Human Resources Salary And Compensation Management Essay
Human Resource function in an organization represents a vital part in ensuring a company’s ability to manage its human and other resources effectively and efficiently, reducing its business risk and maintaining smooth business operations. In simple terms, the role of a human resource function is to maximize the return on investment in the organization’s human capital and minimize financial risk. The concept of reducing business risk such as employee fraudulent activities, asset mismanagement and errors should be tackled from the early stage of hiring an employee. Once a job applicant have been accepted, that person shall be seen as an employee of the firm chosen under the perception that he/she shall add-value to the firms operations, hence the employee needs to understand the policies and procedures of a company, what are acceptable behaviours and the normal conducts in the business operations. This acts as a form of internal control to ensure effective and efficient business operations and aligning the activities of the servants of the company with the interest of the owners of the company.
There are many conducts being practiced by the human resource function and the depth of these conducts being practiced would depend on the type, complexity and size of a particular organization. A company which offers services and having a complex information system may require different approach in its HR practices as compared to companies in manufacturing or trading physical goods and with low complex of information system. Human resources basic functions are to set strategies and develop standards, policies, systems and processes to implement these strategies throughout the organization.
The following are the typical activities of HR function:
-Recruitment, selection and resourcing
-Industrial and employee relation
-Workforce analysis and data management
-Promotion and career advancement
-Salary and compensation
-Performance & behaviour management
-Training and development
It is important for the human resource function’s initiative, actions and priorities are aligned with the company’s business strategy. A good coordination between the human resource function and the business strategy creates cost-effective business operations throughout the organization’s other business functions as well.
For the purpose of this paper, let’s look into the human resource practices that are being practiced by big corporations such as General Electric (GE) and Toyota. Performance appraisals are an assessment or evaluation conducted by the immediate manager or supervisor about the job performance of an employee. In other words, it is an analysis of an employee’s recent successes and failures, personal strengths and weaknesses, and suitability for promotion or further training. It is also the judgement of an employee’s performance in a job based on considerations other than productivity alone. How a company assess the performance of its employees would vary depending on the company’s own view of what drives performance, because value lies in the eyes of the beholder. If one company’s practice of assessing performance seems to be effective and producing good results, it might not bring the same effect in a different company of different industry, size, complexity, business products and culture.
GE upholds four basic actions to drive performance: imagine, solve, build and lead. Following these action-oriented qualities are the foundational values that represent GE and its common set of beliefs: passionate, curious, resourceful, accountable, teamwork, committed, open and energizing. This specific set of corporate values lies at the heart of GE’s unique approach to leadership development. GE sees appraisals processes and evaluation as an ongoing process. Some companies conducts appraisals once a year and talks about everything in one conversation to get it done for the year, however, it does not apply in GE. GE believes in the practice of giving multiple opportunities throughout the year to sit down with the employee to talk about career, performance or particular opportunities or issues that arise. The approach they take is to make people feel encouraged to continue to perform by constantly giving feedbacks on how well the employees are performing and what the company would like to see more of. The effect of this practice creates an environment which is very productive within GE, every employee would know how well they are doing which motivates them to continue perform better and better. GE has developed annual leadership and organizational talent reviews as part of their succession planning processes in order to keep performance levels high. These programs are designed to spot individuals suited for bigger roles or who can be groomed to take on higher positions.
Performance appraisals need to be carefully designed taking into account many possible circumstances involved in the work task of an employee. For example, in a call centre workers are appraised on the amount of work they do, how many calls they take and how long they spend on each call. In fact, their performance is governed by many things beyond their control – the nature of calls, the availability of information, and the behaviour of other parts of the organisation, behaviour of the calling party and so on. This creates stress among the workers as they are held accountable in such situations. Some organization sets out targets for managers and when those targets are not fully met, let’s say only three was accomplished and the employee had failed on two, the appraisal assessment focused more on the two that was failed. This situation would bring in more pressure and stress towards the employee which in the end might create other problems such as fraud or mismanagement in order to keep up with the appraisals. For this reason, companies may want to consider the effectiveness of its performance appraisals and whether it does suit with the working environment of the company.
Toyota, another world-class company, does not see any performance appraisals in its production system. Every operation in the system has an associated measure. The measure has been worked out between the operators and their manager. In every case the measure is related to the purpose of the work. That measure is the basis of feedback to the manager and worker alike. Decision-making is integrated with work. If there is a problem with performance, it immediately reflected in the measure. The manager and operator seek the causes and turn them into seeds for improvement of the method. Toyota creates an environment which puts accountability on the system, both managers and workers are psychologically safe in the knowledge that it is the system and not the worker that is the primary influence on performance. It is management’s responsibility to ensure that the workers are operating in a system that allows them to perform.
