Development of Performance and Reward Management system in Nokia
Performance and Reward Management are very critical functions of Human Resource Management especially in Multinational firms which employ a diverse workforce. The performance Management and Reward management systems in these organizations have to address country specific issues to make them more effective. Well formulated policies for performance and Reward Management achieve important HRM objectives such as motivation, employee satisfaction and loyalty and low employee turnover. However changing workplace environment and external factors necessitate that these policies are reviewed and reformulated regularly to keep them aligned with organizational strategies as well as external environment. Due to the global implications of company functions, performance management is not restricted to performance appraisal anymore but includes activities such as goal setting, performance appraisal, training and development and performance related compensation (Tahvanainen, M. 2000, 268). In this paper the author discusses and suggests performance and reward management system in Nokia, a multinational firm based in Finland.
Nokia Corporation is an international business organization that was formed by a merger of three companies in 1967. Known for its innovation in the area of mobile phones, Nokia had ruled the telecommunication market for nearly two decades. After its sales underwent a slowdown because of competition from i-phone and Android technology, it entered into a partnership with Microsoft to develop Window based mobile technology which later culminated in sale of its mobile division to Microsoft following losses. Since then it has diversified its operations into networking and internet enabled telecommunication supported by its M&A strategy of expansion.
Nokia is a public limited company listed in Helsinki and New York Stock exchanges. It has made a major contribution to the economic growth of Finland and along with its subsidiaries is an important employer in Finland. Nokia accounts for 1.6% of GDP in Finland and is among the highest taxpayers (Ali-Yrkkö, J., 2010. 14).
The business environment of Finland has been described as favorable for innovation. It ranks high on competitiveness and labor productivity and the indicators of social, economic and environmental welfare places it high on the international ranking like other Nordic countries (Lipponen, H., & Viitamo, E., 2004, 9). The authors also claim in a review by Industry and Trade Ministry that industries in the field of information and communication technologies show the highest productivity increase. However OECD report (2016) claims that Finland economy is facing a downturn and needs to be revived using deregulation for foreign investments and reviewing its status of a welfare state. This includes a reform in the employment and skills policy where there is less participation of women in labor productivity and low availability of skills because of inadequate education standards. The HRM strategy in Finland underwent a phenomenal change owing to internationalization, R&D and product development and new labor policies which focused on cost effectiveness instead of job security and excellent personnel benefits (Vanhala, S. 1995, 35). A dualistic nature of employment have also emerged in which part-time or short term contracts are being preferred to conventional recruitment policies and more flexible work arrangements, working hours, compensation, recruitment and termination are being practiced.
Internationalization of operations necessitates that the Finnish MNCs adopt a more polycentric approach in recruitment to deal with the economic slowdown, need for technological competitiveness and international expansion strategies. A polycentric recruitment approach enables firms like Nokia to employ the services of technological and managerial experts from countries other than Finland. But to retain and motivate this diverse work force so that the strategic objectives of organizations are realized; well formulated performance and reward management systems have to be developed. These systems must integrate recruitment, training and development, performance evaluation, appraisal and feedback and rewards and incentives to motivate the employees. These policies must also address issues of equity and diversity as well as be in alignment with the cultural characteristics of the expatriate workforce. All these policies must be consistent with the cost efficient strategic HRM also.
These factors have been taken into consideration while designing the performance Management and Reward policies of Nokia described in subsequent sections of the paper.
Performance Management and Reward policies formulation for Nokia
The Performance Management system is designed for both blue collared and white collared employees of the organization. The blue collared employees are associated with actual production and their productivity is more measurable as quantitative benchmarks can be fixed in the form of standard units per day, defectives and wastage rate, absenteeism, lateness etc. On the contrary, performance standards of white collared jobs are qualitative in nature and difficult to measure. Moreover they may suffer due to personal values and prejudices of the evaluator. A 360 degree feedback is more appropriate in this case. However relevant attributes must be decided for this method also to get measurable traits for performance ratings.
Issues to be addressed for Performance and Reward Management
Nokia being an internationally operating concern employs personnel of many nationalities and sends staff from the parent unit to its subsidiaries spread over many nations. The system designed to manage the productivity of expatriates must take into consideration crucial factors such as equality in pay for equal work and diversity in cultural traits that influence organizational behavior. The policy for performance Management is described as under
Performance Management Policy
Performance Management Policy must cover areas such as goal setting, performance appraisal and feedback, training and development and pay for performance. Please refer Appendix-1
Goal Setting
Goals are the milestones that are decided to evaluate progress of a particular task. The goals must be in alignment with organizational objectives, mission and vision. For Production and Marketing functions these are both quantitative and qualitative and are fixed by HR managers in consultation with functional heads and supervisors. Quantitative goals consist of achieving a fixed target in production or marketing within a stipulated period while qualitative goals may reflect positive organizational behavior such as punctuality, workmanship, good housekeeping and following safety norms etc.
