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1. How to ensure employee remuneration program support the corporate strategic business objectives in XYZ company?
As claimed by Schuler, Galante and Jackson (1987, p18) that companies by setting HR planning, staffing appraisal, remuneration, training and development and labor relationships which are in consistence with the company’s strategies could increase the chance of business success. And in order to ensure that XYZ company’s employee remuneration program actually supports its strategic business objectives, in term of human resource management (HRM) the company must introduce the concept of strategic HRM into the HRM practices which requires that HRM objectives must reflect the strategic objectives and values of the organization (Stone 2011, p25).
In order to achieve the consistence between remuneration program and the achievement of corporate strategic business objectives, a strategic HRM diagnostic model which is systematic and well structured could be used to ensure such alignment. The model include four parts: assessing internal and external influences, setting objectives, HRM strategy setting and evaluating performance (Stone 2011, p27). Like an important decision making process, the HRM diagnostic model starts with situational analysis to evaluate the current external and internal environment. A typical external assessment could be done with a PESTELI analysis which is an extended model of PEST analysis (Political, Economical, Social Cultural and Technological factors) by adding three other factors “ELI” which is the short form of “Ecological, Legislative and Industrial factors (Lawson 2006, p76). Among the seven factors, the HR manager should focus on checking with the industrial environmental factors because the industrial situation is the smallest external environment within which a company needs to exchange a lot of information and resources with other players. And for the internal assessment, factors such as corporate culture, structure, organizational mission, vision and values are all need to be taken into consideration. The target of carrying out a situational analysis is to provide an analytical framework to the HR managers to check with the factors that could have influences over the HRM objectives and strategies. After the examination of the situational factors, the HRM objectives could be determined. For example, if XYZ company’s business intension is to increase the profit, then labor cost control and reduction and improved employee performance could be set as the company’s HRM objectives. The next step in this diagnostic model is to indentify HRM strategies to achieve the HRM objectives. Accordingly if the HRM goal is determined as increasing the net profit, then the XYZ company could use various HRM activities such as performance based motivation and redundancy to push up the profit gained. The last part of the model is to evaluate the performance. There are two dimensions companies need to check when the evaluation is to be done. On one hand, companies need to check whether the strategies used have helped the company moving closer to the expected results or not. This is to evaluate the strategies in the perspective of the results. On the other hand, company also needs to see from the perspective of the relative employees to see how they are affected by the strategies.
So refer back to the topic that we are discussing about the remuneration method and corporate business goals, remuneration is one of the HRM strategies that are used to achieve the HRM objectives. If XYZ company need to ensure the consistence between remuneration program and the achievement of corporate strategic business objectives, it should follow the systematic model that has been discussed above by firstly accessing the internal and external environments and enact the HRM objectives based on the environmental analysis before determining the remuneration program and what’s more XYZ company also need to do a HRM audit to check the performance of the program.
2. How does changing the remuneration approach leads to better performance and motivation?
Before entering into the topic about the how the changes of remuneration approach could lead to better performance and motivation, we need to understand what factors drive employees to pursue better performance and how to use these motivators to achieve maximum performance. At the beginning, we will see what employees need as in their positions as a human being. The most representative theory analyzing the need of individuals belongs to Abraham Maslow (1968)’s Hierarchy of Needs as illustrated in the figure 1 below.
Figure 1 Maslow’s Hierarchy of Needs
In Maslow’s Hierarchy of Needs model, he assumed that human nature is basically good and will strive for self-actualization through a positive process from down to the top of the hierarchy because such process will lead to the identification of people’s abilities though he also admitted only a small proportion of people have reached the self-actualization status (Zastrow & Kirst-Ashman 2010, p448). Most of the people will stay in the second class “safety need” and the third level to chase for “belongingness and love needs”. And another basic concept in the theory is that higher needs in the hierarchy will only come into focus provided that the lowers needs are mostly satisfied (Yim 2007, p78).
