Rewards provided to employees act as motivators to either maintain or improve work productivity which will eventually lead to enhanced organizational performance. Additionally, they can be used as a strategy to recruit new employees and retain the current ones in a competitive industry, where there is a shortage of highly skilled staff. The two types of reward approaches that can be offered by an organization are extrinsic and intrinsic rewards. Extrinsic rewards are those offered to employees after they achieve a specific organizational goal and they are usually monetary (Makki and Abid, 2017p. 38) such as bonuses after increasing sales. Intrinsic rewards are those that are based on employees’ personal desires, thus, motivating them to perform better to achieve them (Makki and Abid, 2017 p. 38) such as learning a new skill. This paper will examine the impact of reward approaches to encourage Home International to apply them to reduce employee turnover and improve profits. Also, it will evaluate the role of people professionals in supporting line managers to make reward decisions.
Principles of Reward and its Importance to Organizational Culture and Performance Management
Organizational culture refers to the values, employee behavior, and beliefs of a company, rewards can influence as well as positively impact performance. For instance, an organization that offers extrinsic rewards to its employees such as pay rises annually based on work performance is likely to influence employees to put in increased effort to achieve higher wages. Behaviors such as punctuality and meeting set goals on time are likely to be adopted by employees to achieve the annual pay rise. According to Putra et al. (2017 p.11), extrinsic motivators including monetary rewards and bonuses will influence employees to perform duties that require mechanical skills that are usually repetitive. Therefore, for Home International, extrinsic rewards can be used to help reduce the turnover among its factory operatives, who utilize mechanical skills such as handling and fixing machinery.
On the other hand, intrinsic rewards mainly motivate white-collar staff such as the office employees at Home International (Putra et al. 2017, p. 3). Such employees use cognitive skills such as analysis of payroll data, to complete their duties. For them, their jobs may help perfect their skills or learn new ones, thus, they are motivated in achieving their own professional goals, which could explain, the high retention rate among Home International office employees and the organization’s culture.
Policy Incentives and Practices
To provide pay raises to its factory operatives, Home International needs to conduct an anonymous employee satisfaction survey to determine their grievances beyond just pay and how they can be managed through policy. The survey can contain questions such as: Do you feel valued for your contributions? Does the company offer adequate opportunities for pay rises and rewards? How happy are you at work? The anonymity of the survey encourages employees to answer truthfully without fear that they may get fired or ostracized because of their responses. Based on the information collected, Home International can implement a policy that ensures appropriate and fair compensation, thus, encouraging employee retention and motivating their work performance (Sila and Širok, 2018 p. 128).
After the survey, then the content of the policy can be written including guidelines on how pay raises will be calculated, the employees that qualify for them, and how often they should occur. For instance, the policy can state that employees that have worked in the organization for more than two years are entitled to a 20 percent pay rise if their work performance has been consistently good. Sila and Širok, (2018 p. 125) averred that it is important for an organization to establish a suitable reward system to motivate employees and ensure commitment as well as loyalty to the organization.
People and 0rganisation’s Performance Impact on the Approach to Reward
The pay rise will be determined by the work performance, the Home International human resources manager will conduct performance review meetings with both the line manager and the factory operatives to determine how each employee fared during the period. The objective of the performance review meeting is to promote communication and provide feedback to employees about their overall work to help them improve. For instance, an employee who arrives late on several occasions can be provided with evidence during the meeting that shows how their behavior negatively impacted the ability of the team to meet set goals on time, thereby encouraging them to embrace punctuality. In a Gallup survey, 14 percent of employees said that performance reviews motivated them to improve their work (Sutton and Ben Wigert, 2019).
During the process, the human resource manager can give the line manager advice on how to avoid bias within the team and encourage cohesion among the factory operatives to boost performance (Chartered Institute of Personnel and Development [CIPD], n.d). However, since the performance review is conducted annually, the feedback may have little to no impact since the issues highlighted are past and were already resolved. Therefore, an employee may not receive a pay rise, when they feel that they deserve to, thus, negatively impacting their work commitment as well as productivity and eventually the overall organization performance.
Comparison of Performance-Related Pay and Intrinsic Rewards
The suggested reward approach for Home International is pay rises for the factory operatives to influence them to stay at the organization. The extrinsic award is motivated by the current furniture market in the UK; there is a shortage of highly skilled employees, thus, companies have increased their wage rates to attract new ones and retain their current ones (British Furniture Manufacturers, 2018). Therefore, it is in the best interest of Home International to increase the factory operatives’ salaries or risk losing more of them to competitors, which could negatively impact their profits in the long run. According to Iqbal et al. (2017), the key motivators that lead to employee retention include offering competitive salaries and an attractive rewards approach leads to improved productivity and employee retention.
