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Project On Strategic Reward System

CHAPTER I

INTRODUCTION

Organizations must become more strategic if they are to survive and succeed in the current

business environment. Functional and unit strategies must be aligned with overall firm

strategy to enhance organizational effectiveness.

As human resources (HR) takes its seat at the table and affects strategic direction,

organizations are beginning to recognize that human capital can be utilized as a competitive

advantage. HR guru Dr. John Sullivan continually attributes an organizations success to the

productivity of its employees, therefore defining the ultimate goal of human resource

management (HRM) as maximizing workforce productivity. In this respect, strategic

compensation systems are vital to ensuring desired employee behaviors and enhanced firm

performance. Employees should be compensated and rewarded for the time and effort they

put into work. Strategic reward management involves the formulation and implementation of

an equitable reward system that is congruent with the organisations strategic objectives. A

strategic reward system is a type of human resource management tool that is used to reward

hardworking employees in an organisation. It operates on two main principles; the best fit

perspective and the best practice advocates claim. The objectives of a strategic reward system

are; attract and retain employees, motivate performance, promote skill development,

encourage corporate culture and determine pay costs. Rewards can be either intrinsic or

extrinsic. However, it is important when designing, implementing and using a reward

strategy, that it meets both individual and organizational needs. HR professionals are more

aware than ever that aligning all aspects of both the organization and HRM are necessary to

maximize the achievement of organizational goals. Total rewardsincluding compensation;

benefits; work-life balance; performance and recognition; and development and career


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opportunities are one crucial aspect of attracting, retaining, satisfying, and getting the most

out of employees. To be effective, a total rewards package must tie together the

organizational strategy, workforce strategy, and HR strategy. Total rewards should align

each employee with the organizational objectives. In addition to satisfying employees,

strategic total rewards create cost efficiencies for the organization. The term total rewards

does not necessarily refer to more rewards. It refers to wholly understanding the needs of the

organizataion and its employees, then targeting and allocating rewards accordingly. The use

of strategic rewards should offer more value for the given cost of a reward by effectively

driving performance linked to organizational objectives.

REWARD

Reward isthe desired outcome of

a task as stated by Leopold

(2002). A much more

comprehensive understanding is

given by Armstrong as he suggests Reward Management deals with the

strategies, policies and processes required to ensure that the contribution of

people to the organisation is recognized by both financial and non financial

means. The overall objective is to reward people fairly, equitably and

consistently in accordance with their value to the organisation in order to further

the achievement of the organisations strategic goals. Reward Management is not

just about pay and employee benefits, It is equally concerned with non financial

rewards such as recognition, learning and development opportunities and

increased job responsibility.


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CHAPTER II

FINANCIAL AND NON-FINANCIAL REWARDS

There two types of rewards; Financial (extrinsic) and Non-Financial (intrinsic).

Porter and Lawler suggest both are necessary for generating job satisfaction

related to performance.

Financial rewards

Base Pay is a certain payment connected with a job, usually given on a time

basis (hourly, weekly, monthly or yearly). Variable Pay is dependent on

performance of individual, team or organization and cannot become a part of

the basic pay. Employee Benefits are made up of options like insurance, stock

options, company cars, pension-schemes and holidays.

Non Financial Rewards

One of the most important aspects of intrinsic rewards is Job satisfaction. If a

person is not satisfied from what he does, his performance gets affected thus

damaging the performance of whole team and in turn, the organization.

Feedback and recognition; the praise and recognition given to an employee for

any good work is viewed positively and for some employees, existence of

responsibility and autonomy in their jobs is a form of intrinsic reward.


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A model of total reward developed by Tower Perrins

Transactional (Financial)

Relational (Non Financial)

The upper two quadrants; pay and benefits represents financial rewards and are

essential to recruit and retain staff but can be easily copied by competitors. The

lower two quadrants represents Non-financial rewards which are essential in

increasing the value of upper two quadrants.

Pay

- Base Pay

- Contingent pay

- Cash bonus

-

Long term intensive

Benefits

- Pensions

- Holidays

- Healthcare

-

flexibility

Learning and

development

- Work place learning and

development

- Training

- Performance and

Work Environment

- Core value of organization

- Leadership

- Employee voice

- Recognition

- Achievement


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CHAPTER III

INDIRECT FINANCIAL REWARDS

Indirect reward refers to that part of total reward package provided to

employees in addition to the the base or performance pay. It consists of options

like private health care, dental and eye care, insurance, career breaks, pension

plans, stock options, subsidized meals, entertainment vouchers and company

cars etc.

EMPLOYEE REWARDS LINKING WITH AN ORGANIZATIONAL

STARTEGY

Reward strategies can be linked with organisational strategies as vertical

alignment (fit between the reward strategy and the business strategy) and

horizontal alignment (fit between reward strategy and HR strategies and

policies.

Vertical alignment

It means that business and reward strategies are in line with each other and

reward strategy is defined in a way which clearly explains how they will

contribute to the achievement of the business plan. There are also some

problems in achieving vertical alignment for example, it may be possible to

establish the strategic goals of organisation but it may be more difficult to

identify reward strategies that are specifically related to them or it could be that

business strategies are not clearly defined.


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BUSINESS STRATEGY

- Achieving competitive advantage

through innovation


through quality


thorugh low costs

REWARD STRATEGY

- Provide financial incentive and

reward and recognition for

innovation

- Link reward to quality

performance

- Review all reward practises to

ensure they provide value for

money


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Horizontal alignment

It is achieved when the various HR strategies and Rewards strategies are

coherent.

HR Strategy

- Resourcing

- Performance

management

- Learning and

development

Reward Strategy

- Total reward approaches

that help to make the

organisation a great place to

work

- Competitive pay structure

that helps to retain high

quality employee

- Variable pay schemes that

contributes to the

motivation of the people

- Performance management


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TRADITIONAL REWARD AND NEW REWARDS

Traditional rewards:

Based on cost of living and labour market

Base wage or salary

Evenly distributed between employees

Correlated with seniority

Based on individual performance

New Rewards:

Variable pay

Based on business performance

Differentiated

Based on individual performance

Based on team and organisational performance

Used as a means of communicating values


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CHAPTR IV

TRADITIONAL PAY SCHEMES AND MORDERN PAY SCHEMES

Traditional Pay schemes

Time Rates

It is usually paid on hourly or weekly basis and due to the definite nature of the

reward it may not motivate all the employees. It is easy to implement and

understand.

Payment by Result (PBR)

There are different types of PBR incentive schemes in practise some of which

are:

Individual time saving is the incentive is paid for time saved in

performing a specified operation

Measured Day-work is in which employees are paid a fixed amount as

long as they maintain a predetermined and agreed level of working.

Group and plant-wide incentives are in which employees in the plant or

other organisation share in a pool bonus that is linked to the output

Commission is a Bonus payment which is usually linked with sales. The

reward is sometimes pre determine figure or is a percentage of the total

sales figure.


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Disadvantages of PBR schemes

Operational inefficiencies may affect the incentive for the employee

Quality of work may be put on the line in order to achieve high levels of

outputs

Quality of working life may start to diminish as PBR schemes may also

de motivates employees.

