Design Of Perfomance Linked Reward System Business Essay

Design Of Perfomance Linked r blushge System barter EssayPer causeance-related punish musical arrangement views recognise employees harmonise to their writ of execution, or results achieved or contribution to governings carrying into action as unmarrieds or as a originate of a group. It involves a shift of focus from remuneration models based on the worth of theorises and employee skills to their surgical procedure.Designing a public presentation- relate reward transcription is conditi wizd by a variety of factors such(prenominal) as the record of business, type of technology, the military strength of unions and human resource counseling strategies of the organisation. in that respectfore, no particular model dirty dog be recommended it has to be custom-tailored. instruction execution-linked reward systems humiliate labour cost, result in increases in real net incomes and actuate mathematical process. They provide a order of absorbing cost escalation on account of abide increases and thus help in sustaining competitiveness of the organisation.It has been change magnitudely completed that feat-related lease over, if used in isolation, whitethorn stupefy puny impact on motivation for public presentation. Appropriate conditions in the organisation have to be created for surgical procedure-linked reward systems to be motivation anyy effective. These conditions, for instance, bequeath involve proper information, point of reference, communication mechanisms, training and development of employees, developing proactive military capability and functioning-oriented culture, providing non- monetary subsidys and evolving an efficient action oversight system and so on.Reward system cannot be becharmn in isolation from compensation management. Compensation management is getting increasingly unified with business and human resource management strategy. Reward system should, therefore, be considered as an aid to amend performa nce in a performance management system which whitethorn be integrated with the overall business final cause and strategy.FORMS AND CHOICE OF PERFORMANCE coupled REWARD SYSTEMThere be slightly(prenominal) types of performance-linked reward avoidances. Generally, these be designed to- dower with or distribute to employees as one-on-ones, groups or a collectivity productivity gains, profit improvement or financial results of enterprise performance. such proposals drop into the fol broken ining broad categoriesSchemes based on individual or bitty group performance including piece grade, handed-down chastity counterbalance, and sales commission. inducing systems which whitethorn relate accept to profits on the radical of a pre- determined formula.Bonus intents based on contribution to productivity and profitability according to a pre-determined formula with gains sometimes distributed among the individual employees on the radix of sexual morality rating.product iveness Bargaining.Employee Stock Options Plan (ESOP).Competency-based pay.1. Merit Incentive put upA common method which has long been in existence is pay increase or bonus payment on the basis of performance rating.The merit incentive pay scheme provides another method of recognising and rewarding protestential performance. This method could particularly be suitable for office staff. The scheme substantively involves the following stepsa) The determination of result-oriented merit rating procedures,b) The naming of romp factors and their proportional importance,c) The formulation of a scale of reward, andd) The communication of the basis of monetary reward.Illustratively, job factors of salesman can be identified as (a) sales promotion, (b) realisation of outstandings, and (c) good-will calls, (d) after-sales service and, (e) investigation of complaints.These tasks will differ in their form of importance. This difference can be recognised by imputing numerical good deal to different job factors. Hypothetically, let us assign weight set of 5, 3 and 2 respectively to the above tasks. In practice, weight determine can be ascertained by dint of job analysis.The actual merit rating score will give the percentage of basic wage or basic wage plus D.A. as incentive bonus. given up a result-oriented merit rating procedure and its objective operation in an organization, it should not be difficult to install a merit incentive pay system. This is not to minimise the difficulties that atomic number 18 usually encountered in operate a -merit rating system. The effectiveness of the performance appraisal system will depend on the soundness of the performance appraisal system.Sometimes merit increments and merit awards atomic number 18 also given in recognition of maestro performance on the part of individuals. These are poor substitutes for a system of merit incentive pay because of several picayunecomings.Under a system of merit increments, there is no prompt relationship amongst reward and effort. The quantum of reward at a point of time will be considered inadequate. Additional cost in the form of enhanced allowances is built for the guild on permanent basis. Employees continue to realize from their best performance point if it remains below standard in the future.Employees getting merit awards cannot watch a proportionate relationship between their performance and reward. The basis of ascertain the quantum can not be explained to employees who are not given such