American International Group Finance: Reward System
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 reward system. Primarily, the goal of this paper is to provide an analysis of the current reward system of an organisation, i.e. American International Group Finance co Ltd. After which, this paper also aims on providing alternative approaches for reward system for the company and will discuss the possible impact of the new reward system, with the overall performance of an organization in setting reward system.
Overview of the Company
American International Group Finance Hong Kong is a diversified international financial services industry which is a subsidiary of the A. I. Group based in New York City. A.I. Group is best known for their Finance Products, credit card, and Insurance products. Because of the global network connections by the implementation of advances technology like the internet and information communication technology, the company has been able to provide an intensive range and reach of financial services which includes commercial banking, investment banking and market personal financial services, and other banking and financial products and services. The business philosophy of A I Group gives important to values and principles in all aspects of everyday living.
At the A I group, their aim is to help people in managing wealth. The company are trying their best to work exclusively with their employees who are seeking to capitalise their success and plan their financial futures. For the A I Group, the key to having an effective wealth management is attributed in long-term relationships established on support, comprehension, and mutual trust. In this regard, the relationship managers are able to handle small, selected groups of clients, and able to give time to fully consider their long-term desires. By integrating this with the time-honoured merits of asset allocation, the company ensures both security and peace of mind for clients. In addition, A I Group are also able to integrate long-term personal financial strategies, using their experiences in 150 years of doing business in the financial industry and an unparalleled level of investment opportunities from the America, Far East, Europe and other nations.
Analysis of the Current Reward System
Employees define reward as a recognition received through the expression of real appreciation for the work they perform. It may also a reward if they are involved in a project or receive a special training. These only emphasize that employees want to be valued for their job, treated fairly, perform important works, have advancement opportunities, and be given a chance to be involved in the agency, aside from good pay and benefits. Rewards play a substantial role in attracting and retaining employees. This kind of recognition boosts the morale in the work environment. Hence, it is exceedingly important that managers are included in the design of recognition programs considering that they communicate the agency’s objectives to the employees (Armstrong, 2002).
Accordingly, rewards must be SMART, meaning it should be sincere, meaningful, adaptable, relevant, and timely. Employees also value peer-to-peer recognition. This type of recognition helps create a supportive work environment. You should be aware that in making a program incorporating prizes, cash, or leave, not all employees will be recipients, some are non-recipients. Careful attention must be given to your objectives and determine if a certain program works well in your work agency. Trust is really important prior to the implementation of a recognition program.
In the case of A I Group, it can be said that the management give importance and motivate their employees through their reward system. The existing reward systems in the A I Group team is said to be simple. Herein, the employees must meet minimum quality standards in terms of sales and percentage of the monthly target. If the employees achieved this, they are given specified month-end bonus.
Table 1
Month-End Bonus in A I Company
Month-end Bonus
Amount
• 110% Target Monthly
• HKD1,500
• 130% Target Monthly
• HKD2,500
• 160% Target Monthly
• HKD3,500
• 200% Target Monthly
• HKD5,000
Aside from this month-end bonus, employees are also provided with Ironman bonus of 00 for the employees who have full attendance excluding Annual leave and Training which is more than or equal to 70% achievement of their monthly target. The main advantage of the current reward system of A. I. is its ability to motivate their staff and reward outstanding TSR by over-achieving target performance and increase in productivity and revenue within control budget of the company.
Although the reward system has some advantages and benefits, there are also some disadvantages for this reward system in the A. I Group. This include the low basic salary and the month end bonus not calculate in pro-rate after staff taken long annual leave
Recommended Reward System
Having been able to realize the weaknesses of the current reward system of A. I Group, this part will provide some alternative reward system that the group can be used. Designing a successful employee reward system 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 reward systems and factors that may possibly trigger employee motivation. These include: gain sharing (i.e., some kind of sharing of rewards from involvement); employee ownership; pay for knowledge (i.e., “non-traditional compensation practices that tie base wages and salaries to knowledge and skill rather than to position or the job actually performed”); group cohesiveness (i.e., “the sense of team spirit, and the willingness of its members to coordinate their efforts”); employment security; and, guaranteed individual rights (Levine, 1995). Levine (1995) further said that there are new forms of rewards systems that are particularly important nowadays, as the traditional rewards systems focus on individual achievement and the skills used at the current job and therefore may not be anymore applicable with the new forms of works and workplaces.
