Human Resource Management [HRM] has undergone extensive changes over the past decades. Salvendy (2001) emphasises that developing economies of scale and leveraging on technology were considered as conventional sources of competitive advantage. However, changes in the contemporary business environment have reduced the competitiveness of conventional sources of competitive advantage. On the contrary, nurturing the competence and capabilities of human capital has become the most important source of competitive advantage. Accordingly, organisations must adopt a strategic perspective in their HRM practices to develop and sustain a competitive advantage based on human resource. Thus, organisations should plan for effective HRM deployments.
Salvendy (2001) defines strategic HRM as “the process of designing and implementing a set of internally consistent policies and practices that ensure that a firm’s human capital contributes to the achievement of its business objectives” (p. 856). In a bid to develop a competitive advantage based on human resource, organisations need to create horizontal and vertical fit in its HRM. Vertical fit/strategic fit entails aligning HRM practices with strategic management. Conversely, horizontal fit/internal fit involves aligning the HRM functions. Thus, all the HR practices undertaken should be focused on fostering performance, hence increasing the likelihood of achieving the organisational objectives (Paauwe, Guest & Wright, 2013).
Despite the increased adoption of HRM by different organisations, most firms have not developed effective strategic perspective in managing human resources. The HRM practices of some firms are skewed to specific HR elements, for example, employee compensation. Prestige Components Limited is a classic example of firms that have ineffective HRM practices. The firm’s reward management system is only inclined towards pay. Prestige has not integrated non-monetary rewards in its compensation plan or formalised the reward policy. Thus, the employees’ compensations are subject to fluctuation.
Moreover, bonus payments are issued if employees meet stringent performance targets. Despite the poor reward system, Prestige is focused on achieving and sustaining competitive advantage in the automobile industry. This paper evaluates the impact of economic, regulatory, psychological, and motivational factors on Prestige’s reward management practice.
Analysis: Employee motivation and reward
Organisations can achieve optimal performance by incorporating a bundle of effective HRM practices. HRM practices should lead to the development of a synergistic effect. One of the most important issues that organisational managers should focus on in the course of developing organisational culture entails human capital. Moreover, firms should improve the rate of employee retention. However, this goal is only achievable if a high degree of fit is developed between the organisation and the employees’ behaviour, values, and attitude (Daft & Marcic, 2013).
A well-trained and motivated workforce makes it possible to achieve organisational success. The level of productivity and focus on attaining the organisational goals is comparatively higher in a motivated workforce as compared to a de-motivated workforce. Thus, organisations should not ignore the human capital element in developing their resource capabilities. Daft and Marcic (2013) define motivation as the internal or external forces that stimulate enthusiasm and diligence in pursuing a particular course of action.
Managers should develop a comprehensive understanding of the factors that influence the level of motivation amongst its workforce. However, Daft (2010) argues that the concept of employee motivation is one of the most challenging elements in human resource management as it is inherent in employees. Moreover, motivation varies across different employees, which means that what satisfies a particular employee might not satisfy a different one. Armstrong (2007) affirms that organisations “sometimes fail to appreciate when they assume that all their employees will be motivated to the same degree by money” (p. 121). This aspect explains the difficulty that organisational leaders encounter in formulating motivation program.
Despite the relative nature of motivation, it is essential for organisational managers to put effort into formulating an effective employee motivation model. According to Armstrong (2007), employee motivation originates from unconscious or conscious identification of unsatisfied needs. The needs lead to the creation of wants, which entail the desire to attain a certain outcome. Subsequently, the formed goals are based on the employees’ commitment to achieving the desired needs. Moreover, Armstrong (2007) asserts that the employees’ behaviour is motivated by unsatisfied needs.
The organisational managers at Prestige Limited have not appreciated the importance of understanding what motivates its workforce. On the contrary, the firm is only concerned with achieving its ambitious performance plan, which entails doubling its annual turnover of £ 3.2 million. The firm intends to achieve this goal by successfully delivering its multi-million-pound contract with Jaguar Land Rover. The contractual agreement requires Prestige to deliver car engine components that will enable Land Rover to develop a new sports model, viz. Range Rover Evoque.
Despite the top management’s focus on profit maximisation, the likelihood of achieving the above goals under the current environment is dim. One of the aspects that might limit the attainment of the desired goal arises from the fact that Prestige has failed in nurturing intrinsic motivation. Intrinsic motivation entails the extent to which a particular job is challenging and interesting to the employee. Ideally, intrinsic motivation is based on work itself. Intrinsically motivated activities offer employees innate psychological needs (Ryan & Deci, 2000). Prestige should consider different theories in fostering intrinsic employee motivation.