Training and development of employees in an organization is concerned with grooming the potentials and performance of an individual and to develop certain traits or skills. Training and development could occur in an organization in an informal way, during the day-to-day interactions with senior personnel and managers or on the job training. It could also occur in a more structured and organized manner, where Human Resource Management (HRM) will systematically construct a platform for employees to be groomed. This incurs more cost and could rise to the issues of cost-benefits. Companies incur a lot of expenditures for training and development programmes and some employees after receiving training on certain specialized area, they put their new obtain skills into the employment market and goes to other company which they presume would give them better working exposure or opportunity. This results in a big loss for the company and having to find a new suitable employee to take the training all over again. Companies which uses complex and extensive use of IT would require IT vendors to develop the training programs to ensure employees knows how to operate the operation systems. Having this kind of training would reduce company’s business and control risk.
A big organization like GE sees training and development of employee as a serious matter in achieving its business strategy. GE is so widely recognized and respected for its leadership talent because GE believes measuring and developing talent is always at the forefront of GE’s business strategy. Many of GE’s top leaders are promoted from within rather than listing through the employment market. GE’s greatest asset is its people, and the commitment to building internal capacity is embodied most prominently in the company’s dedication to training and development. Even in a period of restoration, GE is still investing more than $1 billion annually in these programs – proving that this commitment to continuous learning remains strong. GE develops three primary programs for its employee training:
Crotonville Leadership – develops forward-thinking skills in leaders at all level
Functional Skill – Provides tools for leading specific function, from finance to human resource to operations and engineering.
Business Knowledge – Enhances employee’s business expertise and their knowledge of GE’s products and services.
GE educates employees to not only be better leaders, but better people as well. As a result, the skills acquired through GE benefits leaders beyond GE walls, extending to their homes and communities. Programs often incorporate a community service component, giving employees hands-on experience in acting as GE ambassadors. Looking at how GE trains its employees, we can understand how serious GE is at maintaining its good reputation and image. An employee of GE brings the image of GE wherever the employee goes to, and being such a big company with high respectable reputation, GE wants to ensure their employees acts in a manner that is in line with the firm’s good reputation and does not tarnish it by involving in acts such as fraud or unlawful activities.
Another giant like Toyota also sees the importance in training and development of its human capitals. Toyota emphasizes on the concept of on-the-job training by having a systematic company-wide and divisional training and assignments for training purposes to ensure that employees can fully utilize their abilities. Company-wide training is conducted based on employee qualifications, as well as specialized training for individual divisions, language training, for the special knowledge and skills training. In 2001, Toyota adopted the ‘Toyota Way’ which expresses the key principles of ‘Continuous Improvement’ and ‘Respect for People’. These are guidelines, policies and procedures to train the employees to perform their conducts in a manner the company sees of high values and what the employees should embrace.
SALARY AND COMPENSATION
In a big organization such as GE and Toyota, the design of the salary and compensation plan for the leaders or top management of the company would need to consider the issues involving agency and principal. The remuneration plan should be design in a way that would align the agent’s (management) interest with the principal’s interest (owners). For this purpose, GE sets up the Management Development and Compensation Committee. The committee individually reviews the performance of senior executive officers. The committee believes in designing compensation programs to reward the senior executive officers for sustained financial and operating performance and leadership excellence, to align their interests with the interest of shareholders and to encourage them to remain with the Company for long and productive careers. The committee also reviews all compensation actions for other Company officers and regularly evaluates the effectiveness of the different elements of the Company’s overall executive compensation program.
There are various kinds of compensation programs such as base salary, annual bonus, stock options, contingent long-term performance awards, performance share units and pension plans. All would serve different purposes, but one thing in common is all the compensation plan is designed to sustain the senior executives, it is attractive and it aligns the interest of the senior executives with the interest of the owners of the company.
Salary and compensation plan for officers and junior executive would differ compared to the plan for senior executives. The basic idea of the salary and compensation for employees of the company is to persuade them to continue do work for the company. A structured and properly plan would consider a design which makes the employee work with their full effort, always trying to improve themselves, staying loyal with the company and always trying to add-value to the company. Compensation level needs to be measured against other employees within the same company and employees in similar positions from competing firms. Salary range needs to be periodically reviewed considering compensation for economic factors such as cost of living or inflation. GE and Toyota when designing a salary and compensation plan, they would identify and measure the significance of internal and external factors that effects the decision of the company for salary and compensation. Internal factors are such as availability of financial resources, estimation of company’s future growth, operating condition of the company, internal controls and organizational structure of the company. External factors would include condition of the economy, government regulations, competitors, technology advancement and workforce unions’ level of involvement.
As we can understand from the examples of human resource practices between two big organizations such as GE and Toyota, variations in human resource practices does not necessarily means the practices of one company is better than the other, because human resource function gives greater benefits when it is align together with the business strategies and objectives of the company. In order for Human Resource to effectively align itself with the strategies of an organization, it must present top management with solutions that address the strategic needs and support of the organization. We must understand that it is human capital that leverages all other areas of an organization. Therefore, the Human Resource functions needs to ensure human asset is effectively aligned with the strategy that is chosen by the company.