Plant/Enterprise Based Schemes

These schemes tend to focus on the whole of the organisation. It comprises

schemes like Gain-sharing and Productivity bonus.

PRP Individuals receive financial rewards in the form of percentage increase to

basic salary which are linked to an assessment of performance in relation to

agreed objective (PRP is discussed in detail in the later part of this document)

Modern Pay Schemes

Share option schemes permit companies to grant share options to directors and

employees in tax- effective manner. This means that they are given the

opportunity to buy shares in their own companies at a future date, but at the

current price.


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Types of shares schemes:

Employee share ownership plan (ESOP) is an employee benefit trust

linked to share participation scheme. The trust receives contributions

from the company or borrows money and then buys shares in the

company, which are allocated to the employees.

All employee share schemes

Executive share incentive scheme

Advantages

They are common and they are well understood by executive and

shareholders alike

In some tax regimes (historically, including UK) they have enjoyed

significant tax advantages

Disadvantages

They are often unsuitable for well established companies

They tend to use up shares more quickly than other types of scheme,

hence creating dilution difficulties for a company with a smaller capital

base

Cash-Based awards

The traditional and most common profit-sharing arrangement is simply to pay

employees a cash bonus. Calculated as a proportion of the annual profits, on

which employee incurs both a PAYE and a national insurance liability.


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CHAPTER V

INDIVIDUAL PERFORMANCE RELATED PAY

Individuals receive financial rewards in the form of increases to basic pay or

cash bonuses, which are linked to an assessment of performance usually in

relation to agreed objective.

Scope is provided for a joined pay progression within the pay bracket. High

level of achievement may be rewarded by cash bonuses that are not

consolidated. Individuals are eligible for such bonuses when they have reached

the top of the pay bracket and have completely progress along their learning

curve.

Advantages

It acts as a monitor

It encourages and supports desired behaviour

It delivers the message that performance, competence and skill are

important

It provides a mean for defining and agreeing performance and

competence expectation

It can reinforce the organisation value

It can help to achieve culture change


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PROBLEMS WITH INDIVIDUAL PERFORMANCE RELATED PAY

The extent to which IPRP motivates is questionable.

The requirements for success are difficult to achieve

Money by itself does not result in motivation

It cannot be assumed that money motivate everyone equally

Financial rewards may motivate them who receive it but it may also de-

motivate those who havent.

IPRP can create more dissatisfaction than satisfaction if they are

perceived to be unfair

Schemes depend on the existence of accurate and reliable methods of

measuring performance.

Employees can be suspicious of schemes because they might fear that

performance standards will be raised continuously.

IPRP decisions depend on the judgement of the managers, which in the

absence of reliable criteria could be unfair.

IPRP is based on the assumption that performance is completely under

the control of individuals when, in fact, it is affected by the system in

which they work.

IPRP has proved difficult to manage.


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REWARDING TEAM PERFORMANCE

As stated by Armstrong and Murlis that the aim of team reward processes is to

reinforce the behaviours that lead to and sustain effective teamwork. The reason

for developing team rewards is the perceived need to encourage group

endeavour and cooperation, rather than to concentrate only on individual

performance.

The research conducted by the CIPD, Industrial Relations Services and the

Institute of Employment Studies showed that the most common method of

providing team pay for managerial, professional, technical and office staff was

to distribute cash sum bonus related to team performance among the team

members. The design for team pay will be contingent on the requirements and

circumstances of the organisation, and these will always differ.

Examples

1) Performance related to define criteria, as at Lloyds Bank and Norwich

Union, where the criteria are sales and a measure of customer

satisfaction.

2) Bonus related to overall criterion, as at the benefits agency (now part of

DWP), where team bonuses were paid if there had been a valuable

contribution to performance as determined by local unit managers.


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In order for Team pay to be effective it must be in line with the

organisations core value and management style- management must

believe that good teamwork will make a difference.

The characteristics of the teams themselves should be appropriate for the

form of team pay chosen.

Should be composed of people whose work is interdependent- it is

acknowledged by the members that the team will only deliver the results

expected of it if they work well together and share the responsibility for

success

They are composed of individuals who are flexible, multi skilled and

good team players.

Advantages of team pay

Team pay can:

Encourage team-working and corporate behaviour

Act as a lever for cultural change in the direction of, for example

quality and customer focus.

Enhance flexible working within teams and encourage multi-skilling

Provides an incentive for the group collectively to improve

performance and team process

Encourage less effective performers to improve in order to meet

standards

Serve as a means of developing self-managed or directed teams.


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Disadvantages of team pay

The disadvantages of team pay are that:

Its effectiveness depends on well defines teams- but they may be difficult

to identify and, even if they can be, do they need to be motivated by a

purely financial reward.

Team pay may seem inappropriate to individuals whose feelings of self-

worth could be diminished.

Distinguishing what individual team would be rewarded may be difficult

to identify

ELEMENTS OF AN EFFECTIVE REWARD SYSTEM

Attracting staff

o The reward package on offer must be sufficiently attractive from

that of its labour market competitors.

Retaining staff

o Retaining effective performers should be the central aim of a

reward strategy.

Driving change

o Pay can be used specifically as one of the tools supporting change

management process.

Corporate reputation

o Establish a positive corporate reputation


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Affordability

o How limited resources should be deployed in order to maximise

the positive impact of reward management.

Purchasing Power

o The absolute level of weekly or monthly earnings determines the

standard of living of the recipient, and will therefore be the most

important consideration for most employees.

Composition

o How is the package made up? The growing complexity and

sophistication of payment arrangements raise all sorts of questions

about pay composition.


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Scholars Opinion

Thomas B. Wilson says Innovative Reward Systems for the Changing Workplace

explains the compensation and reward strategies successful companies use to focus,

encourage, and achieve high performance.

As per Robert L. Heneman, it is very important to remember that the management of

reward systems takes place in a larger context that must be accommodated when designing,

implementing, and evaluating strategic reward systems. This larger context includes the

business environment, business strategy, and compensation strategy. Elements of the

environment include the internal environment (organizational structure, business processes,

HR systems) and external environment (laws and regulations, labor markets, and unions).

According to John Wiley & Sons, Ltd, Pay systems are linked with divisional strategic

orientation, but in a different form than prior studies. Additionally, we identify hierarchical

position as an important variable in the tailoring of reward systems. Hierarchy has a

significant main effect on pay plan design, and an interactive effect with strategic orientation.

Thorpe and Homan (2000), argue that previous developments in the design of pay

systems did not directly relate to the real priorities and problems faced by organisations.

Thus, the need to devise pay systems linked to business strategy arose.

Lawler (1995) states that all organisational systems must start with business strategy

because it specifies what the company wants to accomplish, how it wants to behave, and

the kinds of performance and performance levels it must demonstrate to be effective.


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Business strategy, driving individual and organisational behaviours, is the touchstone for the

development of the reward strategy.

Fernandes (1998) describes total reward as The sum of the values of each element of an

employees reward package.

