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The question of how to reap the benefits from providing rewards to employees and how to “make them tick” belong to the most delicate and strategically important issues that organizations need to deal with. “In whatever way a performance management system attaches rewards to performance, it has an impact on the entire relationship. It is not, then, just a narrow question of motivation, but its effect on the culture of the organisation and its sub-cultures” (Hendry at al. 2000 cited in Bento and Ferreira, 1992). Thus, performance related pay (hereinafter referred to as “PRP”), can have either positive or detrimental effects on employee motivation and on individual and organizational performance, depending on a given context.

To date, a vast body of literature on compensation has been developed that explores how to motivate, attract and retain employees. More case studies dealing with this subject in different contexts of public and private sectors would definitely be welcome. When observing opposing views on this issue, some authors see PRP as “panacea” that cures all workforce problems, others think it is destructive, discriminatory, can motivate counterproductive behaviours, create a climate of mistrust etc. Baron (1999: 245) recognizes the complexity of its implementation and defines PRP as “a delicate set of motivational tools that can be powerfully effective in one setting and utterly dysfunctional in another”.

Positive aspects of PRP

Milkovich and Wigdor (1991: 58) believe that “because there is a solid rationale [psychological and economic theories] behind merit pay, and because it is possible to put it into practice, merit pay may be desirable for many organizations”. These theories suggest that linking pay to performance should have a positive incentive effect on performance.

One example where PRP has demonstrated beneficial effects is Safelite Glass with its piece-rate system. (Baron 1999: 243-44, 271-75) The reason why PRP worked so well for this company is that, according to five-factor analysis, all appropriate conditions were met (simple technology; no ambiguity in the task; easy to monitor; well-suited and non-diverse workforce; value placed on individual effort – rewards for hard work and/or skill, the economic environment supportive of low-cost strategies). When Stanford economist Ed Lazear studied Safelite, he found that there was a 44% increase in the number of pieces installed per day per worker (Pfeffer 2006). The reason for this was that individual employees worked more; furthermore, the company managed to retain and attract better employees and get rid of the least productive people by creating wider gaps between best and worst performers with variable incentives.

Another successful example of the implementation of piece-rate incentive is Lincoln Electric. An employee incentive programme was implemented to gain competitive advantage. Production workers are paid according to the number of pieces they produce, they also get a year-end bonus based on their performance – their base pay is increased by an average of 75%, and they are evaluated twice a year (Kleiman 2004). LE also provides stock options. Additionally, Milkovich and Newman (2008: 260) mention that the employees think “part of the success comes from other forms of reward, including the strong commitment to job security”. Unfortunately, the company did not take into account any alternative scenarios. When it experienced lean times because of some unsound management decisions, it decided to omit the bonus since it was tied to the company’s earnings. Workers felt that something they are entitled to was taken away from them.

What about negative effects of PRP?

One of the “loudest” opponents of PRP, Alfie Kohn, specifies five core reasons why rewards fail: they punish (“carrots” and “sticks” both contain an element of control), rupture relationships (cause rivalry, suspicion, hostility), ignore reasons, discourage risk-taking (knowing exactly what is necessary to receive a reward) and they undermine interest (extrinsic rewards weaken intrinsic motivation). In his opinion, rewards have “a peculiarly detrimental effect on the quality of our performance” (Kohn, 1993: 49). Though, it has to be mentioned that he is not against payment in general; he is against turning payment into a reward for better performance. In his opinion, people then forget about their job and only concentrate on the reward. Another important point is that employees can be offended if they are treated like pets, especially if they feel strongly about their job (e.g. teachers, nurses), and this also has a negative effect on their performance.

One example that highlights the negative effects of PRP can be seen in the case of consultants in the NHS. According to the NHS paper, this is an especially sensitive area of PRP implementation since in the medical field, pay often relies on things unrelated to clinical performance such as rational prescribing, meeting waiting lists targets etc., whereby patients’ welfare may become neglected.  In addition (according to Abel and Esmail 2006: 1), a significant number of consultants feel discriminated against on the basis of race, gender, speciality and degree of management contribution (above all, women and non-white consultants). “Where there is doubt about the fairness [of awards], performance related pay may be divisive and de-motivating” (Boyce et al. in Abel and Esmail 2006: 5). The issue of fairness (in relation to distributive and procedural justice) is extremely important and has been widely discussed in the literature on rewards. Another important issue are appraisal systems.  “Without proper appraisal mechanisms, PRP systems fail, and often achieve the exact opposite of what their proponents claim for them – namely the creation of resentment, ill-feeling and demotivation of the workforce” (Abel and Esmail 2006: 5). The NHS paper concludes, “a much deeper problem with the current NHS scheme is that it is still attempting to assess and reward individual performance, when the NHS and many private sector workplaces rely on the activities of teams”.