An example of these theories involves the Oldham’s job characteristic theory. The theory highlights the importance of improving the nature of the tasks performed by employees, which can be attained by integrating effective job characteristics. Some of the job characteristic elements that should be incorporated include skill variety, task significance, and autonomy (Slack, Chambers & Johnson, 2010).
Incorporating the job mentioned above characteristic elements is fundamental in improving the employees’ psychological state. For example, the characteristic job elements contribute to the development of a sense of responsibility, meaningfulness, and knowledge amongst the incumbent and potential employees (Slack et al., 2010). To succeed in developing a positive psychological state amongst employees, organisational managers should not only consider motivation as an avenue to achieve the desired organisational goals. On the contrary, they should ensure that employees identify with the jobs designed.
Moreover, organisational managers should appreciate the proposition of the expectancy theory in the process of incorporating intrinsic-employee motivation. The theory affirms that employee motivation is a function of three main elements, which include “valence, instrumentality, and expectancy” (Dyck & Neubert, 2010, p. 422). Dyck and Neubert (2010) add that expectancy “refers to the probability perceived by an individual that exerting a given amount of effort will lead to a certain level of performance” (p. 422). Thus, if the level of expectancy is high, employees are highly persistent in executing the assigned duties. However, a high degree of expectancy is only possible if employees possess the necessary experience, capability, and available resources. Instrumentality refers to the perception of the extent to which performing a particular task will lead to the achievement of a particular outcome. Conversely, valance entails the value that individuals attach to the resulting outcome (Dyck & Neubert, 2010).
Prestige’s operations involve a high level of technicality and specialisation. However, Griffin and Moorhead (2013) believe that job specialisation can diminish the level of motivation as employees are subjected to repetitive tasks, thus leading to monotony. Lack of motivation amongst Prestige’s workforce might affect the firm’s ability to deliver its contract with Land Rover. In its quest to sustain the contract, Prestige intends to recruit the necessary expertise from the external market. This aspect illustrates that the firm is experiencing considerable skills and expertise deficiency. Additionally, the lack of adequate skills indicates that the firm does not appreciate the concept of employee training and development.
In a bid to deal with the prevailing gap regarding its skills and expertise, the firm must ensure that the job tasks are designed optimally. Behavioural theorists argue that organisational managers should consider integrating the concepts of breadth, challenge, and depth in designing job processes. Some of the elements that Prestige should have considered include job enrichment and job enrichment. Job enlargement would have enabled the firm to undertake horizontal expansion on a particular job task, hence making it more challenging. One of the strategies that the firm would have considered in implementing job enlargement entails increasing the number of responsibilities associated with a particular job, hence making it interesting (Campion & Thayer, 2008). However, organisational managers should ensure that job-enlargement processes do not jeopardise the level of job satisfaction. Assigning numerous responsibilities to a particular employee might lead to task overload, hence making the job enlargement process counterproductive (Lewis, Goodman, Fandt & Michlitsch, 2007).
To increase the effectiveness of job-enlargement, managers need to eliminate the likelihood of role overload. One of the strategies that managers should consider entails work-life balance. Alternatively, the organisation should integrate the concept of job enrichment in its HRM practices. Job enrichment is mainly concerned with adding depth to a particular job. Job enrichment is attained by providing employees with adequate autonomy in the course of executing the assigned tasks. Subsequently, employees are given discretion in the process of planning, executing, and controlling the job tasks. Lewis et al. (2007) insist that job enrichment “leads to the inclusion of more demanding tasks, and it is one of the most effective ways of motivating employees and improving the level of job satisfaction” (p. 127).
Organisational managers should incorporate psychological empowerment theory in their strategic HRM practices. The theory postulates that employees are determined in executing the tasks assigned if they believe that they are meaningful (Rauner, Maclean & Boreham, 2008). The theory argues that the relationship between employees and employers should be based on an exchange relationship. Growing entrepreneurial companies should ensure that a strategic fit is developed in the course of constituting their workforce. The strategic fit should be integrated between the organisational goals and the employees’ needs. Such a fit fosters the development of positive long-term sustainability (Bau & Dowling, 2007).
Psychological contract and employee motivation
The contemporary work environment is characterised by radical changes, hence the need to develop a positive and effective employer-employee relationship, which can be achieved by developing an optimal psychological contract. Hartel and Fujimoto (2014) define the psychological contract as the informal and intangible contracts perceived by individuals regarding their employment. The psychological contract is based on diverse elements such as expectations, workplace conditions, and obligations. Breaching the psychological contract may affect the level of motivation negatively. On the contrary, fostering a positive psychological contract improves organisational citizenship behaviour. For example, employees develop a high level of identification with the organisation, which increases their commitment to executing the assigned duties and responsibilities.
