Question

You are on the board of a computer software company that has three distinct divisions: home networks, small business systems and ERP systems. In a bid to encourage higher performance, it has been proposed that the company would benefit from creating a reward system with a profit- sharing component for divisional managers. At present, divisional managers are paid a fixed salary. The proposal is for the company to pool 5 per cent of the company’s profits each month and pay this amount at the end of the year based on divisional managers’ performance against targets. The targets will be set in the preliminary performance review at the beginning of the year. Targets will cover both divisional and company-wide performance. It is thought that this approach will encourage a commitment to the organisation and encourage individuals to strive for better results. There will be a vote for the current proposal at the next board meeting.

Required a) Discuss the advantages and disadvantages of the proposal. b) Outline an alternative reward system.

Answer 1

A computer software company that has three distinct divisions:

1. home networks,
2. small business systems and
3. ERP systems.

Proposal is to encourage higher performance by creating a reward system with a profit- sharing component for divisional managers. The proposal is for the company to pool 5 per cent of the company’s profits each month and pay this amount at the end of the year based on divisional managers’ performance against targets.The targets will be set in the preliminary performance review at the beginning of the year. Targets will cover both divisional and company-wide performance.

At present, divisional managers are paid a fixed salary.

This proposal is profit linked incentive scheme, in which profit is being shared by employer on the basis of performance of employee.

Merits of this proposal are as follows:

1. Increase in productivity: This scheme will lead the enhancement of production activities of company. That would have impact positively on turnover.

1. Increase in Efficiency: This scheme will also brought efficiency and increased activities of production process in the scarce availability of resources to earn higher profit.

1. Increase in Profitability: Increased in production will result in higher profitability.

1. Motivated Employee: This scheme will motivate the employee to earn more and ultimately growth in organisation.

1. Higher Wages for Employee: This scheme will provide the opportunity to employee to earn more.

De- Merits of this proposal are as follows:

1. Impact on Quality: Employee may focus on performance towards target to achieve more rather than quality of products/services which will result in to substandard performance.
2. Health of employee: Employee tend to overwork and these results in undermining their health.
3. Disputes in organisation: Even where an incentive scheme yields an increased output, it may generate tensions among the different parts of an organisation. Such tensions often cre­ate difficult managerial problems which may eventually affect output.

Outline to implement the reward system:

MBO is the generally used to define the output which determines the payment of Performance linked incentive. Since Performance linked incentive is paid for the results and not merely for the efforts, the objects should be chosen to reflect those activities whose results are visible immediately after the effort.

Also, in calculating performance linked incentive, only the performance and not the potential of the employee should be considered. Potential of the employee is normally subjective and can be contested. Performance linked incentive should be based on metrics which are absolutely objective and clearly perceived as fair by both employee and employer.

Personnel Should Be Re-Shuffled-The problem of low productivity and higher absenteeism showing there is Lakes of personnel. So the personnel may reshuffled and to promote the culture of hard work to the employees. They can set there rigid rules to the employers in order to avoid the given problems.The management should adopt the right HR practice to increase productivity. The top ten HR practices which should follow in every firm.

Safe, Healthy and happy work place:-Creating a safe, healthy and happy workplace will ensure that the employees feel homely and stay with the organization for a very long time. Capture their pulse through employee surveys.

Open book management style:-Sharing information about contracts, sales, new clients, management objectives, company policies, employee personal data etc. ensures that the employees are as enthusiastic about the business as the management. Through this open book process you can gradually create a culture of participative management and ignite the creative endeavor of your work force... It involves making people an interested party to your strategic decisions, thus aligning them to your business objectives. Be as open as you can. It helps in building trust & motivates employees. Employee self service portal, Manager on-line etc. are the tools available today to the management to practice this style.

360 degree performance management feedback programmed:-This system, which solicits feedback from seniors (including the boss), peers and subordinates, has been increasingly embraced as the best of all available methods for collecting performance feedback.

Fair evaluation system for employees:-Develop an evaluation system that clearly links individual performance to corporate business goals and priorities. Each employee should have well defined reporting relationships. Self rating as a part of evaluation process empowers employees. Evaluation becomes fairer if it is based on the records of periodic counselling & achievements of the employee, tracked over the year. For higher objectivity, besides the immediate boss, each employee should be screened by the next higher level (often called a Reviewer). Normalization of evaluation is yet another dimension of improving fairness.

Highlight performers:-Create profiles of top performers and make these visible though company intranet, display boards etc. It will encourage others to put in their best, thereby creating a competitive environment within the company. If a systems approach is followed to shortlist high performers, you can surely avoid disgruntlements.

Open house discussions and feedback mechanism:-Employees are the biggest source of ideas. The only thing that can stop great ideas flooding your organization is the lack of an appropriate mechanism to capture ideas. Open house discussions, employee-management meets, suggestion boxes and ideas capture tools such as Critical Incidents diaries are the building blocks that can help the Managers to identify & develop talent.

reward ceremonies Merely recognizing talent does not work, you need to couple it with ceremonies where recognition is broadcast.

Get employees involved. If you ask employees to help design the system, you’ll get some good ideas plus employees will feel vested in the rewards when they are handed out. Everyone will know exactly what’s needed to earn specific rewards. This also ensures that your reward system will match your employee demographics.

Reward teams. Teamwork is critical to success. So when a team performs well, reward the whole team to help foster cooperation. If it’s clear that some members of the team did much more work than others, consider a tiered team/individual reward system to help prevent any resentment among higher achieving team members.

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