the right threshold for their organization, even though it could turn to not be sufficient
too, in that a financial threshold should be, in theory, identified for each person (Longo,
2012).
Yet, it should not be overlooked that on doing so, employers should also keep into
consideration the circumstance that the reward packages they offer to their employees
also have to be perceived as equitable and fair by all of them. Whereas on the one hand
individuals tend to consider as fair and adequate the reward packages whose financial
component will enable them to live relatively comfortable lives, employers should make
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Reward Management
sure, on the other hand, that the reward packages they offer are considered and
perceived as fair and consistent by the entire workforce. In other words, trying to
identify individuals’ needs and expectations does not mean creating unjustified inequality
and unfairness (Longo, 2012).
It clearly emerges that designing and developing reward management systems, and
express them by means of adequate and consistent practices and policies, is everything
but straightforward. Nevertheless, employers should be aware of the importance of
meeting, as far as possible, individuals’ wants and expectations, as well as is important
that they are aware of all of the likely pitfalls associated with designing and introducing
inconsistent and unfair reward practices and systems. The task is genuinely challenging
and that is why employers need to build synergism with other forms of rewards, namely
flexible and voluntary benefits, in order to attain the desired objective.
The impact of the changing content of the psychological contract
over reward management practices
Individuals’ preferences, needs and expectations are not actually influenced only by
personal occurrences. Even though, in general, a more direct link between personal
difficulties and individuals need for salary increases can in fact be identified; in practice
individuals’ wants and expectations are not just influenced by adversities.
Still focusing on the financial component of reward only, it can be said that individuals’
keen interest for the one or the other element of the reward packages they receive from
their employers is indeed influenced by a whole range of different factors. Yet,
individuals’ needs and expectations cannot only be met by the financial component of
the reward packages they receive. Finally, individuals’ preferences are not static, but can
be considered somewhat of dynamic, meaning by that that these are subject to change
over time.
Acquiring an overarching, in-depth knowledge of individuals wants and being able to
promptly capture changes in people’s needs and expectations, not to mention the ability
to understand future trends, can clearly reveal to be crucially important to design,
develop and introduce effectual reward management practices within an organization.
In broad terms, it can be said that, essentially, employers aim and strive to have, as far
as possible, recourse to sophisticated, craftily devised reward management practices
because they are expected them to pay off. To put it another way, employers try to
meet their own expectations by meeting those of their employees and that is why it is
said that reward management practices need to satisfy both employers’ and employees’
needs.
As it is widely recognised, one of the topics at the top of business leaders’ agenda is staff
motivation which, together with employee commitment and engagement, definitely
represents one of the current top priorities for every employer. Reward managers and
specialist should hence consider enabling employers to achieve this objective or, the
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Reward Management
worse comes to the worst, helping them as effectively as possible to attain it, their first
priority.
Finding effective and sound ways to motivate and engage staff is clearly seen and
perceived by employers as a no mean feat. Especially in periods dominated by harsh
competition or during phases of financial downturn and slowdown, when employers have
to tighten their belts in order to maintain their competitiveness, the human capital factor,
that is, the only factor which can hardly or even impossibly be replicated, is broadly
recognised as the only and most powerful factor which can actually contribute
organizations competitive edge (Longo, 2011a).
But how can in practice employers encourage discretionary behaviour and induce their
staff to go the extra mile in order to achieve the desired level of performance? The
answer should be found in the root of every employment relationship, namely the
psychological contract according to which individuals commit themselves to perform
working activities for their employers in exchange for a not exactly specified and
generically defined “reward.” This conundrum is actually not as straightforward as it
might seem to deal with. As we have seen the meaning and content of reward is unlikely
to be the same for the different individuals concerned within an organization, as well as
it is unlikely that this meaning and content would remain stable and invariable over time
for the same individuals concerned (Longo, 2011a).
People identify different goals to satisfy their different needs and act differently to attain
their identified goals (Armstrong, 2006), the one-size-fits-all approach to motivation is,
hence, very unlikely to produce appreciable results. The most effective, and, to some
extent, most obvious approach to deal with the issue would just be to give each
individual what he/she actually wants and would like to receive (Longo, 2011a).
Individual’s preferences can, in general, be investigated by means of focus groups, “have
your say” communication sessions, staff consultation forums, large group sessions,
internal surveys and other similar initiatives. Since it is not only people who are subject
to change, but also the world around them, a thorough and comprehensive investigation
cannot miss to consider the external environment too (Longo, 2011a).