For the A. I. Group, the employee rewards that can be considered are the financial reward and employment security reward. Their new employee reward policy 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 rewards 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).
Because of the changing demands of performance on employees in high- velocity companies, perceptions of equity in its three forms may become confused, as job roles and job interdependence become more varied and flexible. Since employees would expect that as their job changes, so will their rewards, designing reward systems in high-velocity environments presents a major challenge to organizations. In high-velocity environments such as the A. I Group, a premium is placed on individuals who are able to operate in ambiguous circumstances and who are able to take advantage of loose job descriptions provided by their employers. Organizations in high-velocity environments are willing to pay proportionally higher salaries to individuals who have such skills. We would expect, therefore, that emphasis on individually equitable rewards as a means of recruiting and retaining highly capable employees would be required (Gomez-Mejia and Welbourne 1990; Snell and Dean 1992).
Employee Rewards Policy amended by the A. I. Group can be classified under three broad headings: performance-contingent rewards, which explicitly reward through performance outputs; job-contingent rewards, where pay is contingent on job classification; and person-contingent rewards, 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 rewards, which may encourage the values of learning, flexibility, and creativity, would seem to be best suited to fast-changing conditions. In addition, Employee Reward Policy 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 rewards to the longer-term view (Hambrick & Snow, 1989). In describing the strongest level of linkage the emphasis has been placed on Lawler’s (1990) description of reward processes which are capable of reinforcing the behaviours crucial to business strategy like long-term versus short-term, employees focus versus financial results.
Other alternative reward system that the A. I. Group may use is the Pay-for-Performance Plan. Accordingly, employee motivation and performance are influenced by an effective reward system. Designing a successful employee reward system 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. 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.
As discussed above, employee performance is critical to the reward system. An organization can not reward performance if it does not have a mechanism for measuring it. Employee performance (f) is said to be dependent on three general factors: (1) skills and ability to perform task (S); (2) knowledge of facts, rules, principles, and procedures (K); and (3) motivation to perform (M). 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 rewards. The organization wants to rewards 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 reward system that will be imposed by A. I. Group, 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 rewards 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 rewards as praise, promotion, and write-ups in the company newsletter. The key is to investigate each employee’s individual need profile in order to spot the strongest needs, then to design rewards tailored to those needs. Some organizations have adopted cafeteria-style reward packages that meet the objective of matching rewards to individual needs by allowing the employees themselves to choose the kinds of rewards 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 rewards one receives are the most valued, one must have a chance to periodically alter them.
For rewards to be valued, the A. I. Group must see to it that the Employee Reward System includes the proper scheduling on when would be the most accurate time to give the rewards. Generally rewards received by an individual soon after accomplishment of a goal, or soon after attainment of a given targeted performance level, are the most valued rewards and the rewards 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 Reward System
It can be said that the new reward system that A. I. Group will implement will have various impact for the company. One of the possible impact of this new reward system for A. I. Group 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 reward system 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 reward system 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 reward system will be able to monitor whether the company has been able to meet organisational objectives.
A management cannot motivate employees with promotions if their most intense needs are social or if they do not want promotions. It does no good to promise employees end-of-year monetary bonuses if they happen to already be very well- to-do financially (perhaps from an inheritance or the like). Rewards not matched to wants and needs are not valued. Hence, the Employee Rewards Policy of the American express bank must be matched to one’s most dominant needs to be highly valued and thus to highly motivate.
With the reward program, the objective is to target employees to essentially represent profit-sharing with the employees. In addition, American Express Bank’s reward program 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, A. I. Group identifies such input and gives fair value for advocacy in terms of rewards.
As part of the new reward system, the incentive program that A. I. Group will be initiated will also have a significant impact as the reward programs. Herein, the reward program gives emphasis on giving incentives in order to cause employees behavioral changes. With this program, A. I. Group 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 reward system for A. I. Group will help in causing positive effects both for the employees as well as for the company. These are some of the ways how A. I. Group fulfils its responsibilities to the employees.
The new reward system can 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.
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 A. I. Group shall create an Employee reward system 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. It is said that there are different alternatives that A. I. Group can use as their new reward system, what ever this is; the management must make sure that this new reward system will be able to meet the needs of both the employee and the company to ensure competitive advantage.
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