.
Environmental Changes that influence Rewards in an Organisation
The need to establish or review reward systems emerges based on the changes in the business environment. For instance, at McDonald’s, increasing competition from various food retail outlets prompted the company to establish strategic plans to ensure that the company retained its market share. This strategy involved ensuring that employees remained committed to the objectives and aims of the organization.
As such, the organization currently endeavors to increase its competence in terms of the delivery of high-quality products and services. The capacity of McDonald’s to retain and attract new customers depends on how fast it delivers services to clients and the quality of food it offers.
The organization realized that without motivated employees, it could not achieve its goal of the most preferred fast food global organization. This need compelled the company to establish performance-based reward systems.
Operating in a fast food industry exposes McDonald’s to a myriad of challenges. For example, there are increased concerns of healthy foods with accusations of some of the company’s fast foods such as hamburgers, which contain high calories that are associated with obesity together with other associated health challenges including hypertension and diabetes.
These environmental changes in terms of food preferences call for the organization to recruit and put efforts to retain a creative and talented workforce that can create new menus to meet the emerging consumer needs. The process of retention and recruitment of a skilled and knowledgeable workforce in an industry requires the establishment of programs for ensuring that people are motivated (Brockbank, 2003).
Where such people are in the first and second phase of Maslow’s hierarchy of needs, momentary rewards are critical in enhancing performance. In other phases, rewards such as promotion and delegation help in retention and recruitment of the best talents in an industry. This strategy is the central concern of McDonald’s reward systems.
Compliance with legislation, the need to enhance internal and external equity, and financial sustainability are also important environmental factors that influence rewards in an organization. The underlining theoretical paradigms for enhancing financial sustainability through the setting of appropriate reward systems rest on the platform that better-rewarded people are more productive (Brockbank, 2003).
Productivity implies higher production rates for products and services, which meet the pre-established quality standards. Hence, for a given payment rate, there is an optimal utilization of labor. This strategy reduces the direct costs of production. Thus, an organization gains higher profitability due to lower marginal costs.
As a reward strategy, pay increase may not always increase the productivity of employees. This case implies that an option to increase financial suitability of an organization is through lowering of remuneration rates for employees to achieve particular profit margins. Unfortunately, an organization has to comply with legislation on the rights of employees while setting its reward systems.
For instance, some jurisdictions prohibit a downward revision of employees’ remuneration. In some nation like the UK and the US, McDonald’s has to comply with minimum wage and salary legislation. The US also requires equality in the payment of people of the same job description.
Hence, under the US labor laws, any McDonald’s rewards for performance should not be incorporated in salary or wage level that is declared by an organization during recruitment so that failure to achieve certain performance levels can lead to a downward revision of an employees’ salary or wage.
Business Context Driving Reward Strategy
Corporate, national, and international context involve the three main important business contexts that drive any reward strategy for McDonald’s business. From the paradigms of corporate context, McDonald’s Company embarked on building the culture of reliance on people as its source of competitive advantage. Without people (customers and employees), the organization believes it would cease to exist.
The company uses employees as the strategy for the realization of customers’ expectations through the delivery of quality products and services at a high pace. One of the ways McDonald’s measures its performance at the restaurants is the rate of customer service together with customer satisfaction.
McDonald’s recognizes that for employees to meet customers’ expectations, employees’ prospects in terms of remuneration and other benefits also need to be met by the organization. Reduction of labor turnover in the search for better pay compels McDonald’s to set reward systems by trends in the industry.
The performance trends in the organization also form the basis of reviewing the remuneration rewards for employees. The goal is to ensure that employees develop the perception of ownership so that increased effort to increase profitability for the corporation leads to increased earnings on the part of employees.
McDonald’s sets different rewards depending on the jurisdiction of its operations. In nations where the costs of living are low, wage and salaries are lower about nations where the living wage is higher. For instance, salaries and wages paid by McDonald’s in China and India-based restaurants are lower about the US and the UK-based restaurants.
National context also influences the reward strategy for McDonald’s through legal frameworks such as minimum wage, demand levels for some skills in a particular field, and greater concerns of flexible hours for working in a bid to accommodate workplace diversity.
Increased trade union’s pressure on McDonald’s business to establish better remuneration increases the bargaining ability of the labor unions. This situation compels the organization to react appropriately by adjusting reward systems in the effort to reduce labor boycotts.
At McDonald’s, there is also a sporadic shift from the production-based operation models to a service-based business model. Service-based models emphasize the need to improve the quality of service delivery in the fast food sector by establishing better employee reward systems.