Home International’s competitor, IKEA, offers both extrinsic and intrinsic rewards to its employees to positively influence motivation and retention. Among its intrinsic rewards include providing educational assistance to employees that are seeking to advance their qualifications and it provides equal opportunities for career progression and promotions (Alzghool, 2021 p. 18). Such rewards motivate employees to perform at high levels since they will be influenced to attain their personal goals (Makki and Abid, 2017 p. 42). The extrinsic rewards offered by IKEA include a bonus package for every employee when they meet or surpass particular business goals and a 15 percent subsidized transport loan of employees’ annual transport fare (IKEA, n.d).
Benefits and Drawbacks of Extrinsic and Intrinsic Rewards
The major benefit of extrinsic and intrinsic rewards is that they influence employee retention and productivity, which in the long run leads to high organizational performance. Additionally, they could increase employee engagement making them more dedicated to their work and the organization, thus, positively impacting performance (Putra et al., 2017, p. 11). However, there are drawbacks to intrinsic and extrinsic rewards that could negatively impact the organization’s performance such as losing motivation in cases where rewards are not offered to employees leading to little to no productivity that eventually negatively affects the organizational performance (Taylor and Alla, 2019 p. 4). For instance, if Home International chooses not to give factory operatives a pay rise, they will not be motivated to continue working for the company leading to further turnover.
Another drawback of both extrinsic and intrinsic rewards is that they are high cost (Taylor and Alla, 2019 p. 4). Rewards such as pay rise increase the annual operating costs of a company, which may contradict the objectives of Home International as it is also seeking to reduce cut costs. Therefore, the organization will be forced to choose between two of its objectives; cut costs by failing to implement a rewards approach or reduce turnover by implementing a rewards approach to maintain competitiveness in the industry.
Support to the Line Manager, to Ensure Consistent and Appropriate Reward Judgments
A line manager is responsible for directly overseeing the employees in different departments in an organization, reporting on employee performance, providing feedback, and leading meetings with the team. As such, unlike the top management including the human resource manager, they are in a better position to understand the contributions of the employees. Therefore, it is expected that they can make fair judgments on which employees deserve a pay rise and by what percentage. Still, line managers could benefit from support from the human resource manager to ensure consistent and appropriate reward judgments. One way it can occur is by helping line managers develop policies that are relevant to the employees’ work to ensure compliance with people practice (CIPD, 2019, 28). Also, they can guide them in the creation of policies that guide them on how to evaluate the impact of each employee on the organization (CIPD, 2019, 42). Additionally, the human resource manager can conduct specialized training with all the line managers in Home International line managers on how to handle challenges that may occur including conflicts within the team that may cloud their judgments on certain employees. While conflicts are inevitable when people work together for long periods, it should not affect an employee’s appraisal especially if their performance is unchanged.
How Line Managers can Make Reward Judgments based on Organizational Approaches to Reward
Line managers usually propose to the human resource manager the employees that deserve to be rewarded and the type of rewards that they should receive such as a pay rise or a bonus for good annual performance (CIPD,2019 p. 3). Based on the suggestions of the line managers, the human resource manager then submits the proposal to the top managers, who either approve or reject the suggestion based on factors such as the company’s financial capability. To ensure that rewards approaches are fair, line managers need to be transparent with the employees, which includes informing them of the behaviors and performances that will be rewarded (CIPD, 2019 p. 7). For instance, they can issue a statement that states how pay levels and increases will be set to give employees a fair opportunity to try and attain them.
Additionally, the line managers need to liaise with the human resource manager before setting the pay rise goals for their department to ensure that they align with organizational objectives. For instance, line managers need to understand the top management’s strategic goals before determining the pay rise percentage. If the goal is to cut costs, then the percentage is likely to be lower but at the same time ensure employees receive fair compensation.
Rewards motivate employees to either maintain or improve their performance, which in turn has a positive impact on an organization’s profits. This paper has examined the case of Home International which is seeking to cut costs, reduce turnover and improve profits. The suggested reward approach for the organization is extrinsic, pay rise for the factory operatives, who have the highest turnover compared to the office employees. The extrinsic award is motivated by the current furniture market in the UK; there is a shortage of highly skilled employees, thus, companies have increased their wage rates to attract new ones and retain their current ones. Home International’s competitor, IKEA, offers both extrinsic and intrinsic rewards to its employees to positively influence motivation and retention. However, a drawback of the reward is that is a high cost and will require an increase in the company’s operational costs, which contradicts its other objective of cutting costs. Line managers usually propose to the human resource manager the employees that deserve to be rewarded and the type of rewards that they should receive such as a pay rise or a bonus for good annual performance. To ensure that rewards approaches are fair, line managers need to be transparent with the employees, which includes informing them of the behaviors and performances that will be rewarded. Additionally, they need to ensure that the suggested pay rise aligns with the company’s strategic goals.
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