Wednesday, 29 December 2010

Total Reward – What should be considered before addressing the issue

When dealing with reward issues it should be invariably taken heed of the circumstance that in his two-factor model Frederick Herzberg (1957) considered pay, or in general recognition achieved by means of financial rewards, as a “maintenance” or “hygiene” factor.
The use of the term “hygiene” is not arbitrary, it has indeed a medical correlation; hygiene factors are those elements related to a job which whether removed or improved do not produce a healthier state, but just help prevent illness. This type of factors is thus more likely to prevent deterioration and maintain the status quo, rather than lead to effective improvements.

According to the findings of the thorough and still incredibly relevant to modern times study conducted by Herzberg, hygiene factors are dissatisfiers, that is, factors which can contribute to reduce and in some cases eliminate dissatisfaction, but unable to increase employee satisfaction. By means of these individuals reach a “neutral point”, somewhat of an in the middle stage, between satisfaction and dissatisfaction.


Herzberg’s investigation showed that even when pay was positively mentioned by employees it was always linked to achievement, success, growth and a job well done and not simply as cash per se. Herzberg’s study and other investigations conducted by different Authors at different times show that salary increases have motivational effects lasting just for approximately a three-week-period time. Notwithstanding, Herzberg by reason of the counterproductive effects these can produce on individual motivation did not consider financial rewards unimportant.

Whether pay and financial rewards in general should be used as the only levers to induce individual motivation and favour organizational growth, nonetheless, employers would be forced to constantly increase employee pay in order to sustain their motivation. After a while, irrespective of the circumstance it may be a matter of three weeks, three months or a year in that the length of this period of time can vary according to the different circumstances, employees would take for granted that whether the employer wants to keep their motivation alive this has to further increase the worth of its value proposition. To attain the objective, the amount of salaries, bonuses, golden handcuffs and any type of cash supplement would be made increasingly appetising and larger in value; a real bottomless pit and a move which would definitely prompt the employer to sooner or later call in the receivers.


Cappelli (2000) suggests that although paying staff competitive rates can help organizations to attract and retain talented individuals, business have clearly to impose a limit to the extent they can compete in the “pull of the market.” He also claims that although golden handcuffs and loyalty bonuses at large are used by organizations to retain high-flyers, their effects are unlikely to be long-lasting; whether and once individuals have decided to leave these will.


Findings of many recent surveys have supported these conclusions. An investigation carried out by Development Dimensions International (2004), based on a panel composed of 1,000 staff from companies employing more than 500 workers, for instance, revealed that many employees were bored, lacked commitment and were actively seeking for a new job. What more relevant and interesting, amongst the reasons cited by respondents for leaving their job pay actually finished in fifth place. The main reasons, as emerged from the investigation, for individuals aiming at changing job were:

- The lack of a motivating and compelling job;

- The absence of opportunity for advancement;

- The lack of career prospects;

- The lack of a challenging work;

- The desire to work within a more exciting environment;

- The possibility to perform a more varied work.


A more recent survey carried out by the National Training Awards (2010) revealed that when looking for a new job 76 percent of employees consider salary as the most attractive feature, whereas just a meagre 32 percent reported to be motivated by cash to perform well. This is to some extent bolstering the conclusions reached by Herzberg and other Authors about the effects, just limited to the short run, which cash and pay increases can produce upon motivation.


Some particular types of events occurring in real life can help to further support this idea. When a person inherits a large sum of money or wins a great lottery prize, this habitually continues to work or decides to start-up his/her own business. His/her motivators are clearly achievement, responsibility and growth. What an individual invariably aims at achieving also under such circumstances is self-fulfilment; his/her main motivations are provided by his/her work rather than by cash, which could thus be considered as a means to an end and not the end itself. It is indeed very likely that after a while just spending the cash won in the lottery or received in the form of a legacy will prove to be boring and not that exciting for many individuals.


Money is clearly an important personal driver and is indeed necessary to have a decent and comfortable lifestyle, but once this objective is attained the motivating power of cash is destined to inevitably wane.


It might be interesting to point out that, conversely from what claimed by Herzberg, nearly a century ago Frederick Taylor (1917) had supported a strong transactional theory about pay contending that people only work for money. In contrast, the investigations conducted by Mary Parker Follet (1926) and Elton Mayo (1949), which concluded that people are mostly and mainly motivated by the “social factor”, come to similar conclusions to those reached by Herzberg.


Herzberg’s studies were not indeed limited to the acknowledgement of financial rewards as hygiene factors; the two-factor-model-related investigation also allowed Herzberg to identify what individuals truly regard as motivators, to wit: the work itself, recognition, responsibility, advancement in the sense of growth and achievement.


Herzberg’s contribution to the investigation of the factors genuinely making an impact on motivation, with particular reference to the importance of intrinsic motivators, is particularly valuable as well as is his contribution to the work enrichment movement. The Author considered the role played by the intrinsic factors of paramount importance and suggested that a job holder satisfaction can be enhanced by:

- Job enlargement - horizontal growth,

- Job enrichment - vertical growth,

- Job rotation.


