RickJ Human Resource Management I

The challenge of optimizing compensation & performance in a production

environment.

The organisations today provide quality goods with a major concern on surpassing
customers’ satisfaction with respect to manufactured products’ quality. This
quality good must be provided to the customer utilising very cost effective
manufacturing processes. The labour force cost of organisations challenge the
ability to be cost effective. This challenge plays a major role in competitiveness.
Organisations will move from short-term goals to long-term objectives to
accomplish their mission. They must determine an effective and efficient means of
achieving this set target. Organisations are built to accomplish a specific mission
within a specified time period. Organisations will make changes to pay and
compensation for employees to support its mission. An organisation will
implement a compensation policy that supports organisation strategies toward its
mission. The organisation must ensure the work that must be performed; the levels
of knowledge and skilled required, the quality of people to achieve organisational
success and the rewards the organisation can offer for accomplishment of the
organisations strategy. The organisation must attract and retain people who have
the knowledge, skills, aptitudes and attitudes to accomplish the organisation’s
mission. The compensation policy will acknowledge the everyday life and standard
of living of all employees.

We must acknowledge compensation components so they influence employee

motivation in a positive style and lead to improved organisational performance and
profitability. Compensation is defined as all forms of financial returns and tangible
services and benefits employees receive as part of an employment relationship. An
organisation’s reward system includes anything that an employee may value and
desire and the organisation is capable to offer in exchange for employee
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contributions. The income of an organisation is allocated, converted and

transferred to its employees as wages or salaries. The compensation program
consists of base wages and salaries, wage and salary add-ons, incentive payments
for both short and long term and employee benefits and services. The base wages
of organisations differ with respect to the level of the job in the organisational
structure. The increase of responsibilities requires additional knowledge and skills.
If a job requires a broader knowledge and skill requirement the greater the base
wage. The wage and salary add-ons include overtime and pay for working
weekends and holidays. Incentive payments can be tied directly to measured
output. Benefits and services include time off with pay to the provision of a wide
variety of goods and services such as company car. Benefits and services affect
current and future standards of living. The determination of selecting the rate of
pay may be influenced by the knowledge and skills required type of business,
capital intensive versus labour intensive, employment stability and employee
tenure and performance. Achieving this compensation strategy may not be so
simple in the production environment. The compensation strategy is dependent on
the business strategy of an organisation. The business strategy is developed prior to
the development of a new compensation strategy or tweaking the current system to
achieve the core capabilities of the organisation. The external factors that affect
compensation strategy are organisational culture, business process, organisational
structure, human resources systems and external laws and regulations.

We need to apply our focus on job evaluation before we develop any reward
system. The purpose of job evaluation techniques is to measure the relative worth
of jobs so that the relationship between the jobs can be expressed in salary and
wage scales based on a system. Job evaluation is used in a generally for a number
of techniques that are in different forms. These techniques involve analysing and
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assessing the content of jobs so that they may be classified in an order linking to
one another and to the marketplace. Simply the job evaluation examines all factors
that impact performance of the job. Some may say the job evaluation is that part of
the process in which the organization decides the relative internal-worth
relationships of jobs. The purpose of this evaluation links all the factors of the job
to the appropriate compensation. We must determine the relative worth of all jobs
to ensure fair and equitable pay treatment for all employees. In the 1880s Frederick
W. Taylor’s search for ways to improve productivity of the Midvale Steel
Company led to a formal and systematic study of assigning pay to jobs. The results
of this study were known as the job evaluation. The problem may not be solved so
easily with the job evaluation. We must take into consider assigning a person to a
position to achieve the organisation’s mission. How do we motivate the person
assigned to the position? The organisation goals have to be achieved by the
contributions of an individual which he/she will be compensated for but will it be
correct for us to say compensation and motivation are linked. Motivation is the
desire within a person causing that person to act. Motivation is that inner force
which impels employees of an organisation with the desire to satisfy needs. If
employees fail to satisfy needs we may lead to a reduction or a redirection of
motivation towards other goals which effortlessly reachable. These needs can be
expressed as inherited and environmental. Inherited needs are physiological needs
that must be satisfied for survival of the employee. Environmental needs are
socializing influences in their lives people acquire attitudes, values and
expectations, which lead to learned needs such as status, fame, wealth, power. The
needs of the employee of an organisation can be explained using Maslow’s
hierarchy of needs. Maslow postulates a catalogue of needs at different levels
ranging from the basic physiological and biological needs to the higher, cultural,
intellectual and spiritual needs. There are five levels of needs illustrated by
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Maslow physiological, security or safety, affiliation, esteem and self-actualisation.

