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1. Background and some key assumptions
XYZ is a medium-sized website design and development company based in Guangzhou, South China’s Guangdong Province. With the fast growth of the website design industry in the Chinese market together with the Chinese economy growth and the trend of business process outsourcing, XYZ has recently employed a new CEO from outside the company who has abundant experiences in expanding business in the website design industry aiming at bringing changes to the company in term of perfecting the company’s structure and strategy especially in term of remuneration program to solve some problems that the company is current facing. Currently the company is delivering the remuneration to the employees based on a fixed salary according to position level and an annual bonus based on the evaluation of the personal work. Some key problems appeared are: programmers and sales people as the core people in the organization are less motivated than the expectation from the company’s management team; there is a high turnover rate in the programmers as many of them are willing to stay provided only they are paid higher than the competitors do; staffs are not willing to work overtime.
2. Employee remuneration program and the corporate strategic business objectives
The corporate vision of the XYZ Company has been long set by its founder as to be the best website solution provider in China. And the mission of the company is to provide one-stop website service to business and personal users from design to daily management and the company believes that adding value to the customers, employees and shareholders is critical to its business. And also the company defines its core values with several keys words: performance based, customer oriented, service oriented and teamwork oriented. And right now the new CEO has set its work focus as to reinstate the corporate vision, mission and core value as he is very agreeable to the company’s establishment of such core beliefs and creeds and what’s more he also set the detail business objectives as to enlarging the company’s business to the oversea market by accepting more oversea orders.
In term of employee remuneration, which could be defined as wages, salary and benefits especially in term of money that are payable for the services provided by a person or an employee (Zügner & Ullrich 2005), and remuneration as one of the most important human resource management activities can help to reinforce the organization’s culture and key values and to facilitate the achievement of its strategic business objectives (Stone 2011, p452). And according to Stone (2011) in order to create a remuneration system that is in accordance with the corporate strategic business objectives, there are three steps in the objective and policy setting phases before the actual enactment of the detail remuneration system: Step one is to develop strategic business objectives; Step two is to develop HRM objectives and Step three is to develop employee remuneration objectives. These three steps should be act as a whole.
In XYZ Company’s case, with the introduction about the company’s vision, mission and core value that we have already mentioned above, the company’s remuneration program objectives could be set as following:
l Attract and maintain the quality and performing programmers and sale staffs
l Motivate the employees to improve the performance in a continual manner to provide the best service and product to the clients
l Communicate and reinforce the corporate culture based on the vision, mission and core values among the employees
l Encourage teamwork and personal excellence
l Cost control in the remuneration program and ensure the effectiveness of every budgeting Yuan (Dollar)
But actually in the real scenario in XZY Company, the company is delivering the remuneration to the employees based on a fixed salary according to position level and an annual bonus based on the evaluation of the personal work which not in accordance with the objective of promoting teamwork, what’s more the company does not provide any pay to the overtime work leading to a discouragement of work OT though in many cases when the project is in a hurry OT is really necessary. So there are problems with the remuneration approach which will be addressed in the next part of this study. And to answer the first question, I will suggest the XYZ Company to clearly define its employee remuneration program objectives based on its strategic business objectives and design the remuneration program according to the program objectives.
3. Changing the remuneration approach and better performance and motivation
We begin the topic by focusing on the final and most desired result “better performance” and obviously “better motivation” is not the final expected products as it is more appropriate to call it as “semi-product” that followed by the final “better performance” which is most desired in a for profit organization as the correlation between work performance and profit making is self-evident. And the relationship between performance and workforce motivation could be seen from Heider (1958)’s multiplying model as following:
Performance= Motivation ×Ability
This multiplying process has been empirically verified by Anderson and Butzin (1974), though it has not taken into consideration of the situational factors such as viability of the tasks and availability of the resources this formula does provide a simple but true relationship between motivation and performance and it is also within our common sense as people can only get the tasks done in good quality when they are highly motivated and thus focus on the tasks. And obviously “ability” should not be an issue; if it were, it should be the problem with the employee selection rather than remuneration. So far we have come to the conclusion that performance has close relationship with motivation and below further examinations will be done to check with the relationship between changes of remuneration and workforce motivation.