Herzberg also averred that managers should invariably treat their staff fairly in that employees tend to never forget the effects produced by bias and injustice and habitually develop, sometimes inadvertently, a “revenge psychology”, which cannot really be regarded as the best lever to engage and motivate staff. The bonuses, benefits and salary increases paid by an employer to individuals could hardly enable this to compensate (here literally) the behaviour of a manager treating his/her reports unfairly.


What has all of that to do with total reward? It could be actually barely believed that the developers of the total reward concept were unaware of or ignored Herzberg’s studies and investigations; it is indeed more likely that the total reward idea was developed as somewhat of the natural evolution of Herzberg’s study.


There are indeed very good reasons for organizations constantly striving to motivate and engage staff. Fundamentally, motivation is aimed at improving employee performance, which in turn should enable businesses to:

- Improve staff productivity,

- Enhance its competitive edge,

- Reduce the personnel budget,

- Increase profit.


Pay, financial rewards at large and many types of perks, which are nowadays no longer perceived by staff as additional benefits, but rather as something the employer has to provide them as a matter of course, are no more effectually helping employers to retain and motivate high-fliers in particular and staff in general.


A good deal of academic studies such as those carried out by Maslow (1954) and McGregor (1960) have provided evidence of the fact that intrinsic factors have a positive impact on motivation. Herzberg’s study went towards this direction too and, some criticisms notwithstanding, his conclusions, which also support the central belief of the dignity of labour and Protestant ethic according to which “work is good in itself”, have been and are still considered extremely important.


Total reward is basically aiming at providing sound solutions helping organizations to attract, retain and motivate individuals by means of a wider and more effective range of options. The concept is underpinned by and built on the synergic multiplicative effect typical of bundling, rather than only on the effects yielded by the financial means taken in isolation, which on their own have proved to be unsuccessful. That is why Herzberg’s study on intrinsic factors is still extremely relevant and important. Total reward essentially represents the sum of transactional rewards, which include financial rewards, and relational rewards, which are formed by non-financial/intrinsic rewards.

Despite their unquestionable validity, Herzberg’s theories are not completely immune to criticism so that his studies have been subject to different types of attacks over the years. One of the most interesting and appreciable criticism to Herzberg’s study is that it made no attempt to ascertain the existence of any linkages between employee satisfaction and performance. Even recognizing that the assumption that such a link might actually exist cannot be considered as nonsensical, the establishment of a causal effect relationship between satisfaction and performance is still today broadly regarded as questionable for lack of scientific evidence (Employees engagement and satisfaction. Do you take appropriate actions according to staff feedback?).

An additional interesting criticism made to Herzberg theories relates to the circumstance that staff diversity makes it difficult for employers to exactly determine what satisfies and dissatisfies different individuals. Not everybody, for instance, may want his job to be enriched. This is absolutely correct, but to some degree this remark should not be actually seen as a criticism or as a weakening statement of the Herzberg’s model, at least when applied to the total reward concept. This criticism could have been comprehensible only whether with reward the one-size-fits-all tenet could have been effectually applied, whereas it clearly does not and not just by reason of individual diversity, but also because it would be wrong assuming that the same individual may have the same wants at different times.


It is hence correct to back the idea that individuals wish different things and that employers need to know what their employees are expected to receive in order to properly reward them, but employee tastes are different not only because individuals are different one another, but also because people wants, attitudes and tastes are subject to change and vary over time. These changes most likely arise over the mid- to long-term, but it cannot be taken as axiomatic that employees, who are currently glad to receive a determined type of reward, will still be glad to receive the same type of reward in the near future.


The mix of rewards presently satisfying individuals cannot be considered as static, but rather as a dynamic combination of variables influenced by the ever-changing-tastes phenomenon and the “diversity” factor. Total reward programmes need to be hence adapted and tailored to each organization employee population. Whether total reward should be a meal, we would say that its recipe should be adapted to each individual according to his/her tastes, or rather, needs.


Once a thorough and overarching value proposition has been developed, there could be individuals preferring a reward package whose composition is mainly characterised by the financial element, others whose package is predominantly formed by “intrinsic factors” and others whose bundle is nearly equally balanced.


Reward is not an exclusively internal organizational issue, the changes and developments occurring in the external environment in fact more often than not come to play and play a very important role.

Herzberg, Maslow, McGregor and many other Authors did start the job and yielded many significant results. These studies clearly constitute solid and valid basis for further investigations which will arguably never come to an end; not by reason of what concerns the identification of the foundation and fundamentals of the total reward concept and idea, but rather as for what regards its composition, process and the way it has to be associated with individual performance.

Longo, R., (2010), Total Reward - What should be considered before addressing the issue, HR Professionals, [online].

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