Schuster and Zingheim says, Merit pay and traditional performance appraisal make it

impossible to view employees as key elements of organizational strategy and tactics.

According to Conway (2003), research examining high commitment management

in HRM has its roots in both the configurational and the universal theoretical frameworks.

Marchington and Wilkinson (2002), claim that most of the interest over the last decade or so

has been in models of high commitment or best practice HRM, stimulated initially by the

work of a number of US academics, but developed more recently by people in Britain as

well. While, for the most part this is a generalist HR debate, writers such as Pfeffer and

Huselid applied best practice principles to the field of reward. In doing this they build on the

work of Herzberg (1966) and Kohn (1993).

Wood (1996) acknowledges the difficulty caused by incorporating performancerelated

pay (PRP) as part of the high commitment model (HCM) because it can undermine feelings

of competence and self-determination. There is also a considerable amount of empirical

evidence that cast doubt on its ability to contribute to organisational performance. According

to Wood, (1996) There remains, none the less, in a great deal of literature on HCM (and

HRM) a reluctance to discard PRP, despite doubts about it


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Objectives of reward systems [as per Lawler (1996)]

Attract and retain employees- The ability of reward systems to attract and retain

employees is of primary concern to most organisations. This is obviously an issue during

periods of economic expansion when labour markets are tight and organisations struggle to

fill positions and hold on to qualified employees. However, even during recessions,

organisations are concerned with finding and securing the efforts of qualified individuals.

Motivate performance- Wagner (1990) claims that a primary concern in the design of

reward systems is how well the plan will work in motivating employees. However, there are

several theories of motivation and no agreement on a general theory. Different theories

underpin very different types of reward systems. As we will see, even the same theory can be

interpreted in different ways and used to support alternative pay system designs. Wagner

(1990), claims that two of the process theories of motivation are of particular importance in

the development of performance pay programs: the Equity and Expectancy theories of

motivation.

Promote skill and knowledge development- Marchington and Grugulis (2000) observe

There is little doubt that there has been a growing recognition during the last decade of the

importance of training and development, and even learning as a source of sustained

competitive advantage as employers introduce more skills-specific form of training and

experience continuing skills shortages in some areas. However, there is some debate about if

and how skill development and acquisition should be linked to the reward system.


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Contribute to corporate culture- Drennan (1992) describes culture as how things are

done around here. It is what is typical of the organization, the habits, the prevailing attitudes,

the grown-up pattern of accepted and expected behaviour. Peters and Waterman (1982),

Kanter (1983) and others identified corporate culture as a factor that impedes or facilitates

organisational change.

Armstrong (1999) argues that the reward strategy provides an opportunity to reinforce the

organisations values and beliefs in such areas as performance, quality, teamwork and

innovation. Going a step further, Lawler (1996) suggests that pay systems can help to change

culture when he states, The behaviours they evoke become the dominant patterns of

behaviour in the organisation and lead to perceptions about what it stands for, believes in and

values. Lawler observes that reward systems can be adapted to any type of culture. He

states, Depending on how they are developed, administered and managed, reward systems

can help create and maintain a human-resources oriented, entrepreneurial, innovative,

competence-based, bureaucratic, or participative culture.

Lawler, throughout his work discusses the importance of reward system congruence with

management style and other organisational systems. In particular he points tothe importance

of two process issues: communication and decision-making.

Reinforce and define structure- The reward system of an organization can help reinforce

and define the organisations structure. Often this feature is not fully considered in their

design. As a result, the reward systems impact on the structure of an organization is

unintentional. This does nt mean, however, that its impact on the organisational structure is

necessarily minimal. Indeed, the reward system will help define the status hierarchy and the


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degree to which people cooperate with people from other departments and with people within

the work area. It will also strongly influence the kind of decision structure that exists.

Determine pay costs- Although labour intensity varies across industries and services, labour

costs are a significant percentage of operating costs for most organizations. Schuster and

Zingheim (1993) suggest that there is a critical flaw in reward systems that rely primarily on

base pay as the primary form of reward because increases lead to a permanent escalation of

operating costs that is generally disconnected from organisational outcomes like sales

turnover and profit.


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Meaning of Strategic and Total Reward

Strategic reward

Strategic reward is based on the design and implementation of long-term reward policies

and practices to closely support and advance business or organisational objectives as well as

employee aspirations.

Total reward

The concept of total reward encompasses all aspects of work that are valued by

employees, including elements such as learning and development opportunities and/or an

attractive working environment, in addition to the wider pay and benefits package.

Links between strategic and total reward

The use of total reward may form part of a strategic approach to reward for many

employers. For example, an organisation might adopt a total reward approach, encompassing

the provision of both cutting edge training programmes together with flexible working

options, as well as more traditional aspects of the pay and benefits package, in order to

recruit, retain and motivate the high quality staff that are best placed to help it secure its

business objectives.


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Developing a reward strategy

The deployment of strategic reward approaches is often based on the setting out of a

formal, written reward strategy, although it is also possible to adopt a strategic approach to

reward without the use of such a document.

Around one third of employers overall currently have a reward strategy in place,

according to the CIPDs latest reward management survey, with a slightly greater tendency

for public sector employers to operate (or to plan to adopt) a reward strategy compared with

their private sector counterparts.

Content of reward strategies

'Reward strategies are diverse and so is the structure used by different organisations to

define and present them', as observed by Armstrong. However, he identifies four elements

typically included in strategies:

a declaration of intent, or statement of proposed reward developments

a rationale setting out the business case for the reward proposals

a definition of guiding principles

an implementation plan.

While varying approaches to strategic pay exist, examples of the type of principles that need to

be considered include the following:

designing pay structures and pay progression arrangements that ensure that the business is

able to recruit, retain and engage the staff it needs to achieve its goals (for example, linking


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individual pay progression with those types of performance that are valued by the business

such as customer focus)

positioning variable earnings carefully against basic pay to encourage appropriate employee

behaviours (for instance, using cash bonuses or commission to drive desired business

outcomes such as higher sales levels while also taking account of corporate governance

standards and risk management)

developing a pay policy that is competitive with the external labour market in order to recruit

and retain key personnel needed to achieve business success (for instance, paying certain

high-performing staff at the upper quartile level when compared with the external labour

market)

ensuring both vertical integration of employee reward approaches with business goals

(such as developing performance-related pay arrangements to help increase revenues) as well

as horizontal integration of reward policy with wider HR policies (for example, ensuring

that pay progression arrangements are aligned with company culture or succession planning

arrangements).


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Approaches to total reward

By recognising that pay is not the only motivator, and acknowledging the importance of

not only tangible but also intangible rewards within the wider context of the work experience,

total reward has wide-reaching implications for employers and employees alike. As a

concept, total reward is not new. As with many trends in reward management, the

development of formal concepts and theoretical models of total reward originally came from

the USA (where the description total rewards is generally used rather than the singular

version of the term often favoured in the UK).

What is included in total reward?

The US organisation WorldatWork (formerly the American Compensation Association) has

identified five separate components of the work experience in addition to pay and benefits.

