Incentivise Employees and Reduce Labour Turnover free essay sample

To investigate to what extent Accenture can tailor its remuneration package to staff in order to reduce labour turnover and incentivise key employees. 1. 2 Research Objectives In order to answer this aim, the following research objectives have been set: †¢ To understanding the main theories governing reward management, including understanding how reward management can influence retention and work motivation. †¢ To understand key aspects of the reward management processes, including assessing job size and relativities, grade and pay structure, performance management, contingent pay, and employee pensions and benefits. To understand the reward management process and its affect on retention and work motivation. †¢ To assess the various remuneration packages offered within Accenture to its employees and their fit within the competitive landscape within which the company competes, as well as the resources that it can draw on internally. †¢ To analyse the extent to whic h Accenture’s remuneration packages help it to reduce labour turnover and improve employee engagement, addressing its strategic objectives. We will write a custom essay sample on Incentivise Employees and Reduce Labour Turnover or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Chapter Two – Literature Review The aim of this chapter is to set out the main theories governing reward management. In particular, focus is placed on the links between corporate strategy, HR strategy and reward strategy, which guide the type of remuneration package that would be most effective within a particular firm. The importance of the employment relationship is then discussed, including the damage that volition of the psychological contract can cause in terms of labour turnover and de-motivation. Finally, financial and non-financial ewards are discussed in order to separate the intrinsic and extrinsic motivators that are essential in incentivising key employees. 2. 1 Reward Management â€Å"Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization. It deals with the design, implementation and maintenance of reward processes and practices that are geared to t he improvement of organizational, team and individual performance† (Armstrong and Murlis, 2004: 3) With such overarching goals, it is perhaps no surprise that reward management is strategic in nature, affecting the long-term prosperity of the firm. The concept of reward management can be seen to have developed from a number of key proponents. These include Lawler (1990, 2003), Schuster and Zingheim (1992) and Flannery et al. (1996). Lawler (1990, 2003) helped to develop the idea of strategic pay, the notion that reward policies need to be tied into the firm’s business strategy, goals, values and culture. Employees are rewarded for practicing specific behaviours that are favoured by the firm. As these become institutionalised, the firm achieves a greater fit between its business strategy and reward strategy, which enables it to more closely meet customer needs. A key element of this involves creating a virtuous spiral for both employee and employer: â€Å"It is entirely possible to design a reward system that motivates people to work and satisfies them while at the same time contributing to organizational effectiveness† (Armstrong and Murlis, 2004: 5). Schuster and Zingheim (1992) went on to develop this concept of new pay, highlighting some of its fundamental principles. This included the idea of a total compensation program, which tied business strategy with reward strategy in order to reinforcing specific organisation behaviours. Pay was considered to be a lever that could help organisations to embrace change; in this sense, it was a positive force for change. The concept of pay became less static with the introduction of risk-based pay; the idea that pay should be variable depending on performance. At the same time, the individual was no longer the focus of pay, as team-based pay became another important mechanism for guiding organisational performance. Finally, pay became an employee relations issues; employees were no longer simply the target of pay, but became involved in devising the reward culture, the values of the organisation, its culture, and the reward systems that should be put in place accordingly. Finally, Flannery et al. (1996) were influential in developing the concept of dynamic pay although many of their nine compensation (rather than pay, per se) principles should be aligned with the organisation’s strategy, culture and values. However, they emphasised the need to tailor compensation and pay in a more focused manner. Compensation was to be linked to other changes that were planned in the organisation; it should be integrated with other people processes, as well as democratized and demystified. Its effectiveness should be measured and then the reward strategy should be refined and re-refined as appropriate. This new, strategic pay brought with it greater complexity to the practice of reward management: â€Å"It is simply no longer possible to create a set of rewards that is universally appealing to all employees or to address a series of complex business issues through a single set of solutions† (O’Neal, 