Introduction
The discussion on Human Resource Management and changing business environment received a lot of attention over the past decades in view of growing understanding of the role that individuals can play in overall performance of a given organization. Terms like organizational culture and performance emerged as part of integrated Human Resource management (HRM) and continue challenging academic and professional circles in view of complex response to existing performance management systems as well as multifaceted universe of motivation and retention constructs. In spite of growing interest and effective response to strategic HRM, a lot of organization still goes through the process of actual alignment of HRM practices with overall organizational performance.
The mistake that is often made on initial stages of formulation and development of HRM strategy is lack of effective link between the actual level of motivation and satisfaction of a given employee and return, or contribution, for this matter, that this individual factor has on productivity and organizational effectiveness (Dessler, 2010). The objective of this document is to analyze the specific link between a combined compensation strategy and organizational culture and performance.
Compensation Methods Overview
The majority of the contemporary HRM strategies look at the compensation and reward management from two angles: financial compensation and personal and professional development methodology that aims to enact motivation and satisfaction element into the complex remuneration scheme. Some of the classic combined compensation strategies bring forward performance-based financial remuneration and a complex of personal and professional development programs that include (Cardy and Leonard, 2011):
- Coaching and mentorship on different organizational levels,
- Virtual Learning Space that provides online training within various technical and personal areas,
- Group training opportunities in physical locations organized by the companies as well as third party providers,
- Workshops and team buildings, aimed to raise employees´ awareness of organizational culture, vision and mission and create stronger social links between individuals in the working environment.
- Quality Work-Life programs implemented on company-wide scale that are aimed to increase participation and engagement of employees in building their working environment.
The variety of methodologies and programs used by organizations to develop alternative motivational tools illustrate the diversity of personalities and organizational culture. The same findings, however, also outline the nature of motivation and satisfaction that can be outlined as the need for belonging and participation as individual in a larger scope of activities. In other words, non-monetary motivation is a way to ensure that individuals continuously challenges themselves through the elements that are unique, but manageable by the organizational culture.
Performance Management System and Compensation
Employee motivation and satisfaction with working environment in contemporary business environment is driven by both, intrinsic and extrinsic factors. While financial remuneration is critical as it determines the ability of employee to satisfy the needs and expectations of personal element of his life, a number of other factors influence the decision about job acceptance and determine the level of loyalty that employee demonstrates in his job position. Nohria, Groysberg B., and Lee (2008) argue that there are four core drives of employee motivation that can build on a strong HRM methodology: 1) the drive to acquire, 2) the drive to bond, 3) the drive to comprehend and, finally 4) the drive to defend.
The drive to acquire in the authors´ framework is the way we receive satisfaction through the opportunity to acquire scarce goods, or, in case of employment relationships become part of significant event, such as promotion, bonus or getting better office. Second element is the drive of bond, in other words, it brings into corporate picture natural instinct of human being to create their comfortable environment through strong emotional feeling such as love or care. In working environment this bond is expressed through boost in employee morale, when they are proud to belong to the organization or, in contrary, loss of motivation once they feel betrayed by the same. The drive to comprehend comes from the basic need of individuals to make their own sense from the things they see, knowledge they receive or information they transfer. In a workplace, this drive is seen in the motivation of employees in the type of job that makes them challenge themselves and seek for new answers. Individuals become demoralized in the situations when this drive is dominant and they find themselves in organizational roles that have mechanical and monotonous character. Final element of the framework is the drive to defend, which is expressed in our willingness to protect our opinion, standpoint, our families and lifestyle. This defense is directed to everything that we consider being part of our comfort zone.
One of the core expressions of the drive to defend at work is our need to have freedom of expression and reasonable freedom to choose methods and ways to reach the results. One of the strongest responses within defense drive is resistance to change. This resistance is what often creates loss of motivation when the company is changing its strategic direction or goes through a process of Merger and Acquisition (M&A). The above summarizes the complex character of individual motivation and satisfaction. Understanding these four elements can help the company to set embracing performance management framework that will allow driving employee motivation and, consequently organizational performance and culture.