These are:

recognition

work/life balance

company culture

employee development

environment, including job design and the physical workspace.

Although these elements have always existed in the workplace, they have often been taken for

granted and thus not actively managed. Under a total reward policy, all aspects of the work

experience are recognised and prominence is given not only to remuneration but also to less

tangible rewards. This is important since experience shows that employees place great emphasis

on intangible rewards when deciding where to work and the level of commitment to give to their


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work. In more detail, total reward may include some, or all, of the following elements as well as

traditional elements of pay and benefits packages:

Flexible benefits

Access to professional and career development

a challenging role at work

Freedom and autonomy at work

Opportunity for personal growth

Recognition of achievements

Preferred office space or equipment

Capacity to raise matters of concern

Involvement in decisions that affect the way work is done

Flexible working hours

Opportunities for working from home

Secretarial support.

It is worth noting, though, that the term total reward is also occasionally used in a more

limited way simply to refer to the benefits package beyond basic pay. For instance, some

commentators use the term primarily to ensure a focus the value of pensions (in addition to

basic pay) as part of the overall remuneration package.


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Characteristics of Total Reward System

An analysis of various total reward models by Thompson3 finds that they can be

characterised by an approach that is:

Holistic: it focuses on how employers attract, retain and engage employees to contribute to

organisational success using an array of financial and non-financial rewards.

Best fit: it adopts a contingency approach total reward programmes need to be tailored to

the organisation's own particular culture, structure, work process and business objectives.

Integrative: it delivers innovative rewards that are integrated with other human resource

management policies and practices.

Strategic: it aligns all aspects of reward to business strategy total reward is driven by

business needs and rewards the business activities, employee behaviour and values that

support strategic goals and objectives.

People-centred: it recognises that people are a key source of sustainable competitive

advantage and begins by focusing on what employees value in the total work environment.

Customised: it identifies a flexible mix of rewards that offers choice and is better designed to

meet employees' needs, their lifestyle and stage of life.

Distinctive: it uses a complex and diverse set of rewards to create a powerful and

idiosyncratic employer brand that serves to differentiate the organisation from its rivals.


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Coverage of Total Reward System

The latest of the CIPD annual reward management surveys finds that around one third of

employers overall have adopted a total reward approach to date, with significant interest

additionally recorded in introducing such approaches in the future among employers.

While private sector employers initially tended to be at the forefront of the formal

development and adoption of total reward policies, there is growing interest in the approach

among public sector organisations with relatively little variation currently recorded in the

coverage of total reward approaches between private and public employers.

To take one example of heightened interest in total reward in the public sector, there has in

recent years been a particular focus on the non-basic pay advantages of working in the sector

such as high-quality pensions and work-life balance provisions among the public sector

pay review bodies (which recommend pay rises for several groups such as medical staff,

teachers and defence workers).

'While pensions and total reward [are] not specifically mentioned in review body remits, they

[have] a direct relevance to recruitment, retention and motivation', in the view of one

commentator from the Office of Manpower Economics, as well as being important in the

considerations of broad pay comparability with the private sector4.


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Advantages and drawbacks of total reward

Advantages

In common with many reward policies, the aims of total reward include the desire to enhance

recruitment, retention and performance levels. Total reward has a particularly strong potential

to enhance the reputation of an organisation as an employer of choice through its capacity to

place a value on the non-basic pay or wider non-financial benefits of working for an

organisation. Many employees have traditionally been unaware of the costs to the employer

of benefits such as pensions, which can be very substantial for an employer. Hence the use of

total reward is often closely associated with the desire to communicate to employees the

value of their employment package. Employers frequently provide individual employees with

total reward statements (either print versions or online) that emphasise the value not only of

basic pay but also the wider benefits package and potentially other congenial aspects of

employment in a particular company.

Drawbacks

Research from our reward management surveys indicates that employers believe they are

better at integrating financial aspects (pay and benefits) into a total reward approach than the

non-financial aspects. An area of concern revealed by the research is line manager behaviour,

with employers expressing concern at how well they have integrated the behaviour of these

staff within a total reward approach. Yet, if line managers do not support the organisations

commitment to total reward (for example, over flexible working) the approach is likely to

fail. Clearly, moreover, some rewards that might be included in a total reward package are

more easily provided than others. In respect of the working environment, for example, many

employees might prefer a desk located by a window but office accommodation is a finite

and not particularly flexible resource. In such cases, it would often be very difficult to meet

everyones requirements.One other difficulty in developing a total reward package, beyond


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the challenge of supplying certain rewards, is attempting to measure or weigh their value

against one anotherparticularly if the aim is to include a numerical or tangible value in total

reward statements distributed to employees.

Putting strategic reward into practice

Although the basic concept of strategic reward at its simplest, using reward policy to

support long-term business goals is often taken for granted as a desirable concept, some

commentators have highlighted difficulties in translating the theory into reality in

organisational practice. One recent paper by Jonathan Trevor concludes that attempts to use

strategic pay systems are especially problematic for 'a frustrated and often much maligned

pay function and long-suffering line management'. According to this paper, employers might

be better-served taking a risk management, rather than a strategic, approach to reward.

However, the adoption of strategic and risk-based approaches to reward are not necessarily

mutually exclusive.

Implementation of a Strategic Rewards System

To implement total rewards strategies successfully, organizations must follow a disciplined

process. The process starts with assessment. In this phase, data is gathered to evaluate the

effectiveness of the organizations current total rewards system. The data gathered guides the

design phase, during which the project team identifies and analyzes potential reward

strategies. In the execution phase, total reward strategies are put into operation. Finally, the

team conducts an evaluation analyzing the effectiveness of the strategies that have been

executed.Successful implementation of total reward strategies is guided by a project team

from start to finish. A project leader must be named, usually an HR professional with project

management and total rewards experience. The leader must encourage ongoing

communication between the team and top management. Additional members should include

a consultant from an outside organization who will provide an objective view, employees


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(both union and non-union if applicable), and individuals who bring expertise in HR

information and payroll systems, finance, and business law. There should be someone to

represent middle and lower management in the organization too. Each project team member

should have a clear understanding of his or her roll.

Phase One: Assessment:

During the assessmentphase, the project team evaluates the companys current total rewards

system and generates ideas for improving it. To carry out this phase effectively, a series of

tasks must be completed. These tasks include conducting focus groups and industry

benchmark surveys, examining current reward strategies and employee attitudes toward them,

reviewing rewards-related literature, and creating a report documenting findings and

recommendations. An organizations archival records can provide valuable data. Manuals

may contain actual policies and procedures for administering current total rewards, strategic

and operational plans may show how total rewards fit into the enterprises larger business

goals, and previous associate surveys may show employee attitudes toward total

rewards. HR databases should contain information on employees actual pay levels as well

as market pay rates. Reviewing forms such as performance-appraisal worksheets will help

determine the type of information the organization gathers to make rewards decisions.