1998). Nonetheless, reward management had become not so much a necessary evil, but something that an organisation could not do without, bringing with it both positive and mitigating benefits: â€Å"Pay and formal reward policies are one of the most tangible symbols of a company’s culture and employment offering and are inextricably interwoven with them. Therefore they are critical to demonstrating that the employer is delivering on its side of the employment bargain† (Brown, 2001). Therefore, in order to investigate to how Accenture can tailor its remuneration package to improve its employees motivation, as well as reduce labour turnover, it is necessary to understand the different components of reward management and the effect (positive and negative) when these components combine. The principal components of reward management include are set out in the diagram overleaf. These components will act as a framework for the literature review. Figure 1:The Components of Reward Management Source:Armstrong and Murlis (2004) 2. 2 Business / HR Strategy Firms are operating in increasingly unpredictable environments. Despite this, much of strategic management has focused on linear, unidirectional methods and models that suggested that: â€Å"Organisations are systems in which there are clear-cut connections between cause and effect†¦(which) are assumed to generate behaviour that is predictable in principle and that keeps an organisation in a state of dynamic equilibrium in which it is adapted to its environment†¦(thus making it) possible in principle to predict long-term outcomes† (Stacey, 1993: 99, 100). Authors including Peters and Waterman (1982), Porter (1980, 1985), and Burns and Stalker (1994) have all highlighted the ideal of organisation’s operating in a state of stable equilibrium, where success involves harmony, consistency, stability and regularity (Stacey, 1993). However, whilst strategy-making has moved through the one best way method, contingency approaches and those based on the principals of configuration, these have all embraced this unquestioned assumption. Part of the problem is that such wisdom places strategic fit at the centre of the organisation’s thinking ignoring the complexity that organisation’s actually face in practice. Indeed, authors such as Hamel and Prahalad (1989), Miller (1990) and Pascale (1990) have empirically questioned such thinking. Today, the realities of organisational life suggest a different picture from the conventional wisdom: â€Å"Successful organisations operate in states of bounded instability, using ositive and negative feedback to create complex new patterns of behaviour – innovations and new strategic directions†¦(and so) face reasonably predictable short-term futures but totally unknowable long-term ones†¦(which) requires us to review carefully what we mean by decision-making and control, and how we practice both† (Stacey, 1993: 246). This means that organisation’s face a whole host of change situations, which Stacey (1993) characterises as closed , contai ned and open-ended . It also has had a considerable impact on strategic decision-making, which is vital in guiding both corporate strategy and other interlinked strategies, such as HR strategy, reward strategy and so forth. The prescriptive approach to strategy, as indicative of the work of Porter’s (1980, 1985) positioning school of strategic management, suggested that the aim of strategic management was to: â€Å"establish a profitable and sustainable position against the forces the determine industry competition† (Porter, 1985: 1). Broadly, this involved firms analysing the competitive nature of their external environment using an analysis tool such as Porter’s five forces and then positioning the firm to capitalise on one of three generic strategies: low cost, differentiation or focus. However, a number of studies highlighted the limitations of such thinking; that the firm’s external environment is the determinant of firm profitability (Schmalensee, 1985; Rumelt, 1991; Hawawini et al. , 2000). Rather, research exposed the reality that the internal resources of the firm, as well as its relationships with other firms, had a significant impact on firm profitability. These became known as the resource-based view (Teece et al. , 1997) and relational-based view (Dyer and Singh, 1998) of the firm. The resource-based view suggested that competitive advantage was determined by a firm’s ability to: â€Å"accumulate resources and capabilities that are rare, valuable, non-substitutable and difficult to imitate† (Dyer and Singh, 1998: 660). This was a more inside out view that saw a firm’s core competences (Barton, 1995) and unique resources (Teece et al. , 1997) and the drivers of a firm’s strategic decision-making. In a way, the relational-based view built on the resource-based view by suggested that relationships with other firms, which helped to combine firms’ resources across organisational boundaries, would also guide strategy making. These two views of strategic management, the external Porterian view and internal view supported by Barney (1991) and others are important because they inform the choice and perspective taken towards HR strategy within the firm, which inevitably guides reward strategy. This is because