In a bid to succeed in linking psychological contracts to employee motivation, managers need to consider three main dimensions, which include relational, ideology-infused contract, and transactional contract (Hartel & Fujimoto, 2014). The relational contract is developed by offering employees career development opportunities and job security. This move makes employees loyal and committed. The transactional contract involves fair and equitable treatment of all employees while ideology-infused contract involves developing a belief that the employees’ actions are valuable. The existence of an unpredictable psychological contract leads to the development of negative emotions and attitude. Moreover, the level of stress increases significantly, thus leading to the emergence of counterproductive work behaviours. The ultimate effect is a reduction in the level of motivation.
According to the two-factor theory, employee motivation is based on two main factors, which include hygiene and motivator factors. The hygiene factors relate to the employees’ innate needs, such as attaining a sense of achievement, and recognition coupled with growth and development opportunities. Incorporating these factors increases the level of job satisfaction amongst employees, hence their motivation. Conversely, the hygiene factors are comprised of both psychological and physical elements such as the working environment, job security, salary scale, relationship with co-workers, line managers, and supervisors (McKee, Kemp & Spence, 2012).
Intrinsic employee motivation can also be explained based on the three-need theory, which was formulated by McClelland. The theory asserts that employees are concerned with achieving and exceeding their personal goals to position themselves as excellent workers (McKee et al., 2012). Findings of previous studies conducted show that individuals characterised by a high need for achievement are excellent during the formative stage of their career if their contributions are valued (McKee et al., 2012).
Unlike intrinsic motivation, Armstrong (2007) defines extrinsic motivation as the actions that are undertaken by organisations to motivate their workforce. According to Armstrong (2007), extrinsic employee motivation is mainly concerned with the quality of working life. Prestige might not succeed in recruiting human capital from the local market. The competitiveness/attractiveness of an organisation in the labour market is subject to the adopted employee reward package. Armstrong (2007) further argues that the offered rewards and incentives influence the employees’ decision to stay in a particular organisation.
The reward system adopted by a particular organisation is focused on promoting extrinsic employee motivation. Chelladurai (2006) affirms that organisational managers should formulate an effective employee reward system. The process of formulating the reward policies and strategies should be based on economic theories. Some of the theories that the firm should have considered entail the classical economic theory and the efficiency wage theory. The classical economic theory emphasises the significance of adopting competitive pay that should be aligned with the prevailing market rate. On the other hand, the efficiency wage theory argues that the pay issued should be higher than the market rate to promote superior employee performance.
In the case of Prestige, the bonus issued was not constant, which illustrates that the firm does not appreciate the concept of ‘market pricing’. Additionally, a lack of consistency in its bonus payment limits Prestige Limited from being a market leader concerning employee compensation (Armstrong, 2007). To improve its effectiveness in formulating and implementing its compensation plan, Prestige Limited should underpin the concepts of competence and skills in determining the pay. This move will enable the firm to adopt a formal compensation policy that is based on the employees’ competence and expertise. Moreover, underpinning these concepts will improve the firm’s competitiveness in the external labour market.
Reward-based performance management
According to Kandula (2006), financial and non-financial rewards constitute fundamental building blocks in performance management. Lack of or ineffective reward system can lead to the collapse of the implemented performance management strategies, hence culminating in decline in the level of employee motivation. Subsequently, a balance between financial and non-financial rewards should be ensured. The financial rewards include the rewards that directly improve the economic welfare of employees. Examples of financial rewards include bonuses, salaries, and wages.
On the other hand, non-financial rewards do not directly improve the employees’ financial payoff. On the contrary, they contribute to indirect improvement in the employees’ life. Chelladurai (2006) further affirms that extrinsic rewards are inclined towards making a job highly attractive.
Prestige Limited reward system is inclined to financial remuneration. The firm only pays the employees’ basic salary in addition to a bonus. Additionally, the financial reward policy is not balanced. The employee compensation plan is based on a basic salary and a bonus. However, the bonus issued is, at times, very high, which illustrates the element of variable pay. Although variable pay is intended to motivate employees by recognising their competence, performance, and contribution, it may threaten intrinsic employee motivation. Ozbilgin, Groutsis, and Harvey (2014) affirm that employees cannot easily predict their pay. Furthermore, variable pay illustrates that employees are not involved in the process of designing the reward system.
Additionally, the financial compensation issued to female employees is usually lower than that of their male counterparts. However, the nature and amount of work done by the two groups are equal. This aspect shows that Prestige Limited is discriminatory in its employee compensation process. According to the equity theory, treating employees increases the level of their motivation equitably. On the other hand, inequitable treatment increases the level of de-motivation (Armstrong, 2007). Thus, organisations must avoid discriminating employees based on their demographic characteristics such as gender, race, and nationality, amongst other variables.
