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Remuneration/Reward Systems Essay, Research Paper

Remuneration/reward systems

within the Workplace

The factors affecting an organisation

Paper: Human Resource Management

Prepared By:

For: Frank Sligo

Date Due: 29/8/00Table of Contents

1. Introduction 3

2. Discussion 4

2.1 Spicers Paper HR policies and guidelines 4-5

2.2 Current situation in Spicers Paper NZ Division 5-7

2.3 Theories of Remuneration/Rewards 7-10

3. Conclusions 11

4. Recommendations 12

5. References/Bibliography 13

1. Introduction

Remuneration has through history traditionally focused on quantitative results, where there is tangible proof of a specific achievement which has increased revenue dollars or reduced expense dollars. It is clear however that there are many other factors that need to be considered with additional methods of remuneration.

Managers when deciding what sort of compensation is required generally have to identify (A) how much to pay employees, (B) how much emphasis to place on financial compensation as part of the total reward system, (C) how much emphasis is there to maintain a low rate of pay and (D) whether to implement a system with specific individual incentives to reward differences in performance and productivity. The latter part of this (D) opens the door to question how much emphasis should be placed on these incentives?

Remuneration can help establish a company s culture by rewarding the business activities, behaviours and values that the organisational management need to influence to control the direction of the business. This can be a challenging task for any firm considering the options open to them.

The purpose of this report is to investigate the factors that inherently need to be assessed when considering remuneration/ reward compensation and to explore the theoretical ideas as compared to the New Zealand division of Spicers Paper. It will offer ideas for a system to implement after highlighting problem areas.

Spicers Paper is an international organisation listed on the Australian Stock Exchange. The Corporate office is in Melbourne with 3 divisions in Australia, 2 divisions in Asia, 1 division in the United States and 2 divisions in New Zealand. World wide there is approximately 1700 staff with a Human Resources (HR) Division based in the Corporate Office.

2. Discussion

2.1 Spicers Paper HR policies and guidelines

Distributed amongst the Senior Management team of Spicers Paper is a manual of HR policies which incorporate the required standards of the organisation and standard operating procedures for a variety of HR issues. These range from induction and recruitment requirements to salary administration to occupational health & safety etc. Currently with Spicers Paper remuneration has an outline which is to be followed as outlined by this manual, however the system in which it works is vague, undefined and has little structure. There are basic monetary remuneration systems in place for all levels of staff that are generally based around financial goals.

This manual is not designed to remove managerial decision making or responsibility through rigid systems, but are to be used to standardise the same practise throughout the group worldwide. Obviously there is the need to modify some of the systems to conform to local legislative requirements however by using this manual management within the group effectively use the same system.

The policy objective of the Salary component of the HR manual is

1. To attract and retain competent and qualified employees to achieve corporate and divisional objectives.

2. To provide a framework for rewarding differing levels of performance and encourage career development and job satisfaction.

3. To ensure that salary rates are graduated in accordance with the difficulty and importance of jobs.

4. To provide a work-value-based framework for the consistent comparison of salaries, both in external job markets and within the Spicers Paper Group.

5. To provide both equity in salary administration and the perception of equity amongst employees of the Spicers Paper Group.

(1992, Section 10, pg 1)

These objectives attempt to standardise remuneration through a framework for a position or career development. It does not provide the basis for compensating those who are high achievers or are above average with their work effort with monetary values.

Under Section 12, pg 1 & 2 of the HR manual there is consideration to the following with regards to salaries.

There is a Grading of salaries ranging from 1 to 20+ dependent on the job description and job evaluation. Within these Grades there is a salary range and it is recommended that the minimum required is 85% of Job Value and the maximum is 115%. Job value is the mid point which is based on market factors and is re-established each year.

These guidelines are utilised for all levels of employees and while they are a useful indicator for determining base salaries/wages for menial work processes and positions there is no current pay practice that rewards outstanding performers for their individual results. Input into the value of positions is graded by 1 or 2 individuals and is based on averages for positions nationally, not industries. Access to this information is limited with employees having no real understanding of how the system works.

2.2 Current situation in Spicers Paper NZ Division

The NZ Division of Spicers Paper is one of the most successful in the group with a high market share % and a 9% EBIT contribution. Overall staff turnover is below the industry and performing employees have continued with the business for the duration of their careers. The company has this dedication from its employees to stay with a successful company, the culture of the organisation is such that staff are proud of the business and the position they fulfil within the market leader . This is particularly positive for the company taking into account the business pays its staff less than rival competitors by 15-20%.