awards. This may evoke jealously and friction and may thus menace cooperation and goodwill.Incentive deportmentsLumpsum payments such as sales commission is another traditional method. Generally, the performance and the payment of lumpsum are linked by a formula. gross sales commission, however, does not generally consider other parameters of performance such as realisation of outstandings and selling high profit margin products.Another traditional method of r ewarding performance is piece rates. There are several weaknesses in this system. It is not easy to agree with workers on the standard product deald. Frequent changes may be needed in the standard product due to technology changes and this may lead to conflict between unions and management. withal factors other than individual performance such as change in work method affect output. Conflicts may also arise between different work groups when one group is dependent on another. There is a potential for conflict when norms have to be revised because of such factors as technology changes. Also, modernisation of technology and automation has rendered piece rates somewhat obsolete.2. Incentive SchemesOutput-based incentive scheme are appropriate where tasks are repetitive and measurable. These involve the following stepsSelecting the objectivesDetermining the parameters of performance in accordance with the objectivesDetermining the norms or base value or bench mark values for to each one parameterDetermining performance-reward relationshipFixing the relative importance of the selected parameters, that is, their weightagesDesigning information and procedure formatsDetermining the maximum due incentive amount (incentive opportunity) and , payment effectFormulating a communication and follow-up schemeThese are, however, not suitable for high technology and service activities, which require information sharing, problem solving and team work. Productivity gain or profit sharing or employee stock options plan (ESOP) may be suitable types for such activities.3. Group Incentive and Productivity Gain sharingUnder the productivity gain sharing schemes, productivity gains are parcel of landd in accordance to an agreed pre-determined formula. Profit sharing gives a share of profit. Sometimes, the quantum of bonus is determined on the basis of profit as rise as productivity improvements according to a pre-determined benchmark value for each of them.4. Productivity Ba rgainingProductivity negociate can provide to that finish another method of improving productivity and linking wage increases- to such improvements. Productivity negotiate, however, does not mean an incentive scheme or wage increases in return for assurances and promises from unions for achieving production targets. This method implies (a) a detailed analysis of the firms operations, (b) the denomination of cost reduction possibilities, (c) estimation of savings in cost, and (d) the development of a system o indexing wage increases with cost reductions actually realised over time. The climate for productivity bargaining has never been more gilded than now. It is for managements to take initiative and build this approach in their corporate bargaining relationship with Unions.5. Long-Term Incentive (ESOP)Long-term incentive in the form of employee stock options schemes are operated both to improve long-term incentive and to reduce fixed cost. ESOP envisages employee participati on in and ownership of a companys equity.This plan is intended to provide an incentive to the employees to improve the all- round performance and harvest-tide of the company and share its prosperity. The plan usually involves allotment of equity shares according to a laid down procedure and subject to governmental regulations, laws and rules. The employees benefit in the form of enhanced market value of his shares and capital gains, which in turn depend on companys and employee performance. Several software and high-tech organisations such as Infosys have conceived and designed such plans.6. Competency-based PayThe competency is a critical determinant of performance. Therefore, there is an increasing interest in religious offering monetary incentive for acquiring competencies required for higher(prenominal) performance on the present job or for the next job. Such competency may for instance include values, attitude and behavioral characteristics which influence performance.In pl an a performance linked reward scheme, choice of an appropriate scheme should be considered as critical. The choice will be determined by a variety of factors such as the nature of the organisation, the nature of technology, the nature of profits, the nature of markets, the human resource strategy and business objectives.STEPS IN DESIGNINGThere is a variety of forms of performance-linked schemes. These must be about adapted to the particular conditions of individual enterprises and the concerned groups of companies. In intention a custom-tailored performance-linked reward scheme, the following steps are important1. Custom-TailoredThere is little scope for relying on model or standardized schemes. Attempts to impose unique(predicate) performance-linked reward systems through central regulations generally appear to fail. Frequently the nicety of what is be required may appear questionable from the perspective of individual enterprises. Therefore, care must be taken in adapting su ch schemes to the particularities of individual