Total Rewards - Motivating With Strategic Rewards

SHRM Briefly Stated

12/1/2006

Introduction
According to a recent survey by Deloitte Development, 56% of certified employee benefit specialists reported that providing reward programs that attract, motivate and retain talent was a top priority. 1 Employing total rewards as a key motivational force is not a new concept. However, it is very often an overlooked tool. HR can make a significant impact in overall organizational performance and production by being aware of the relevance of the relationship between reward and motivation. The first step in using total rewards to maximize motivation is to develop a strategic rewards framework through continual assessment, planning and evolution.

Introduction
According to a recent survey by Deloitte Development, 56% of certified employee benefit specialists reported that providing reward programs that attract, motivate and retain talent was a top priority. 1 Employing total rewards as a key motivational force is not a new concept. However, it is very often an overlooked tool. HR can make a significant impact in overall organizational performance and production by being aware of the relevance of the relationship between reward and motivation. The first step in using total rewards to maximize motivation is to develop a strategic rewards framework through continual assessment, planning and evolution. 2

Reward and Goal Strategy
By strategically aligning reward systems to specific organizational goals, HR can establish the organizational culture and at the same time effectively motivate and retain employees. HR can also shape a culture of entitlement, compliance or achievement (see Figure 1) by aligning rewards with organizational culture and goals. For example, tenure/seniority-based pay increases lead to a culture of entitlement, increases based on personal goal achievement lead to a culture of compliance, and data and metric-based increases lead to a culture of achievement. 3 Typical monetary rewards, such as bonuses for exceeding sales goals, are more likely to promote a bottom-line performance-driven culture.

However, reward systems often fail due to a lack of congruency between reward structures and performance goals. For example, if the goal is to promote team performance, then the team must be rewarded as a unit. Yet often individuals are rewarded, promoting individual achievement and distinction from others, which then minimizes the collectivistic nature of teamwork. 4 A more appropriate strategy for team performance would be offering rewards such as more vacation, which help establish a cooperative team atmosphere with underlying work/life balance values.

At the global level, culture affects reward structures. Collectivistic cultures in countries such as Japan, South Korea and Sweden, 5 for example, value cooperation and group performance, whereas in individualistic cultures such as in Italy, Argentina and Germany, individual performance is recognized and valued. Performance-oriented cultures, such as in the United States, Hong Kong and Singapore, are more likely to structure rewards based on performance, in alignment with their value system. Furthermore, cultures with high equity sensitivity, 6 such as in Japan, tend to be more entitle-oriented and expect to be rewarded for contributions proportionately to effort, not necessarily performance. HR professionals in international organizations can better maximize motivation cross-culturally by being aware of these value differences and appropriately structuring rewards.

Reward Frameworks
Reward packaging, traditionally framed solely as a performance outcome, encompasses reward and recognition structures (e.g., variable pay, stock options, bonuses, promotions). Generally, HR practitioners are well-versed in this type of reward framework and execute it successfully. However, alternative frameworks of reward, such as employment-based rewards (see Figure 2), often operate beneath the reward system radar. By reconceptualizing these incentives, which are conventionally perceived as benefits initiatives, and combining them with the traditional performance-based rewards, HR can leverage total rewards packaging to effectively motivate employees, thereby improving overall performance.

Intrinsic and Extrinsic Motivation
Reward programs can be a valuable motivating force. To design effective reward programs, however, it is necessary to understand the nature of motivation first. Motivation is generally delineated into two components: intrinsic and extrinsic. Intrinsic motivation is activity undertaken for one’s personal satisfaction 7 and applies to personal activities as well as to work-oriented tasks. It is essentially working for the love of the job. Intrinsic motivation, often credited as the most crucial type of motivation for increasing employee performance and retention, is also directly linked to stimulating creative and innovative thought processes.

Extrinsic motivation is often linked to human resource practices. It is satisfaction through indirect or external paths and is typically found in the traditional pay-for-performance framework. Research suggests that pairing intrinsic motivation with extrinsic motivation can have an additive effect, 8 synergistically increasing overall performance. Therefore, HR may be able to exponentially increase overall performance and retention by increasing intrinsic motivation, such as by selecting employees highly intrinsically motivated by the job while also offering effective extrinsic total rewards packages.

Rewards for the Intergenerational Workforce
With many generations now in the workforce, a “one size fits all” approach to total rewards will no longer be adequate. As Traditionalists and baby boomers prepare for retirement, employees from Generation X are promoted to prominent management positions and Generation Y enters the workforce (see Figure 3). Generation Y, perhaps the most high-maintenance generation to enter the workforce, 9 is the most technically literate, educated and ethnically diverse generation in history. 10 It prefers employment-based rewards to traditional performance-based rewards, with rewards categorized as workplace opportunities over performance rewards (see Figure 1). Examples of rewards valued by Generation Y are time off, flexible work schedules and specialized training. They also value contributing to society, parenting well and establishing a full and balanced life. Generation Y seeks instant gratification instead of long-term investments of time and effort. 11 In contrast, Traditionalists and baby boomers tend to prefer monetary rewards and promotion to benefits, services and workplace opportunities.