Another case study (Marsden and Richardson 1994), that has shown that PRP did not have a significant positive motivational impact on employees (12% said it did have, 76% said it did not have), describes the introduction of the PRP scheme into the Inland Revenue in 1988, and the opinions of the reporting officers confirmed this result. However, a demotivating element seems to be present there, since a certain minority of employees was strongly against PRP, possibly because of the feeling of unfairness and favouritism. Additionally, a significant percentage of workers agreed that the scheme undermined morale, caused jealousies among them and made them less willing to help one another. The reason for motivational failure was ascribed to the fact that not all conditions of expectancy theory were met (employees must feel able to change their behaviour, they must be sure that this change would bring the reward, they must value the reward enough to justify the change). Among other findings it is mentioned that the amount awarded is less important than the way it is allocated. The PRP scheme was also deemed responsible for undermining the established appraisal system because it had a corrosive effect on relationships between employees. The second theory, also mentioned in the study, that could assist in understanding the motivational response of the Inland Revenue workers is the goal-setting theory, which “predicts improved performance if goals are set more clearly, as long as the goals are agreed and believed to be achievable” (Marsden and Richardson, 1994: 256). The surprising fact was that the management still thought of its strategy to be successful because they were only considering financial savings and ignoring non-material costs. According to updated information (Marsden et al. 2001), Inland Revenue has made significant changes in the appraisal system, moving away from evaluation against a standard uniform set of criteria towards individual objectives harmonised with general organisational objectives.

A newer case study from 2001 based on the first large scale survey of ordinary employees conducted to establish the effects of PRP on employee motivation and work relations across the British public services and on workplace performance (Marsden et al. 2001) has shown that above-average PRP has an incentive effect for significant numbers of employees, however, it can be diminished by measurement difficulties and unfair performance evaluation. One of the most important conclusions of the study was that, for ordinary employees, PRP is not as important as goal setting and appraisal. Even more, it has been established that the way employees are divided between different performance grades by means of appraisal and goal setting is crucial for the success of PRP. Improved goal setting may help to clarify work goals on the one hand and enable management to negotiate higher levels of performance on the other. Another thing worth mentioning here is organisational commitment. It can seemingly stabilise some negative effects of poorly conducted appraisals and boost confidence in incentives, at least temporarily.

Several studies have concluded that the impact of PRP on performance is limited or even negative. Its impact on motivation is not clear – it seems to motivate a minority, but fails to motivate a majority (Inland Revenue, 1994). The question is why PRP continues to be introduced, if it has so many negative effects? The OECD research of PRP for government employees (Landel and Marsden 2005) recognizes one of the key reasons: it is because of its role in facilitating other organisational changes such as effective appraisal and goal setting, clarification of tasks, acquisition of skills, improved employee-manager dialogue, more team work and increased flexibility in work performance. Purely financial rewards may have a demotivational effect. Armstrong (1993: 151) suggests “The mix of financial and non-financial rewards [that] can only be achieved by the careful and continuous analysis of the circumstances of the organization and the needs of its members”. Hence the real value of PRP in improving performance is not in its financial element but rather in its secondary effects.

Conclusion

The issue of rewards is very delicate and complex, and there is no best recipe for the implementation of PRP; however, its effects can be used as an incentive means for the implementation of wider management and organisational change. Changes always involve risk-taking and a fair amount of investment at all levels. Nevertheless, blind risk-taking and overuse of financial incentives is senseless and can cost companies dearly. A mere adoption of a certain pay-for-performance plan/reward management plan will not bring desired results, unless “the changes make sense within the total pay system, the personnel system, and the broader organizational context” (Milkovich, Wigdor 1991: 101). A pay system should also not be considered as something fixed; organizations should form them in such a way that it can adapt to the challenges of a constantly changing business environment at any given moment. To sum up: where performance relies on the activity of teams, teams should be assessed and rewarded rather than individuals; goal-setting and appraisal are more important than PRP; the real value of PRP is in its secondary effects.

