Usefulness on Total Reward in an Organization

Introduction

Every manager in a corporation is faced with one principal aim; increasing the shareholders’ wealth by improving on the bottom line. To attain these objectives, a firm has to develop a clear delineation and paucity of the effects of the fixed assets and current assets has on the returns and risks. Working capital management in this subtext will refer to the management of current assets. According to Naila (2009), the management of current assets differs from that of fixed assets in 3 principle aspects; fixed assets are for periods extending more than a year while current assets are held for less than a year, large holdings of current assets, especially as concerns elements such as cash, strengthens the liquidity position but also reduces overall profitability.

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Armstrong (2002) states that “a reward system expresses what an organization values and is prepared to pay for; it is governed by the need to reward the right things in order to convey the right message about what is important in terms of expected behaviors and outcomes.” The importance of HRM has increased with time and the need to properly manage people is becoming a central focus within organizations today. This has precipitated competition amongst various organizations seeking to portray the best skills in people’s management. This has defined a new role for line managers whose roles in organizations have shifted from the traditional supervisory role to more advanced people resource management. To effectively take efficient steps in recruitment and selection, employee relations, reward management, appraisal, and performance reviews, line managers must receive the support of the HR specialists.

Reward systems within organizations are always based on how one’s value to the organization. “It is concerned with both financial and non-financial rewards and embraces the philosophies, strategies, policies, plans, and processes used by organizations to develop and maintain reward systems.” Most organizations make use of the term “compensation” to refer to “pay” or “remuneration”. There has been a noted problem with the term compensation in that it means rewards to the employee are only “ for making amends for the distasteful fact people have to work to make a living”. In the analysis of Elliot’s (1991) proposition that “for most people work is, in the main, a source for disutility, and they, therefore, require payment to compensate them for the time they devoted towards it”. While this argument is true in its literal sense, it, however, fails to provide a complete definition of pay philosophy. This is because pay philosophy should take into consideration one’s competence and contribution, not just compensation simply because none have worked for it. In appreciating that employee rewards take into deep consideration of the organization’s integrated policies and practices, rewards are best given according to the market worth of an employee. In addition to that, one’s contribution, skills, and competence should also form central measurements under which rewards systems can be based. The rewards scheme runs through the culture and philosophies of an organization and is developed within its framework to maintain the best levels of pay, benefits, compensation, and other forms of rewards.

According to Armstrong (2002), a “reward system consists of financial (fixed or variable pay) and employee benefits, which together comprises the total remuneration.” In addition to that, the rewards system also encompasses non-financial components that include (recognition, praise, achievement, responsibility and personal growth). The non-financial components of the rewards system also include performance management systems. The combination of the two; financial and non-financial rewards forms the total reward system. Deeper analyses of the reward systems reveal that it has five more components that include processes, practices, structures, schemes and procedures.

Strategic human resource management

Different firms will pursue different approaches to their reward policies, philosophies, culture, and modes of operations depending on their perceived levels of efficiencies and the prevailing circumstances. Essentially then, the basic goal of reward system management is to ensure a satisfactory level of people management. The efficient management of people is an integral component of the overall corporate strategy within organizations to motivate and retain employees. Best human resource management in reward management includes reward strategy, reward policies, total reward, total remuneration, base or basic pay, contingent pay, employee benefit, and performance management.

Reward strategy in an organization

“Reward processes and practices are most effective when they are based on appropriate reward strategies, philosophies, and policies (Armstrong, 2002)”. Reward strategy takes into consideration the programs that are critical to the organization and underlines the objectives it wants to achieve. In broader terms Armstrong (2002) defines it as “a declaration of intent as to how the organization is going to put its reward philosophies into practice.” In this regard, the overall aim of reward strategy is to align it with the critical reward issues that directly impacts on the aims and objectives of the organization. The strategy must enhance the ability of the organization to achieve its central objectives. In addition to the above, the reward strategy must be integrated with the other HR resource development programs to ensure their sustainability and impact.

Reward policies in the organization

Armstrong (2002) defines reward policy as “the factors that indicate how reward processes should be designed and managed within the context of the reward philosophy.” This demonstrates that it avails the necessary guidelines to the line managers on the modalities of effectively handling recurring reward issues. This gives is the purpose of enabling consistent and sound decisions while at the same time taking into consideration the current business environment. From a cybernetic perspective, it can be advanced that a firm is required to maintain high levels of people’s management that facilitate its day-day operations to ensure the smooth running of operations and meet its short-term obligations.

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This however is not always easy, where a business has to operate efficiently and still make profits. A major problem encountered by the majority of firms is reward policy, reward philosophy, and reward strategy mismatch. The best combination and practice in the three components of reward schemes fused with sound HR management has the capacity to see that profit levels of an organization improve.

