Introduction
Compensating employees is usually the highest cost in any organization. Employee compensation is done either in monetary terms or in the form of non-monetary benefits that they employees receive or demand. The most commonly offered non-monetary benefits include items like medical cover, house allowance, entertainment allowance, and retirement benefits. Graham et al (2008) indicate that the employees in the modern world are more impressed with the non-monetary benefits offered by the organization than the weight of the salary package. Graham et al (2008, 43) further state that, the benefits employees appreciate most include “learning activities, flexible working hours, verbal praise, increased authority, autonomy, time spent with the manager, time off from work, public praise, freedom to choose the tasks to perform and written praise”. Monetary benefits are important but are no longer the topmost concern of employees. This is so given, more than they are with anything else; people are keener on comfortable working conditions.
Factors that are conducive to the application of successful total reward strategy
Effective reward communication
Well-organized communication channels are one of the most important elements in organizational success. Communication especially in relation to the reward strategy is necessary if the employees are to develop confidence in the management hence be in a position to perform their tasks effectively (Holbeche, 2001). It is the obligation of the management to ensure that the employees are aware of the reward system. Such a system often consists in basic salaries, bonuses, overtime remunerations, house allowance, medical benefits and welfare servises. They should be able to track their reward records from the time they were recruited in to the organization to the time they will be retiring or ending their contracts, whichever comes first (Holbeche, 2001). This will ensure that they put more effort if necessary to improve their rewards and in the process improve the performance of the organization.
Employees should be in a position to know the methods and standards used in the calculation of their salary ranges, pensions and other benefits offered to them by the organization. Based on such awareness, they can organize themselves more effectively in terms of their personal budgets and working schedules. The awareness also makes it possible for them to forward any irregularities early enough for an investigation to take place establishing the cause behind the complaints. When such complaints are received early enough, managers are able to develop a solution and come up with a way of preventing a repeat of the same. Besides this, proper reward communication will make the employees comfortable when performing their tasks because communication entails transparency. Transparence in an organization is only encouraged when the compensation system is equitable and balanced enough (Holbeche, 2001). If equity and justice is evident, workers will go about their tasks without concerns about some of them being sidelined when it comes to payments. The employees will be aware of the reasons behind why they are paid what they are paid and why someone else is earning more than the other is. The management will be saved the trouble of having to explain such issues to the employees.
Effective leadership
The other factor that is conducive to the application of a successful total reward strategy is effective leadership. The leadership strategies used by the management defines the public outlook of the company and it determines what the company will be in future. Employees working under an effective leadership system have more confidence in the organization and are hence able to invest all their efforts to the activities of the organization (Armstrong, et al, 2007). In most cases, such organizations have a well-organized reward system owing to the fact that the management has the agenda of making things work in an almost perfect manner. The functioning of the reward system is highly dependent on the effectiveness and coordination of the leadership strategies. One of the main functions of leaders is to motivate the employees and this can be done by developing a reward system that is effective and one that caters for the needs of all the employees without partiality.
Managing a rewards scheme is one of the most difficult tasks in an organization owing to the fact that this scheme affects the reputation of the organization both from the outside and inside (Armstrong, et al, 2007). The management department dealing with this therefore needs to be in possession of special skills some of which include the ability to monitor the performance of the employees. This one area needs a lot of psychological expertise since most people have a problem with being closely monitored when performing their tasks. The management should therefore do it in a way that does not intimidate the employees.
The second important skill is that of observing the progress of the employees. This could just involve a regular visit to the offices or work site to check on how the employees carry themselves around in terms of interaction, time consciousness and so on. The other important managerial skill is the ability to make valid decisions. A good leader takes his or her time before coming up with a decision especially one that will affect the whole organization and specifically the employees. When in possession of these skills, the management will be in a position to handle the reward system in a way that is satisfactory to all the employees while at the same time of benefit to the whole organization.
Organization culture
Organizational culture is defined as the trends that have been developed in the organization; it refers to the distinctive ways of behavior in an organization. The culture of any organization can be amplified by its reward strategy. An organization can form a reputation or name based on its reward strategy (Armstrong, et al, 2007). This is only possible if the reward strategy is one that the employees can comfortably accommodate. The management should ensure that the culture adopted by the organization does not contrast with the interests of the employees since this is what leads to employee dissatisfaction and this is responsible for other more adverse effects such as a massive rate of failure in maintaining employees. A work environment that is rewarding may be costly to initiate but the advantages thereof exceed the cost enormously (Effron & Goldsmith, 2000).
A well-developed reward system i.e. one that facilitates effective reward management in an organization is always contingent. By contingent is implied the fact that the reward strategy is dependent on the development of the organization’s culture. The system should be consistent with the visions, missions and values of the organization as this will ensure that the system is realistic and attainable. The organizational goals related to the rewards system should be centered on the recognition of the employees. Recognition of employees helps towards employees feeling important and wanted in an organization. This will act as a motivation for them and ensure that they have the incentive to work for the good of the organization (Mathis & Jackson, 2008).