As described in paragraph 4, a PESTLE investigation can definitely help employers to
anticipate future trends and their influence on individuals’ preferences. An evidence of
the impact and relevance of the role played, for instance, by the legal framework within
which organizations operate is provided by the findings of the study “Benefits around the
world Report 2011” carried out by Mercer (Mercer, 2011). The findings of this
investigation basically revealed that multinational organizations have been prompted to
introduce remarkable changes in response to states pension and health and welfare
reforms. Indeed, structural pensions and health provisions reforms have been introduced
in many countries across the world essentially generating a gap between what
employees were expected to receive after their retirement and what they will actually
receive. This aspect, especially in the light of the ageing population phenomenon and of
the consequent international trend according to which retirement age tends to be risen,
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Reward Management
has led organizations to design and implement different approaches in order to bridge
this gap (Longo, 2011a). This is an example of an aspect that, whether could have been
previously perceived as less important by individuals, is now considered as one of the
most important employers have to care about in order to honour the psychological
contract.
Most importantly, the findings of the studies and investigations carried out over the
years have revealed that individuals are not motivated just by the extrinsic and financial
component of reward; research has suggested that people are much more motivated by
intrinsic, non-financial rewards and find much more motivation in their jobs rather than
in the pay they receive to carry them out.
Clearly, over the years the content of the psychological contract has changed, providing
evidence on the one hand that what individuals want and are expected to receive from
their employer is not stable and on the other hand that employers are the weakest of the
two parties involved in the contract. The change and evolution of the psychological
contract content in fact very much depends on employees rather than on employers ever
changing expectations.
In order to duly consider individuals’ continuously changing needs and to balance the
effects of financial and non-financial reward (whatever the emphasis on non-financial
component of reward, employees would not work if they would not receive a salary),
relatively recently, a new concept of reward has been developed, that is, that of total
reward.
In broad terms, according to the total reward approach reward packages have to be
developed and built up on two distinct main components: a financial/extrinsic component
and a non-financial/intrinsic one. The design and development of this kind of models is
based on the idea, supported by decades of studies and investigations, that financial
reward is not a so effective and powerful motivator as it might seem, at least in the mid
and long run. Findings of dozens of investigations and surveys carried out over the years
have revealed that financial rewards can help organizations to attract individuals during
the recruitment process, but that these cannot be considered as a powerful and effective
motivator during the employment relationship. Emphasis has, instead, to be given to the
development, involvement and participation of individuals. Taking care with both of
these aspects, total reward approaches can effectively help employers to promptly
respond to their employees changing needs and meet individuals’ expectations based on
the content of their unwritten psychological contract (Longo, 2011a).
The external environment is constantly exposed to changes and clearly individuals’
needs are determined and influenced by what happens in the exogenous environment.
Inasmuch as the external environment is changing the faster and faster, individuals’
needs are subject to change at the same speed. In order to retain their staff employers
need to be aware of this circumstance and need to be able to having recourse to the
appropriate tools in order to investigate the phenomenon (Longo, 2011a).
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Reward Management
Reward, or rather, total reward is clearly of pivotal importance and has a relevant role in
the process; employers resorting to well designed and flexible total reward approaches
should be able to face the changing conditions promptly and effectively and to adapt,
hence, their offering to the changing content of the psychological contract without any
particular difficulty (Longo, 2011a).
There is, nonetheless, a circumstance which employers should really neither overlook
nor underestimate: inasmuch as individuals are different one another, not necessarily all
of them, although certainly the greatest number of them, long for professional growth.
This is actually not the case of those who would like to quickly climb the career ladder
but do not do anything in practice to attain this objective, but rather the case of those
who are not interested to approach the ladder itself.
The Job Characteristics Model developed by Hackman and Oldham (1974), which is a
contingent rather than a universal approach like the Hierarchy of needs developed in
1943 by Maslow (1954), shows that not all of the individuals have the same level of
Growth Need Strength (GNS). In particular, people with low GNS are not interested in:
-
Intrinsic reward, they do not look for the variety of the job performed, skill
variety;
-
Task identity either, that is, with the importance of their role in the overall
organizational process;
-
Knowing the impact of their job on other employees’ jobs, task significance.
Yet, people with low GNS do not feel rewarded by higher level of autonomy and are
not that much interested in receiving feedback from their managers about their
performance. Such individuals do not therefore receive any benefit from intrinsic reward,
on the contrary, if forced beyond their desired level of GNS, results could be
counterproductive and they could even perform below their usual standard. As the
matter of fact, there are not so many individuals having low GNS, but these kinds of
cases have to be promptly identified by employers and treated accordingly. More often
than not, this is case of individuals (mostly, but not necessarily, involved in mechanical
jobs) who feel more comfortable being rewarded by extra cash only for their good
performance (Longo, 2011a).
It can be concluded that the main element contributing to make reward practices
particularly tricky to manage is represented by people variety and diversity and by the
dynamic mechanism according to which individuals’ wants and preferences change with
the passing of time.
Employers have to be aware that not meeting individual needs, nonetheless, has not to
be simply considered as generating disappointment in the people concerned; such
occurrence in actual fact causes in people the even worse feeling that their psychological
contract has been breached by the employer. Should this undesirable circumstance
happen, it is very likely to generate negative behaviour and unsatisfactory performance.
Employers need by extension to pay extra care to this particularly sensitive aspect.
