Reward Management11

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 rewards including 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 is the 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
- Shares
- Profit sharing
Benefits
- Pensions
- Holidays
- Healthcare
- flexibility

Learning and
development
- Work place learning and
development
- Training
- Performance and
management
- Career development
Work Environment
- Core value of organization
- Leadership
- Employee voice
- Recognition
- Achievement
- Job design and role
- Quality of working life
- Work life balance


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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

- Work environment

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
process that promotes
continuous improvement
- Performance management
processes that identify
learning needs and how they
can be satisfied
- Career family structure that
defines knowledge and skills
requirement
- Total reward approaches
that emphasize the
importance of enhancing the
work environment

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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 another particularly 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 assessment phase, 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 mess ages 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 and
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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used, some companies choose to pay a flat figure. In some companies, bonuses range from 25
percent to 50 percent of annual salary, depending on position, tenure and other factors.
Employees are chosen for retention bonuses based on their contributions to management and
the generation of revenue. Retention bonuses are generally vary from position to position and
are paid in one lump sum at the time of termination. However, some companies pay in
instalments as on when the business cycle completes. A retention period can run somewhere
between six months to three years. It can also run for a particular project. A project has its
own life span. As long as the project gets completed, the employees who have worked hard
on it are entitled to receive the retention bonus. For example, the implementation of a system
may take 18 months, so a retention bonus will be offered after 20 months. Although retention
bonuses are becoming more common everywhere, some industries are more likely than others
to offer them. Retail/wholesale companies are the most appropriate to implement stay-pay
bonuses, followed by financial service providers and manufacturing firms. Companies of all
sizes use retention bonus plans to keep knowledge employees retained in the company.

Hire Right Talent
Employee retention starts with recruitment. Early departures arise from the wrong
recruitment process. Here are a few ways to ensure how to hire the right talent for a particular
job. Hire appropriate candidates. Hire candidates who are actually suitable for the job. For
this the employer should understand the job requirements clearly. Dont hire under qualified
or clearly overqualified candidates.
Provide realistic job preview at the time of hiring: Mostly employees leave an
organization because they are given the real picture of their job responsibilities at the time of
joining. Attrition rate can be reduced if a right person is hired for a right job. Realistic

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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 a culture 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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Manager Role in Retention
When asked about why employees leave, low salary comes out to be a common excuse.
However, research has shown that people join companies, but leave because of what their
managers do or dont do. It is seen that managers who respect and value employees
competency, pay attention to their aspirations, assure challenging work, value the quality of
work life and provided chances for learning have loyal and engaged employees. Therefore,
managers and team leaders play an active and vital role in employee retention. Managers and
team leaders can reduce the attrition levels considerably by creating a motivating team
culture and improving the relationships with team members. This can be done in a following
way:

Creating a Motivating Environment: Team leaders who create motivating environments
are likely to keep their team members together for a longer period of time. Retention does
not necessarily have to come through fun events such as parties, celebrations, team outings
etc. They can also come through serious events. e.g. arranging a talk by the VP of Quality on
career opportunities in the field of quality. Employees who look forward to these events and
are likely to remain more engaged.

Standing up for the Team: Team leaders are closest to their team members. While they
need to ensure smooth functioning of their teams by implementing management decisions,
they also need to educate their managers about the realities on the ground. When agents see
the team leader standing up for them, they will have one more reason to stay in the team.

Providing coaching: Everyone wants to be successful in his or her current job. However, not
everyone knows how. Therefore, one of the key responsibilities will be providing coaching

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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 their
most desirable form of recognition. Use what employees say when it comes time to reward
for performance.