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Conflicts are an inevitable part of any relationship. In general, it is believed that conflict is something bad, destructive, it is blamed for causing disagreements, arguments, divorces, violence etc., and thus it is assumed that it should be avoided at all costs. However, we will aim to shed the light on both sides of the coin arguing that conflict can exert positive effects on relationships under certain circumstances – and if managed properly.

“One of the most outstanding aspects of conflict is that it is practically intrinsic to the life and dynamics of teams” (Medina 2005: 219). Generally, “conflict is a process in which one party perceives that its interests are being opposed or negatively affected by another party”, and a tentative agreement has been reached on the definition of “the other party” stating that it is “blocking the party’s interest(s) or goal(s)” (Wall et al. 1995: 517). Conflict theorists tend to write about two types of conflict: task conflict (also C-type conflict, cognitive conflict, task-focused conflict), which is usually perceived as positive, and relationship conflict (or A-type conflict, affect conflict), which is considered negative.

Effective teams learn to take advantage of the diversity of their members and of their capabilities (Amason et al. 1995: 25). Most effective teams take into account the two types of conflicts. Such teams can develop abilities or attributes that are essential for team effectiveness: focused activity (concentrating on the core issue), creativity, integration (fullest possible use of all team members), open communication. According to Amason et al. (1995), conflict is “a learning process” through which team members begin to understand what is the purpose of a decision and what role are they going to have in it.

Jehn and Mannix (2001) associated higher group performance with a particular pattern of conflict. In effective teams they found low (but increasing) levels of process conflict, low levels of relationship conflict (which increased with approaching project deadlines), and moderate levels of task conflict at the midpoint of the process. Findings of the research show that conflict must be observed as a dynamic process.

Researchers used to pay attention merely to negative effects of conflict, whereas nowadays they also started to look into advantageous effects on team performance. Many studies that established positive effects of task conflict on performance at the same time found negative effects of task conflict on the satisfaction of team members (Jehn 1995).

Most conflicts react positively to attempts to manage them. The team leader can use a combination of different strategies to build a supporting culture. Amason (1995) suggests that the leader can disseminate a full meeting agenda early (also discuss less controversial items first), state the philosophy for the team and backup that philosophy, provide the right environment for the meeting (e.g. seating arrangement can be assigned in advance, round tables), have behavioural strategies to run the meeting in mind before the meeting begins (the leader should exhibit and foster openness and cooperativeness), keep a sense of where the discussions are going, channel discussion from relationship conflict toward task conflict (the group must stay focused on positive aspects), support the team (“us”-mentality), be proactive and reactive, not passive.

Wall et al. (1995: 518) mentions the following causes of conflict: individual characteristics, interpersonal factors, communication, behaviour, structure, previous interactions and issues. Research has shown that effective teams have high levels of task conflict and norms promoting open discussion of task issues. Relationship conflict was always detrimental, no matter which type of task the group was performing. The author also offers some suggestions for managing conflicts (1995: 549): conflict should not be allowed to accumulate, it is better to avoid conflict from the beginning than manage it later, however, sometimes conflicts cannot be avoided and must be addressed. If the issues can be identified, they should be transformed into a manageable set, and they should be approached pragmatically.

Conflict management is extremely important in today’s world. E.g., the study conducted by Medina (2005:256) demonstrates that conflict is a multi-layer phenomenon and that can be “interpersonal or task-focused, destructive or productive, and can be managed, ignored, or barely tolerated”. Organizations that seek to be successful in this ever-changing business environment, should carefully consider in what way they want to take care of this issue; namely improper management could cost them dearly. Here we have been able to observe how complex, multi-dimensional and dynamic conflict in fact is. That makes management even harder. Therefore it is essential that managers/team leaders have proper knowledge and techniques to be able to handle conflict in the right way. Organizations should invest significantly in their training in order to prevent unnecessary mistakes.

To sum up, most studies found that relationship conflict has a negative effect on team performance and satisfaction, whereas opinions on task conflict varied. Most researchers think that it is generally beneficial, or that it can elicit negative responses under certain circumstances – apart from one study that found both types of conflict equally disruptive. Further research should be encouraged to identify specific circumstances under which task conflict improves team performance.