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Reward Management
Reward management in a framework context
Despite many argue that attributing to financial reward a motivating effect should be
considered questionable, it can be taken as axiomatic that whether employers are paying
a growing attention to this aspect it is only because they believe that, in one way or
another, financial rewards have a role to play and, although to different degrees, can
actually influence individual behaviour. To put it in a different way, albeit employers
might be persuaded that money does not motivate people, they are aware that, even
though not homogenously, individuals attach to it an indeterminate degree of
importance that they cannot really afford to overlook.
Financial reward might not be hence considered as a means to an end, but it surely
needs to be considered as part of the means. Yet, Herzberg’s definition of money as a
hygiene factor, after all, recognizes and attaches to financial reward a meaning and a
certain degree of importance, even though to a negative extent, that is, as demotivating
individuals if not perceived as fair and quantitatively adequate.
It can ultimately be maintained that analysing the role played by financial reward over
people’s motivation per se could be considered inappropriate and partial. Held in
isolation and as the only factor used to influence people’s behaviour and actions, it is
very unlikely in fact that financial reward could reveal to be an effective means to the
motivation end; whereas used as part of a wider and more extensive plan of action
aiming to induce employee discretionary behaviour, financial reward will surely reveal to
be an employers’ more effective allied. After all, it is very unlikely that employers could
ever be able to attain this ambitious objective having recourse to a single element,
initiative or action.
Table 3 - Elements of a synergic motivational plan of action
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Reward Management
To this degree, by extension, financial reward needs to be better considered as part of a
framework where, used in synergy with other non-financial reward components, it can
more successfully be used. It is, essentially, an example of practical application of the
bundle approach based on the tenet “more is better.”
Resorting to a specific model will also reveal to be particularly useful in order to
introduce some concepts and ideas which are particularly important and necessarily need
to be known and understood by employers and reward specialists as well to design and
develop more appropriate, effective and consistent reward strategies and practices.
The framework described in Table 4 tries to provide employers with an example of how
reward management can effectively be used in combination, that is, in synergy with
other elements in order to influence individuals’ behaviour and performance.
Table 4 - The Motivation Framework
The first step of the process consists in identifying individual’s needs, aim which can
effectively be attained resorting to content theories. It becomes important, hence,
determine how individuals choose, amongst the available options, a specific plan of
action to satisfy their needs; the reference being, instead, here to process theories.
After having carried out these two first investigations, employers can analyse the
information gathered and use them accordingly. The ultimate scope is to influence
employees’ actions developing and introducing appropriate and consistent HRM practices.
It should not be overlooked in fact that HRM policies aligned with the overall business
strategy basically aim at inducing those behaviour and actions considered crucial for the
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Reward Management
successful attainment of organizational strategy and, consequently, business success.
The final stage of the framework focuses on determining the most suitable behavioural
management style, consistently with organizations’ values and shared beliefs, in order to
win workforce’s trust and inspire integrity (Longo, 2011b).
The importance of the psychological contract
People in charge of carrying out the process should be well aware that throughout the
process particular attention has to be paid to the psychological contract. Both employers
and employees in fact from the very beginning, namely the moment the working
relationship has been established, have reciprocal expectations and these expectations
actually represent the basis of the psychological contract (Longo, 2011b).
The solidity and strength of this unwritten contract very much depend on individuals’
trust in their employers and, more in particular, on individuals’ belief and confidence that
their employers will “honour this deal” (Guest and Conway, 2002). This really is a
sensitive issue in that, although we are looking at an unwritten contract, the eventual
breach of this “reciprocal obligation” from the employer’s side is very likely to trigger
remarkably negative effects in that it would be perceived by employees as a threat to
their job stability (Porter and al., 2006). Individuals’ commitment and engagement
would decline and with them performance and staff’s willingness to go the extra mile. It
is the overall organization’s capability of gaining competitive edge which would be
exposed to danger (Longo, 2011b).
Content theories
Broadly speaking, in the past, two theories have been dominating the subject of the
reward-motivation supposed link: one was based on the existence of a strong and direct
cause-effect relationship between these two elements (Taylor, 1917), whereas the other
was underpinned by the concept that people are motivated by the social factor rather
than by the financial one (Follett, 1926 and Mayo, 1949).
In order to properly investigate the phenomenon, it is, first of all, important to duly
consider whether individuals’ needs can be clearly collectively identified.
Alderfer (1972) suggests that in every person there are the same wants. Individuals’
needs are, however, differently perceived and this diversity very much depends on the
different importance and level of priority that every individual attaches to each different
need. This aspect, which could apparently be considered of secondary importance or just
as a nuance, is instead of paramount importance. The significance that every person
associates with each need in fact modifies the perception of each individual towards the
same need, making ultimately individuals’ wants different according to every person’s
different perception (Longo, 2011b).
Particularly relevant amongst the content theories is also the two-factor theory
developed by Frederick Herzberg (1957). More in particular, Herzberg carried out a
thorough investigation about the factors affecting people motivation r