The process of formulating the reward system should be a collaborative affair amongst employees, top executive, and the line managers. Gohari, Ahmadloo, Boroujeni, and Hosseinpour (2013) believe that line managers have the best opportunity for understanding the employees’ needs due to interaction with employees. However, Prestige Limited was only focused on achieving its financial objectives, and thus, it ignored its employees. The firm did not appreciate the importance of developing a comprehensive understanding of the employees’ needs. Gaining such insight would have provided the firm with adequate intelligence in formulating a balanced reward system.
Chelladurai (2006) highlights several elements that managers should consider in constructing a balanced reward system. Some of these elements are highlighted herein. First, the reward system should incorporate career and social rewards. Career rewards provide organisations with an opportunity to progress through their desired career path. For example, the organisations can provide employees with training opportunities, hence contributing to the improvement of their skills.
Furthermore, career rewards also include offering adequate job security. Alternatively, social rewards entail improving the employees’ feelings concerning their job. Examples of social rewards that a firm can integrate include issuing status symbols such as job titles coupled with providing employees with private offices (Chelladurai, 2006).
Extrinsic compensation also involves direct and indirect compensation. Direct compensation incorporates diverse forms of remuneration such as wages, merit pay, bonuses, and basic salary. Indirect compensation is categorised into diverse groups such as private protection [savings, pension, life insurance], public protection [disability premiums, social security, unemployment premiums], life cycle [elder care, child care], and paid leave [vacation, illness, training]. On the other hand, direct compensation may include education-based increase, cost-of-living, and seniority-based compensation (Chelladurai, 2006).
Reward philosophy, strategy and policy
The reward philosophy, strategy influence successful implementation of employee reward and motivation, and policy adopted. The reward philosophy entails the fundamental values and beliefs held by an organisation. Some of these issues considered in formulating the reward philosophy include the role of reward in fostering attainment of the desired performance goals, the role of reward in promoting innovation and teamwork, consistency, equity, and fairness. Alternatively, the reward philosophy also underscores the extent to which an organisation considers its employees as equal partners in formulating the reward policies (Armstrong, 2007). Prestige Limited has not articulated most of these elements in designing its reward system, as evidenced by the lack of consistency and a skewed approach in designing the employees’ compensation plan. The firm regards financial compensation as the only avenue in rewarding and motivating its employees.
Prestige Limited has also ignored the importance of formulating a reward strategy. According to Armstrong (2007), reward strategy entails a plan outlining how an organisation intends to improve its reward practices and process in the future. An effective reward strategy must align with the organisational culture and the prevailing business environment. Thus, the reward strategy should be anchored on the HR strategy and the business strategy. The reward strategy formulated should be aimed at fostering organisational performance by entrenching the concepts of teamwork and individual performance.
Moreover, the reward strategy should lead to the development of positive employee behaviour. Prestige Limited’s business objective entails doubling its turnover. However, the firm has not linked the business objective with the reward strategy, which indicates that the firm has not incorporated its values and beliefs to the reward strategy. Additionally, the firm has not appreciated the importance of developing horizontal integration between its HR processes and the reward system. Armstrong (2007) affirms that the rewarding process adopted by an organisation impacts its attractiveness in the labour market. In addition to the above aspects, the firm has ignored the importance of formulating a formal and comprehensive reward policy in its reward management process.
The case shows that Prestige Limited has extensively ignored important aspects in its reward management processes, hence the current dilemma in the firm. Thus, despite its focus on doubling its turnover within one year, the likelihood of achieving this goal might be limited by the lack of employee motivation. Subsequently, the firm’s managers must adjust the organisation’s reward management practices. The firm should incorporate effective extrinsic and intrinsic sources of employee motivation.
Concerning extrinsic motivation, the firm should integrate financial and non-financial rewards. The firm should ensure that the fixed and variable financial benefits issued to employees are outlined clearly in the reward policy. This aspect will minimise fluctuations, which might lead to dissatisfaction. Moreover, the firm should incorporate equity in financial compensation play. Thus, employees should not be discriminated based on any variable.
On the other hand, non-financial rewards should incorporate diverse benefits that contribute to the improvement of the employees’ well-being and personal development. Some of the non-financial benefits that the firm should consider entail employee training and development. This strategy will provide employees with an opportunity to achieve their personal career goals.
In its intrinsic employee motivation, the firm should improve the characteristics of the task performance. Some of the strategies that can be considered include job enrichment and job enlargement. This move will play a fundamental role in improving the level of job satisfaction, hence their commitment to executing the assigned roles and responsibilities.
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