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The entrance of emotion into considerations of work and organisations has occurred alongside other significant developments concerning the expansion of the service sector, growing competition among service providers, significant proportion of manufacturing jobs that rely heavily on contacts with customers and outside suppliers, the ‘feminisation’ of local labour markets and increased recognition which has been given to customer relations as a vital part of competitiveness. This has led to a greater need to focus on the expression of desired emotions in the service and other encounters and has placed emotional labour at the forefront. These debates have raised complex issues concerning the identity of emotional labourers, the ways in which emotional labour and emotion work is performed and how it is bought and sold in the market. In other words, these themes relate in different ways to the identity, performance and commodification of emotional labour. According to Hochschild (1983), emotional labour (hereinafter: EL) is the expression of organisationally desired emotions. Emotional labor may involve enhancing, faking, or suppressing emotions to modify the emotional expression (Grandey, 2000).

Dimensions of EL

Morris & Feldman (1996) conceptualized EL in terms of 4 dimensions: frequency of appropriate emotional display, attentiveness to required display rules, variety of emotions to be displayed and emotional dissonance (generated by having to express organizationally desired emotions not genuinely felt).

Frequency of appropriate emotional display refers to the fact that stakeholders are more likely to do business with the organization, when the bonds of liking, trust and respect have been established through employee behaviour. Additionally, the more often a work role requires socially appropriate emotional displays, the greater organization’s demands for regulated displays of emotions. The second dimension of EL is attentiveness to required display rules. More attentiveness to required display rules demands more psychological energy and effort, and consequently more EL. Duration and intensity of emotional display are positively correlated. Longer interactions with clients lead to higher levels of burnout (e.g. long-haul passenger flights). Intensity of ED determines whether clients change their behaviour during service interactions (deep acting vs. surface acting – Hochschild). Thirdly, the greater is the variety of emotions to be displayed, the greater the amount of EL is expected. Middleton (1989) defines emotional dissonance as a conflict between genuinely felt emotions and emotions that are required to be displayed in organizations.

Outcomes

Emotional labour may exert positive and negative outcomes. Ashforth and Humphrey (1993) suggest that it may facilitate task effectiveness (by regulating interaction and removing personal problems) and self-expression (allowing oneself  to “act out”). On the other hand, it may give rise to expectations of good service that cannot be met, trigger emotive dissonance and impair one’s sense of authentic self (the so-called self-alienation).  Hochschild also mentions drug and alcohol abuse, absenteeism and eventual alienation from one’s genuine feelings. Adelman (1989) states that jobs requiring high amounts of EL are reported to result in significantly lower job satisfaction, lower self-esteem, poorer health and more depressive symptoms. Erickson (1991) indicates that the effect of EL on well-being depends on job autonomy (the greater autonomy, the lower the negative effects of EL).

Thus, organisations should provide adequate support to their employees in order to prevent burnout, withdrawal and negative work attitudes and at the same time boost their work performance. At an organisational level, the aim is to provide employees with means to help them cope with effects of stressful conditions (if/when they face them), e.g. through employee assistance programmes. Another way of dealing with this is reactive, by redesigning of working environment to reduce or get rid of stressors. Employees themselves may tackle this issue by using stress management techniques or by changing their working environment.

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We all know, the world of work is changing in the 24/7 society; customers expect service at times that suit them. More and more people have to juggle responsibilities at home and in the workplace. The reasons why work-to-life balance (hereinafter: W-L balance) has become an issue of great concern can be found in the following most obvious facts: more working women – an increasing number of couples depend on both partners earning (there is less than 15% of “traditional family structures” – Veiga 2004), increase in lone parenting (it will reach 25% by 2010 in the UK), ageing population and the overall population changes (several millions people need to take care of the elderly), increase in working hours, technological advances (continuous accessibility; one in three partners say it affects their personal life) etc.

W-L conflict is a type of inter-role conflict where demands of the work roles and demands of the non-work roles are mutually incompatible (Parasuraman & Greenhaus, 1997).

How Can Organisations Help?

Organisations can use numerous different strategies to help their employees maintain their W-L balance such as time-based strategies (flexible work schedules), information-based strategies (seminars), financial assistance (vouchers), direct services (on-site facilities) (Sutton et al).

The CIPD offers several brilliant ideas to consider: extended leave and other off-work arrangements (sabbaticals, study leave etc.), increasing levels of support (employee assistance programmes, childcare loans/allowances, workplace-based crèches, medical centre …) and encouraging wellness to improve health (health screening, on-site exercise facilities, fitness tickets etc.).