The goals must be aligned vertically within the organization to facilitate achievement of strategic goals. In Nokia where there is a diverse work force care should be taken that all employees in similar positions irrespective of their nationalities, gender and races are given similar goals without any sort of discrimination. They should also be consistent with the legislations of Finland regarding working hours, anti discrimination and equality etc.
Performance appraisal
Goals are benchmarks against which performance is measured. Also performance appraisal methods must apply the same guidelines for every employee in the same rank and offer them the same opportunities of advancement. However, the present method of performance appraisal is inadequate in case of expatriates because at senior levels, the expatriate managers may have to report to corporate heads based in Finland and for customer focused projects performance appraisal is practically nonexistent ((Tahvanainen, M. 2000, 271). Therefore this policy proposes to remove the shortcomings in the present expatriate performance management system by administering specific standards for performance evaluation described in the appraisal form (Appendix -2). The quantitative standards may be measured by achievement of specific goals like percentage growth over last year’s performance and disciplinary attributes like number of days present, number of days of reporting late to work etc (Appendix-2).
Performance appraisal criteria must be transparent and equal for all employees of same rank. Also, the appraiser must be objective, rational, impartial and a good listener. Performance appraisal exercise must invariably be followed by feedback so that the employee can also assess his performance and agree with the evaluation. For expatriate employees appraisal exercises must be undertaken by HR professionals in the host country and feedback must be taken from immediate interacting personnel instead of from corporate head office. Feedback is very essential for expatriates who cannot get day to day guidance about performance and must rely heavily on 360 degree feedback for self assessment.
Another important factor is the alignment of performance with strategic objectives of Nokia which is poised to recover its market niche in mobile phones. Internationalization of operations and strategic partnerships have necessitated the reformulation of strategic human resource Management which needs personnel to realize the objectives of technological leadership, cost efficiency and integration of operations. Hence training and development must be included in performance management system to work consistently towards realization of organizational goals.
Training and development
Modern performance management system in MNCs is not restricted to appraisals and promotions but also concerns itself with practices like succession planning, leadership training and career planning. Nokia’s strategic expansion plans in Asia and Europe directs that its personnel are prepared to accept changes in organizational culture, innovations and diversity Management. Also the emphasis on HRM practices will shift from employee welfare and benefits to efficiency in performance and cost in order to stay competitive and retain its market share in mobiles. In order to equip the personnel with the necessary skills to realize its strategic goals, Nokia needs to formulate an intensive training and development plan.
Return on Investments
Performance Management initiatives such as training and development are cost intensive activities. Regular monitoring and evaluation are necessary to determine whether the initiatives are successful in achieving the objectives. A good ROI evaluation policy should be able to discern whether a training and development project is meeting its objectives and needs to be altered to meet the requirements. This may be used to determine the benchmarks for evaluation of program effectiveness. The importance of the result will depend entirely on how the data is collected and analyzed (CIPD.co.uk, 2001). The effectiveness of training programs can be ascertained through tangible and intangible returns. The tangible return may include benefit/cost ratio while intangible returns reflect improvement in performance observed in more employee participation, high morale, lower employee turnover and growth in productivity, sales, revenue, investments and profits.
Reward Management in Nokia
Pay for performance is an integral part of performance management in which a suitable compensation plan is designed to pay the employees for their performance, motivate them to perform efficiently and to retain them in the organization.
A compensation plan is divided into two broad groups, the basic salary inclusive of adjustments such as living costs also known as intrinsic reward and additional benefits comprising of bonus, incentives, commissions, allowances, perks, pension, insurance etc. called extrinsic reward.
The basic salary is determined on the basis of minimum scales specified by the Finland Government; however they have to be at par with the industry remuneration scales for retaining the best employees. Basic salary is adjusted to include living costs and social security contribution. Basic salary is computed as per job description, responsibilities and accountability, seniority and rank in the organization structure. For each grade within the hierarchy minimum and maximum basic salary is fixed.
Bonus is awarded if the annual turnover is more than a predetermined limit. A fixed percentage of salary is paid as cash bonus to the employees. Incentives are offered to the employees surpassing the performance benchmark and may be in cash or kind such as paid holidays etc. Commissions are paid mostly to sales personnel for winning deals from clients. Both incentive and commission are computed at a prefixed rate and are important motivational tools. Perks are additional benefits enjoyed by upper ranked employees such as company housing and conveyance, telephones, air tickets and other facilities which add up as we go up the hierarchy.
Conclusion
Nokia is all poised to revive its lost markets and technological leadership in telecommunication through strategic partnerships and international expansion. However to achieve the objectives of cost efficiency and effective implementation of change it needs to formulate strategic HRM that will help in the realization of its long term goals. Being a public limited company based at Finland it had been following the Finnish work culture based on employee welfare and benefits. But the current situation demands that the focus should shift to performance oriented HRM and to implement this, new systems for performance management and reward management should be developed for both expatriate and domestic employees with emphasis on equality in opportunities, appraisal and pay.
Appendix -1
Performance Management Policy for Nokia
This policy is formulated to create and equip Nokia’s diverse work force with the necessary skills and competence to execute a goal oriented performance that will enable the firm to realize its short term and long term objectives.