HR can effectively capitalize on generational shifts in the workplace by appropriately structuring rewards in accordance to generational differences. Similar to benefits packaging, HR can structure flexible reward systems so that each generation can select preferred rewards. For example, a diverse sample of rewards could be offered across the board to consider multiple generations. While this approach will require time, effort and communication, the benefit of motivating all four generations far outweighs the cost. Overall, the benefits of an intergenerational workforce (e.g., learning from one another, improved performance and quality, etc.) far outweigh the negatives (e.g., conflict, miscommunication, etc.). 12

Creativity and Innovation: Implications for Reward Systems 13
In today’s competitive marketplace, creativity and innovation are essential to the livelihood of organizations. Creativity is composed of three components: expertise, creative thinking skills and motivation. 14 Creativity (and motivation in particular) can either be effectively stimulated through strategic reward practices or, conversely, be negated through poor practices. HR can take steps to prevent creative restriction and encourage creative adventurism by avoiding strictly using monetary rewards for performance and instead rewarding for effort and risk-taking, even if the venture fails. This will establish a sense of creative safety and encourage others to deviate from standard and stagnant practices as well as learn from failed ventures. It is also important to evaluate creative ideas based on their potential, not their flaws. Most importantly, HR can increase intrinsic motivation by making the work itself rewarding and engaging through a constructive work environment, matching individual skills to creative tasks to keep employees engaged and giving employees autonomy in how they problem solve.

Literature Review
Cooperation, Competition, and Team Performance: Toward a Contingency Approach 15

To facilitate successful team performance, it is essential to structure the reward system congruently with the team’s specific performance goals and priorities. This study considered how factors of speed and accuracy related to goals and subsequent rewards. Specifically, this research examined the effects of team structures of cooperation versus competition on speed and accuracy of overall team performance. The study found that if speed was top priority, a competitive reward system among the individuals within the team would be optimal (i.e., rewards distributed equitably among individuals within the team). However, if accuracy was essential, a cooperative reward system (i.e., rewards evenly distributed among all team members regardless of individual performance) would be favorable. If speed and accuracy were both essential, different reward structures should evolve throughout each stage of the team task life cycle in accordance to goal-reward congruency and prioritization. Overall, the study found that dynamic reward structures strategically aligned with performance goals increased overall team performance.

Group Creativity: The Effects of Extrinsic, Intrinsic, and Obligation Motives 16

This study evaluated creative team performance by differentiating between extrinsic motivation, intrinsic motivation and obligation motivation. Extrinsic motivation can be defined as motivation coming from sources outside of the task itself (e.g., monetary reward and supervisor recognition). 17 Obligation motivation is reciprocity-based motivation, 18 and intrinsic motivation is based on the qualities of the task itself, characterized by deep personal involvement and enhanced by the “playfulness” of the task. 19 The study found that rewards increased extrinsic motivation but did not significantly affect intrinsic or obligation motivation. More importantly, extrinsic motivation (bonus rewards) decreased group creative performance. Alternatively, intrinsic motivation and obligation motivation increased group creative performance. If group creativity is the goal, this research suggests that traditional bonuses or monetary rewards are ineffective incentives and effort should be focused on increasing intrinsic motivation (perhaps by making the task/goal more interesting or selecting personnel that are a better fit for the job) and obligation motivation (perhaps through a cooperative work environment with strong social ties).

Managers’ Theories of Subordinates: A Cross-Cultural Examination of Manager Perceptions of Motivation and Appraisal of Performance 20

This research examined managers’ assessment of employee motivation and the resulting impact of motivation perceptions on performance appraisals. In the United States, managers perceive their employees to be more extrinsically motivated than intrinsically; however, performance appraisals of these employees reflect the managers’ (and HR’s) perception of intrinsic motivation. In contrast, in Asia, managers perceive employees to be equally intrinsically and extrinsically motivated, and the performance reviews reflect this balance. Similarly, in Latin America, managers perceive employees to be more intrinsically motivated, and the performance appraisals reflect intrinsic motivation. The incongruence of U.S. managers’ perceptions and appraisal ratings (typically leading to reward via bonuses, promotion, etc.) is worrisome. This study suggests that HR can stimulate productivity and retention by increasing awareness of the most effective types of motivation for the group of employees (both domestically and internationally) and rewarding employees accordingly.

In Closing
HR has the potential to influence employee motivation in multiple ways. First, total rewards can be framed to include both employment-based and performance-based rewards to maximize reward breadth. Second, rewards can be structured to be congruent with specific goals—whether to promote teamwork or individual performance—and this can influence behavior by anticipating and strategically structuring the reward system to enhance desired performance. Third, HR’s awareness of the link between reward structure and organizational culture promotes effective use of that relationship to foster and maintain the desired organizational culture. Finally, by realizing and catering to motivational differences among employees, whether generational or cultural, HR can maximize creativity, innovation and overall performance through combining and balancing both extrinsic- and intrinsic-based total rewards.