Strategic Reward System- Analyzing the gap between “Best Fit” and “Best Practice”
Volumn 2

Strategic Reward System- Analyzing the gap between “Best Fit” and “Best Practice”

Nirja Upadhye
Assistant Professor, DMSR, GS College, Nagpur, RTMNU
nirja.upadhye@gmail.com

Abstract:

This paper examines the difference between the two different perspectives of Strategic Reward System- “Best Practice” and “Best Fit”. The former claims that there is a set of HR practices which in combination with Reward system will lead to increased employee morale and their level of commitment resulting in gaining competitive advantage. Whereas the later pays more importance to the Organizational strategy and talks about linking it with the reward policy in order to gain competitive advantage. This paper attempts to find out the points of agreement and disagreement between these two different perspectives.

Keywords – Best Fit, Best Practice, Strategic reward system

I. INTRODUCTION

In this ever-changing world, there are towers of challenges for both the employers as well as for the employees. While the employees strive hard to prove their mettle to get a position in the high performer’s category, the employers are ready to leave no stone unturned in order to retain their best talent. HR department is asked to focus more on adding strategic lining to their HR practices. This will ensure the integration of Human resources with the Goal achievement and success of the organization.

Strategic HRM observes the HRM practices carried out in such a way that it helps both the employees and the organization as a whole to achieve its goals and get benefitted by the same. This will ensure that the goals set by the HR department for itself, aids the goal accomplishment of other departments. In a nut shell, it can be said that strategic HRM works on strategizing to achieve the business goals through its people. Human Capital, systematic approach and people applying the strategic plan are the three main ingredients of Strategic HRM. All this leads to organizational effectiveness undoubtedly.

Talking about the much in hype HR practice- Reward System, this practice has proved its importance for brain gain and retention of current employees for organizational excellence. This is definitely going to add to the competitive advantage of the organization. The reward system includes, bonuses, additional time off, increased pay and many other innovative practices been practiced by the HR department for the staff members who have excelled in their work falling in their specific domain. As HR now has seat on the table that affects strategic decisions to be laid down by the organizations, it has proved the importance and Effectiveness of strategic HR practices for the organization. Thus, fitting the HR practice of Reward management in the Strategic framework also has borne fruits to the Organization. Strategic Reward system involves formulation and implementation of the reward system that is in sync with the strategic objectives of the organization. Thus, this has proved to be a very important HR tool used for rewarding the employees for their efforts. The Rewards (Compensation, benefits, work-life balance, recognition, development opportunities, career opportunities) is the key for attracting, retaining the employees and getting the best out of them. And aligning it to the strategy makes it more valuable adding to the organizational effectiveness. The Strategic Reward system has two perspectives: “Best Fit” and “Best Practice”. Each approach attempts to prove how the Reward system as a whole can lead to greater organizational effectiveness.

II. BEST PRACTICE

“Best Practice” perspective stands by the view that there are a few best practices, including the reward system, that are considered to be effective universally for all the organizations irrespective of its background. It argues about the existence of relationship between HR Practices, Policies and Organizational Performance regardless of its business context or strategy. Best Practices are bound to have universal and additive effect on Organizational Progress. It believes that a bunch of HR practices certainly including the reward system ropes Organizational business strategy. This in turn leads to highly committed and motivated employees leading to enhanced competitive advantage.

The best known set is Pfeffer’s (1994) model that shows that seven important HR practices of a successful organizations which are: employment security, selective hiring, self-managed teams, high compensation contingent on performance, training, reduction of status differentials and sharing information . The argument here is, a couple of best practices that are believed to be effective in a few firms or cultures aren’t necessarily the best ones for all the firms or companies or culture. There cannot be one costume fit for all. This can be explained with an example of one of the HR Practice- Forced distribution method for performance appraisal. This being termed as effective HR practice by many organizations including GE that has currently shifted from this method after practicing it for long, still can’t fit all the organizations. This can be due to the preferences set by the company itself. Firms that fancy process over outcome can go by the method of “forced distribution” whereas the forms that believe in Impact of Outcome should depart from this practice. This is how GE has also paved its way off from forced distribution method after following it for years.

