WILCO ELECTRONICS COMPANY:
REWARD MANAGEMENT PRINCIPLES AND PRACTICES
INTRODUCTION
As the Human Resources (HR) advisor to the company appointed to provide a review, the following is an analytical report for the senior management regarding the firm’s reward management principles and practices. The discussion will be in the context of reward systems in the global marketplace as well as the culture variations that will impact on reward management in how they compare to the company’s own reward management system. One of the company’s goals is to build and manage an organization in which employees are partners to retain market leadership and have opportunities to grow and find market value. A scrutiny of its reward system is therefore imperative to attain this goal, as Milkovich & Newman stated that ‘a pay system reflects the values that guide an employer’s behavior and underlie its treatment of its employees’. Why are rewards important in the attainment of this goal? It is for the simple reason that people work for reward. For some people, the reward mainly translates to financial materials, for others, it is a matter of excellent working environment, opportunities to grow as an individual, challenging work, etc. and to others still, a combination of both. Motivation is the key to make people function fully and willingly, a most most effective tool for encouraging desired behavior because it stimulates people to take actions because they want to because they get something of value (internally or externally) for doing it. The company’s reward system paves the way to motivate people.
WECo’s REWARD SYSTEM
A peruse of the reward system of the company would show that it is relatively beneficial to the employees. There is the word relatively, meaning there is still much room for improvement. As a manufacturer of electronic diagnostic and monitoring equipment for the healthcare industry with plans to penetrate the international market other than the regional Association of Southeast Asian Nations (ASEAN) market, their reward system must be competitive enough in the context of an increasingly boundless global marketplace, if they want to maintain motivated people and thus help in retaining their market leadership in the field of healthcare equipment. Europe, America, China and India being their target markets, an in-depth study on the local reward systems of these nations is crucial to designing a system that would answer the needs and capabilities of the company. Many of the current reward practices being observed in the company are similar to initiatives used ten years ago in the domestic market, and although they are still sufficient to cover the basic need of the employees to be rewarded, the changing times have brought with it factors that ten years ago were not present and therefore not included in the design of the system.
The approximated 2,200 employees of WECo distributed in its three plants and one large distribution warehouse are given a base pay, merit increases based on annual performance appraisals, a management incentive program based on MBOs, a profit-sharing scheme in one of the company plants and several special recognition programs for outstanding performance (President’s Club Membership, Super Stars Award, Top Performer Award).
REWARD SYSTEMS IN THE GLOBAL MARKETPLACE
It has been found out by the various studies done on reward system that there is a need to have a high degree of congruence between the reward system and the strategy of the organizational unit. In the advent of globalization, it is increasingly recognized that the reward system is a key factor in the implementation of an organization’s strategy and the accomplishment of its global strategic objectives. Particularly in the global marketplace, the reward system can be used to elicit or support those behaviors and decisions that are in accordance with the global strategic goals of the multinational enterprise (MNE) as opposed to those that address only local market performance.
An observation of the reward systems in the global marketplace revealed that businesses have recognized the changes in industry conditions and have subsequently made corresponding changes in their corporate and subsidiary level strategies as response to such dramatic changes. European pharmaceutical firms that dramatically reorganized after a series of international mergers have redesigned their reward system for their international executives and have specific measurement formulas unique to the firms in order to determine their international executives’ performance and their related incentive bonus. American high-technology multinational manufacturers that have matrix organizational structures have their reward systems designed so that dual responsibility-laden employees receive incentives tied to the performance of the product division as well as the geographic unit. The incentive structure is not applied uniformly across all geographic regions or product lines. For example, in emerging markets, the incentives are tied more closely to geographic performance than in industrialized countries. Strategic roles of different foreign subsidiaries are differentiated based on the unique competencies of select locations, most commonly French, German and Japanese subsidiaries. These examples are typical of what is generally being practiced around the globe by MNEs.
In the case of the company, existing reward systems have been found to cater only to domestic needs. If the company is to be truly competitive, outdated standard job descriptions reflecting levels of responsibility, budget and authority used in point factor job evaluations should be replaced by a more up-to-date job descriptions reflecting applicability to current practices. The company has been evidenced to implement WECo Head Office’s reward system and practices in the ASEAN regions in which they are operating. This should not be so, as, being in a completely different environment, the subsidiary employees in the region would therefore have considerably dissimilar needs that the Head Office’s reward system and practices will utterly fail to address, because the existing principles and practices are obviously not designed to cater to the needs of the region’s employees. It is therefore deemed best to review the situation and immediately take measures to remedy the issue.
CULTURE VARIATIONS IMPACTING REWARD MANAGEMENT
A large part of the challenge posed by globalization to MNEs is how to manage business operations across cultural boundaries. It has been suggested in existing reward management literature that a number of culture-oriented psychological factors, such as national value orientations, distributional justice, the concept of socially healthy pay, and the role of pay as a motivator, are considered. As such, there is an ongoing call for reward flexibility dependent on the variations of local culture where MNE’s operate. Rewards systems in Germany, Japan and China, in particular, are facing radical change. There are also high levels of reward failure in the US and UK, where a shift from jobs-based to people-based systems is taking place. Management gurus have pointed out that whilst the lifestyles of workers around the world are becoming more homogeneous, the faster the pace at which this happens, the more steadfastly they shall cling to and cherish the traditions that spring from within. Thus the essential need not only for WECo but also for other MNEs to concentrate on understanding how facets of national culture mediate the operation of new reward systems, including initiatives such as broad-banding and competency-based. It must also identify the appropriate ‘engagement points’ through which policy objectives can be deemed to be in line with underlying values.
For instance, China has attracted a surge of foreign investments and international trade from a multitude of countries and MNEs located in the country are therefore subject to the challenge of successfully carrying out cross-cultural management in China. The reward system for China-based staff is perceived in known studies to be occupied by a cash-form of reward mechanism: i.e. base salary, merit pay, year-end bonus, individual bonus, cash allowance and overtime allowance. This indicates that cash-form items are found to be most effective in attracting, motivating and retaining the local Chinese employees because of the existence of the ‘cash mentality’ syndrome. This syndrome may be contributed to by the Chinese culture that encourages financial independence and the recent economic development that sparked the entrepreneurial spirit innate to Chinese people, inspiring an intention of making good money by having one’s own business. Therefore, WECo’s plan to penetrate China should take into consideration the general tendency of Chinese workers to value monetary rewards, as long-term benefits, such as pension and life insurance, and short-term benefits like childcare, education and leave are considered to be less valuable and less useful in rewarding employees. It is recommended for WECo to design their reward system to provide employees with take-home cash as the highest proportion of the compensation package and to spend less money on employee protection but more on immediate cash rewards.
CONCLUSION
The reward system of the company is believed by the HR field as pivotal in the motivation, attraction, and retention of the human resources that are so vital to the successful attainment of a firm’s goals. The company’s reward principles should differ accordingly, based on the desired managerial behaviors necessary to implement the strategy of the particular business unit. As regional and corporate performances differ, they must be used as a criterion in the design of a reward system for future international ventures such as that of WECo in order to determine the fittest system that would be beneficial to both employees and the organization. The importance of local input in the design of such system must be stressed to HR managers at the corporate level, as it is important to be aware of local norms and competitive practices for a fully effective reward system to be implemented within the firm. The reward system of the WECo plants located in various areas of the world should therefore be different from those at the parent plant, designed to adapt to the local environment in which they are located. The design of a reward system should not be merely convenient to the organization. It should more importantly be designed for adaptability and timeliness.
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