enterprises.2. ObjectivesThe objectives of the schemes need to be carefully formulated. Such objectives are needed to spotter the filling of performance measures, the specification of bonus calculation formulae and the reaching of common understanding on the size of bonuses that may be expected through the schemes. The potential for performance improvement may vary greatly from one enterprise to another, as strong as with the passage of time. Both the short and long run objectives for the scheme should be identified.3. Selection of action MeasuresThe selection of performance measures must be consistent with the scheme objectives these must bring forward those types of behaviour considered important for organizational performance such as increasing output, reducing labour and other costs, improving quality or patness of delivery, encouraging co-operation amongst work groups, enhancing adaptability and innovations, etc. In addition , they must not be pursued at the expense of other performance parameters. At the alike time, the measures of performance selected should, to a large extent, be under employee control, and not influenced by external influences. Employees will be demotivated if their best efforts are offset by factors they cannot control. The unit, the performance of which is measured, should be small enough to ensure that workers can see some relation between their efforts and rewards. To ensure motivational effectiveness, the measures of performance should also be easily understood by the workers concerned, subject to ready confirmation if suspicions arise, and be calculable at frequent intervals.4. BasisDepending on circumstances, performance awards may be determined on the basis of improvements over the preceding(prenominal) year, improvements over a base period performance, or the maintenance of a high level of performance. Bonuses which become exceptionally large should be integrated into b asic wages in order to avoid distortions in pay structures. Where necessary, it may be advisable to resort to procedures for stabilising bonuses of lengthening the period over which performance is calculated.5. External InfluencesTo the extent possible, the initial agreement establishing the scheme should specify how target performance levels are to be dealt with when their achievement is touch by external influences such as changes in. production methods, product miscellany and prices of inputs and outputs.6. DistributionThe rule for the dispersion of bonuses amongst workers should be simple and widely supported. It may be based on wage rates or sightly remuneration. Also, to discourage excessive absenteeism, bonus is sometimes varied with the number of hours or days worked. However, distributions in accordance with assessments of individual worker performance by supervisors may be problematic, especially if such assessments lead to significant diversity in pay.7. EquityThere should be equal opportunities to earn bonuses, even though the performance measures may vary. In addition, performance targets should be set after a careful scrutiny of the historical behaviour of the measures selected. The quantum of bonus should be significant enough to evoke extra efforts. At the same time performance awards should not be so large as to put at risk a significant part of employee earnings for reasons beyond their control.8. SafeguardsSuch schemes should not be substituted for wage increases that otherwise would have been granted or replace fixed wages with variable wages. implementation pay should supplement rather than replace existing wage bargaining arrangements and should not question the need to maintain basic wages at adequate levels. Perhaps of even greater importance in some contexts may be the need to give assurances to existing employees that productivity improvements would not place jobs in jeopardy.9. Involvement and CommunicationSuch schemes must be perceived as acting in the interest of employees as well as employers. Accordingly such schemes must be implemented in ways that convince employees that they will receive a fair share of the benefits derived from their extra efforts and their jobs will not be threatened. Schemes based on incorporated performance work more effectively when the scheme objectives and operation are explained in detail to all the employees concerned. The success of schemes depends to a large extent on the amount of effort given by management to computer address at unhomogeneous stages in the planning and design of the scheme, in the outgrowth of implementation and monitoring of results. In addition, the schemes have a better incur of success if employees are provided with full opportunities to present their ideas for bringing about improvement. Performance- linked schemes function most effectively when they are accompanied by a formal participative system that facilitates (a) the transformation of agreed practical suggestions into actual changes in in operation(p) methods and procedures (b) two-way communications at all levels on operating difficulties and general business trends.10. Union Participation in the DesignPerformance reward schemes may work most effectively when worker representatives are given full opportunity to participate in their design and administration. Such exponentiation may facilitate comprehension and acceptance of scheme objectives. Moreover, workers may only fully trust the scheme if it has been elaborated in consultation and