Human Resource Management in Business Context Essay Introduction
“Performance bonuses offer a win-win gain to both organisations and employees. Discuss, making reference to both theory and case examples” Introduction Is performance related pay (PRP) really a motivator for employees and is it an effective way for organisations to gain and retain high performing staff. This is questionable especially as organisations differ in size, organisational culture (therefore differing needs), the ability and/or resources to manage an effective process to support PRP. This study will explore whether performance bonuses offer a win-win for both the organisation and the employees, using primarily the public sector, with reference to the private sector. “PRP was the ‘big idea’ of the1980s, embraced enthusiastically by many employers as the holy grail of driving high performance” as stated by CIPD (2010). Today it is seen as more than just a tool to drive performance; organisations are using PRP to link individual performance to business objectives and gain commitment. Strategic Alignment Business strategy is a key driver for organisations in the private sector as it provides them with competitive advantage, therefore they have the need to retain and motivate employees to perform against their objectives. The public sector, on the other hand, has the need to align staff commitment to deliver local government agendas. In order for the business strategy to be effective employers need to ensure that employees are committed and motivated to achieving the organisation goals, but as we can see these goals can vary depending on the sector and more so, on what the organisation is trying to achieve.
Human Resource Management in Business Context Essay Body Paragraphs
So organisations need to identify a pay strategy, which helps them to align the objectives with their employees. The question is, does PRP work for both sectors in motivating employees? In the private sector the pay determination is generally determined by management with the notion that if individuals perform well against their KPI’s (key performance indicators) they will be rewarded with a bonus based on the market worth and the success of the business. However the public sector, in many cases, still remains to have a pre-determined pay structure with incremental pay progression and grading systems as shown in the example for Slough Borough Council in appendix 1. Old pay and new pay are concepts that are used to distinguish between contemporary and traditional reward systems (Gilmore pg 171). The local authority, Slough Borough Council use the old pay system. Graded pay is not particular motivating as everyone gets it and the incremental increase is not of a substantial amount to gain higher performance from staff. Therefore, the question has to be asked, whether it would be beneficial for the public sector to introduce PRP? Richard Crouch, head of HR and organisational development at Somerset County Council, warned performance-related pay could encourage “the pay bill to creep up” in the long-term and there would be “a substantial cost in administering and applying performance-related pay in the public sector to reduce its subjectivity” because government work would not be easy to measure (Barker, 2010:1). This highlights a number of issues particularly the fact with spending cuts becoming an ever-increasing need, this sector cannot afford to implement PRP. Furthermore, a pay strategy including PRP would push staff to work towards targets rather than focusing on providing a good public service, which is primarily the objective of the public sector. Although financial rewards in this setting could help employees to work more effectively rather than to work harder, by encouraging employees to focus on key objectives, lets face it, if people were primarily interested in financial rewards they would not have joined this sector. Making a difference to other peoples lives and the surrounding environment is more important. Additional, it would be very difficult to measure performance; for example, ways of measuring the service a teacher or a nurse provides are very difficult in comparison to that of someone who has set, clear deliverable targets such as achieving sales, gaining new business or increasing footfall. Intangible services are much harder to quantify. Performance Management Cycle Key performance indicators (KPIs) are formed as part of the performance and appraisal process to measure the output of an individual. The performance appraisal allows a comparison to be made of the actual performance against expected performance (KPIs), which is linked to feedback and whether the individual has warranted a reward. However, there are many potential problems with the performance appraisal system. The process can become a bureaucratic process with managers seeing it as a tick-box exercise to be completed once a year. There could be a lack of understanding of the objectives by the employee, or the organisation may not have a clear strategy and furthermore the process is subjective and open to human bias. It is also very difficult to quantify individual performance such as intangible elements, as mentioned earlier. So it could be argued that the process is not very transparent. To overcome this, Beer et al. introduced the Harvard Model (Gilmore. S, 2009, p. 9) which takes into account a wider range of stakeholders interests to provide an input into the appraisal process which allows the reduction of a bias opinion of just one person. It is stated as reduction, as the process is still subjective and open to a range of perceptual errors although reduced by the way of taking into account feedback from a number of people. The model also considers the situational factors of the organisation allowing better choices to be made when establishing the appropriate reward system, which will inevitable impact on the level of commitment achieved. Is it