International business context incredibly influences the business rewards strategy for different organizations operating in the global market. This takes the form of paying according to the expected performance together with employees’ competence levels.
There is also a concern for “flexible approaches to pay to help businesses react swiftly to new demands and pressures” (Lewis, 2001, p.108). The major concern for McDonald’s is basing remuneration reward systems on the competence and ability of employees to develop new menus that fit the culture, tastes and preferences, and quality requirements for people in specific markets.
Reliability of Sources of Reward Intelligence
Reward strategies may be based on various sources of information for setting appropriate reward levels. Some of the sources of reward intelligence include the national statistics on unemployment rates, inflation, average working hours, and even average earning per working hour.
Others include the national minimum wage, job advertisements, industry benchmarking reports, surveys by the government together with private firms, and consultancy information.
National minimum wage is a highly reliable source of reward intelligence. In every new job opening, compensation and benefits packages constitute the starting point for recruitment of the most qualified persons to fill the position. Such rewards need to comply with statutory legislation applicable to a particular jurisdiction.
Employee compensation and benefits packages comprise a myriad of facets such as variable pay, compensation based on equities, guaranteed pay, and benefits (Lambert & Vicki, 2012). Guaranteed pay consists of all monies that are accorded to an employee in terms of wages or monthly salaries.
Minimum wage data for organizations in different sectors do not act as a reliable source of data on other rewards apart from wages and salaries. However, benchmark reports can be a reliable source of these types of reward intelligence.
The goal of McDonald’s is to become the best working place in the fast foods industry across the globe. It cannot realize this objective without rewarding its employees better than other organization competing for the fast food market share. To acquire this information, the industry rewarding system benchmarks are important. They help an organization in knowing how its rewards systems measure up to the industry’s standard and averages.
Information from consultancy organizations and job advertisements give a rough indication of the expected remuneration levels in the industry. However, such information not a precise indicator of the actual remuneration levels for a specific job (Korezis & Panagiotis, 2008). Job advertisements indicate that rewards and benefits can be bargained.
The reward levels agreed upon between the recruitment consultant or organization advertising for a specific job opening depends on the unemployment levels and competence heights of the recruited employees.
Since competence level is a variable, which cannot be standardized, information from recruitment consultants together with job advertisements is an unreliable source of reward intelligence where precise reward levels to attract and retain persons of a specific qualification caliber is desired.
In the operating environment of an organization, changes such as an increase in inflation levels occur. Organizational management theory suggests that employees work to satisfy certain needs (Brockbank, 2003). The overall effect of inflation is to increase the general costs of goods and services. This claim results in a reduction of the purchasing ability for any employee. This situation may lead to reduced motivation.
Consequently, the adjustment of employees’ rewards to restore their purchasing abilities is important. The only reliable sources of inflation levels are national statistics from a national financial management organization such as the Central Bank.
For global organizations, the World Bank’s data on inflation levels in different nations is a reliable source of reward intelligence. However, relying on inflation statistics to review reward levels for employees exposes an organization to the challenge of whether to review salaries downwards when inflation levels fall.
National figures act as reliable sources of reward intelligence by providing data on the average working hours and earnings per hour. The US is a good example of demonstrating how this intelligence can be used. Employees in the US are classified as either exempt or non-exempt.
The provisions of the Fair Labour Standards Act, which is administered by the US wages and hour division of the department of labor, provided that all employees are non-exempt except when the proof is provided to prompt the treatment of an employee otherwise (Lambert & Vicki, 2012).
All employees in the United States must be paid a salary that is at least the minimum of what is provided for as the federal minimum wage for every hour. They are also eligible for overtime pay that is equal to one and half times the wages of regular working hours.
Wages and overtime are paid for 40 hours in a week unless employees are specifically exempted (Lambert & Vicki, 2012). Exceptions are documented in the fair labor standards Act as outlined in section 13 of the Act. In particular, section 13(a) part 1, exempts administrative, and other professionals who work outside the sales discipline within an organization. Certain computing employees are also exempted in section 13 (a) part 17.
Qualifying for exemptions requires an employee to pass three main tests. These are salary basis tests, job duties tests, and salary level tests (Lambert & Vicki, 2012). The exemption of employees is not dependent on the job title held.
Key Perspectives that inform Reward Decisions
Organizations arrive at the appropriate policies for rewards upon consideration of several issues in the labor markets. These issues involve perspectives, which help in informing reward decisions in an organization. In all organizations, including McDonald’s, some of these key perspectives are shared bargaining, description of industry markets, human assets, pay determination, and remuneration effectiveness (Korezis & Panagiotis, 2008).
