Performance and Reward Management: Payroll Costs

Introduction

An employee reward system consists of a firm’s integrated approaches, procedures, and practices for rewarding its workers by their performance, qualification, proficiency, and their market value (Gratton 1999, 71). An employee reward system is developed within the framework of the organization’s reward philosophy, strategies, and policies and contains arrangement in the form of practices, frameworks, and procedures that will give and maintain proper groups and levels of remuneration, benefits, and other ways of rewarding (Armstrong 2007, 12).

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A reward system comprises of financial rewards (fixed and variable remuneration) and employees’ benefits that collectively make up the net remuneration. The system also includes nonfinancial rewards (acknowledgment, congratulations, accomplishment, responsibilities, and individual development) and, in other instances, productivity management practices (Chapman and Webb 1994, 102).

The main components of the system are:

  1. Processes for measuring the value of jobs, the contribution of individuals in those jobs, and the range and level of employee benefits to be provided; these processes consist of job evaluation, market-rate analyses, and performance management.
  2. Practices for motivating people by the use of financial and non-financial rewards; the financial rewards consists of the base, variable pay, employee benefits, allowances, and nonfinancial rewards which are provided generally through effective management and leadership and are dependent on work itself and the opportunities given to employees to develop their skills and careers (Lynda, 1999)
  3. Structures relating to pay benefit level and the value of positions in the organization for providing scope for rewarding people according to their performance, competence, skill, and /or experience.
  4. Schemes for providing financial rewards and incentives to people according to an individual, group, or organizational performance. (Green, Paul, 1999)
  5. Processes for maintaining the systems for ensuring that it functions resourcefully, lithely, and provide a return for resources.

A reward policy indicates how reward processes should be designed and managed within the context of the reward policy. It provides guidelines for line managers and personnel or pays specialists on how particular and recurring reward issues should be dealt with. (Schwartz, 2001). It enables consistent decisions to be made where appropriate while recognizing the need for flexibility and the perils of rigidity.

The purpose of performance rewards is; to motivate employees to contribute to the best of their capability; to retain the best people by recognizing and rewarding their contribution (Schuler & Jackson, 1999); and to attract the best human resources for the right jobs, tasks, and roles.

The problems of cutting payroll costs are multifold beginning with the fact that it does not take much business acumen to eliminate jobs and lay people off (Chapman & Hall, Webb, 1994). The risks involved are that the most talented and most marketable people leave on their own accord and whereby the aftermath of downsizing costs leaves a workforce that is unmotivated and fearful waiting for the next person to leave the organization (Baron and Armstrong 2007, 12).

Severe downsizing can lead to financial losses rather than gains. The confusion, inefficiency, cost of early retirement, severance pay, legal expenses accrued due to court cases usually offset the gains got from savings in payroll costs (Wardy 2010, 66). Even though payroll costs may depreciate, they may not translate to increased revenue, for example, the organization may be understaffed and unable to capitalize on new ideas or rapid recovery (Perkins 2008, 32).

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Main body 1

Managers face great challenges during performance and reward management in finding a way of undertaking performance management that will make sense to both the employer and the employees also while doing their work for the company to achieve its goals (Schwartz 2001, 37). If they set a process that does not address the employees, dissatisfaction may arise from the perceptions of reward inequity between the employees who could certainly lead to increased employee turnover and reduced motivation (Brooke, Russell and & Price 1988, 140).

Motivational approaches – workplace motivation can be defined as any influence or inner drive that will make the employees achieve the organizational goals (Armstrong and Brown 2001, 67). To achieve this, the HR manager needs to understand individual needs and fulfill them. Given the ever-changing workplace and competitive market environment, motivated employees help the organization be able to achieve its competitive advantage and an organization cannot afford to lose them (Armstrong 2007, 254).

Control and measure results – the one in charge of the human resource department should undertake regular organization assessment on matters like remunerations, benefits, workplace environment, managerial personnel, and promotional leads among other matters to measure the improvements over time (Reece, Barry and Rhonda 1993, 45). It is also important to develop appropriate measuring tools to ascertain the impact of diversity in an organization through feedback surveys and any other method whereby if there is no assessment some of this workplace diversity might lead to conflicts (Allen, Walter and Lange 2006, 58).

Gainsharing programs – this refers to incentives practices, which engage the workers in one endeavor to look up the firm’s productivity and they are based on the framework that the ensuing incremental economic success is reflected both the staff and the organization. (Kerzner, 2010). This program encourages the workers to participate in the management and to take responsibility willingly since they are aware that they will benefit if the organization meets the set goals.