strategic human resource management (SHRM) can play a very different role across firms. Hydd and Oppenheim (1990) characterise these differences along a proactive-reactive continuum. The reactive view of SHRM fits with the Porterian view of strategy and the matching model of SHRM. Here, the role that HRM plays within the firm is merely ensuring the employees fit with the firm’s generic strategy. It simply responds to strategic decisions already made, matching an organisation’s five Ps: its philosophy, policies, programs, practices and process and prevent potential: â€Å"role conflict and ambiguity that can interfere with individual performance and organisational effectiveness† (Schuler, 1989: 164). The proactive view of SHRM, on the other hand, which follows the resource-based view of SHRM, is tied to the resource-based view of the firm. Under this view, SHRM has a much more influential role in the strategy process, informing it at all levels. Here, the firm recognises the importance of its human capital and the need to devise ways that HR strategy can leverage this and convert it into intellectual capital, which is of such value to the firm. Indeed, Lei et al. (1996) emphasis how the tacit knowledge of employees: â€Å"can form the basis of competitive advantage. † In really, both the external and interview view of strategic management have their merits. Firms must be able to inform their strategic decision making according to the context of their external environment, but the long-term success of the firm depends on the firm’s ability to leverage its unique resources. As such, this dissertation adopts both perspectives. The external view will be employed in the analysis chapter later to help highlight the context of Accenture’s external environment. However, the interview view will guide the perspective this dissertation adopts towards SHRM, as well as reward strategy. On this basis, the next section highlights the essence of strategic reward. 2. 3 Strategic Reward â€Å"Strategic reward management is the process of looking ahead at what an organization needs to do about its reward policies and practices in the middle or relatively distant future. It is concern with the broader business issues the organization is facing and the general direction in which reward management must go to provide help in dealing with these issues in order to achieve longer-term business goals† (Armstrong and Murlis, 2004: 29). Reward strategy thereby supports and helps to inform corporate and HR strategy. It is important for a number of reasons: First, an organisation must have a clear sense of its future direction or at least some idea of how you are going to get there. According to Kotter (1996), for example, a key role of leaders is to set direction and align employees. Second, the biggest expense for a firm is inevitably its employees, with pay being the most significant pay of this cost. As such, the management of pay can not only have a positive motivational force, but also a detrimental impact on performance and a firm’s cost structure is poorly designed. Third, rewards do have a positive impact on performance where used properly and help leaders in their third role of motivating employees (Kotter, 1999). Finally, it is argued by Cox and Purcell (1998) that reward strategy’s real benefit rests with the blueprint is provides in linking different human resource management policies and practices together, as well as more broadly linking these with other mutually supportive strategies across the firm. Despite the obvious benefit of strategic reward and the need to align it will corporate and HR strategy, the complexities of organisation life make this more difficult that one might anticipate. According to the early school of strategic management, the design and planning schools (and to some extent the positioning school), strategy making was quite a rational process with leaders at the apex of the organisation dictating the future direction of the firm and devising blueprints that the firm should follow to enact them. However, with the greater complexity firms faced in their competitive environment, as indicated by Stacey (1993) above, together with the introduction of a more internal view of the firm (Barney, 1991), it became more realistic to see strategy making as an inherently irrational process. Certainly, Hendry and Pettigrew (1986) question the extent to which rational HR strategies and blueprints can be drawn up if these are based on an already irrational process. Strategic fit may not only be difficult to attain, but as indicated by the changing nature of strategy, it may no longer be that desirable. As Collins and Porras (1999) suggest of great, visionary companies that have lasted the test of time, a key element of their success lies with preserving the core whilst stimulating progress. As such, it is important to maintain some fit, some resemblance of the status quo, what the firms does well, but it is equally vital to stretch the organisation strategic to set it up for a changing future. Even at the level of reward strategy itself, there are many barriers to implementing an effective strategy. Armstrong and Murlis (2004) argue that: â€Å"There is always a danger of reward strategy promising much but achieving