“When you think of the leadership association people have with Jack Welch and the ranking and rating, it suited a certain time, it does not suit today and today’s worker in my opinion,” Adobe HR head Donna Morris, who led that company’s transition away from annual reviews and ratings, told Quartz. “It’s a process that looks in the rear view mirror, that’s focused on what you’ve done a year ago. That just isn’t current with how I think we’re working and how many of the employees that we’re looking to attract or grow have been raised.” “Yes, I realize that some believe the bell-curve aspect of differentiation is ‘cruel,’” Welch wrote. “That always strikes me as odd. We grade children in school, often as young as 9 or 10, and no one calls that cruel. But somehow adults can’t take it? Explain that one to me.”(http://qz.com/428813/ge-performance-review-strategy-shift/ )

Thus best practice cannot be fit for all the firms. Similar is the case with “Pay for Performance” and many other practices. Thus “Best Practice” Critics vary in their view about the beneficial implementation of this. They argue that Business is fluid, dynamic and ever evolving hence, the business practices can be misfit according to the business compatibility and current market situation for that product/service. Boxall and Purcell 2003 had questioned on the best practice- “Who is going to get benefitted from it? Employees or managers/stake holders? Is there going to be any scope for the employees for discussion? Or it is just going to be a view point of the managers? Pfeffer (1998) has to say that there is definitely some relationship between what the firm pays and the quality of talent it attracts. Attracting and retaining the quality employees will depend on the type of competitive pay levels offered by the firm considering the competitive advantage that the firm is hopeful for. Globalization also plays a vital role in tapping markets, raising capital, etc. Also, the effective management of Human Capital also affects the firm performance. If this is so, then we can conclude that there should be different best practices for different employees in the firm; which stands against the theory of “Best Practices”. The same is applicable to the different companies; how can the same practice be applicable for all the companies with different culture and strategies, proving to be equally effective?

III. BEST FIT

Best Fit practice has come into view setting aside the idea of Universal best practices. This perspective stands by the view that HR policies/practices are contingent. The Reward practices are unique and are dependent on various factors that are linked to the organizational strategy. Whereas, “Best Practice” argues about the Reward system being universal. Also they stress upon the specific set of HR practices, though not unanimously agreed upon the list of practices being talked about. Best Fit talks about the customization of the HR practice according to the company strategy. Best Fit supports the view that the employees tend to work with a firm that tends to recognize and reward the performers. Thus organization that gives only the basic salary without any incentive will not attract the quality and also will not be able to retain talent for long. Whereas the organization that is prompt in offering perks and incentives along with the basic salary will have the tendency to attract quality employees. Thus their rewards, will tend to get employees with more entrepreneurial skills, Decision making skills, required technical skills and problem solving skills. The reward system should be able to differentiate between the good performers and the bad ones. The reward system should be such that it makes an arrangement to encourage the good performers and assist the way out for the poor ones.

IV. ANALYZING THE GAP AND COMMANALITIES

While the “Best Practice” relies on the Content theories, the “Best Fit” Depends on the Contingency theories of motivation. The advocates of “Best Practice” is based on Herzberg’s Two Factor Model that states- The factors responsible for providing satisfaction (Motivators) within employees are different from those that lead to dissatisfaction (Hygiene Factors). Motivators are intrinsic to the job. It includes- achievement, recognition, kind of work, responsibilities, growth etc. Whereas the hygiene factors include, salary, benefits, etc. that is extrinsic to the job and this is potential source of job dissatisfaction. Herzberg views incentives as mere psychological factor corresponding to a push to perform and get the increase in the wages. Kohn and Pfeiffer continuous with this view stating that Incentives might change the behavior but this change has to be temporary. This is because, in their view, incentives might change the behavior of an individual but does not change the attitude that forms the base for the behavior. They also hold the view that the absence of incentives might demotivate the people considering this as a punishment. Both Kohn and Pfeiffer (1998a, p.216) support their view with the empirical research which concludes that financial incentives are not the most important thing for the employees and that it tends to lower their internal motivation. “Best Fit” stands firm with their view that there is no one Best HR practice but they have to be different for different circumstances. This is what the contingency theory has to say- total reward programs should be tailored to the organization’s own particular structure, culture, business objectives and work process. This will ensure effectiveness of the reward system as it is going to be integrated with organizational and environmental situation. This is possible only after getting HR and Organizational processes get in sync. Thus, customization of the reward system is the mantra for “Best Fit”. Both the perspectives believe in the importance of reward system in an organization. Both aim for gaining the competitive advantage. They also share the view about rewards system playing the significant role in attracting and retaining the talent.