Despite the enormous shifts in the business landscape over the past years, most companies have made minimal changes in design and delivery of their design and delivery of their base pay, incentive, and performance management programs (Armstrong 2007, 137). Reward and performance management practices are not keeping in pace with the demand facing businesses today. As a result, current programs do not appear to be meeting talent and people management needs effectively.

The transformation brought about by international competitiveness makes firms more amenable to the adoption of approaches that allow swift adaptations to prevail market needs. This will make the firms have a vesting interest in adopting reward schemes to motivate workers to commit themselves more towards achieving the organizational objectives. These schemes could include variable reward practices based on the acknowledgment of the employee’s involvement in the performance of the organization through their performance and as a way of increasing their enthusiasm and output (Gomez-Mejia, Balkin and Cardy 2008, 77).

However, reward systems based on profit-sharing hurt the employees’ job contentment, contrary, given that reward systems aim to encourage the morale, positive reception and appreciation of the employee in regards to the demands of the organization. Nevertheless, – since profits depend not only on employees’ productivity but also on the organizational external environment, for instance, seasonal goods, internal governmental policies, the economic condition, or the utilization of financial resources – the reward system can fail on its mission (Green 1999, 59; Reece and Rhonda 1993, 122).

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Additionally, profit–sharing doesn’t have a negative influence just on job satisfaction but also on technical equality and interactional equality. Regarding procedural equality, it is possible that an organizational resolution can be based on a certain principle, but may seem inequitable by the workers who are impacted by the resolution. The perception of procedural equality is related to the employees’ engagement and contribution in the practices, and also on the use of standard approaches and practices that use defined and clear-cut information. (Chapman & Hall, Webb, 1994). This, as a result, brings to understanding the importance of communication, integration, and trust as dependants of the systems of reward based on profit sharing.

The impacts of changes in the business environment on rewards policies and practices have been a challenge to human resources management especially when it comes to employee motivation as it is difficult to understand what motivates them the managers can only make an inference, thus it could affect employees performance, their perceptions of managers, or workplace. (Reece and Rhonda, 1993) With the technology advancement, organizations have been forced to restructure for example; tall organizations have been forced to become flattered and this has resulted in retrenchment thus, there has made the organization retrain workers to accommodate the restructuring process.

Main Body 2

The external environment in the shape of globalization, increased competition, government interventions, the industrial relations scene, and the characteristics of the organization’s sector can influence the reward policies and practices (Grote 1996, 204).

The purpose of reward structures and systems is to assist draw, hold and inspire invaluable employees. If this is not implemented properly, it can significantly negatively influence the inspiration, dedication, and drive of the employees.

The reward practices and policies are linked through an employees’ point of view where the reward management should take into account the aspirations, expectations, and needs of employees as stakeholders in the organization (Armstrong and Appelbaum 2003, 89). Considerations have also to be given to the needs or views of other stakeholders, especially owners in the private sector and governments, local authorities, and trustees.

Employee involvement is crucial to the development of reward policies and programs. (Armstrong 1999, 45) The wishes of the employees need to be ascertained whereby their comments on existing practices should be listened to and acted upon. They should be involved in the development of new reward processes, for example, job evaluation, performance management, and contingent pay instance, and British Airways are transforming their way of working by focusing on creating a diverse, challenging, and rewarding workplace where the employees across the airline feel part of the organization (Gary, Seldon and Carlotta 1997, 109). This is could be achieved by offering those incentives plans to offer rewards for improved performance, use of management bonus schemes using a mix of financial and non-financial performance metrics which are designed to improve overall performance and to reward individual effort (Armstrong 2002, 114).

Organizations are finding it essential to introduce a sense of balance between standardization of corporate practice to communicate strategic business priorities to employees wherever they may be located and to provide a sense of ‘corporate glue’ – while at the same time being responsible to the need for differentiation in terms of local culture, values and market practice (Buehler, Griffin and Ross 1994, 368)

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There has been an increasing move in several parts of the world to a geocentric approach, where regional trends and practices, accompanying the mobility of international executives and professionals, not only globally but intra-regionally need to be considered and accommodated. Such issues demand an analytical approach, patience to collect and analyze the relevant information to inform strategic options, and then the sensitivity to manage what may be potentially conflicting corporate and local reward policy requirements. (Lewis 2000, 30)

The emerging trends in total remuneration reflect the growing number of globally mobile senior executives; moves towards increased simplicity, and cost and tax effectiveness of expatriate reward management; and the increasing importance of talented ‘local nationals’ who will make a difference between winning or not within a specific market place. (Gomez-Mejia, Balkin and Cardy, 2008) Thus this will include a reference to the new breed of entry-level employees who will develop global skills and experience which will lead to the organization developing new rewarding practices and policies.