little. The rhetoric contained in the guiding principles may not turn into reality. Espoused values may not become values-in-use the things that are meant to happen may not happen. Reward strategy can too easily be unrealistic. It may appear to offer something worthwhile but the resources (money, people and time) and capability to make it happen are not available. It may include processes such as performance management that only work if line managers want to make them work and are capable of making them work. It may be met by total opposition from the trade unions† (31). Furthermore, reward strategy plays a guiding role in balancing the transactional and relational aspects of the employment relationship through developing a total reward approach: The total reward concept emphasizes the importance of considering all aspects of reward as an integrated and coherent whole. Each of the elements of total reward, namely base pay, pay contingent on performance, competence or contribution, employee benefits and non-financial rewards, which include intrinsic rewards from the employment environment and the work itself, are linked together. A total reward approach is holistic; reliance is not placed on one or two reward mechanisms or levers operating in isolation. Account is taken of all the ways in which people can be rewarded and obtain satisfaction through their work† (Armstrong and Murlis, 2004: 11). The employment relationship will be discussed in more detail in the section to follow, as will its transactional and relational aspects in subsequent sections, but it is worth noting as this stage that if Accenture is to appropriately tailor its remuneration package to labour turnover and incentivise key employees, it must devise a reward strategy that provides an effective balance of transactional and relational rewards that fit with the psychological contract it has with its employees. This psychological contract is the essence of the employment relationship between a firm and its employees and forms the basis of the next section. 2. 4 The Employment Relationship Contractual relationships have been studied across a range of disciplines (MacNeil, 1985). Such contractual (or exchange) relationships between parties have often been a substitute for trust (Okun, 1981) and have helped in developing organisational forms (Stinchcombe, 1990). In an employment setting, the formation of contracts that were unpinned by a psychological attachment between employers and employers became known as the psychological contract (Argyris, 1960). Whilst there has been relatively little agreement on a single definition of the term psychological contract (Conway, 1996; Roehling, 1996; Guest, 1998), the definition provided by Robinson and Rousseau (1994) is applied here. On this basis, the psychological contract depicts: â€Å"An individual’s belief regarding the terms and conditions of a reciprocal exchange agreement between that focal person and another party†¦ a belief that some form of a promise has been made and that the terms and conditions of the contract have been accepted by both parties† (246). The psychological contract helps to formalise the meaning, interpretations and significance of the agreed terms and conditions of an employment relationship between contracted parties. In this sense, it acts as a set of promises and unwritten expectation committing one to guide future action (Farnsworth, 1982; Schein, 1988). However, it is perhaps useful to think of its in holistic terms rather than a description of contractual terms that parties are bound by. For example, Guest (1998) highlights the difficulty that current definitions of the psychological contract pose when used for assessment: We run into difficulties as soon as we start to examined the definitions of the psychological contract†¦the first problem that emerges from a comparison of definitions is that the psychological contract may be about perceptions, expectations, beliefs, promises and obligations† (650 -1). Irrespective of the ambiguity, different definitions of the psychological contract do have some similar characteristics: First, the psychological contract is a useful concept to understand the contractual relationship between two parties (Guest, 1988; Rousseau, 1998). Second, the psychological contract is not a fixed term per se, which enables it to be used and interpreted in many different ways, allowing firms to applied it as appropriate (Rousseau, 1989, 1995). Third, the psychological contract is dynamic, helping to explain how employment relationships change over time within firms (Hiltrop, 1996). Finally, the psychological contract highlights how employment relationships develop and/or degenerate (Shore and Tetrick, 1994). The psychological contract is made up of both transactional and relational elements (Rousseau, 1990). In terms of analysing the remuneration package at Accenture, understanding the content of the psychological contract becomes vital. According to the transactional view: â€Å"The employee provides skill and effort to the employer in return for which the employer provides the employee with a salary or a wage, the traditional economist’s concept of the effort bargain† (Armstrong and Murlis, 2004: 33). On the other hand, the relational