Robbins (1996) defines motivation in the work place as the willingness to exert high levels of effort toward organizational goals, conditioned by the effort’s ability to satisfy some individual need. According to this definition, the function of motivation is working only when some personal needs are satisfied directly or indirectly through finishing the tasks. And such needs must be unsatisfied needs as claimed by Maslow (l987) that only satisfying the unsatisfied needs will generate happiness and provide motivation to people. This also corresponds with the process of motivation as shown below that motivation process begins with individual’s preferences or in other words, needs.
Figure 1.0 Process of Motivation
Basic Motivation Process
Intrinsic Motivation Process
Extrinsic Motivation Process
Source: Rehu, Lusk & Wolff, 2005, p83
Motivation could be intrinsic or extrinsic which is also applicable in the workplace, intrinsic motivation suggests that the employee actually derives need fulfillments from the work itself. Such scenario does have some matchups with descriptions of some higher needs description in Maslow (1987)’s Hierarchy Need theory, for example by finishing some challenging tasks, some employees could meet the need of “esteem” in term of earning others’ respect, self-confidence and so on. While task itself could not provide enough of value desired by the employee, motivation needs to turn to the extrinsic way by providing rewards which are common in term of bonus and other remuneration forms to satisfy the employee’s needs. Also from the diagrams above, the relation that we are aiming to find out between the changes of remuneration and workforce motivation is also clear. In an extrinsic motivation process, appropriate remuneration (reward) which is desired by employees will lead to the motivation for fulfillment of tasks assigned. So in a word, in an extrinsic motivation process, suitable reward (remuneration) is the key to performance and workforce motivation. And the changes of the remuneration methods will directly affect the reward given to the tasks which will influence performance and motivation.
In XYZ Company’s case, as mentioned above the current remuneration is based on a fixed salary according to position level and an annual bonus based on the evaluation of the personal work, if an ongoing urgent website design project will need the input of a large amount of intelligent work in term of work overtime, but since there is no obvious reward given to the employees upon the finish of this project and most employees don’t find this project valuable or interesting to themselves so as to provide intrinsic motivation, in a extrinsic motivation process there should not be enough of motivation from the employees who find a lack of rewards. Change of the remuneration methods such as providing OT compensation could be helpful in this case, and the detailed selection of remuneration methods will be discussed in the next part of this study.
4. Pay rates setting for programmers and sales people in the company
Three kinds of pay rates setting methods that are frequently used in many companies in the human resource management: seniority-based pay, pay-for-performance and skill-based pay.
Seniority-based pay describes such a pay rate setting that determines pay levels and increases by the length of time spent by employees on the job rather than performances or any skills and qualification owned by the staffs. As seniority-based pay tends to provide little motivation to the employees for better performance, this kind of pay rates setting method is becoming unpopular among the companies though it is still welcomed by the unions in some industries (Stone 2011, p469). For the rest two methods that are used more frequently, pay-for-performance and skill-based could both be used to encourage better performance, employee motivation and continual development of their career.
Pay for performance or merit pay is the type of remuneration when firms try to match payment to objectively evaluated individual performance (Neely 2007). Variable pay for performance plan has become a popular remuneration scheme in the last few years in both public sector and private business. While companies aim at establishing link between performance and employee remuneration in term of merit increase and bonus, there are still disputes and concerns surrounding the pay for performance practices in the actual application. Firstly, as when companies determine the size of merit increases beyond performance they also would to take into consideration the increases of cost of living, seniority, tax and other factors which results that performance would only contribute part of the merit increases and thus weaken the link between performance and employee remuneration as perceived by employees. Secondly, as analyzed above, motivation could be intrinsic or extrinsic and pay for performance which provides extrinsic incentives to employees break the balance between intrinsic and extrinsic motivation making people focusing on the short term pay increases. What’s more as argued by Neely (2007), pay for performance will encounter some problems when it deals with complex tasks as pay for performance is adequate only for simple jobs. Neely (2007) also pointed out that monetary rewards are no substitute for good management in complex tasks.
