PERSPECTIVES Performance by instinct
Sinclair Knight Merz Group is a professional services consulting firm with 4500 employees, and offices in Australasia, Asia, the Pacific, Europe and South America. It provides services in areas such as engi¬neering, scientific studies, geotechnical engineering, planning, economics, logistics, project management, spatial information and architecture. The company has an innovative management phil¬osophy based on 'natural' ways to manage the organisation and its people by accommodating 'basic instincts'. This includes a values-based cul¬ture; an organisational structure based on 'families' and 'tribes', an organisational learning and devel¬opment orientation, stable leadership, and an open approach to performance management.
Rewarding performance
Rewarding performance is one of the most important roles and functions for both human resource professionals and managers within organisations. Reward manage¬ment systems are directly concerned with eliciting and reinforcing desired behaviours and work outcomes and are commonly used to generate and leverage change.153 Any reward initiative should support both the needs and considerations of the organisation — that is, its business and change objectives, desired organisational culture, and control costs — and an individual’s concerns — including equity, purchasing power and the satisfaction of personal needs such as recognition, appreciation, influence and partici¬pation, skills development, opportunities for learning and new challenges, and career development.154 Like the other key human resource processes we have discussed, an organisation’s reward strategy is not developed in isolation, but is influenced by the organisation’s culture, its mission, the values of its managers, power coalitions in the organisation, business strategy and the broader human resource strategy.
Financial rewards — remuneration and benefits — are a major determinant of the quality of people drawn to an organisation, the level of employee performance at work and whether that performance complements the goals of the organisation. Apart from encouraging employees with the appropriate skills and knowledge to join and remain with the organisation, they also operate as a mechanism for change by rewarding specific outputs, behaviours and values required to deliver the organisation’s strategy, promoting the desired culture, and motivating employees to embrace change.
The design and operation of any reward system requires a strong understanding of performance and the application of motivation theory, particularly goal-setting theory155 and expectancy theory, which suggests that a person’s motivation to perform a task is a result of the value that the person places on the likely outcome (such as the reward) and the probability of that outcome.156 There must be a clear link between the effort required by the employee and the level of performance, and between the perfor¬mance and rewards; that is, there must be a strong likelihood that if the employee expends the effort, the desired performance will result and that performance will result in the rewards. These connections also must be understood by managers, particularly line managers and employees, because they need to know what work behaviours, atti tudes and outputs are expected, how the performance will be measured, and how that performance will be recognised with appropriate rewards.
Part of this is an awareness of the differing motivations and needs of employee groups in the specific industry and workplace. They must determine the particular motivations of their workforce — which relates hack to understanding the business, as discussed earlier and address these to meet employee needs more effectively. There is great variation in the value that people place on specific rewards. For some employees, money is a primary motivator, although organisations frequently overestimate.the value to employees of financial rewards. For other groups, different aspects of the employ¬ment relationship — such as quality of work life, increased responsibility or power, new challenges and opportunities to learn — may provide the primary motivation. Man¬agers must be conversant with both financial and non-financial aspects of rewards, using them in the most effective combination for every organisational situation and individual employee to meet the organisation’s objectives and sustain particular organ¬isational change efforts. The criteria for the effectiveness of a reward system are similar to those of performance appraisal, because these two systems are interconnected. It is essential to have employee consultation during both the design and implementation phases.157 Lockyer warns that reward systems must be easy for employees to under¬stand and consideration must be given to the cost and time spent in administering these systems, because these may be considered to be excessive and influence the success of the systems.158
The traditional approach to reward management is being replaced by other approaches of variable pay and benefits. Many companies now include salary packaging as a common tool used to meet the diverse needs of the workforce. These systems include performance-related pay (which is probably most compatible with expec¬tancy theory predictions), or incentive compensation pay (which is linked to individual, team, business unit or company performance) for particular skills and competencies (as measured by the achievement of goals and objectives set through performance manage¬ment systems) and other employee benefits. Kessler identifies three types of pay-for- performance systems: individual merit and performance-related systems based on indi¬cators such as traits, skills, competencies or objectives; individual bonuses based on output such as production levels, targets or sales; and collective bonuses linked to the performance of the group, section, department or organisation.159 Individual pay for performance has been used to reinforce a number of organisational change initiatives.160 It can be employed to send powerful messages about the type of employees whom the organisation wishes to attract and retain — for example, where a shortage of skills exists. This is one of the strategies adopted by companies such as Motorola who applied a ‘hot skills' model in Australia and the Asia-Pacific.161 The company considers internal drivers, that is, the strategic importance of the skills to their business strategy, and external or market drivers, which assesses which skills are hot, the premium that other organisations pay to attract and retain these skills, and how this premium is being deliv-ered, before finally deciding on a premium. This approach aligns the reward skills strategy with business needs, not only to ensure a strategic fit but also allow an organ¬isation to adapt and change readily. This way, the organisation can administer the premium according to the strategic importance of the skill internally and to enhance employee satisfaction. The variable component can be withdrawn when the skill is no longer in such high demand, whereas fixed pay cannot.162
Other organisations, particularly those with reduced promotion opportunities, employ pay for performance as part of their motivation and retention strategies and also provide a notion of ‘fairness’ in rewards for the high performer. Further, companies may use performance-based pay to facilitate changes in organisational culture and values.163 For example, John Fletcher, the CEO at Coles Myer, embarked on a massive change agenda that included increase in profits and share price. His base reward package comprised base compensation, which was set when he first came into the job, and the annual bonus, which is based on performance and share price improvement.164 NAB had to pay ‘record sign-on bonuses and market leading pay' to entice Ahmed Fahour, the former CEO of Citibank Australasia, to fill its newly created position as Australian CEO, where his key role is to integrate the structure and the culture of the Australian operations and create value, and also to recruit Michael Ullmer, its new chief financial officer.165 Performance-based pay can be employed also to increase the levels of employee commitment to the organisation by setting individual goals and objectives, to increase communication between managers and employees, to encourage managers to take responsibility for making and defending pay decisions, and to contain costs. This reward approach also has been pursued as a means to weaken competing interests such as the influence of trade unions and to undermine collective bargaining as the determi nant of pay.166
Non-financial benefits are the other key component of the reward system. The choice of these benefits should relate to the business objectives, the desired culture and values of the organisation, and the needs of employees. If recruitment policies are targeting a previously neglected group (such as women returning to work) to help change the culture and work practices in an organisation, then the organisation may need to offer a range of benefits and rewards that are attractive to this group. These could include child-care facilities on site, to reduce travelling time, anxiety and the costs for working parents. Alternatively, the organisation could offer flexibility in start and finish times to accommodate those with responsibilities for school-age children, or family-friendly arrangements such as job sharing, home-based work, parental leave, carer’s leave and breaks. These arrangements also could include work-at-home options, flexible hours, job sharing or salary sacrificing of child-care costs. In its endeavour to become an 'employer of choice’ for women Autoliv Australia has introduced a set of integrated HR strategies in Equal Employment Opportunities for Women (EEOW), staffing, reten¬tion, development and reward management,