After the identification of the needs of the employees, we also need to examine how people are motivated. Beside the Maslow’s Hierarchy of Needs, another widely accepted motivation theory is Vroom (1964)’s expectancy theory which claimed that motivation is functioning only when a clearly perceived relationship exist between performance and outcome and needs are met (Preker 2007, p239). This theory was further developed by Porter and Lawler (1968) as expressed in the formula below. The effort that people will be willing to spend equal to the expected utility (EV) which equals to the total utility (TU) of the reward multiplied by the probability (P), this formula identifies two major factors determining the effectiveness of reward. The first factor is the value of the reward as perceived by the individuals. This factor may vary depending on the how much the individual need the reward. The second factor is the probability that the rewards will be linked to the effort as perceived by the person. In other words both the value of the reward and the possibility that the reward could be obtain through the efforts.
EF=f(EV) and EV=TU*P
Assume that most employees in XYZ company currently are still in the second class eying for safety needs meaning that they are in need of safety, health and monetary resources. Let’s see how XYZ company could use its remuneration strategy to motivate employees to achieve better performance. According to the expectancy theory, the company could change the remuneration adhering to the two principles to increase the employee motivation and performance. The first principle is that the amount of the reward should be sufficient enough and so it would be attractive and valuable enough to the employees. In many cases the remuneration system does not working as expected is because the reward is not attractive enough for employees to invest so much effort to get it. But it is also quite contradictive to increase reward without any hesitation because the increase of reward amount would means higher cost involved. There is a tradeoff that the company needs to do here. The second principle is to establish a closed and clear link between performance and rewards and make it known to all the employees involved. By changing the remuneration approach according to these two principles, XYZ company could improve the employee commitment and performance.
3. The selection between pay-for-performance and skill-based pay for programmers and sales people in the XYZ company
Pay-for-performance or merit pay refers to the compensation system that seeks to differentiate between the pay of average performers and outstanding performers using a wide range of compensation options which include merit-based pay, bonus, job and pay banding, team based incentives, salary commissions and various gain-sharing programs (Sims 2002, p250). The objective of the pay-for-performance is to develop a productive, efficient, effective organization that enhances employee motivation and performance (Hoevemeyer 1989, p64). As mentioned above in the previous questions, there are two factors that a company could enhance the employee motivation and performance: one is the value of the reward and the other is the possibility that the reward could be obtain through the efforts. And the performance based pay by definition seems to be enhancing such link between efforts and rewards granted. So the performance based pay theoretically will help improve the employee commitment and performance as desired by the companies. As an increasingly popular pay rate setting method in nowadays, performance based pay has a basic assumption that employees who are applicable to this pay increases method are capable of doing their job without too many difficulties due to the lack of relative knowledge and skills. The rational is like this, if let’s say some of the employees are not be able to master all the skills required to finish the tasks, then it would not be necessary to provide any incentives or rewards to them because they simply cannot handle the job themselves. What’s more the use of the merit increase could be influenced by a lot of external and internal factors beside performance such as job size, position in pay range, inflation, company profitability and pay competitiveness (Stone 2011, p469).
A skill-based pay or knowledge-based pay is a system of compensation that ties base pay to employee knowledge and skill rather than a position or job content (Boyett, J. H. & Boyett, J. T. 2004, p144). In a skill-based remuneration system employees involved will be rewarded for mastering the particular skills identified by the companies which will help manage the skill acquisition process in the company. By using this system, the major consideration is to motivate people to study additional skills which are desired by the companies due to the nature of the tasks. In the actual situation, skill-based pay is adopted mainly in the positions of operators, technicians and office workers and other positions in which work can be well defined and specified (Milkovich & Newman 1999). An increment of pay will be given if the employees have been certified as having obtained the skills or qualifications specified. So the basic assumption in this pay rate setting system is that some employees do not have all the skills and capabilities needed to deal with the tasks. But the mastering of the skills will need time and energy investment from the employees, so companies provides such incentives to motivate employees to do so though speaking from the result of this system, it is satisfactory to both parties: the company and the employees. Several other goals and considerations could be achieved by this system: flexible and multi skilled employees, to maintain production efficiencies while at the same time making the organization structures flatter and job enrichment. According to an early survey, 41 percent of the respondents their skill-based pay system were very successful and only 6 percent of the respondents considered their plan as unsuccessful (Gupta, Jenkins & Doty 1992).