Skill-based pay is the remuneration system that bases the compensations on the job-related skills and knowledge owned by the employees. In a broad sense, a skill could be defined as a learned ability that progress with practice in time. Like performance based pay, this is also a people-based remuneration method rather than a job-based one as rewards are differentiated according employees’ ability to apply a wider rang or a higher level of professional skills to various tasks(Armstrong 2003, p314). Skill based pay is most suitable in companies where the demand of range of skills is high and tasks are flexible and need to be perform by talents with the relative skills. One of the major feature of skill based pay is the scarcity of the specified skills which may be due to the skills involved are not easy to obtain and the study of the skills would cause a lot of effort and time for the employees who try to master them. For example, an employee with an ACCA certificate in an accountant company would usually earn more pay and pay increases than his or her colleagues. And obviously the mastering of the ACCA program is not easy and the qualification is helpful to the accounting work and to the company as well. A survey done in 2007 based on the date of more than 300 companies in south Africa finds out that 81 percent of the companies in South Africa had difficulties in finding suitable candidates with the needed skills and 35 percent of the them had provided a premium to attract the affirmative action candidates (Robbins 2009, p179). Obviously once the skill is mastered by everyone; it could no longer be the base of pay. The advantages of skill-based pay is obvious as the remuneration system recognizes and encourage learning and growth of employees (Hellriegel & Slocum 2007, p166), but there are also some major setbacks of the skill-based pay. Firstly, when employees have learn all the skills and there are no higher levels for employees to attain, there will be a tendency named “top out” which will increases the turnover rate of employees; Secondly, programs of education regarding the relative skills would be costly in term of resources invested and time consumed; Thirdly, when many employees seek to learn the skills, some companies may later find out that the skills learn by some employees may be of immediate use and could discourage the employees.
In the case of XYZ Company, the company should select the appropriate method of remuneration for its two kinds of core people: programmers and sale people. For the sale people, the method of pay-for-performance is more suitable to encourage employee performance and motivation. The reason for such selection is simple. On one hand, there is no specially and clearly defined sale skills or qualifications that could be identified by the management and it is not possible to use the skill-based pay method; on the other hand, there is little flexible work in the sale job, and the sale volume achieved by sale people provide an excellent base to use the pay-for-performance remuneration method which is widely used in the sale relative positions. And for the programmers in XYZ Company, it is recommended that the company uses the skilled-based pay. The reason for this decision is three folds: firstly, there is a wider range and a higher level of professional skills in the field of programming that could be obtain by employees to help with their job and company should encourage such learning; secondly, the skills of the programmers is the source of core competitiveness of the company which is a knowledge intensive company; thirdly, as the company is in the trend of fast growth as mentioned in the beginning, there will be an increasing need of the talents with the required skills, the adoption of the skill-based pay would encourage programmers to lean more skills which will be of great use in the near future with the corporate strategic business goal to expand its business.
5. The importance of conducting an accurate training needs analysis
A systematic approach to training and development in HRM practices could be divided into three major steps: assessment of training needs, conduct of the training activity and evaluation of the training activity. The first phrase which is the assessment of training needs refers to the determination of training needs and objectives in term of 4Hs: what training is needed, by whom, when and where; the next phrase is the implementation of training program which regards to the selection of training content with determination of activities regarding location, timing and presenters and other factors and also the process methods would be determined in this stage; and the last phrase evaluation is concerning about the examination of the fulfillment of the training program against to its objectives by the development of the evaluation criteria and the evaluation of the outcomes against the set criteria. Below let’s focus on the assessment phase and see how the training needs analysis supports the company’s business strategy.