Physiological needs are the needs of man that are essential for survival. These may
include food and drink. Security or safety is the needs to be free from danger and
to live in non-hostile environment. Affiliation points out that we are social beings
and the need of being in the company of other persons. Esteem includes self-
respect and value in the opinion of others. Self-actualization is the highest need
according to Maslow. These needs are opportunities that develop talents to achieve
personal goals. Maslow’s theory is based upon two assumptions lower needs are
needed to be satisfied before higher needs are met and a satisfied need is no longer
a motivating factor. We suggested for an employee to satisfy an organisation by
performing a job to obtain the organisation’s goal has satisfy his/her needs also.
The development of Maslow’s theory led to the Herzberg’s two factor theory. This
theory focuses on the needs corresponding to the lower and higher levels of human
goals. These categories are hygiene factors and motivators. Hygiene factors
include environmental factors in the work situation which need constant attention
in order to prevent dissatisfaction. Herzberg stated that motivators have a long time
span of motivation. Motivation comes from the opportunities afforded by the job
for self-fulfilment. Moving from the development of the job evaluation to develop
the compensation strategy how do we measure and pay for performance.

Performance is usually defined by standards that the employee is expected to meet

by the organisation. In order for the organisation to achieve its goals, the goals of
individual employees must be brought into alignment with those of the
organisation. We must recognise the performance that supports organisational
efficiency by rewarding employee-achieved results and behaviours demonstrated.
Organisations performance will lead to results which is what the organisation
accomplished. How do we measure performance when we are not able to quantify
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to output of knowledge-directed workers when compared to jobs requiring physical

strength? In production environments there are administrations and labour forces.
The labour force may require less analysing and disseminating of data but
significant demands are put on physical capabilities. Administration workers must
make greater use of their intellectual skills to problem solve, make decisions and to
disseminate data. These workers spend a significant part of their workday engaged
in complex problem solving, rather than performing mechanistic, repetitive work
assignments. The work of administration workers goes on in the minds thus
making it difficult to identify, recognise or quantify through observation the
quality of their contributions or outputs. The labour force may be the driving force
of a production environment long hours are spent ensuring production targets are
met. It is difficult to determine how much work is done by each employee.
Performance based pay is centered on the inputs to the organisation, rather than the
outputs. Performance based pay relies on feed back on hours worked, conditions
that affected productivity or time required to perform a task to make a final
decision on compensation. We may come across a number of obstacles in the
design phases such as the work of individual employees can vary from day to day,
difficult to observe a complete work cycle, special activities may occur once a
month or once a week that require addition skills or labour, time required to
perform an activity and activities may be completed with the interaction of
employees. The expectancy theory by V.H. Vroom represents ideas or thoughts an
individual develops about the consequences that may result from a certain action.
The expectancy theory model provides a guide for designing incentives. The need
to define or indentify clearly certain desired actions. The need to relate specific
outcomes and consequences to the demonstration of certain actions. The need to
provide the consequence within some established schedule. The reinforcement
theory focuses on operant behaviour. It sets the attention on three views of human
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behaviour. Individuals take no active role in shaping their own behaviour because
they are merely agents responding their environment. The concept of needs, drives
or goal-directed behaviour is unacceptable because of the inability to observe,
identify and measure the impact of the environment. Permanent change in
individual behaviour results from reinforcement of a particular behaviour. The
praise, attention, recognition of achievement and effort, pay for performance and
special events and activities serve as positive reinforcers. A positive reinforce may
include incentives, rewards or consequences. In reinforcement theories it states that
pay influences behaviour to the extent merit increases and other work related
rewards are allocated on the basis of performance. A consequence or reinforce will
have more motivational influence when the employee recognises a direct relation
between activities performed, results achieved and rewards gained. Motivational
value also increases when the timing of the delivery of the rewards closely
approximates the demonstration of a behaviour, the completion of an assignment,
or the achievement of a result.

An incentive is a reward that compensates the worker for high or continued

performance above a criterion used to measure an employee’s performance. Also a
motivating influence to induce effort above normal wage incentive. Incentives are
used to “assist” the compensation program and satisfy needs a compensation
program cannot meet. Incentives should be compensation components designed to
recognise contributions normally considered to be beyond the call of normal day
activities. Theses beyond the call contributions require extra intellectual, emotional
and physical efforts. Incentives can boost intellectual, emotional and physical
effort to improve individual and team performance in return increases the
organisation’s productivity. The improvement of the organisations productivity can
boost and improve outputs and high profits.
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A performance appraisal is the formal process, normally conducted by means of

completing and instrument that identifies and documents a jobholder’s
contributions and workplace behaviours. Performance appraisals are to encourage
employees to put forth their best effort for an organisation to achieve its goals. The
organisation identifies effort and contributions of employees. These employees are
rewarded for effort and contributions reinforce their behaviours in a manner that
increases the likelihood that they will achieve their own goals. Information
accumulated by performance appraisals are used to make futures decisions the
areas such as organisational and human resource planning, employee training and
development, compensation administration, employee movement
(promotion/demotion) and validation of selection procedures. Performance
appraisals should be fair, accurate and objective. This is not the case because the
philosophies, values and cultures of the person rating and the person being rated
often interfere.

Organisations implement pay-for-performance programmes linking employee

behaviours and contributions to desire organisational goals. The challenge for
organisations is establishing performance standards for knowledge directed
workers. The knowledge directed workers are the labelled as the modern day
employees. These pay-for-performance programmes require a performance
appraisal with in a performance management system that understands both job
requirements and job expectations. A performance appraisal is conducted primarily
to rate employee performance with the intentions to direct employees’ efforts
toward organisational goals.