While this has been successful over the past 15 years and the culture of the business remains to be a one of belonging and support, there is a new generation of employee that identifies their results relative to their effort and expects compensation accordingly. The culture motivates and drives these individuals to continue to perform even in times of market depression and this is driven by the senior management team, all of which have been with the business for continued periods. While this will still be the backbone of the businesses success, identification and implementation of compensation systems need to be addressed to maintain and attract the right kind of employee as previously indicated by the objectives discussed earlier (HR Objectives)

The organisation entails roles from administration, warehousing, customer service and sales activities, with line, regional, divisional and senior managers. Discussions have been held addressing bonuses and other criteria, however each option requires being different dependent on the roles performed. The basic remuneration packages for each position are:

Senior Management

h Salary according to level within organisation and position.

h Car, mobile phone, expense card, home line rental and subsidised health care.

h Bonus of up to 15% of salary linked to annual results sales, GP, EBIT. While these are linked to regional results for Regional managers (RM), RM s are also affected by the national result taking into account the companies position with working capital. This is mostly beyond their control. Value received over past 2 years ranges from $2k to $6k., on the back of results exceeding millions.

Account Managers

h Salary according to length of time in position and results.

h Car, mobile phone, expense account.

h Bonus of up to 15% of annual salary paid quarterly. Based on reaching GP goals and debt management. Payouts on average are $200 to $800 on results of increases in the tens of thousands of dollars.

Customer Service/Administration staff

h Salary according to length of time in position and development.

Warehouse staff

h Wage based on position and job description. Also based on basic labour requirements from market.

In all of these cases the amount of monetary rewards is minimal and does not inspire worker productivity to achieve it. The difference between getting by and receiving a nominal bonus or working hard to achieve an outstanding result with a larger bonus has little differentiation. Most individuals within Spicers Paper work to achieve and succeed at their results with an inherent quality, and if a bonus is given it is accepted.

There is certainly inequity within the current system concerning the distribution of rewards. It is difficult to see the correlation of those who are performing well and those who receive higher rewards. To determine the percentage of remuneration an individual or team receives an analysis of the relevant positions needs to be undertaken i.e. operational or functional roles are reduced risk while account managers or regional managers are classified as high risk.

2.3 Theories of Remuneration/Rewards

After a performance system has been implemented to provide feedback to employees, behavioural research consistently demonstrates that performance is highest when rewards are contingent with performance (Steers, Black, 1994). The issue, is which way is the most effective and efficient and how do we determine which to use?

It is important to recognise that remuneration is only one aspect of the employment equation. Other factors include

h chances to contribute and to make a difference

h a positive working environment

h personal development and growth opportunities

h non-monetary rewards and recognition

As a result of this organisations need to be aware of adopting an employee reward system rather than just a remuneration system.

Steers/Black (1994) define that reward systems influence Job effort and performance, attendance and retention, employee commitment to the organisation, job satisfaction and occupational/organisational choice. The implications of these areas for management have a significant impact on both individual satisfaction and the organisations effectiveness.

Management would expect the employees effort and performance to increase if rewards were contingent with good performance. This would serve as a basic motivational function which would benefit areas such as attendance, influencing employee commitment and job satisfaction. However this works only if the outcomes are clear and precise with a thorough understanding of the steps involved with the system, an improper system can just as easily de-motivate employees.

The methods of reward distribution as identified in Steers/Black (1994) are outlined through the following mechanisms. Through power (that is ones status, connections or abilities), an individual has a greater chance of increased rewards. Equality is based on all individuals within an area receiving the same or similar rewards. An individuals need is taken into account (family status etc) and finally through distributive justice. With this approach employees receive their rewards in conjunction with the level of of contribution or performance. This compared with Spicers Paper NZ system highlights the weaknesses of their system, as there is no regard for distributive justice with equality for all members of the organisation. There is more opportunity for senior managers to receive compensation due to their power of position.

As outlined earlier there are other factors to consider with rewards other than monetary compensation. Factors influencing this are extrinsic or intrinsic rewards (Bartol/Martin, 1998) which also assist in motivation through the performance V outcome theory. Extrinsic rewards are external to the work such as bonuses, awards or promotions. Intrinsic rewards are feelings of achievement, challenge and growth.