Another way to generate data is to survey employees attitudes toward total rewards. Several

instruments have been developed to help measure attitudes toward base-pay levels, pay

raises, rewards structures, and benefits. The Society for Human Resource Management

(SHRM) identifies the Pay Satisfaction Questionnaire as a tool long used by many companies

because of its excellent reliability and validity. Reviewing literature such as rewards-related

case studies and articles is an important aspect of the assessment phase. Project teams should

use a wide variety of sources including: books, HRM publications, technical research

journals, business periodicals, and professional websites such as WorldatWork and SHRM.


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After collecting data, an assessment report is written. The reliability of gathered data should

be checked. If inconsistencies are identified, further investigation methods should be taken to

resolve any disparity. After receiving input from senior management, the total rewards team

should consider how the current program works versus how the organization would like it to

work in the future. A compensation philosophy statement is written next, which will guide

development of new total rewards strategies.

Phase Two: Design

The goal of the design phase is to identify which employee and organizational attributes to

reward and which types of rewards to offer. A full range of reward strategies should be

considered, including: compensation, benefits, work-life balance, performance and

recognition, and development and career opportunities.

Phase 3: Execution

Once the project team has designed a total rewards system, it moves into the execution

phase putting the new system in place within the organization. Implementing a

total rewards system is an organizational intervention. The project team must determine who

is eligible, and should consider including all people to avoid perceptions of unfairness and

potential lawsuits. To ensure buy-in, top managers must show visible support. This means

participating in the system in addition to verbally advocating it. A wide range of issues must

be considered when executing a total rewards plan. There are two different avenues a team

can take when making the new total reward system fully operational a lead system or a lag

system. A lead system requires you to believe that putting the right rewards in place will

encourage your workforce to accomplish key strategic goals. For example, you would make

the plan operational before launching a new business strategy showing that the organization

is committed to change. A lag system is the opposite, making the plan operational after


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employees have helped carry out the companys new business strategy. Another key issue to

consider when executing your plan is how the new total rewards program will be

communicated and explained to the workforce. The more employees know about the

companys reward system, the more satisfied they are going to be with it. Greater

satisfaction is correlated with more commitment and better engagement at work. Effective

communication maximizes the value of benefits plans and suggests providing total

compensation statements in addition to working with benefit providers to tailor

communications to employees based on demographics and/or their life stage. Making

information available to employees, especially details about how the system operates is

imperative to the plans success. One-on-one conversations between supervisors and

employees about total rewards are a good idea. Interactive communication through the

company website or intranet is also a good idea.


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CHAPTER VI

Employee Retention

Employee turnover is one of the largest though widely unknown costs an organization

faces. While companies routinely keep track of various costs such as supplies and payroll,

few take into consideration how much employee turnover will cost them: Ernst & Young

estimates it costs approximately $120,000 to replace 10 professionals. According to research

done by Sibson & Company, to recoup the cost of losing just one employee a fast food

restaurant must sell 7,613 combo meals at $2.50 each. Employee turnover costs companies 30

to 50% of the annual salary of entry-level employees, 150% of middle-level employees, and

up to 400% for upper level, specialized employees. Now that so much is being done by

organizations to retain its employees.

Why is retention so important? Is it just to reduce the turn over costs?

Well, the answer is a definite no. Its not only the cost incurred by a company that

emphasizes the need of retaining employees but also the need to retain talented employees

from getting poached.

Retention involves five major things:

Compensation

Environment

Growth

Relationship

Support


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Compensation:

Compensation constitutes the largest part of the employee retention process. The

employees always have high expectations regarding their compensation packages.

Compensation packages vary from industry to industry. So an attractive compensation

package plays a critical role in retaining the employees. Compensation includes salary and

wages, bonuses, benefits, prerequisites, stock options, bonuses, vacations, etc. While setting

up the packages, the following components should be kept in mind:

Salary and monthly wage:

It is the biggest component of the compensation package. It is also the most common factor

of comparison among employees. It includes

Basic wage

House rent allowance

Dearness allowance

City compensatory allowance

Salary and wages represent the level of skill and experience an individual has. Time to time

increase in the salaries and wages of employees should be done. And this increase should be

based on the employees performance and his contribution to the organization. Bonus:

Bonuses are usually given to the employees at the end of the year or on a festival. Economic

benefits: It includes paid holidays, leave travel concession, etc. Long-term incentives: Long

term incentives include stock options or stock grants. These incentives help retain employees

in the organization's start up stage.

Health insurance:

Health insurance is a great benefit to the employees. It saves employees money as well as

gives them a peace of mind that they have somebody to take care of them in bad times. It also

shows the employee that the organization cares about the employee and its family.


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After retirement:

It includes payments that an Employee gets after he retires like EPF (Employee Provident

Fund) etc.

Miscellaneous compensation:

It may include employee assistance programs (like psychological counselling, legal

assistance etc), discounts on company products, use of a company cars, etc


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Scope of the study

It is not about managing retention. It is about managing people. If an organization manages

people well, employee retention will take care of itself. Organizations should focus on

managing the work environment to make better use of the available human assets. People

want to work for an organization which provides

Appreciation for the work done

Ample opportunities to grow

A friendly and cooperative environment

A feeling that the organization is second home to the employee

Organization environment includes

Culture

Values

Company reputation

Quality of people in the organization

Employee development and career growth

Risk taking

Leading technologies

Trust


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Types of environment the employee needs in an organization

Learning environment: It includes continuous learning and improvement of the

individual, certifications and provision for higher studies, etc.

Support environment: Organization can provide support in the form of work-life

balance. Work life balance includes:

Flexible hours

Telecommuting

Dependent care

Alternate work schedules

Vacations

Wellness

Work environment: It includes efficient managers, supportive co-workers,

challenging work, involvement in decision-making, clarity of work and

responsibilities, and recognition. Lack or absence of such environment pushes

employees to look for new opportunities. The environment should be such that the

employee feels connected to the organization in every respect. Growth and Career

Growth and development are the integral part of every individuals career. If an

employee can not foresee his path of career development in his current organization,

there are chances that hell leave the organization as soon as he gets an opportunity.

The important factors in employee growth that an employee looks for himself are:

Work profile: The work profile on which the employee is working should be in sync

with his capabilities. The profile should not be too low or too high.

Personal growth and dreams: Employees responsibilities in the organization should

help him achieve his personal goals also. Organizations can not keep aside the

individual goals of employees and foster organizations goals. Employees priority is


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to work for themselves and later on comes the organization. If hes not satisfied with

his growth, hell not be able to contribute in organization growth.

Training and development: Employees should be trained and given chance to

improve and enhance their skills. Many employers fear that if the employees are well

rained, theyll leave the organization for better jobs. Organization should not limit the

resources on which organizations success depends. These trainings can be given to

improve many skills like:

Communications skills

Technical skills

In-house processes and procedures improvement related skills or customer

satisfaction related skills

Special project related skills

Need for such trainings can be recognized from individual performance reviews, individual

meetings, employee satisfaction surveys and by being in constant touch with the employees.

Importance of Relationship in Employee Retention Program Sometimes the relationship with

the management and the peers becomes the reason for an employee to leave the organization.