As in XYZ company, a medium size web development company, two kind of staffs are the core people for the company: sale people and programmers. The selection of the pay rate setting methods should be based on the nature of the positions. To the programmer, a position that will generally require special skills which are clear defined and take form of various certificates such as Microsoft Certificated Professional (MCP) and Microsoft Certified Systems Engineer (MCSE), the use of skill-based pay will be better than pay-for-performance for the following reasons. Firstly of all, special skills are critical to the programming job. Secondly, it is not convenient to use the performance based pay because there is not clear standard to judge the process of the programming job as many people will do different programming works that make up an integral job in a typical programming project. Thirdly, if the company’s strategic intension is to grow its business scale, then a lot more experienced with multi skills who could work in different positions could be helpful to the company’s strategic moves.
And for the sale people though they are in the same company working with the programmers who are paid using the skill based remuneration, it is better to apply the pay for performance to them. The reasons are stated as following. First of all, the sale people after training when they first enter the company should possess the needed skills in the sale job, so that any other special skills learning are not necessary. This menas that the skill based pay is not appropriate in this position. Secondly, sale that has been done individually or by a team is a clear standard to determine the performance of the sale job making the pay for performance method applicable in this situation. Thirdly, pay for performance could motivate the sale people to be more productive as there is a clear link between the effort and the pay raise which has been mentioned above.
4. Regarding the training need analysis
Training needs analysis is the process identifying the new knowledge, attitudes and skills which employees require to meet their own and the company’s development needs (Donovan & Townsend 2004, p6). Earlier in the answer to the first question regarding how the remuneration program as one of the major HR activities support the strategic business goal, we have introduced a strategic HRM diagnostic model to which includes four components: assessing internal and external influences, setting objectives, HRM strategy and activity setting and implementation and evaluating performance (Stone 2011, p27). This model helps to ensure the consistence of HR activities with the business strategic consideration and increase the change of business success. And this model is also applies in answering this question about the training need analysis which is another important HR activities in the HR development process. Another similar model which also support our augment is a systematic approach specialized in training and development. This model includes three major phrases. The first phrase is the assessment which indentifies the training needs and established the training objectives. This phrase is actually contains the first two phrases that we have talked about in the strategic HRM diagnostic model: assessing internal and external influences, setting objectives. The second phrase is the activity phrase which consists of two major functions, selecting and design programs and conducting the program. The last phrase is named as evaluation which contains two major activities: developing evaluation criteria and evaluating outcomes against criteria (Stone 2011, p348). So this systematic approach specialized in training and development jointly with the strategic HRM diagnostic model actually support the conclusion that the effectiveness of the training and development will be enhanced by a comprehensive training need analysis or else training programs will be a standalone HR activity which may result in the following unexpected consequence.
One serious consequence that may not easy to be observed in a short period of time due to a standalone training program is that there might be insufficient connection between the mission, vision and strategic business goal of the organizations and training design because the these corporate goals and mission have not been clearly delivered in the training programs. Another issue which is connected to the corporate variables is that the changes that the ongoing training programs promote may be in contradiction with the corporate culture. For example if the corporate culture has long been set as to focus on the teamwork, but the training program may be focusing on the teaching of the individual effort. Other contradictions may happen to the current various corporate systems such as the remuneration system.