The other element is the holistic factor or character of a good reward system; employees need a wholesome experience. The wholesome experience attracts highly qualified employees to an organization and retains them in the organization for a long time. Retaining employees is beneficial to the organization especially in reference to productivity since they are saved the trouble of having to train a new work force. This has the disadvantage of the loss in production experienced when the new employees are on probation or on training.
High level of employee commitment
An organization cannot be complete and effective without a well-organized and committed workforce (Mathis & Jackson, 2008). A reward system cannot exist without employees who are the main subjects in the management of the reward system. The employees play a major role in the development of an effective total reward strategy. Lack of corporation from the lower level workforce may mean that the management is expected to manage the reward system based on assumptions and guesses. The employees are supposed to make this process simpler by volunteering information on the conditions of their work environment, their financial responsibilities and the risks they are exposed to that the management is oblivious of (Mathis & Jackson, 2008). This will ensure that the management is able to focus on these details when coming up with the reward strategy to the satisfaction of the employees.
The level of commitment from the employees provides a foundation for the human resource management when developing the rewards strategy. An effective and employee friendly reward system on the other hand increases the level of commitment on the part of the employees since it acts as a form of motivation. A good example of this is the organizations that provide their employees with services such as catering during office hours, medical services extended to immediate family and grooming services such as haircuts and salon services (Mathis & Jackson, 2008). Research conducted on the performance of companies in general indicates that such companies are more effective in retaining the employees hence guaranteeing effective customer relationships. Employees who have stayed long in the organization tend to have an improving level of commitment over time and they develop better relationships with customers since the customer are assured that they will always be available to serve them.
Employee empowerment
Employee empowerment refers to the ability of the employees to come up with decisions without having to consult the management. Employees are usually empowered by the management through training and development but also through according them necessary freedom as they go about their work (Brown & Michael, 1999). Employee empowerment is one of the surest ways the management can used to ensure responsibility and accountability in the organization. It is important to note that the management might not be in a position to make all the decisions owing to the fact that they might not be familiar with all the processes in the organization. That is why they employee the work force to handle different aspects in the organization. The employees should therefore be encouraged to be innovative and to learn how to develop solution to problems within their scope of work. This offers support to the management in the development of the total reward strategy since they are able to determine the most resourceful employees and reward them accordingly. This works as an incentive to the other employees to develop their creativity I order to earn more rewards. Through this, the organization stands a better chance of expanding without having to drain the management team.
According to Brown and Michael (1999) employees who feel like their efforts are underutilized tend to develop a negative attitude towards the organization and this affects their productivity adversely. Engaging the employees in the major decision making processes on the other hand makes them develop a sense of belonging to the organization (Gross and Friedman, 2004). This saves the management the trouble of having to make follow-ups and always being the ones to ensure that the work has been done correctly. Responsibility on the part of the employees ensures that the supervisory role of the management team is highly minimized. Fuehrer (1994) asserts that the total reward strategy is highly determined by the level of employee empowerment, which is a determinant of the level of responsibility on the part of the employees.
Available technology support
The introduction of the modern technology, which is characterized by computerization of most operations, has played a major role in the development of the modern reward management strategy (Gross and Friedman, 2004). Modern reward strategies tend to be more effective compared to the traditional ones. The use of computers in the process of managing employee compensation and in processing rewards saves the management many difficult processes such as analyzing the employees’ performance data manually (Fuehrer, 1994). It is easier to develop and maintain the rewards database using computers since updating the records and making any changes does not require that the available information has to be done away with completely. It also guarantees an output that is free from errors since computers are more accurate in processing data compared to people.
In the process of generating the reward system strategies, computers are used to generate the list of employees from the human resource files and arrange them according to their job categories. Additionally, despite the number of employees, computers make it easy to compute the rate of pay in the respective categories. Moreover, proper filing of employee information according to the level of current employee’s performance is done easily on a computer. In an organization, using systems or software like oracle, it is easy to store and retrieve information on employees (Gross and Friedman, 2004). This helps when it comes to comparing past and present employee performance. Consequently, the management will be able to determine the employees with increased performance whose rewards needs to be increased and those that need to be motivated to work harder. The use of computers also makes it possible for the management to try out strategies before implementing them. This is done by coming up with armature data and running it through the whole process then evaluating the result to determine whether it fits the requirements of the organization. It is therefore able to tell the practicability of any proposed reward system, before putting it into practice and this ensures that the shortcomings of any system are figured out and the relevant measures put in place.
Factors that prevent the application of total reward strategy
Poor communication
One of the obstacles to the success of the total reward strategy in an organization is lack of effective communication especially in relation to employees’ rewards. Employees need to be aware of the benefits accorded to them as well the strategies behind the calculations of their total rewards. By doing this, the employees are able to appreciate the rewards they get from the organization since they know what they know how the figures were arrived at and they are able to detect any possible fraud. When communicating the benefits to the employees, the management should consider the different levels of employees so that they can make sure that everyone has a way of accessing information (Fuehrer, 1994). Almost all organizations consist of both the skilled workers and the non-skilled ones. Therefore communicating information through the intranet for example would be disadvantageous to others who are not literate enough to access it or those who just cannot have access to computers. Instead of this, they should consider communication methods such as posters and word of mouth.
