Paying for Performance and Reward Management
Paying for performance is a prominent issue in modern Human Resources Management (HRM). Organizations have long conceived that production and productivity improve when pay is linked to performance and have evolved payment-by-results (PBR) systems and incentive schemes to endorse this belief (Milkovich & Newman 2004). Expectancy theory informs that if people want more pay and believes that working harder will get it for them; they will work harder and perform better (Bassett 1993). But how to make the theory work in practice has seldom caught people's attention as it does today. In 1951 the International Labour Office (ILO) defined PBR as wage systems that relate a worker's earnings directly to some measurement of the work of the individual, the group or the work unit. Among benefits the ILO claimed for PBR which at that time relied heavily on quantitative techniques like work study and industrial engineering were increased output from improved efficiency, lower production costs, better control of labour costs, less need for direct supervision and more even production flows (Milkovich & Newman 2004). Half a century later, performance pay is interpreted in less mechanistic terms and may be defined more simply as the explicit link of financial rewards to individual, group or organizational performance. Reward management is regarded as an important role in the HRM. Most organizations realized that reward reinforces employee focus on their performance, enhance motivation levels and gain their commitment (Allen & Kilmann 2001). This section will review the current literature; explain the objective of reward, the definition and determinants of rewards and the argument of whether reward is a motivator as employee performance. These conceptions are all supporting the research subject: the effect of reward on employee’s performance. Rewarding performance is a key to accountability. It is one of the positive imports of accountability. When employees are aware that rewards are tied to their performance, they will be committed to performing and will take ownership of their actions. Additionally, when employees are rewarded for performance, they evolve a sense of accomplishment, which makes them take pride in their work, which in turn increases ownership (Armstrong 2002). Extrinsic reward is initiated from outside the person and includes (Armstrong 2002): salary and wages, employee benefits, interpersonal rewards, promotions. Intrinsic reward is the ones that is self-administered by the person and encompasses (Armstrong 2002): completion, achievement, autonomy, personal growth. The strategic aim of reward management is to evolve and enforce the reward policies, processes and practices to affirm the accomplishment of organization’s business goals (Armstrong & Murlis 2004). The specific aims are: • Creating total reward processes that are established on beliefs about what the organizational values want to accomplish. • Aligning reward practices with business goals and employee values • Rewarding employees fairly for the value they chip in. The fairness objective calls for fair treatment for all employees by accrediting both employee contributions, for example, higher pay for greater performance, experience, or training; and employee need, such as a fair wage as well as fair procedures. (Milkovich 2005). • Rewarding right things to communicate the right message about what is significant in terms of expected behaviors and consequences. • Attraction and retention of the skilled and competent people the organization needs, thus holding back the talent in a stiff human resource market. • Enhancing the staff performance and attaining their commitment and engagement, increasing the quality that leads delighting the customers and stockholders. • Develop a positive employment relationship and psychological contract (Armstrong & Murlis 2004).
By: Robert II Smith
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