In order to avoid these unexpected consequences, a comprehensive training need analysis could be done in advance of the actual training activities to ensure that the final training will bring with the expected results. A comprehensive training need analysis in the assessment phrase of the systematic approach to training and development is to identify what training in term of by whom, when and where is needed, the source of the training need analysis include analysis on the three kind of information sources. The first kind of information sources that the training need analysis needs to consider is the organizational variables which again the training manager need to access to the external environment such as the political, economical, social, industrial factors and internal environmental factors like the corporate culture, business objectives, HR objectives, other factors in the organizational climate. This source of information again will ensure that the training program is design in a manner that is in accordance with the corporate level decisions that have been made. The second kind of sources is the tasks variables like the job analysis and job description. A training program may cover a wide range of techniques and contents, but to a specific content, it is necessary to identify the most useful and necessary contents to be educated to the employees depending on the nature of their positions. The third kind of source that the training need analysis also needs to consider is the person variables to identify who will in need of the training program. So for XYZ company, it need to perform a training need analysis by examining the three kind sources before designing and implementing a training program.
5. Choose between on-the-job and off-the-job training mode
Within an on-the-job training relative employees will be receiving step-by-step instructions on how to accomplish a task while actually performing the task (McConnell 2007, p325). An appropriate on-the-job training could bring a lot of benefits to the companies and to the employees. First of all, on-the-job training is an effective learning activity because it appeals to multiple senses which increase the likelihood of learning (McConnell 2007, p326). To put it in a simple way, personal reading alone could be the most ineffective way in many situations and having lectures along in which a trainer hand out and explain a lot of topics could be better and not the best way, and only when employees could actually learn the skills and apply the knowledge into practice the effectiveness of the learning could be much better. Secondly, unlike an off-the-job training program which is systematic and cover a wide range of contents, an on-the-job training deals with the practical issues which means that employees will have to solve the most common problems again and again. But in an off-the-job training, usually trainers will cover the most frequent problems once like other issues. And it is believe that repetition is one of the best ways of learning new skills. Inappropriate on-the-job training could lead to dangerous results which are not desired. For example, normally on-the-job training are held by the line managers or department managers who are usually very busy and may not be able to spare enough of time to the training. And if there is not enough of guidance particularly in the beginning of the training program and employees could not receive step-by-step instruction, then some insufficient and bad habits could formed and it is well known that it is not easy to correct the bad habits once they are established.
Off-the-job training which is accomplished outside the work setting is also an important part of the training and development in most companies. Off-the-job training is normally provided in the traditional forms such as lectures, case studies, computer based training and video presentations. One feature of the current off-the-job training is that there is an increasing trend of using computer based training to educate the employees regarding the new skills and knowledge. Compared to on-the-job training, off-the-job training has some disadvantages such as the possible high course that it will cause because not only it require a physical location such as classroom to hold the training but also it would cost a lot of work hours which is also precious to the company. But in many situations, off-the-job training could be more helpful compared to the off-the-job training because it provides an off-the-job environment in which employees could get rid of the busy work and study the new skills with the full focus. What’s more, an off-the-job training could be more in-depth than the on-job-training because it is usually held by professionals who are specialized in the field and could provide more knowledge than what can be obtained through the actual work.
In the case of XYZ company, about the training of the sale people the on-the-job training is more suitable than the off-the-job training. The reason for such selection is that the sale skills are mostly repeated in the actual sale work. It is more convenient for the line manager or departmental head to provide step-by-step guidance and instruction in the actual work and employees could practice again and again by their own and received correction by their manager if there is something wrong. And for the programmers there are at least two reasons why the off-the-job mode is better than the on-the-job training. First of all, the new skills that programmers will be in need of could be very professional and could not simply learnt by guidance provide by the line managers. What’s more since the new skills are very professional and different programmers will focus on different specific fields, so that it means that the manager may just know part of the knowledge, it is more suitable to introduce the outside professionals to teach the skills through a structure course. Secondly, if XYZ company is setting its strategy as growing its business scale, it will need to have more multi skilled programmers who are able to take different works to expand it is business.
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