agreement with worker representatives and they are subsequently given opportunities to verify that awards is being calculated fairly.Also, the commonality of interests of workers and employers in improved productivity, performance, earnings and equity is apparent to be much more apparent where pay systems are develop and elaborated in accordance with rules established through collective bargaining.11. recapThere should be a clear provision for modifications owing to changes in production methods or in prices or inputs or outputs.The effectiveness of all pay systems decays with time and the duration of schemes based on collective measures of performance are particularly short. Accordingly it should be foreseen that the basic parameters of such schemes would sustain regular periodic revisions. Indeed it should be expected from the outset that the collective performance measures and targets would undergo continuing change every few historic period in the light of the experience.ISSUES AND TRENDSThere are many issues and trends occur in linking performance with reward system which are as follows-1. Level of nurtureThe level of education of the employees, among other factors, will determine what type of scheme is likely to be easily understood by them and will motivate them. The nature of the business and the operations will also influence. Organisations in low cost manufacturing or which promote innova tion, skills and higher performance or which are in service industries may need to consider different forms of performance pay. Their business and human resource management strategy will differ the form and content as well as objectives of performance pay should be consistent with them.2. Trade UnionThe chance of success of performance-linked pay will depend on the tradition of collective bargaining and attitudes of unions. plot of land the negative attitudes hinder its introduction, the positive attitude considerably facilitates it3. Organisational CulturePerformance pay gives better results in organisations characterised by employee involvement and team spirit. A pro-active culture in the organisation is found to be valuable to performance and productivity.4. Package of Monetary and Non-Monetary IncentivesPerformance pay is at best an division in the reward management and motivational system. Besides performance pay, it is essential to pay attention simultaneously to such aspect s as re-organisation of work process, training, employee involvement and participative decision-making, opportunities to contribute ideas and knowledge, non- monetary recognition, career development and goal setting.5. Rewarding dangerous PerformanceRewarding good performance may include, among others, such mechanisms as cash awards, appreciation letter and certificates, training in reputed institutions, foreign travel, job enlargement and enriched roles, publicity in newsletters and membership of professional societies, etc. For higher effectiveness of performance-linked pays system, such reward mechanisms should also be used.6. Performance Pay and Performance ManagementIt is increasingly realised that performance is affected by a variety of factors. These factors, for instance, will include knowledge and skills which are create through training, work attitudes and intrinsic rewards. These and other factors which affect performance are considered in the wider context of performan ce management and human resource management with performance pay constituting an element of it.7. CaveatsIt is being increasingly realised thatThe performance pay systems should be designed to promote the kind of performance an organisation needs. It should, therefore, be integrated with human resource management strategy for better performance and growth of the organisation.The performance pay should underpin the organisations main values such as team work, creativity, flexibility and quality.The system should provide an nervous impulse to and support the behaviour expected of the employees. Therefore, it must communicate to employees the type of behaviour to be rewarded and the way in which it will be rewarded.The reward system should be strengthened through re-organisation of work process and enlarged job responsibilities, training, consultation, communication and participatory system. Employees should also be consulted in the formulation of the plan.The criteria for find out p erformance should be objective, measurable, easily understood and related to what employees can control.The quantum of performance pay should be significant enough to be motivationally effective and its distribution should be equitable.The payment of performance pay should follow the performance as soon as possible and as frequently as possible.The performance level should be achievable otherwise it will have a demoralising effect.The quantum of pay should be sufficiently flexible to absorb downturn and adequately reward when performance is good it should also safeguard the token(prenominal) remuneration for the value of the job.QUESTIONSQ1. Explain what is performance-linked reward system?Q2. What are the various ways in which performance can be linked to reward system?Q3. In designing a performance-linked reward system, what considerations will you take into account?Q4.List out the various steps involved in designing a performance-linked reward system. Give an example.Q5. Examin e the current issues and trends in linking performance with reward system.