The management is sometimes not able to provide an employee a supportive work culture

and environment in terms of personal or professional relationships. There are times when an

employee starts feeling bitterness towards the management or peers. This bitterness could be

due to many reasons. This decreases employees interest and he becomes demotivated. It

leads to less satisfaction and eventually attrition. A supportive work culture helps grow

employee professionally and boosts employee satisfaction. To enhance good professional

relationships at work, the management should keep the following points in mind. Respect for

the individual: Respect for the individual is the must in the organization.


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Relationship with the immediate manager: A manger plays the role of a mentor

and a coach. He designs and plans work for each employee. It is his duty to involve

the employee in the processes of the organization. So an organization should hire

managers who can make and maintain good relations with their subordinates.

Relationship with colleagues: Promote team work, not only among teams but in

different departments as well. This will induce competition as well as improve the

Relationship among colleagues.

Recruit whole heartedly: An employee should be recruited if there is a proper place

and duties for him to perform. Otherwise hell feel useless and will be dissatisfied.

Employees should know what the organization expects from them and what their

expectation from the organization is. Deliver what is promised. Promote an employee

based culture: The employee should know that the organization is there to support

him at the time of need. Show them that the organization cares and hell show the

same for the organization. An employee based culture may include decision making

authority, availability of resources, open door policy, etc.

Individual development: Taking proper care of employees includes

acknowledgement to the employees dreams and personal goals. Create opportunities

for their career growth by providing mentorship programs, certifications, educational

courses, etc.

Induce loyalty: Organizations should be loyal as well as they should promote loyalty

in the employees too. Try to make the current employees stay instead of recruiting

new ones. Support Lack of support from management can sometimes serve as a

reason for employee retention. Supervisor should support his subordinates in a way so

that each one of them is a success. Management should try to focus on its employees


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and support them not only in their difficult times at work but also through the times of

personal crisis. Management can support employees by providing them recognition

and appreciation. Employers can also provide valuable feedback to employees and

make them feel valued to the organization. The feedback from supervisor helps the

employee to feel more responsible, confident and empowered. Top management can

also support its employees in their personal crisis by providing personal loans during

emergencies, childcare services, employee assistance Programs, conseling services,

etc Employers can also support their employees by creating an environment of trust

and inculcating the organizational values into employees. Thus employers can support

their employees in a number of ways as follows:

By providing feedback

By giving recognition and rewards

By counseling them

By providing emotional support


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Retention Management:

Background: retention management is a highly topical subject and an important dilemma

many organizations might face in the future, if not facing it already. We believe that the

leader plays a key role in employee retention and retention management. The concept of

retention management can both have a narrow, and a broader significance. Both parts of its

significance are generally included in this thesis. The background of the thesis present a few

articles that discuss issues that makes it important for the organization, and the leaders, to

work hard with retention management. The research is based on the leaders in the Finnish

case company Tradeka. Following key questions are intended to be

Purpose statement: The purpose of the thesis is to investigate and analyze how

company leaders today can retain their key employees. How can the provision of key

human resources develop a long-term relationship that makes top employees stay in

the company? The study aims to establish the procedure leaders apply to retain

employees. The purpose is to compare the qualitative study, made at the case

company, with findings from the thesis theoretical framework.

Research method: The study is a qualitative, as well as a theoretical study where

empirical findings and theories has been compared. The intention of investigating and

using the Finnish company Tradeka Limited as a case company, is to make the

information from the theories more valid, and also the interest in how retention

management works in practice. Eleven qualitative interviews were conducted at

Tradeka? financial department, both with supervisors and employees to get a broader

view at the phenomenon retention management. Result: Leaders and their skill in

creating a culture of retention, has becoming a key in why people stay and what


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usually drives them away from a company. The leader has become the main factor in

what motivates peoples decision to stay or leave. For organizations to keep its key

employees their number one priority should be to look at their management, because

people leave managers and not companies. Characteristics in a leader that are of

importance, as the leader plays a key role in retention management is: trust builder,

esteem builder, communicator, talent developer and coach, and talent finder. The

leaders relation to the employees plays a central role in retaining employees.


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Employee Retention Strategies

The basic practices which should be kept in mind in the employee retention

strategies are:

1. Hire the right people in the first place.

2. Empower the employees: Give the employees the authority to get things done.

3. Make employees realize that they are the most valuable asset of the organization.

4. Have faith in them, trust and respect them

5. Provide them information and knowledge.

6. Keep providing them feedback on their performance.

7. Recognize and appreciate their achievements.

8. Keep their morale high.

9. Create an environment where the employees want to work and have fun.

These practices can be categorized in 3 levels:

Low,

medium and

high level.


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Low Level Employee Retention Strategies

Appreciating and recognizing a well done job

Personalized well done and thank-you cards from supervisors

Congratulations e-cards or cards sent to spouses/families

Voicemails or messages from top management

Periodic days off for good performance

Rewards ( gift, certificates, monetary and non monetary rewards)

Recognizing professional as well as personal significant events

Wedding gifts

Anniversary gifts

New born baby gifts

Scholarships for employees children

Get well cards/flowers

Birthday cards, celebrations and gifts

Providing benefits

Home insurance plans

Legal insurance

Travel insurance

Disability programs

Providing perks: It includes coupons, discounts, rebates, etc

Discounts in cinema halls, museums, restaurants, etc.

Retail store discounts

Computer peripherals purchase discounts

Providing workplace conveniences


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On-site ATM

On-site facilities for which cost is paid by employees

laundry facility for bachelors

Shipping services

Assistance with tax calculations and submission of forms

Financial planning assistance

Casual dress policies

Facilities for expectant mothers

Parking

Parenting guide

Lactation rooms

Flexi timings

Fun at work

Celebrate birthdays, anniversaries, retirements, promotions, etc

Holiday parties and holiday gift certificates

Occasional parties like diwali, holi, dushera, etc

Organize get together for watching football, hockey, cricket matches

Organize picnics and trips for movies etc

Sports outings like cricket match etc

Indoor games

Occasional stress relievers

Casual dress day

Green is the color day

Handwriting analysis

Tatoo, mehandi, hair braiding stalls on weekends


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Mini cricket in office

Ice cream Fridays

Holi-Day breakfast

Employee support in tough time or personal crisis

Personal loans for emergencies

Childcare and eldercare services

Employee Assistance Programs ( Counseling sessions etc)

Emergency childcare services

Medium Level Strategies for Employee Retention

Appreciating and recognizing a well done job

Special bonus for successfully completing firm-sponsored certifications

Benefit programs for family support

Child adoption benefits

Flexible benefits

Dependents care assistance

Medical care reimbursement

Providing conveniences at workplace

Gymnasiums

Athletic membership program

Providing training and development and personal growth opportunities

Sabbatical programs

Professional skills development

Individualized career guidance


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High Level Strategies

Promoting Work/Life Effectiveness

Develop flexible schedules

Part-time schedules

Extended leaves of absence

Develop Support Services

On-site day care facility etc.