Most certainly, employers need to be increasingly open and creative in their employment practices. If they are not, they will neither attract nor keep the people and skills they need.

Business Cases Illustrating Benefits for Employers

Lambert’s study (2000) proved that the more useful employees find W-L policies, the more likely they will demonstrate high organisational citizenship behaviour (OCB). According to Organ (1988), OCB is defined as “individual behavior that is discretionary, not directly or explicitly recognized by the formal reward system, and in the aggregate promotes the efficient and effective functioning of the organization”. In accordance with the Social Exchange Theory and the Norm of Reciprocity, if employers treat employees well, employees will feel the need to compensate by engaging in OCB behaviours.

British Telecom, for example, found that after introducing flexible working, they get more flexible workforce, employees are happier and more responsive, retention is improved (98% of women return to BT from their maternity leave), absenteeism is reduced, productivity is increased (they noticed an increase of 15-31%), customers are happier (easier to serve their needs 24/7), costs are reduced (office-based workers are more expensive), and improved retention saves £5m a year on recruitment and induction.

Another example is Lloyds TSB where an online job-sharing website has helped to transform the bank’s traditional long hours culture, enabling managers to focus on individual productivity not the hours spent at the workplace. Seniority is no longer seen as a barrier to flexible working, and flexible working is no longer seen as being reserved only for mothers.

A possible policy agenda for the future could begin by recognising that all conceptions of human flourishing depend on health as a primary good and that work can have a positive or negative impact on health.

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Even when adequate protective legislation exists, states may fail to ensure employer compliance and respect for labour standards. There has been a significant decline in the political acceptability of strong institutional standards. 1980s experienced the rise of certain features: market deregulation, neo-liberal policy, restrictions on collective bargaining, e.g. governments were coming to power that invalidated the labour standards that previous governments had ratified – UK Conservative government in power between 1989-1997 (Pearson and Seyfang, 2001). There are problems with the ILO’s effectiveness, and ILO violations are widespread. There has also been a significant growth in the number of trans-national companies (TNCs). The enforcement of labour standards has been weak. Response by many companies to increasing challenges regarding global labour practices has been to create voluntary codes of conduct (Radin, 2004).

Corporate codes are voluntary codes (not required by law), they are undertaken by corporations and they apply to employees of a particular company rather than a whole country. In contrast, ILO conventions are binding, they are undertaken by nation states, and they apply to all citizens/workers. ILO member states must respect the principles underlying the four core labour standards (CLS) – right to collective bargaining & freedom of association, freedom from forced/compulsory labour, freedom from exploitative child labour and equality of opportunity.

CSR is a “softer” voluntary approach to business regulation which attempts to improve aspects of company performance that relate to social and sustainable development and human rights (Utting, 2005). These ‘softer’ approaches are designed by business interests and non-governmental organisations (NGOs), and are often couched in discourse that proclaims their superiority in relation to legalistic, “harder”approaches.

PR exercise is one dimension of CSR, but there are many more other motives that encourage companies to ratify voluntary corporate codes (Pearson and Seyfang, 2001).

First of all, consumer campaigns supporting workers’ rights motivate companies to show a more social dimension of their labour practices. One such example was that of Nike when a magazine published a picture of a 12-year-old boy stitching a ball. Initially, Nike refused to take responsibility for the actions of its suppliers, but then it started taking action in 1992 by formulating a Code of Conduct (Locke, 2004). An additional argument for companies to introduce corporate codes was a study that has shown the following: where there is a collaborative process between a global firm and a contractor, there can be improvement of labor standards, worker’s well being and enhanced workplace performance, which is beneficial for all participants of the process (e.g. Frenkel & Duncan’s study, 2002, comparing two Adidas contractors). Employees are motivated by improving wages and working conditions, and by introducing uniform rules. Thirdly, corporate codes are seen as a way of formalizing, encouraging, and guiding employee behavior. They imply the importance of maintaining a good reputation and in creating or maintaining trust with stakeholders. If they want to survive in today’s globalised market, they need to work hard on preserving a reputable public image (Bondy et al, 2004), or else the customers will spend their money elsewhere.

And last but not least in the line of arguments, research suggests that corporate codes may be used primarily for self-regulation, and not necessarily for CSR. Codes of conduct as they are currently used may in fact represent more of a desire to control the actions of groups within and outside the corporation for risk management purposes and not an attempt to become more environmentally, economically, and socially responsible (Bondy et al, 2004).

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