Though training needs analysis (TNA) is often neglected in the actual training and HR development practices, an accurate and systematic TNA as a key component of the training and development has been proved to be very helpful to foster effective training efforts (Schneier, Russel, Beatty & Baird 1994, p67). Firstly, TNA encourage a process view of training which consists of three major steps as mentioned above, this process view of training help to ensure that every training practice starts with accurate training analysis; and being implemented appropriately and reach the set targets by evaluation effort. What’s an accurate TNA also help facilitates the delivery of cost-effective developmental opportunities. Secondly besides providing a data base for training purpose, TNA also could provide a wide range of verified facts and data for other human resource management activities. For instance, the data regarding the tasks, person, and organizational variables collected in the TNA process could also be used as basic facts for the future remuneration, managing workplace health and safety, introducing changes and other HRM activities. Thirdly, TNA could provide the empirical message which is compelling as it is from the HRM users for the HRM operations. Fourthly, conducting an accurate training needs analysis could ensure that the training provided is supportive of the organization’s business strategy. The rational of the positive effect of a good TNA in fostering corporate strategy would be discussed in detail below.
As just mentioned, a systematic approach of TNA would analyze the variables and conditions in three levels of the sources of information: person, task and organizational variables. The tasks variables include job analysis and job description and this level of variables refer to what skills need to be taught in the company as requested by the job or task itself. And the person variables will determine who will need the training and for what purpose the skills are taught to the relative employees. When training and development plan are formed most companies will take into the consideration of task variables and person variables, but the consideration of need information in a corporate level is frequently ignored and results in the discrepancies between the training result and corporate business strategy. For example, in the case of XYZ Company as the business scale is increasing the company is accepting more projects than before, so that the management of the company may have already perceived the need to increase the training of the programmers to upgrade their technical skills, but the company may ignore the need of the training of the the other positions if only the tasks and person variables have been considered. But if the HR department has considered the future training need due to the corporate expansion strategy, then the need of training for other positions could also be identified. In other words, the organizational variables as a key component of the TNA could help ensure that the training effort is supportive of the company’s business strategy.
6. On-the-job and off-the-job training
The on-the-job training which could be defined as the process in which one person, usually the manager or lead person of a team, passes job knowledge and skills to another person (Broadwell 1986), in other words on-the-job training is the training provided while the employees are at their work, usual form of on-the-job training includes job rotation, internships, mentoring, coaching, project assignment and modeling. The most obvious advantage of this type of training is that the content of the training is the work itself the transference of the pragmatic skills in the workplace could be very useful for the employees to learn to do the job in a very short of time. And also the on-the-job training is very cost effective and even adds extra value to the company directly because of the training will not cause too much resource.
Though on-the-job training is the frequently used training that could be implemented in the daily work, off-the-job training which refers to any form of training while the employees are not working has always been in the advantageous position than the on-the-job training in the acquisition of employee competence (Miller 1987). As the figure below shows about the usage of training mode, in term of percentage the instructor-led classroom mode take the leads against other modes of delivery of the training service. Different from on-the-job training, off-the-job training would request a dedicated environment in term of corporate facility or private facility which provides a work setting far away from the current work setting which would almost definitely means more corporate resources invested in the training which could be expensive in some cases. Though the off-the-job training would cost more than the on-the job training there are still major advantages of this approach. Firstly, off-the-job training provides a good group based learning opportunity which is not usually achievable in the on-the-job training such as mentoring and coaching as these training are focusing on individual training needs. Secondly, off-the-job training focuses on the long term perspective on the development of the human resource in the company. Off-the-job training could teach the skills which take a long time to learn and thus could not be taught in the on-the-job training environment, and usually these skills could increase the professionalism of the employees greatly.
Figure 2.0 Percentage of training time (Jacobs 2003, p15)
For the training of the sales people in the XYZ Company the on-the-job training mode is more suitable than the off-the-job training because the skills involved in the sale job are majorly pragmatic skills which could be learnt more effectively by doing the job rather than taking courses. What’s more experience as a basis for learning is critical for the sale job which could be gained in the on-the-job training and experience sharing by the supervisors or managers.
For the training of the programmers in the XYZ Company, the off-the-job training is more advisable than the on-the-job one for the following reasons. Firstly, the off-the-job training provides an excellent opportunity for the corporate programmers to learn together and share work experiences with each other. Secondly, the skills involved in the programming job usually would take up a long period of time to learn which could not be done during the on-the-job training, so an off-the-job training would be needed.
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