Remuneration Package
Introduction
Organizations today realize that employees are part of their competitive advantages. Along with effective business strategies and sufficient capital, investments for developing highly skilled human resources have been part of most companies’ road towards success. In order to obtain this unique competitive advantage, organizational management must be able to give sufficient motivation to their employees (Creech, 1995). One of the considered approaches of management in motivating their employees is through remuneration package. Primarily, the goal of this paper is to provide an analysis of the aims of organisation in setting remuneration package. Herein, the objective is to provide a remuneration package to solve the issue of organization like the one mentioned in the book entitled “The Goal”. The discussion will include the context of throughput, inventory and operational expenses as well as extrinsic incentives to establish a new remuneration package.
Overview of the Company (based on “THE GOAL”)
The company that would be considered in this report is a company based on the book “THE GOAL”. Accordingly, the industry is a manufacturing company in which Alex Rogo is the plant manager. The company is struggling in terms of their business operations due to several problems and issues. In order to solve the issue, Alex contacted his favorite professor, Jonah. The professor is the one who helps Alex to consider different steps and continual process of drastic and continuous development.
In the book, it is said that the company is having problem in terms of meeting the demands of their clients and other production issues. Such problem can be associated with the lack of reward or remuneration policy of the company. Alex has considered using robots to solve the issue but this did not help him resolve the problem. In this case, Alex has been able to realize that solving the issue not only means cutting the costs, reducing the wage and any other traditional measure. They realize that the company should be able to balance three critical aspects of the manufacturing plant production so as to earn more. Such aspects should happen simultaneously so as to have significance in the business process and this include, increase throughput, reduce inventory and reduce operation expense.
Based on the book, it can be said that the company is having problems in meeting the demands and organizational objectives because of the lack of reward and remuneration policy to motivate the employees to do their best in every responsibilities and tasks given to them. In order to solve this, the company is in need of a new remuneration package to enhance the productivity and motivation level of the employees of the manufacturing plant.
Remuneration Package
Accordingly, remuneration is a term which covers the monetary and relevant entitlements of employees-paid by employers in exchange of the work of the employees. The comprehension of the key terminologies which arise in the concept of remuneration is essential to human resource management. In order to solve the issue presented in the book, the report recommends a new remuneration package that can be used by the manufacturing company.
In Human Resource Management, the remuneration package is intended to align employees with organizational strategy by providing incentives for employees to act in the firm’s interest and perform well over time. Expectancy theory carries a clear message that employees must feel confident that their effort will affect the remuneration policies they receive. Perceptions of equity are therefore crucial in an employee’s decision to remain and produce valuable work. Equity is a multidimensional construct, embracing external equity (the degree to which a firm pays employees the rate they would find in the external labour market), internal equity (the degree to which a firm differentiates pay between employees on the basis of performance in similar jobs), and individual equity (the degree to which employees are rewarded proportionately to their individual performance) (Dean and Snell, 1993).
Remuneration package amended by the Human Resource Management can be classified under three broad headings: performance-contingent remuneration policies, which explicitly reward through performance outputs; job-contingent remuneration policies, where pay is contingent on job classification; and person-contingent remuneration policies, in which pay is dependent on the competencies a person has (Dean & Snell, 1993). Because both output orientation and job classification may be difficult to measure accurately in high-velocity conditions, the prospect of person-contingent remuneration policies, which may encourage the values of learning, flexibility, and creativity, would seem to be best suited to fast-changing conditions (Gomez-Mejia and Welbourne 1990; Snell and Dean 1992). .
In addition, Remuneration package can be one of the greatest foundations of control available to a company in its quest to increase organizational performance and effectiveness, yet remain one of the most underutilized and potentially complex tools for driving organizational performance. The importance and complexity of linking reward strategies to business goals in a systematic manner has been a recurrent argument in the study in this field, as has the importance and difficulty of linking remuneration policies to the longer-term view. In describing the strongest level of linkage the emphasis has been placed on Lawler’s (1990) description of extrinsic incentives and other processes which are capable of reinforcing the behaviours crucial to business strategy like long-term versus short-term, customer focus versus financial results.
It is said that designing a successful remuneration package is important in any organization in order for it to motivate employees to use their skills and abilities to achieve effective performance and to contribute to overall organizational objectives. Accordingly, there are different kinds of remuneration packages and factors that may possibly trigger employee motivation (Armstrong, 2002).
For the company in the book (THE GOAL), the remuneration packages that can be considered include pension and life assurance, permanent health insurance and health scheme. Since manufacturing plan workers are expose to some health hazards due to the chemical used or accidents because of the machineries used in the plant.
In the Pension and life assurance, the company can give their employee the option to join the manufacturing group personal pension scheme, or take cash as an alternative. in this package, all employees in the company are covered under Life assurance from their first they to the manufacturing industry. The organization contributes to the scheme and reviews the contribution in terms of periodic basis to make sure that such remuneration policy remains appropriate, appealing, and fair for both the company and the employees.