The first and most important perceptive influencing reward decision is the mechanism for pay determination. As claimed before, several factors influence remuneration package offered to employees in a given industry. Factors such as statutory legislation on minimum wage and statutory provisions for bonuses given to executives must apply.
In bureaucratic systems for organizational management such as the one deployed at McDonald’s Company, reward package must reflect the seniority of an employee, and job mandates arrived at after conducting a job analysis. Performance anticipation for an employee together with the collective agreement on a particular remuneration level also includes pay determination.
Organizations also endeavor to reward employees depending on their expected contribution in enhancing competitive advantage for an organization. This aspect is used at McDonald’s by rewarding innovative and creative employees accordingly.
In most industries, employees subscribe to the membership for trade unions. This calls for consideration of the perspective of collective bargaining while making reward decisions.
This perspective entails negotiating with groups of employees and employers in the effort to arrive at agreeable general terms of services such as wages, salaries, and working hours. In these negotiations, considerations are made for wage scales, safety, working hours, methods of grievance handling, and overtime regulation advocated by a trade union to which employee subscribers.
This perspective applies differently in different jurisdictions. For instance, in the UK, employees make individual, collective bargaining with employers without the influence of trade unions. Such bargaining is unenforceable by law unless where the agreements are part of the employment contract. In several other EU member states, trade unions have the sole mandate to engage in collective bargaining with employers on behalf of employees.
Characteristics of labor markets provide a foundation for reward decisions of reward levels based on labor supply about labor demand. Broad availability of talents and skilled labor force over demand causes organizations to establish low reward levels (Lewis, 2001). Where the supply of skilled and talented labor is low, organizations set higher remuneration levels to retain and attract the best talents.
This perspective reflects the contribution of the external business environment in influencing the performance of organizations. It depicts the capacity of a firm to respond to the external environment. However, its use in influencing reward decisions exposes an organization to several challenges.
The perspective is provisional. The economic environment is dynamic (Lewis, 2001). It also overemphasizes pay while ignoring other forms of reward, which are not monetary-oriented such as promotions.
From a human capital perspective, reward decisions need to reflect the investments made by employees. This claim suggests that training and development programs undergone by employees, together with education, are long-term investments. Employers have to ensure ardent returns on investments. This perspective is used in setting rewards to attract people based on their qualifications, expertise levels, and skills.
This approach reflects fairness and equitability in rewarding employees’ contributions to an organization. Nevertheless, organizations are hardly sure that employees will display their skills, knowledge, and expertise in their job performance.
Wage efficiency reward perspective focuses on increasing the effectiveness and efficiency of labor. While making reward decisions, employers consider setting pay and other forms of rewards well above the industry’s equilibrium. The premise for this strategy rests on the need to increase the productivity of employees in the effort to reduce direct costs that are associated with poorly motivated employees such as turnover costs and time for execution of tasks.
Brockbank (2003) criticizes the use of this approach by claiming that it has a short-term positive impact on the enhancement of the productivity of employees. Efficient rewards also attract different perceptions among different people. In the worst scenario, organizations may fail to afford implementation-efficient reward policies.
Organizations seeking to succeed in their businesses both nationally and internationally need to recruit and retain motivated work teams, which can support an organizational performance strategy to enhance financial sustainability. These concerns underline the investments in reward management at McDonald’s, a group of restaurants dealing with fast foods on global platforms.
Concerning this organization, the paper discussed various environmental changes affecting rewards together with business contexts that drive reward strategies that are adopted by an organization. It also identified and explained the use of sources of reward intelligence and then proceeded to discuss key perspectives informing reward decisions such as characteristics of labor markets, shared bargaining, pay determination, human resources, and income status.
Brockbank, W. (2003). If HR Were Really Strategically Proactive: Present and Future Directions in HR’s Contribution to Competitive Advantage. Human resource management, 38(4), 337-352.
Korezis, P., & Panagiotis, E. (2008). Employees’ Psychological Empowerment via Intrinsic and Extrinsic Rewards. Journal of human management, 4(1), 17-38.
Lambert, C., & Vicki, M. (2012). The Top Three FLSA Violations and How to Avoid Them. Journal of Human Resource Management, 12(3), 306-313.
Lewis, P. (2001). Chapter 4 – Reward Management. In Contemporary Human Resource Management. New York, NY: Pearson Education.