V. CONCLUSION

To summarize, each approach has its own view point in order to create and sustain the competitive advantage. Both the perspectives believe in fair reward system but they suggest different ways of achieving the same. The organizations have choice between various ways to achieve excellence, “Best fit” can be thought of as an appropriate strategy for the organization. This article also suggests aligning the current organizational situation and other organizational specific factors such

as business strategy, external environment and workforce etc. with the HR practices, leading to a positive impact on organizational performance. Accepting the fact that there cannot be one single universally accepted set of HR best practices, though certainly there are limitations to universal acceptability of both the perspectives.

Both the perspectives promote the fair reward system but differ with their views in attaining the same. Where “Best Fit” confirms with the concept of “contribution”, as in, contribution of the employees to their work and paying them accordingly. The “Best practice” inclines towards the equality principle wherein, the people doing the same job are paid the same. Thus, promoting cooperation and team work. This is also thought to encourage them for better performance. Both the approaches supports the existence of Reward Practices and its benefit. They also believe that appropriate reward system will lead to retention of employees and attracting talent, encouraging employees and thus achieving the competitive advantage. The two perspectives lean towards different approaches. While “Best Fit” supports Contingency approach, the “Best Practice” is inclined towards universal approach. Thus, there has to be different reward systems according to the varying business strategy of different organizations. It gives more importance to the organizational strategy. It supports the view of expectancy theory which suggests that the employees tend to act in a very particular way when they are driven by rewards. On the other hand, “Best Practice” with its universalistic view, relies on Herzberg’s theory and hence, they are less confident about the pay and the sole motivator for employees. They think that Pay can only prevent dissatisfaction among the employees. They advocate that the Pay is a factor to influence behavior of people but attitude hardly gets affected due to this. Hence, the behavioral change ought to be temporary. It believes in a reward system that has collective incentives for the team.

This paper is limited to the strategic HRM approach with respect to Reward system. It is found that every writer differ in his/her own view about the two different approaches. The organization should select the best approach based on its current situation, market and other external factors. This is definitely true that one size is not going to fit all. Hence there has to be customization of practices when and wherever required.

REFERENCES

  1. Pfeffer, J. (1994) Competitive Advantage Through People: Unleashing the Power of the Workforce. Boston, MA: Stanford Graduate School of Business, Harvard Business School Press.
  2. Herzberg, F. (2001) One More Time: How Do You Motivate Employees? Harvard Business Review, 81(3), p. 87 – 96.; reprint ed., Harvard Business Review, 1968, 46(1), p. 53-62
  3. Thorpe R & Homan G. (2000) Strategic Reward Systems . London: Pearson Education L Limited
  4. Armstrong, M (2006), A Handbook of Human Resource Management Practice, Kogan Page Publishers
  5. Evidence-Based Reward Management: Creating Measurable Business Impact By Michael Armstrong
  6. A Handbook of Employee Reward Management and Practice By Michael Armstrong
  7. Pfeffer, J. (1998b) Six Dangerous Myths About Pay. Harvard Business Review, May June, p. 109 119
  8. http://qz.com/428813/ge-performance-review-strategy-shift/

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