Models of Total reward

Surveys have indicated that a lot of managers spend considerable time focusing on problems that involve employee management decisions. Armstrong (2002) and Harrison (2009) have indicated that one reason for this is that employees form the greatest asset within an organization and must be rewarded in the best form to enhance their loyalty and retention. Total rewards can be defines as “all the employer’s tools available that may be used to attract, retain, motivate and satisfy employees and encompasses every single investment that an organization makes in its people, and everything that its value in the employment relationship”.

The central objective of the total reward is aimed at driving the envisioned forms of practices within an organization. This program takes into consideration all the other reward programs that an organization has the capacity to exploit for its mutual benefit and that of the employee. It includes both the financial and non-financial components. The aim of the total reward within an organization is that not every single reward program is handled in separation. All components, strategies, philosophies, and cultures are integrated. “Total reward strategies are vertically integrated with business strategies but are horizontally integrated with other HR strategies to achieve internal consistency” (Armstrong, 2002). The components of the total reward include compensation, benefits, and work experience.

The compensation component of the total reward is basically of financial nature and is aimed at satisfying the demands that are financially linked while benefits are aimed at satisfying the protection needs and as such are less likely to be performance-based. The work experience component of the total rewards is geared toward meeting the relational needs that culturally form a binding factor of the employees into the organizations. It is important to note that total rewards within an organization are influenced by both internal and external factors.

The work-related component of the total reward remains the least developed. This is because in most enterprises the workload program consists of various components that are fused over time.

In the analysis of the benefits of the total rewards to an organization, a number of substantial issues that directly benefit an organization are raised. These include increased flexibility, recruitment and retention, reduced costs, heightened visibility, and enhanced profitability.

Total remuneration

Kerzner (2006) illustrates succinctly that,

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Personnel and development practitioners are expected to play their part alongside line managers in maximizing the contribution of people to the achievement of corporate purposes. They must understand the business context and the importance of adopting a strategic viewpoint when meeting business needs in partnership with their colleagues. The total remuneration of rewards is thus best enhanced.

The total remuneration translates into the summed-up value of cash payments and cash benefits that employees have earned. Most organizations base the value of total remunerations using a number of indicators such as experience, contribution, and position within an organization.

Base or basic pay

This is a fixed amount paid to a worker depending on his or her rank in the form of a wage or salary. It has the advantage of giving the line managers and the ability to determine the additional payments that are related to performance. In addition to the above, basic pay reflect on both the internal and external environments of an organization. Continuous internal evaluations carried out within the organization determine the basic pay of employees in organizations while external relativities are products of the prevailing market conditions at a given point in time (Price, 2007). Other methods have been used to arrive at the amount of base pay. These include negotiations that in most cases involve open negotiations with trade unions and employers or individual agreements at the onset of beginning to work. Base rates within organizations vary depending on skills, experience and contribution.

Contingent pay

Contingent pay “is pay that is linked to measures of individual, group, or company performance and is used as a means of incentivizing workers and promoting shared interests in higher output, productivity, customer satisfaction, and other indicators of business success” Armstrong (2001). These are extra payments in the form of financial rewards that are given to employees based on performance, competence, contribution, skill and experience. In the case where they are combined in the base pay, they are referred to as variable pay or pay at risk. There are a number of contingents pays and the amount an employee receives depends primarily on the factors highlighted above. These include individual performance-related pay, bonuses, incentives, commissions, service-related pay, competence-related pay, skill-related pay, and contribution-related pay and career development pay.

Employee Benefits

“Employee benefits typically refers to retirement plans, health life insurance, life insurance, disability insurance, vacation, employee stock ownership plans, etc and are increasingly expensive for businesses to provide to employees, so the range and options of benefits are changing rapidly to include, for example, flexible benefit plans” (Armstrong, 2002).

This is also known as the in-direct pay and is composed of those elements that are of additional value to the base pay. Most of these indirect payments are strictly not remuneration and thus vary continuously and over the years.

Performance management in an organization

Simply put, Brown and Armstrong, (2006) defines performance management that,

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Performance management includes activities to ensure that goals are consistently being met effectively and efficiently. Performance management can focus on the performance of the organization, a department, processes to build a product or service, employees, etc. Information on this topic will give you some sense of the overall activities involved in performance management. Then you might enhance your understanding by reviewing closely related library topics referenced from the sidebar.

In recognizing the fact that an organization’s performance depends primarily on the quality of its management and employees, line managers appreciate the role of reward in improving the quality of management through generous rewards. Organizations must also know that rewards alone cannot play the sole role of management quality improvement but this process demands with it a number of other factors for it to be fully realized. This is because, “the culture, values, and management style of an organization, together with its performance management and employee development programs are equally important” ref. it is, therefore, true that reward management forms an integral part of quality management but cannot stand alone in an organization in ensuring quality management.