Organizations are recognizing the imperative of more effectively integrating their expatriate and local national remuneration due to the emergence of truly international total remuneration. (Gratton, 1999) These emerging trends will suggest an increase in demand on the human resources function and the professionals of which it will be comprised leaving those capable of rising to the challenge; there is a tremendous opportunity to position them at the heart of internationalizing business strategy development and application.

Employment trends – there is an increasing demand for skills and qualifications is taking place, especially for managerial and professional workers, knowledge workers, customer service staff, technical and office staff, and skilled manual workers. ( Perkins, 2008) This, coupled with the skill shortages associated with low levels of unemployment, influences reward strategies design to attract and retain people.

Demographic trends – one of the most factors that reward and HR strategies have to address for the future is demographic change. Just as traditional labor pools are shrinking, traditional rewards practices and mindsets have been encouraging a further reduction in employment, with early retirement through defined benefit pension arrangement. (Lewis, 2000) Resourcing and reward strategies which are heavily focused on both recruiting young “dynamic” staff and getting rid of “old” employees at a fixed retirement date or before; or the opportunistic poaching of staff with the requisite skills and experience from competitors are therefore becoming increasingly outdated and undesirable from both an employer and national perspective.

Conclusion

Employees are encouraged by both intrinsic and extrinsic rewards, to be effective; the reward system must recognize both sources of motivation. An employee reward system can be defined as frameworks developed by an organization to reward productivity and encourage its workers at the individual or group level. They are taken apart from salary or remuneration but may be in form of money or else having a cost implication to the organization. A reward system is made up of monetary rewards and employee benefits that collectively add the net remuneration and also integrates nonmonetary rewards (acknowledgment, congratulations, and personal development) and, in other instances, performance management practices. However, all reward system is based on the assumption to attract, retain and motivate human resources.

An increase in reducing payroll costs would demotivate the employees thus the organizational objectives would not be achieved due to less work force. Due to the reduction of payroll costs, some employers will be forced to use their profitable units to cover losses of uneconomical units.

The reward practices and policies are linked through an employees’ point of view where the reward management should take into account the aspirations, expectations, and needs of employees as stakeholders in the organization. Considerations have also to be given to the needs or views of other stakeholders, especially owners in the private sector and governments, local authorities, and trustees elsewhere.

However, the greatest challenge that the managers face during performance and reward management is to find a way of doing performance management that will make sense to both the employer and the employees, what they need to do their job and help the company achieve its goals. If they set a process that could not work with their employees’ dissatisfaction may arise from the perceptions of reward inequity between the employees who could certainly lead to increased employee turnover and reduced motivation.

Motivational approaches – workplace motivation can be referred to as the influence or inner drive that will make the employees achieve the organizational goals. To do this the HR manager needs to understand individual needs and fulfill them. In an evolving work-place and competitive marketplace, only inspired employees can see the organization achieve a competitive advantage.

There has been an increasing move in several parts of the world to a geocentric approach, where regional trends and practices, accompanying the mobility of international executives and professionals, not only globally but intra-regionally need to be considered and accommodated. Such issues demand an analytical approach, patience to collect and analyze the relevant information to inform strategic options, and then the sensitivity to manage what may be potentially conflicting corporate and local reward policy requirements.

Recommendations

The human resource and development experts should be engaged with the recurrent reward matters, whether they are a generalist or specialized in human resourcing, learning, and development of employees’ relations. The human resource manager should have an integrated method that would consider all aspects of personnel systems and processes that are to be developed are mutually reinforced in the organization.

Payroll processing is amid a revelation that presents companies with new opportunities as well as unexpected challenges. For those companies willing to renovate their payroll practices the potential cost saving can be enormous. The following are some ways in which a company can reduce the costs of their payroll operations; first, Centralizing Operations. Companies can achieve savings by changing the structure of the organization to centralize previously disparate tasks. Companies in the past that have a diverse and decentralized payroll operation have consolidated them into a shared service environment. These companies might be doing HR, payroll, benefits, or accounts payable; depending on the need at that point of time thus more payroll costs are incurred. The company would be more efficient if the employees are used more effectively.

Secondly, standardizing procedures; many companies reducing payroll costs by standardizing policies and procedures where the more ways used by the companies were calculated and benefits are provided in the end the company causes the cost to produce the payroll increase almost exponentially. To reduce these costs the company should reduce the complexity by eliminating different pay and benefits policies for different groups of employees.

Thirdly, employee self-service; an increasing number of companies are reducing costs by transforming the role of the payroll operations from that cash. This will be convenient and easy to access and it eliminates handling of a significant portion of the payroll environment by separate environment by separate staff. Through this, the company can reduce its payroll costs.

References

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