Fair? There are a number of elements of the performance appraisal that could be argued to be unfair, for example, the relationship an individual has with he manager who measures performance could be seen to be advantageous for some individuals, such as colleagues who have worked together for a number of years and could in fact de-motivate other individuals who don’t have the benefit of this relationship. Therefore, can human bias be taken out of this equation? Ultimately the relationship between a manager and employee comes down to trust, whether the employee believes they will be treated fairly against other individuals regardless of developed relationships. It has also been suggested that PRP may discriminate unfairly against women, as primarily, it is male managers that measure performance, therefore they tend to reward performance characterized by male values (Gilmore. S, 2009, p. 183) creating a pay gap between men and women. Total Rewards There is more to keeping a workforce motivated and committed than just PRP. It is clear that it is more than just financial reward that influences the behaviour of employees in the public sector. Employees are looking for other benefits such as flexible working, contributing to a work-life balance are seen to hold value over having a high-powered career that pays well especially in the public sector. Aspects such as the work an individual is involved in provides them with a greater reward and satisfaction than financial benefits, for example a social worker or a nurse will ultimately find the reward in helping others. Total reward is the term that has been adopted to describe a reward strategy that brings additional components such as learning and development, together with aspects of the working environment (CIPD 2009). It addresses the fact that there are intangible benefits, which are intrinsic to individuals that do not have such a direct financial impact on the organisation as financial benefits do. For example, Slough Borough Council have a grapevine newsletter in which recognition of an employee’s contribution in various departments have been highlighted, personal recognition can contribute to the overall performance of an individual providing the sense of feeling valued in what they do. Access to training and development and further opportunities of career development can be a prime consideration for employees when looking for an employer. The total reward concept for an employer means they are able to attract and retain talent, and commitment through understanding the intangible and tangible needs of the person. For the public sector, as financial rewards become more scars the benefits of the total reward system will become evermore important in retaining commitment, loyalty and experience, attracting employees to stay within the sector over the longer term. Is There a Perfect Solution? This discussion has bought to the forefront that implementing a high commitment HRM will not necessary work, nor provide any financial benefit in the public sector. This has identified that an approach of PRP commonly used on the private sector may not be the best fit for the public sector as there is a need to take into account the situation in which the organisation is operating in, the size of the organisation and the success in terms of profitably as this will effect whether there are the financial resources to implement a high commitment HRM. What may work for one company may not work for another. Contingency theory suggests that the business context is crucial in determining reward strategies, and a number of factors are influential (Gilmore. S, 2009, p. 84). How the public sector align their business strategy with their HRM strategy will largely be reflected by current circumstances effecting the sector, such as cost cutting, restructuring, and the shift from a public sector job no longer being seen as a job for life. Therefore the management of a rewards strategy will need to recognise that what is currently seen as a motivator for example job security, will change. What drives the success of a reward strategy is that it is closely aligned with continual changes not only within the organisation but also those of the individuals. Conclusion In conclusion, it is recognised that there is no one solution that will suit all organisation. It would be seen that the best fit pay system with the organisation goals and sector would need to be established taking into account factors effecting the environment of the organisation and how equipped it is to providing PRP. This will ultimately affect and underpin the benefit that is received of PRP to both the employee and the employer. Word count: 1680 Reference: 1. CIPD (2010), Performance Related Pay [Online] Available at: http://www. cipd. co. uk/subjects/perfmangmt/perfrelpay/prefrelpay. tm [Accessed: 24 October 2010]. 2. Michael Holden (2007), Performance Reviews a ‘Waste of Time’ News. com. au P. 1 [Online] Available at: http://www. news. com. au/business/business-smarts/reviews-are-a-waste-of-time/story-e6frfm9r-1111115035598 [Accessed: 20 October 2010]. 3. M W Gilman (1998) Performance Related Pay in the UK, EIROline P. 1 [Online] Available at: http://www. eurofound. europa. eu/eiro/1998/03/feature/uk9803107f. htm [Accessed: 24 October 2010]. 4. Baker, K (2010) Performance-related pay for the public sector rejected by Personnel Today’s Austerity Panel, Personnel Today P. [Online] Available at: http://www. personneltoday. com/articles/2010/06/17/55987/performance-related-pay-for-the-public-sector-rejected-by-personnel-todays-austerity. html [Accessed: 20 October 2010]. 5. CIPD (2009) Total Reward [Online] Available at: http://www. cipd. co. uk/subjects/pay/general/totrewdqf. htm [Accessed: 24 October 2010]. 6. Marchington, M. & Wilkinson, A. (2008) Human Resource Management at Work, London: CIPD 7. Gilmore, S. & Williams, S. (2009) Human Resource Management, United States: Oxford University Press Inc