Financial constraints
The financial resources available or at the disposal of a company have a major role to play in the establishment of an effective reward system. Financial resources determine the extent to which it will be possible to compensate the employees. The management could be willing to reward their employees generously but this is made impossible by the fact that they have a low turnover in profits (Gross and Friedman, 2004). Owing to this, they are forced to cut on some of their expenses and this includes deducting some of the financial benefits being given to the employees. It is therefore important for the management to consider their annual financial turnover before considering the level of rewards that they should give to their employees. This will ensure that they do not get themselves into expenses that are beyond their financial ability.
Unfavorable external environmental conditions
Factors in the external environment of an organization play an important role in determining the reward strategy of a company. External environmental factors are those players or issues that affect the performance of the organization yet they are beyond its scope i.e. the organization has no direct control over them. Such external factors may include the creditors, government agencies, customers, competitors, technological changes, legal factors, environmental issues and any other external social and cultural factors (Gross and Friedman, 2004). Most of these factors play a major role in determining the success or failure of the organization yet there is little that the management can do to control them. The economic cycles also affect the performance of the organizations a great deal. These factors and events prevent the management from developing a successful reward strategy since they affect their level of competitiveness at one point or the other. They therefore develop the feeling that during such times, they may not be able to sustain the reward system that they may have established when the situations were favorable.
Most of the employers usually increase their employees’ rewards when the business environment is favorable (Effron & Goldsmith, 2000). This motivates the employees to be more productive but the problem with it is that it may be difficult for them to make adjustments in times of recession. This may land them in an economic crisis and at that point, it may be impossible to withdraw the rewards that had earlier been accorded to the employees. They therefore end up getting into a credit crisis as well as a tightened cash flow (Wilson, 2003). It is therefore advisable for an organization to create a model situation for all the possible environmental situations that may come up before setting the standard for the total reward strategy.
Employee behavior
Employers reward the efforts made by the employees for the benefit of the employees. The conduct of the employees is important since it is what determines the level of the rewards to be received (Wilson, 2003). The cooperation from the employees determines whether the employers will have the will to reward them more generously than in the case where they are not cooperating. For the organization to successfully implement a total reward strategy, the employees should support the management by being innovative in their work (Armstrong, 2007). Through this, the management will have an easy time categorizing the rewards structure and ensuring that every employee gets what he or she deserves.
In cases where the employees fail to cooperate with the management, they may not be in a position to adopt a successful total reward strategy (Armstrong, 2007). Lack of the team spirit is the other employee behavior that prevents the employers from adopting a successful total reward strategy. The most common poor work ethics among the employees includes a bad attitude towards work, misusing the company’s resources and recording the wrong working hours. Disagreements between the members of a workforce and office gossip are also a hindrance to successful management of the total reward system (Wilson, 2003).
Conclusion
Armstrong (2007) argues that total reward strategy is a relational approach used when integrating the objectives of the organization and that of the employees. A total reward package is inclusive of all the factors that add value to the lives of the employees such as the financial compensation, non-financial benefits, personal growth and development and the condition of the working environment.
The success or failure of the rewards management system is highly dependent on the relationship between the management and the employees. Lack of cooperation on the part of the employees makes it difficult for the management to come up with an effective reward system. When the management fails to incorporate the employees in the process of developing a reward system, such a reward scheme is likely to fail. Management on its own cannot develop a proper reward strategy because they will base their considerations on mere assumptions. It is therefore necessary that both parties work together to ensure that everyone is contented with the reward system and that the organization is improving in terms of productivity and customer relations.
References
Armstrong, M., 2007. A Handbook of Employee Reward Management and Practice. Kogan Page: London
Armstrong, M., Murlis, H., & Group, H., 2007. Reward Management: A Handbook of Remuneration Strategy and Practice. Kogan Page: London
Brown, D., & Michael, A., 1999. Paying for Contribution: Real Performance-Related Pay Strategies. Kogan Page: London.
Effron, M., & Goldsmith, M., 2000. Human Resources in the 21st Century. John Wiley and Sons: New York
Fuehrer, V., 1994. “Total Reward Strategy: a Prescription for Organizational Survival.” Compensation Review, 26, (1), p. 44.
Graham, D., M., Thomas, A., R., & Dawn, D., 2008. Effective Executive Compensation: Creating a Total Rewards Strategy for Executives. AMACO: New York.
Gross, S., E. and Friedman, H. M., 2004. “Creating an Effective Total Reward Strategy: Holistic Approach Better Supports Business Success.” Benefits Quarterly. 20(1), pp. 7-12.
Holbeche, L., 2001. Aligning Human Resources and Business Strategy. Butterworth-Heinemann: Oxford.
Mathis, R., L., & Jackson, J., H., 2008. Human Resource Management. 12th Ed. New York: Cengage Learning
Wilson, B., T., 2003. Innovative Reward Systems for the Changing Workplace. McGraw-Hill: New York