The question that should be asked here is how to find the right balance between financial remuneration and benefits and whether it is possible to differentiate this combined method of compensation based on employee´s personal drives? The answer to this question is complex. Leddy (2013) provides a synthesis of an interesting study, conducted by Gilhrist and Luca in regards to the degree to which pay reflects employee´s performance. A group of 266 freelancers where split in three groups and asked to work for the same one-time task. The groups did not know about the existence of the others. First and second group were offered respective compensation of USD$ 3 and USD$ 4 per hour and the results demonstrate there was no relation between the level of compensation and performance outcome. The third group, however, agreed to work for USD$ 3 and immediately after accepted was informed about the gift of additional USD$ 1 per hour. The increase, according to the professors was not performance-driven, but the feeling of “deserving” for something, motivated higher performance as the drive of higher expectation for next job opportunity. The author of the article suggests a number of other experiments that measure the effect of non-monetary compensation methods with similar results in regards to performance outcome. The above empirical studies support the framework pillars, outlined by Nohria, Groysberg and Lee (2008) and suggest that combined compensation method can drive organizational performance and influence alignment of individual values with corporate culture.
Organizational Culture and Performance
General research on the compensation schemes and the effect of the salary and benefit compensation strategy demonstrate positive influence on organizational culture and performance. It is important to understand, however, that designing effective incentive scheme is more complex than simply creating a mysterious bonus package that depends on employee performance. The variety of existing incentive schemes range from salary and pay-for-performance scheme to salary and vocational package or training. Some of the organizations offer as part of salary and benefit scholarships for pursuing personal development objectives and even provide budget for direct in-house training. The point that should be made here is that all these incentive schemes suggest that performance-based part of the compensation is effective as it provides employees with opportunities that they do not expect and cannot exactly measure the level of performance required to gain this additional package. This creates sustainable intrinsic drives and helps to build on long-term motivational mechanism in a given corporation.
Organizational culture is the factor that can only be incorporated when there is clear and open communication between all organizational levels. Accurate performance management system that provides comprehensive and clear picture of expectations and personal development goals makes employees to ‘activate’ the drive to comprehend as all the actions are aimed to learn and develop further and this learning process is developed in a manner that sets boundaries and directions within the organizational culture.
Conclusion
Organizational performance and culture is the result of individual performance and an outcome of personal perspectives and standpoints of employees. Effective remuneration strategy linked to robust performance appraisal system makes great contribution towards boosting organizational effectiveness and productivity. Contemporary HRM outlines the role of non-monetary motivation in creating sustainable long-term performance culture and alternative methods of motivation that leverage the role of financial element in total compensation system. Such strategy allows companies create stronger corporate culture and increase retention rate. These outcomes, consequently, result in creation of competitive advantage through human competencies and in-house skills and expertise. Understanding the links between remuneration and organizational performance also allows building more confident investment structure for growing talents and future leaders from within the company. In other words, once the company has created effective tools and proper organizational culture to utilize on the talent, retain it, and offer growth opportunities, the investment made in Management Development Programs, Graduate Programs and Personal Development plans gives much higher return on investment.
References
Gratton L. and Truss C. (2003). ‘The three-dimensional people strategy: Putting human resources policies into action’. Academy of Management Executive, 2003, Vol 17, Issue 3, 74-86.
Dessler G. (2010). Fundamentals of Human Resource Management: Content, Competencies and Application. Pearson Education. Print.
Cardy R. and Leonard B. (2011). Performance Management. Concepts, Skills and Exercises. 2nd Edition. M.E. Sharpe, 2011. Print.
Nohria N., Groysberg B., and Lee L.-E. (2008, July). Employee Motivation. The Powerful New Model. Harvard Business Review, July-August, 2008. Retrieved 4 February 2014. http://www.stanford.edu/group/designx_lab/wikiupload/b/bb/HBR_Employee_Motivation.pdf
Laddy C. (2013). Do Employees Work Harder for Higher Pay? Harvard Gazette. Retrieved 4 February 2014, http://hbswk.hbs.edu/item/7287.html