In case of the permanent health insurance, the company provides permanent health insurance to all their employees from the first day of their work while the health scheme is provided to employees who have been working in the company for six months.
Other alternative remuneration package that the manufacturing company may use is the Pay-for-Performance Plan. Accordingly, employee motivation and performance are influenced by an effective remuneration package. One motivational theory called Equity Theory explains that employees are motivated to perform well when they perceive that their efforts and the behaviors they show at work are rewarded with just compensation. Employees who perceive that colleagues who execute the same effort are given more compensation would react negatively and performance might be adversely affected. The organization has to address this issue by ensuring that increases in performance are matched by commensurate increases in pay.
Accordingly, this remuneration package will also consider the three important measurements which include throughput which is referred as the rate at which management system generates money through direct sales, inventory known as the money that the system has invested in purchasing essential things for the purpose of selling and the operation expense or all the money the organization spends so as to turn inventory into throughput (Goldratt & Cox, 1992
In this remuneration package, this company adopt a competitive remuneration package. Herein, the employees, specifically assigned in the plant will be given salary and other benefits. Incentive and commissions will also be given to employees depending on the financial result and individual performance and discretionary bonus as well as bonus shares will be granted to eligible employees. For instance, supervisors will be given 5% incentives of his salary if his team will perform well. On the other hand, team members will be given 5% bonus as well to ensure that they will be motivated to continue their good performance. In this regard, the company will have salary review held annually. The remuneration package that will be deployed in this company aims on improving throughput and speed of delivery and reduce inventory holding levels. In addition, the remuneration package will also help the company management operational expenses with its emphasis on zero breakdowns, zero accidents and zero rejected products.
An organization needs good-performing employees to succeed. It needs to hire people with skills, ability, and competency. These people should be able to maintain good performance during their stay in the organization and the organization has to constantly monitor employee performance to determine those who are highly skilled. After the organization is able to accomplish selection and maintenance of good-performing employees, it can now shift its focus to supplementing the employees’ skills and competencies through additional trainings. Finally, it can work on the employee motivation by encouraging the employees to use both their innate and acquired skills in the performance of their tasks in ways that contribute to organizational performance. Employee performance becomes the basis for the pay that the employee is due to receive.
The pay system is usually seen as an entitlement wherein going to work, performing well and avoidance of being fired would merit payment for the employee. Companies today, however, advance the so-called Pay-for-Performance Plan which is a movement from the entitlement-focused orientation to one that views pay as a varying factor with some measures of individual or organizational performance. It is a system of increased compensation (bonuses, incentives, privileges etc) in exchange for increased performance key to organization success. The purpose is to motivate employees to strive for excellence. This plan takes into consideration efficiency, equity, and compliance.
The pay-for-performance plan measures performance of assigned work and tasks in line with quality, employees and stakeholder satisfaction, and costs. The performance of the employee should surpass the organization’s standards in order for him or her to receive additional remuneration policies. The organization wants to remuneration policies those employees who do not only accomplish goals and contribute to effective organizational performance but also those who develop commitment to the organization’s mission.
Human beings have needs which can be classified as physiological, safety and security, social, esteem and status, and self-actualization. Hence, through this new remuneration package that will be imposed by the manufacturing company, the needs of the employees will be satisfied. If any of the needs is unmet, or unsatisfied a person, the individual can be motivated if provided with an opportunity to satisfy the unmet need or needs. The most motivating opportunities are the most valued. The most valued opportunities are those designed to provide satisfaction of the most intense unmet needs. What needs are most intense varies from individual to individual. One person’s most dominant need may be the safety and security need. If this is the case, such remuneration policies as insurance plans and retirement plans will be the most highly valued. Another person’s most dominant need may be esteem and status.
Thus, the employee will value such remuneration package.. The key is to investigate each employee’s individual need profile in order to spot the strongest needs, then to design remuneration policies tailored to those needs. Some organizations have adopted cafeteria-style reward packages that meet the objective of matching remuneration policies to individual needs by allowing the employees themselves to choose the kinds of remuneration policies they value most. These plans tend to work well as long as employees are permitted to adjust their reward packages. Over time people’s needs change, and to assure that the remuneration policies one receives are the most valued, one must have a chance to periodically alter them.
For remuneration policies to be valued, the manufacturing company must see to it that the Remuneration package includes the proper scheduling on when would be the most accurate time to give the remuneration policies. Generally remuneration policies received by an individual soon after accomplishment of a goal, or soon after attainment of a given targeted performance level, are the most valued remuneration policies and the remuneration policies that serve best to install a desire for further achievement or continued good performance, when the reward is tied to performance in time that reward is closely associated with the performance. It becomes an extension of the performance. It has real meaning because one can vividly see that it was received for performance.