Understand employee needs:

This can be done through proper management style and culture

Listen to the employee and show interest in ideas

Appreciate new ideas and reward risk-taking

Show support for individual initiative

Encourage creativity

Encouraging professional training and development and/or personal growth

opportunities:

It can be done through:

Mentoring programs

Performance feedback programs

Provide necessary tools to the employees to achieve their professional and personal

goals

Getting the most out of employee interests and talents

Higher study opportunities for employees

Vocational counselling

Offer personalized career guidance to employees


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Provide an environment of trust:

Communication is the most important and effective way to develop trust.

Suggestion committees can be created

Open door communication policy can be followed

Regular feedbacks on organizations goals and activities should be taken from

the employees by:

Management communications

Intranet and internet can be used as they provide 24X7 access to the information

Newsletters, notice boards, etc.

Hire the right people from the beginning: employee retention is not a process that

begins at the end. The process of retention begins right from the start of the

recruitment process. The new joinees should fit with the organizations culture. The

personality, leadership characteristics of the candidate should be in sync with the

culture of the hiring organization.Referral bonus should be given to the employees for

successful hires. They are the best source of networking. Proper training should be

given to the managers on interview and management techniques. An internship

program can be followed to recruit the fresh graduates.


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Retention Success Mantra

Transparent Work Culture

In todays fast paced business environments where employees are constantly striving to

achieve business goals under time restrictions; open minded and transparent work culture

plays a vital role in employee retention. Companies invest very many hours and monies in

training and educating employees. These companies are severely affected when employees

check out, especially in the middle of some big company project or venture. Although

employees most often prefer to stay with the same company and use their time and

experience for personal growth and development, they leave mainly because of work related

stress and dissatisfactions .More and more companies have now realized the importance of a

healthy work culture and have a gamut of people management good practices for employees

to have that ideal fresh work-life. Closed doors work culture can serve as a deterrent to

communication and trust within employees which are potential causes for work- Related

apathy and frenzy. A transparent work environment can serve as one of the primary triggers

to facilitate accountability, trust, communication, responsibility, pride and so on. It is

believed that in a transparent work culture employees rigorously communicate with their

peers and exchange ideas and thoughts before they are finally matured in to full-blown

concepts. It induces responsibility among employees and accountability towards other peers,

which gradually builds up trust and pride. More importantly, transparency in work

environment discourages work-politics which often hinders company goals as employees

start to advance their personal objectives at the expense of development of The company as a

single entity.

.


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Quality Of Work

The success of any organization depends on how it attracts, recruits, motivates, and

retains its workforce. Organizations need to be more flexible so that they develop their

talented workforce and gain their commitment. Thus, organizations are required to retain

employees by addressing their work life issues. The elements that are relevant to an

individuals quality of work life include the task, the physical work environment, social

environment within the organization, administrative system and relationship between life on

and off the job. The basic objectives of a QWL program are improved working conditions for

the Employee and increase organizational effectiveness.


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Providing quality work life involves taking care of the following aspects:

Occupational health care: The safe work environment provides the basis for the person to

enjoy working. The work should not pose a health hazard for the person. The employer and

employee, aware of their risks and rights, could achieve a lot in Their mutually beneficial

dialogue.

Suitable working time: Organizations are offering flexible work options to their employees

wherein employees enjoy flexi-timings for dedicating their efforts at work.

Appropriate salary: The appropriate as well as attractive salary has always been an

important factor in retaining employees. Providing employees salary at par with the other

counterparts of above that what competitors are paying motivates them to stick With the

company for long. QWL consists of opportunities for active involvement in group working

arrangements or problem solving that are of mutual benefit to employees or employers, based

on labor management cooperation. People also conceive of QWL as a set of methods, such as

autonomous work groups, job enrichment, and high-involvement aimed at boosting the

satisfaction and productivity of workers. It requires employee commitment to the

organization and an environment in which this commitment can flourish. Providing quality at

work not only reduces attrition but also helps in reduced absenteeism and improved job

satisfaction. Not only does QWL contribute to a company's ability to recruit quality people,

but also it enhances a company's competitiveness. Common beliefs support the contention

that QWL will positively nurture a more flexible, loyal, and motivated workforce, which are

essential in determining the company's competitiveness. Supporting Employees

Organizations these days want to protect their biggest and most valuable asset and they want

to do this in a way that best suits their organizational culture. Retaining employees is a

difficult task. Providing support to the employees acts as a mantra for retraining them.


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Employers can also support their employees by creating an environment of trust and

inculcating the organizational values into employees. The management can support

employees directly or indirectly. Directly, they provide support in terms of personal crises,

managing stress and personal development. Management can support employees, indirectly,

in a number of ways as follows:

Manage employee turnover: Employee turnover affects the whole organization in terms of

productivity. Managing the turnover, hence, becomes an important task. A proactive

approach can be adopted to reduce attrition. Strategies should be framed in advance and

implemented when the times arrives. Turnover costs should also be taken into consideration

while framing these strategies.

Become employer of choice:What makes a company an employer of choice? Is the benefit

it offers or the compensation packages it gives away to its employees? Or is it measured in

terms of how they value their employees or in terms of customer satisfaction? Becoming an

employer of choice involves following a road map which tells where to go as a brand.

Engage the new recruits: The newly hired employees are said to be least engaged in the

organization. Keeping them engaged is an important task. The fresh talent should be utilized

to maximum before they start feeling bored in the organization.

Optimize employee engagement:An organizations productivity is measured not in terms of

employee satisfaction but by employee engagement. Employees are said to be engaged when

they show a positive attitude toward the organization and express a commitment to remain

with the organization. Employee satisfaction also comes with high engagement levels. So,

organizations should aim to maximize the engagement among employees. Coaching and

mentoring:


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Importance Of Employee Retention

The process of employee retention will benefit an organization in the following

ways:

The Cost of Turnover: The cost of employee turnover adds hundreds of thousands of

money to a company's expenses. While it is difficult to fully calculate the cost of turnover

(including hiring costs, training costs and productivity loss), industry experts often quote 25%

of the average employee salary as a conservative estimate.

Loss of Company Knowledge: When an employee leaves, he takes with him valuable

knowledge about the company, customers, current projects and past history (sometimes to

competitors). Often much time and money has been spent on the employee in expectation of a

future return. When the employee leaves, the investment is not realized.

Interruption of Customer Service:Customers and clients do business with a company in

part because of the people. Relationships are developed that encourage continued sponsorship

of the business. When an employee leaves, the relationships that employee built for the

company are severed, which could lead to potential customer loss.

Turnover leads to more turnovers: When an employee terminates, the effect is felt

throughout the organization. Co-workers are often required to pick up the slack. The

unspoken negativity often intensifies for the remaining staff. Goodwill of the company: The

goodwill of a company is maintained when the attrition rates are low. Higher retention rates

motivate potential employees to join the organization.


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Regaining efficiency: If an employee resigns, then good amount of time is lost in hiring a

new employee and then training him/her and this goes to the loss of the company directly

which many a times goes unnoticed. And even after this you cannot assure us of the same

efficiency from the new employee What Makes Employee Leave? Employees do not leave an

organization without any significant reason. There are certain circumstances that lead to their

leaving the organization. The most common reasons can be:

Job is not what the employee expected to be: Sometimes the job responsibilities dont

come out to be same as expected by the candidates. Unexpected job responsibilities lead to

job dissatisfaction.