Individuals who have achieved and exceptional result or gone beyond the call of duty can be rewarded with a gift that takes into account personal circumstances. Team and individual rewards of this nature need to be unexpected. They should be treated as extras for a job well done rather than expected benefits. In this way they are more meaningful and motivate others to achieve the same type of recognition.

Identification of these rewards in relation to Spicers Paper should be encouraged within the management team and utilised for the growth of individuals. Currently there is no system for this with the idea left up to an individual manager.

Issues with these two factors are their interrelatedness, for example rewarding an individual extrinsically for doing a task that may have a high intrinsic value to that person, can lead to a decrease of the individuals intrinsic motivation i.e. their desire to do the task because they enjoy it. This is not easily identifiable to a manager yet this can alter the outcome expectancy of further tasks.

Corporations approaches to reward systems have varied over the years and innovative approaches have led to some interesting ideas. There are pay practises that involve:

Gain Sharing – which ties pay to performance and encourages group cooperation, this all sounds ideal but the negative side of this, is the focus on productivity may lead to ignoring other important areas such as quality.

Skills based incentives -provides a more flexible and skilled workforce with increased employee satisfaction, however there is an inherent cost of higher training and salary.

Lump sum increase -gives greater visibility to employees of pay increases with increased pay satisfaction, once again there is an inherent cost of administration.

Participative pay decisions -this gives the employee an increased trust and satisfaction of pay decisions, however this method is time consuming and methodical in its focus.

Flexible benefits -increase satisfaction with pay and benefits yet once again there is an inherent cost of administering.

While these sorts of practises are designed to facilitate the integration of employee and company interests in a way that maximises both productivity and quality (Steer/Black, 1994), there are also findings which recognise that they may not be cost-effective to spend time and effort on these areas alone. After a study on different types of organisational Behaviour Modification reinforcers, Professors – Luthans and Stajkovic V identified there are additional reinforcers that have positive results.

The effect for monetary reinforcers was not statistically different from the one on performance feedback..

Based on these findings, it does not appear to be cost effective for human resource mangers to spend extra time and financial resources to simultaneously apply monetary, performance feedback and social reinforcers, when non financial reinforcers alone produce the same results (1999, pg 55)

This reinforces the need to utilise intrinsic motivators to reward employees and consequently assists in the effective implementation of reward systems that meet individuals needs and desires rather than strict adherence to guidelines and procedures. Human Resource consultants Young (1999) and Waters (1999) share this philosophy when assessing a rewards system.

One way to increase the success of a scheme is to establish a structured framework where other incentive plans compliment each other. This could include driving the behaviour needed to reach company goals and/or reinforcing the culture where employees feel extra performance will be appreciated. The realisation that these are interdependent will pave the way to a thorough reward scheme.

3. Conclusions

3.1 The current organisational culture within Spicers Paper is strong and has a positive impact on the overall business. This culture is however antiquated and has not been modified to recognise the changing environment. Modification of this culture will re-establish the direction and focus to continue the growth of the organisation. The culture does not need to be completely changed as the results are evident, modification needs to addressed to keep this momentum happening.

3.2 Factors involved within a reward system are wide and varied with a portion of most of them required in any scheme. This makes the implementation of a scheme arduous and difficult as the ramifications of such schemes while are intentionally positive, they can be disastrous if wrong.

3.3 The effective utilisation of reward schemes needs to encompass not only monetary rewards but also need to address an individuals intrinsic reward. Personal factors help make this successful and accepted more readily by employees.

3.4 A scheme within Spicers Paper needs to be modified for each separate position or group therefore customising to get maximum results.

3.5 Formalisation of a standard reward scheme needs to have consistency and longevity. Management of all levels need to be focused on its success and utilisation as an important motivational and performance tool.

4. Recommendations

4.1 An assessment of the various roles performed within the organisation needs to be performed analysing which distribution method and reward system will be used with relative parties. Assessing the financial risk members or departments contribute on behalf of the organisation needs to be identified for quantitative measures.

4.2 Training at management level is required to consistently implement the system throughout the country. Particular emphasis is required in identifying rewards for members, as managers need to look at other factors that influence employees to stay.