Possible Impact of the New Remuneration package
It can be said that the new remuneration package that the manufacturing company will implement will have various impact for the company. One of the possible impact of this new remuneration package for the manufacturing company is in terms of motivating and encouraging their employees to render their performances to the very best they can and to make a difference individually or by group or teams. Herein, the new remuneration package will also give recognition to those employees whose works is exemplary or that employee who has contributes to outstanding achievements and accomplishments of the mission and objectives of an organization as a whole. The incentives that the company will use will be monetary or non-monetary. This remuneration package recognition goes a long way to keeping employees motivated, satisfied, and committed. It can be said that management should recognize employees for both their progress toward and achievement of desired performance goals. It should show appreciation for small accomplishment as well as big ones. In this regard, this new remuneration package will be able to monitor whether the company has been able to meet organisational objectives.
If the company would not give due remuneration to employees and just give some rewards to the manager, some conflicts will occur since members of the production team will be affected with this unfair recognition and reward policy. This will also have some management conflict which may also affect their overall production system. It does no good to just give managers end-of-year monetary bonuses without giving their members and staff that made everything possible to achieve organizational objective. The Remuneration package Policy of the manufacturing company must be matched to one’s most dominant needs to be highly valued and thus to highly motivate.
On the other hand, since employees have different tasks and responsibilities, the company should be able to provide fair and performance-based remuneration package. For instance, the bonuses and incentives given to employees who are working in line with risky and full of constrains jobs will have different remuneration package than those who are just doing some minimal tasks. The reward provided will also be tasked and performance based to avoid biasness. Although this may have an adverse effect on the motivational aspect of some employees, this may also serve as a good motivator because employees will tend to strive more to be promoted and to have a better position in the company.
With the remuneration policies, the objective is to target employees to essentially represent profit-sharing with the employees. In addition, the manufacturing company’s remuneration policies will also enable them to maintain an even-handed balance with their effective and efficient employees. In this regard, there will be no additional inputs which can be expected on the part of the employees. If these loyal employees do provide additional inputs, such as giving their job effectively and efficiently which creates good employee relations, the manufacturing company identifies such input and gives fair value for advocacy in terms of remuneration policies.
As part of the new remuneration package, the incentive program that the manufacturing company will be initiated will also have a significant impact among employees (both constraint and non-constraints workers). Herein, the remuneration policies give emphasis on giving incentives in order to cause employees behavioral changes. With this program, the manufacturing company motivates regular or potential employees to alter what the employees are presently doing.
These exchange of values moves to the balance state where both the company and the employee benefit from the new behaviors. It can be said that the new remuneration package for the manufacturing company will help in causing positive effects both for the employees as well as for the company. These are some of the ways how the manufacturing company fulfils its responsibilities to the employees.
Effectiveness
If the company would consider such remuneration package, there is a possibility of solving the issue in the company. Having this kind of reward and remuneration package will reinforce the employees to work more for the company. In addition, this remuneration package will also be beneficial for both the employees and the company, since it enables the employees to work hard and be more committed in the company while the company will have enhanced employee retention and minimise or reduce turnover rates.
This new remuneration package will enable the employees to be motivated, satisfied, and committed. Management will be able to recognize employees for both their progress toward and achievement of desired performance goals. It should show appreciation for small accomplishment as well as big ones. The recognition must be ongoing to reinforce employees’ need to feel that they’re doing a good job. The statement just justifies the saying that people become more devoted to work when they feel that their environment likes them and appreciate the things they are doing.
Recommendation
If this company are thinking of giving employees special rewards and new remuneration package it is important that the company should conduct employee satisfaction survey first to know which package should be provided with the employees. The success of remuneration packages depends on the specific situation of employees and their needs. In this regard, if the company would like to continue the reward system, they must have some list of exceptions in the reward system. In this regard, it is safer for employees to give bonuses and rewards based on the performance and not by the number of absences.
Conclusion
Regardless of the targeted employees, the organization today is attempting to become employers of choice. In order to become one, the management of the organization shall create remuneration packages where potential job candidates feel that it will be an accomplishment to earn a job with the organization, and that once they have a job, the individual’s performance will be rewarded. In this report, since the company is having problem in meeting the demands of both the customers and their employees, this new remuneration package can be helpful for this manufacturing company and for helping Alex solving such issue.
Reference
Armstrong, M. (2002) Employee Reward. London, CIPD. Marchington, M. & Wilkinson A.
Creech, R. (1995). Employee Motivation. Management Quarterly, 36(2), 33+.
Dean, J.W.; Snell, S.A. (1993). “‘Integrated Manufacturing and Job Design:The Moderating Effect of Organizational Inertia.
Goldratt, EM and Cox, J (1992). The Goal: A Process of Ongoing Improvement. North River Press; 2nd Rev edition
Gomez-Mejia, L.R.; Welbourne, T.M. (1990). “‘The Role of Compensation in The Human Resource Management Strategies of High Technology Firms’”, in M. A. Von Glinow and S. A. Mohrman (eds.), Managing Complexity in High Technology Organizations. New York: Oxford University Press.
Lawler, E.E. (1990). Strategic Pay. San Francisco: Jossey Bass.
Snell, S.A. and Dean, J.W. (1992). “‘Integrated Manufacturing and Human Resource Management: A Human Capital Perspective’”, Academy of Management Journal, 35: 467-504.
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