Reward management in an organization

The successful design, development, and implementation of management decisions are very complex and at times daunting tasks for many managers especially when managing the most prized assets of organization employees. Usually, managers will be faced with daily problems that require the application of tools that will ensure the successful operations irrespective of the sectors they manage such as the identification of the objectives of the organization, alternative means of achieving the stated objectives, and the selection of the means that accomplish the objectives most efficiently. The first process in the decision-making process will entail the identification of the problem. The problem in dealing with employee rewards for the optimum benefit of the organization must enhance the ability of the organization to effectively achieve its objectives. Ideally, successful identification of the problem will encapsulate trying to delineate answers to questions such as what could be the causes of the problem, where this is happening, how it is happening, when it is happening, with whom it is happening, and why it is happening (MacNamara, 2008). In essence, this should be followed by an in-depth analysis of the delineation of the complexity of the problem, verification of the understanding of the problem; prioritization, and understanding the role to be played towards the redress of the problem (Dennis, 2007).

Reward management is one of the central management issue Intercontinental Hotel’s top management has over the year managed excellently. Effective reward management not only motivates the employees but also depicts a harmonious management style the company is applying to capture and succeed in the market. In addition, they recruit and maintain the most talents in the business. According to Jiang and Gary (2001),

The reward or compensation people receive for their contribution to an organization includes monetary and non-monetary components. Remuneration does not simply compensate employees for their efforts – it also has an impact on the recruitment and retention of talented people.

In this regard, reward management calls for brilliant strategies to ensure that it succeeds. Towards this, the company has employed a number of strategies to help successfully implement this program. These strategies include controlling reward, monitoring and evaluating reward theories, managing development of reward system, devolution of line managers for responsibility for reward system.

Controlling rewards in an organization

Intercontinental Hotel UK has got a good reward management control strategy. Control offers the opportunity to plan and execute reward in a more organized and logical manner which reflect the spirit and mission of the company. According to Armstrong (2002),

Employers and managers should pay attention to their employees and special attention to the best employees. This is done to encourage good performers, to push them to greater heights. Positive recognition for people can ensure a positive and productive organization. The recognition of outstanding performance aims to create an understanding of what behaviors might add significant value to the organization and to promote such behaviors. Awards- monetary and non-monetary – should be given based on the achievements and accomplishments of workers.

Effective reward management calls for effective and strategic management to ensure that the programs not only succeed but also offer a good platform for other companies to emulate. In controlling the rewards, the organization benefits a lot from such an initiative. The befits that come along as a result of reward control include an offer of the best opportunity for strategic planning, ensures continuity of the reward system, it is effective in the process of the reward scheme evaluation.

Monitoring and evaluating reward theories

The process of monitoring and evaluating reward theories demands good management practices from line managers. In Intercontinental Hotel UK, this process is ideally inclusive of the major parties to the problem and will involve holding a brainstorming session where the possible solutions to the problem are all presented and analyzed. Armstrong (2007) and Storey, (2007) advised against passing judgment on the possible solutions as presented at the earliest stage of evaluating rewards so as to provide chance for possible solutions and errors that could be omitted. The selection of the reward within Intercontinental Hotel UK considers the best alternative to resolving the problem is the next stage and is essentially where the possible solutions advanced are analyzed and dissected in detail. In the selection of the best alternative, the line managers within Intercontinental Hotel UK take into consideration the approach that is likely to resolve the problem in the long run, the most realistic solutions, the resources available, time, and the risks associated with each alternative (McNamara, 2008).

Conclusion

Initiating a reward program in most organizations has been easy but managing and developing the rewards comes along with many challenges. This is because reward systems must be well developed and enhanced to reduce employee conflict. This involves assessing how the situation will be once the reward has been initiated and looking for possible weaknesses within the reward scheme. This process is well handled within the Intercontinental Hotel UK by a pool of highly trained line managers. Essentially, this will entail careful consideration of the best way to implement the new reward policies and procedures, what resources are desirable in terms of people, facilities and finances, time, who will drive the process, and the person who will be responsible for the success of the plan. During the recession, an organization should adopt a reward strategy that maximizes motivation among the employee and at the same time minimize on the overall cost. These strategies may include non-monetary reward efforts.

References

Armstrong, M., 2002. Employee reward. CIPD Publishing.

Armstrong, M., 2007, Simplified risk assessment. Engineering management journal, 1: 19–24.

Brown, D. and Armstrong, M., 2006, Strategic reward: making it happen. Kogan Page Series. Kogan Page Publishers.

Dennis, L. ,2007, Project Management. 9th edition. London: Cooper & Lybrand.

Harrison, R., 2009, Learning & Development – 5th edition, London: CIPD.

Jiang, J. J. and Gary K., 2001, Software Project Risks and Development Focus. Project Management Journal, 32, 1: 4–9.

Kerzner, H., 2006, Project Management: A systems approach to planning, scheduling, and controlling. 9th edition. New York: John Willey & Sons.

McNamara, C., 2008, Basic guidelines to problem solving and decision. Web.

Naila, P., 2009, Principles of managerial finance, 11th Ed. New York: Addison Wesley Publishers.

Price, A., 2007, Human Resource Management in a Business Context. Cengage Learning EMEA.

Storey, J., 2007, Human Resource Management: A Critical Text. Cengage Learning EMEA.

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