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Case Studies
Employee Retention Best Practices in Keeping and Motivating Employees By LisBeth Claus
Ask any CEO of an organization, What keeps you awake at night? and you will get a
response that relates to people management issues. a main concern for any organization
(whether small or large; private, public or nonprofit) is its capacity to attract, engage, and
retain the right people. The problem of retention is compounded by the predicted talent
shortage resulting from the upcoming retirement of the baby boomers, the scarcity of talent
with relevant work skills for todays jobs, the changing values about work and the high cost
of turnover. Research and human resource practices provide us with a number of
recommendations to increase employee retention.
How Auditing Company X Works with Retaining Valuable Employees : Swedish Case study
University essay from Hogskolan i Jonkoping/IHH, EMM (Entrepreneurskap,
Marknadsforing, Management) Author: Josip Bogic; Elina Armanto; Maja Cassel; [2008]
Abstract: Today, neither employees nor employers seem to take for granted that a person will
stay with the same firm until retirement. Yet, keeping employees for longer periods is an
imp-ortant challenge for firms. One industry where retention is interesting is the auditing
industry in Sweden, this because certain requirements are needed to become an auditor.
Firstly, the employee needs to have a Swedish university degree, including specific courses
within au-diting/accounting. Furthermore, the person needs practical experience for a specific
period of time. Due to these statements the challenge of retaining and motivating valuable
employees is crucial for the auditing firms, which is why we have chosen to do a case study
at Auditing Company X to see how they work with employee retention. We have compared
the findings to our chosen theory, which consist of four categories: the hiring process, in-
ternal labor market and career, motivation and performance, and finally culture and leader-
ship. These four categories are initially based on Leigh Branham?s book: ?Keeping the

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people who keep you in business: 24 ways to hang on to your most valuable talent? (Bran-
ham, 2001). In our conducted case study, at Auditing Company X, we have been able to
conclude that the firms retention practices are to a great extend in line with the theoretical
framework. There are some areas that need further attention from the company, such as an
individualized reward system and communication between managers and employees. Even
though there are some parts to work on the most important aspects of retention, such as
having a holistic and long-term orientation, Auditing Company X seems to have incorporated
this into their practices successfully.
Retention: An explanatory study of Swedish employees in the financial sector regarding
leadership style, remuneration and elements towards job satisfaction University essay from
Vaxjo universitet/Ekonomihogskolan Author: Sanna Paulsson; Linda Lindgren; [2008]

Abstract: Introduction: Companies today are forced to function in a world full of change
and complexity, and it is more important than ever to have the right employees in order to
survive the surrounding competition. It is a fact that a too high turnover rate affects
companies in a negative way and retention strategies should therefore be high on the agenda.
When looking at this problem area we found that there may be actions and tools that
companies could use to come to terms with this problem. Research told us that leadership,
remuneration and elements like participation, feedback, autonomy, fairness, responsibility,
development and work-atmosphere is important for job satisfaction and retention.

Object: The main objective is to increase the understanding regarding employees retention
in relation to leadership style, remuneration and elements such as participation, feedback,
autonomy, fairness, responsibility, development and work atmosphere in the Swedish
financial

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Sector Method: We wanted to investigate how employee of the Swedish financial sector
prefers to be retained, and how they consider and react to the chosen areas. The survey has a
quantitative approach with a web based questionnaire and includes 129 respondents from
banks, insurance and finance companies. The theoretical framework includes leadership and
leadership style, financial as well as non-financial remuneration and research done in later
years regarding participation, feedback, autonomy, fairness, responsibility, development and
work-atmosphere connected to retention.

4.What leaders can do to keep their key employees - Retention Management University essay
from Goteborgs universitet/Foretagsekonomiska institutionen Author: Lisa Hedberg; Maria
Helnius; [2007-09-03T08:22:31Z]


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CONCLUSION
According to my research I have concluded that employees can be rewarded
in many different ways but I personally believe Team Rewards which are
much under-emphasised in the organisations these days should be given
more preference but it should be decided after careful consideration of what
job entitles as different reward schemes work better in different situations
Armstrong (2007) says: All reward strategies are different, just as all
organisations are different. Of course, similar aspects of reward will be
covered in the strategies of different organisation but they will be treated
differently in accordance with variations in their contexts, business strategies
and cultures. But the reality of reward strategy is that it is not such a clear-
cut process as some believe. It evolves, it changes and it has sometimes to be
reactive rather than proactive.


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REFRENCES

www.strategicrewardsystem.com
www.rewardsystem.co.in
www.strategicsystem.com
www.sipnsurfprojects.com
www.managementparadise.com
www.mbaprojects.co.in

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