Goals
For upper level managers the goals consist of achieving growth in output over previous years, implementing total quality management, innovations and value addition in products and services, achieving cost efficiency and exhibiting transformational leadership.
For middle level they consist of meeting production or sales targets within deadlines, lowering defective and wastage rate, integrating functional network for smooth and uninterrupted operations, motivating the work force to achieve targets, implementing change successfully and achieve cost efficient and enhanced productivity. Lower level managers’ goals must be set to support the achievement of middle level goals by aligning them with the latter.
For white collared jobs, goals may be qualitative like achieving profitability and greater workforce participation, implementing changes successfully, achieving lower workforce turnover and more awareness towards safety and cost efficiency, improving productivity and overall functional effectiveness.
For expatriates working out of Finland, goals may be restructured according to the work culture of host countries and local legislations.
Performance appraisal system
Nokia adopts the principle of universality in its performance appraisal policy which is transparent, objective and impartial and the same appraisal procedure is applied for all employees including expatriates. The appraisal system follows the 360 degree feedback in qualitative appraisal in which the employee’s performance is evaluated by all levels in his interactive circle. The attributes that evaluate his performance may be both quantitative and qualitative described in appendix -2
Qualitative standards include feedback from vendors, customers, superiors and subordinates on attributes such as leadership, communication, promptness of response, involvement, team work, attitude and loyalty. For better effectiveness, they may be rated on a 5 point scale.
Personal goals and achievements must be in synergy with organizational strategies.
Training & Development
The Training and development plan will provide the necessary inputs to accept and implement change, the skills to handle expatriate assignments, to develop technological and managerial expertise for leading the organizational functions and to facilitate the integration of functions to realize organizational objectives of profitability from new projects. Training programs consists of classroom coaching, on the job training and field training at various sites of the firm. The results of the training program will be evaluated from time to time to establish the program’s effectiveness.
International expansion needs allocation of human resources to foreign countries to lead, coordinate with HO and resolve conflicts emerging from diverse cultural affiliations. These expatriate human resources have to be trained to adapt to a foreign environment and act as a mediator between corporate and regional offices. The HR of Finland unit also has to be trained to accept the new SHRM practices and goals which focus on competency development instead of employee welfare.
Appendix-2
Performance Appraisal Form
Designation: Department
Parameters / Rating 1(poor) 2(low) 3(average) 4(good) 5(excellent)
1. Involvement
2. Motivation
3. Improvement over
Last year’s performance
4. Leadership skills
5. Response to customers
6. Adaptation skills
7. Group behavior
8. Learning skills
9. Communication skills
10. Loyalty
Remarks:
Designation & Department
2. Disciplinary Form
Designation: Department
Breaks safety rules often yes no
Ignores instructions often yes no
Indulges in quarrels often yes no
Accused of indecent behavior
Harassment or indiscipline yes no
Late to work frequently yes no
Absent to work frequently yes no
Remarks:
Designation & Department
Appendix 3
Rewards Management Policy
Rewards are awarded as an appreciation of employee performance and are over and above the work compensation. Rewards are also called performance based pay and are used to motivate the employees to perform better. Rewards may be in the form of cash incentives or prizes as well as take other forms such as more autonomy, promotion, membership of some team or committee, representation of organization etc. Rewards are mostly based on the need theories and therefore change its form depending on the hierarchal level.
The lower tier achievements may be rewarded in cash, social security, up gradation to avail housing schemes or promotions considering their fulfillment of basic needs and the need of safety and security.
Middle level managers may be offered membership or representation of group along with cash rewards, promotions and/or other perks such as complimentary conveyance, cell phones or other facilities depending on the significance of their achievement.
Upper level Managers may be offered more autonomy and power by promoting them to assume leadership roles, make them in charge of ambitious projects and offering them newly furnished offices, accommodation and various other facilities.
Appendix -4
Communications Plan
Project: Performance and reward management system development Date: 3/9/2016
References
Ali-Yrkkö, J., 2010. V. THE VALUE CREATION OF MOBILE PHONES–THE CASE OF NOKIA N95. Nokia and Finland in a Sea of Change, p.91.
CIPD.co.uk 2001.How to measure returns on HR investment. [Online] (Updated 22 November, 2001) Available at: <http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2013/01/29/3916a-2001-11.aspx > Accessed 7th September, 2016
Lipponen, H., & Viitamo, E., 2004.Competitiveness and Business Environment in Finland – An International Benchmarking. Ministry of Trade and Industry, p.82
OECD Economic surveys: Finland (2016). Updated January 2016, Available at http://www.keepeek.com/Digital-Asset-Management/oecd/economics/oecd-economic-surveys-finland-2016. Accessed on September 3rd 2016
Tahvanainen, M., 2000. Expatriate performance management: The case of Nokia Telecommunications. Human Resource Management, 39(2, 3), p.267.
Vanhala, S., 1995. Human resource management in Finland. Employee Relations, 17(7), pp.31-56.