view suggests that: â€Å"Intangible relationships are developed that take place within the work environment and are affected by the process of leadership, communications and giving employees a voice, and by how jobs are designed and expectations of behaviour and performance are agreed† (Armstrong and Murlis, 2004: 33). A study by Herriot et al. (1997) exposed twelve categories explaining the content of employer obligations and seven for employees. The obligations expected of employers included: providing adequate induction and training (training), ensuring fairness of selection, appraisal, promotion and redundancy procedures (fairness), allowing time off to meet personal or family needs (needs), consulting and communicating with employees on matters which affect them (consult), having minimal interference with employees in terms of how they do their job (discretion), acting in a personally and social responsible way towards employees (humanity), giving recognition of or reward for special contribution or long service (recognition), provision of a safe and congenial work environment (environment), fairness and consistency in the application of rules and disciplinary procedures (justice), equitable pay with respect to market values and consistency awarded across the organization (pay), fairness and consistency in the administration of the benefit systems (benefits) and the organization trying hard to provide what job security th ey can (security). Employees, on the other hand, were expect: to work the hours contracted (hours), to do a good job in terms of quality and quantity (work), to deal honesty with clients and with the organization (honesty), staying with the organization, guarding its reputation and putting its interests first (loyalty), treating the organization’s property in a careful way (property), dressing and behaving correctly with customers and colleagues (self-presentation) and being willing to go beyond one’s own job description, especially in an emergency (flexibility). The study highlighted the need for the employer to deliver on its obligations if it was to expect the employee to do the same. It also emphasised the importance of balancing both relational and transactional obligations. Understanding the nature and content of the psychological contract is mportant for any firm wanting to get the best out of its employees, but knowing the implications of breaking that contract is also important (Morrison and Robinson, 1997). This is particularly relevant in the competitive environment that firms face, where their changing needs sometimes put pressure on the psychological contract, as Kickul (2001) explains: â€Å"Underlying all of these changes, organizations are finding that they must manage, renegotiate, and in some cases, abrogate the employment relationship that they have established with their employees† (289). Research has indicated that around 55 to 69 percent of employees stated that they felt the psychological contract between the firm and themselves had been violated (Robinson et al. , 1994; Rousseau, 1994; Conway and Briner, 1998; Conway et al. , 1999). When the psychological contract is broken it directly affects morale, trust, job satisfaction, commitment and motivation (Mowday et al. , 1979; Rousseau, 1989, Rousseau and Parks, 1993; Robinson and Rousseau, 1994; Robinson, 1996). Furthermore, Porter and Lawler (1986) state that volition of the psychological contract can lead the employee to no longer believe or rely on inducement promised by the employers. This is particularly important in terms of understanding how remuneration packages at Accenture can incentivise, because it suggests that if the company has not maintained its psychological contract with employees, incentivise will not necessary achieve the organisation’s goals. Motivation and Financial and Non-Financial Rewards Increasing motivation and raising levels of commitment and engagement are key organizational imperatives. The development of reward management policies, structures and practices will be underpinned by assumptions about how people can best be motivated to deliver high levels of performances, discretionary effort and contribution. These assumptions may not be articulated but the reward philosophies and policies of an organization can be no better than the motivational theories and beliefs upon which they are based† (Armstrong and Murlis, 2004: 56). Managerial approaches to motivation have traversed the traditional model, human relations model towards the human resources model (Porter et al. , 2003). Whilst all schools are still in use, the human resources model (Miles, 1965) is most applicable today. Despite criticisms, it adopts the view that humans are very complex individuals, which are motivated by a wide range of different financial and non-financial rewards. Under this view, individuals want to contribute to their work, but also desire greater levels of task variety, autonomy, responsibility and personal decision-making. The role of the organisation is not so much to motivate, but not to de-motivate. As Kotter (1996) states, the role of the leader is to align the organisation such that its employees become self-motivated whilst ensuring that policies and practices do not de-motivate staff.