Job and person mismatch: A candidate may be fit to do a certain type of job which

matches his personality. If he is given a job which mismatches his personality, then he wont

be able to perform it well and will try to find out reasons to leave the job.

No growth opportunities:No or less learning and growth opportunities in the current job

will make candidates job and career stagnant.

Lack of appreciation: If the work is not appreciated by the supervisor, the employee feels

de-motivated and loses interest in job.

Lack of trust and support in co workers, seniors and management: Trust is the most

important factor that is required for an individual to stay in the job. Non-supportive co

workers, seniors and management can make office environment unfriendly and difficult to

work in.


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Stress from overwork and work life imbalance:Job stress can lead to work life imbalance

which ultimately many times lead to employee leaving the organization.

Compensation:Better compensation packages being offered by other companies may attract

employees towards themselves.

New job offer: An attractive job offer which an employee thinks is good for him with respect

to job responsibility, compensation, growth and learning etc. can lead an employee to leave

the organization.


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Managing Employee Retention:

The task of managing employees can be understood as a three stage process:

1. Identify cost of employee turnover.

2.Understand why employee leave.

3.Implement retention strategies

The organizations should start with identifying the employee turnover rates within a

particular time period and benchmark it with the competitor organizations. This will help in

assessing the whether the employee retention rates are healthy in the company. Secondly, the

cost of employee turnover can be calculated. According to a survey, on an average, attrition

costs companies 18 months salary for each manager or professional who leaves, and 6

months pay for each hourly employee who leaves. This amounts to major organizational an d

financial stress, considering that one out of every three employees plans to leave his or her

job in the next two years.

Understand why employees leave :

Why employees leave often puzzles top management. Exit interviews are an ideal way of

recording and analyzing the factors that have led employees to leave the organization. They

allow an organization to understand the reasons for leaving and underlying issues. However

employees never provide appropriate response to the asked questions. So an impartial person

should be appointed with whom the employees feel comfortable in expressing their opinions.

Implement retention strategy :

Once the causes of attrition are found, a strategy is to be implemented so as to reduce

employee turnover. The most effective strategy is to adopt a holistic approach to dealing with

attrition.


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An effective retention strategy will seek to ensure:

Attraction and recruitment strategies enable selection of the right candidate for each

role/organization New employees initial experiences of the organization are positive

Appropriate development opportunities are available to employees, and that they are kept

aware of their likely career path with the organization The organizations reward strategy

reflects the employee drivers How To Increase Employee Retention Companies have now

realized the importance of retaining their quality workforce. Retaining quality performers

contributes to productivity of the organization and increases morale among employees/ Four

basic factors that play an important role in increasing employee retention include salary and

remuneration, providing recognition, benefits and opportunities for individual growth. But

are they really positively contributing to the retention rates of a company? Basic salary, these

days, hardly reduces turnover. Today, employees look beyond the money factor.

Retention Bonus

Higher attrition rates within a particular industry have forced companies to use some

innovative strategies to retain employees. Retention Bonus is one of the important tools that

are being used to retain employees. Retention bonus is an incentive paid to an employee to

retain them through a critical business cycle. Retention bonuses are becoming more common

in the corporate world because companies are going through more transitions like mergers

and acquisitions. They need to give key people an attractive incentive to stay on through

these transitions to ensure productivity. Retention bonuses have proven to be a useful tool in

persuading employees to stay. A retention bonus plan is not a panacea. According to a

survey, non management employees generally receive about 10 percent of their annual

salaries in bonuses, while management and top-level supervisors earn an additional 50

percent of their annual salaries. While bonuses based on salary percentages are the generally


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preview of the job responsibilities can be given to the employment seekers by various

methods like discussions, trial periods, internships etc.

Clearly discuss what is expected from the employee: Before joining the organization, tell

the candidate what is expected from him. Setting wrong expectations or hiding expectations

will result in early leaving of employees.

Discuss what the expectations of the employees are:Ask employees what they expect from

the organization. Be realistic. If their requirements can be fulfilled only then promise them.

Or tell them beforehand that their requirements cannot be fulfilled.

Dont show them an unrealistic picture Culture fit: Try to judge individuals capability to

adapt to the organizations culture. A drastic change in the culture may give aculture shock

to the candidate. Referrals: According to the research, referred candidates stay longer with

the organization. There is a fear of hampering the image and reputation of the person who

referred the candidate.


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that is intended to improve the performance of employees. Managers often tend to escape this

role by just coaching their employees. However, coaching is followed by monitoring

performance and providing feedback on the same.

Delegation:Many team leaders and managers feel that they are the only people who can do a

particular task or job. Therefore, they do not delegate their jobs as much as they should.

Delegation is a great way to develop competencies. Extra Responsibility: Giving extra

responsibility to employees is another way to get them engaged with the company. However,

just giving the extra responsibility does not help.

How to Improve Employee Retention?

People want to enjoy their work so make work fun and enjoyable. Understand that employees

need to balance life and work so offer flexible starting times and core hours. Provide 360

feedback surveys and other questionnaires to foster open communication. Consider allowing

anonymous surveys occasionally so employees will be more honest and candid with their

opinions. Provide opportunities within the company for career progression and cross-training.

Offer attractive, competitive benefits. Organizations should target job applications for

employees who have characteristics that fit well with the organizational culture. Upon

conducting an interview, seek out traits, such as loyalty. Also, ask the potential employee

what motivates them on the job. Having more information about the potential employees

expectations can help retain them, should they get hired into the company.


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Rewards and Recognition

Employees want to be recognized for a job well done. Rewards and recognition respond to

this need by validating performance and motivating employees toward continuou

improvement. Rewarding and recognizing people for performance not only affects the person

being recognized, but others in the organization as well. Through a rewards program, the

entire organization can experience the commitment to excellence. When the reward system is

credible, rewards are meaningful; however, if the reward system is broken, the opposite effect

will occur. Employees may feel that their performance is unrecognized and not valued, or that

others in the organization are rewarded for the wrong behaviours. Unrecognized and no

valued performance can contribute to turnover. Recognition for a job well done fills the

employees' need to receive positive, honest feedback for their efforts.

Need for Rewards and Recognition

Recognition should be part of the organization's culture because it contributes to both

employee satisfaction and retention. Organizations can avoid employee turnover by

rewarding top performers. Rewards are one of the keys to avoiding turnover, especially if

they are immediate, appropriate, and personal. A HarvardUniversity study concluded that

organizations can avoid the disruption caused by employee turnover by avoiding hiring

mistakes and selecting and retaining top performers. One of the keys to avoiding turnover is

to make rewards count. Rewards are to be immediate, appropriate, and personal.

Organizations may want to evaluate whether getting a bonus at the end of the year is more or

less rewarding than getting smaller, more frequent payouts. Additionally, a personal note may

mean more than a generic company award. Employees should be asked for input on t

reward management11

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