Promotion and Employee performance
Promotions appear to be the most important form of pay for performance in most organizations,
especially in hierarchical, white-collar firms. They are the primary means by which workers can
increase their long-run compensation (Schermerhorn, 2010; Mwaura, 1999). They are usually
given to the best performers (Robbins, 2009; Müller, 2011). Therefore, promotions should
generate substantial motivation in many settings. Moreover, there often does not seem to be strong
pay for performance within jobs, which only increases the apparent importance of promotions for
organizational incentives (Pareek, 2007)It follows that in order to analyze the systems firms use to
motivate employees, it is essential to fully understand the incentive effects of promotions.
Promotions have generated a great deal of theoretical interest, especially in the context of
tournament models (Müller, 2011).
Promotions as Incentives
It is worth considering why firms might use promotions for incentives. Individualistic schemes,
especially ones that do not depend on job assignments, allow more flexibility in providing
incentives. In other words, promotions are often used to achieve two goals simultaneously that in
principle might be separated: putting employees in the right jobs, and generating motivation.
Thus, it is not immediately obvious why promotions should be used as incentives. An important
reason that promotions are sources of incentives is worker reputation, or “career concerns”
(Numerof, 2003; Pareek, 2007; Miner, 2007; McBurney, 2009). Suppose that a worker‟s ability is
not publicly known, and the labor market pays wages based assessments of ability (reputation).
If effort and ability are substitutes at producing output or ability signals, then the worker has an
incentive to improve reputation by increasing effort. Where does reputation come from? Often it
is the worker‟s history of position s promotions which provides the greatest evidence on
productivity and potential (SAPRU, 2013). Thus promotions can play a key role in incentives,
even when firms do not intend them to. A second reason that promotions maybe important
motivators are that they can be self enforcing incentives schemes (Mwaura, 1999). Assume, for
example, that the firm attaches wages to jobs, not to individuals, and fills slots by promoting the
best performers. If this is done, then the firm‟s wage bill is fixed, regardless of who is promoted.
In order for this system to provide incentives, the firm needs to credibly promote good performers
rather than poor performers. Because the wage bill is fixed, the firm has no reason not to; thus, the
incentive contract is self-enforcing. This may give a contracting advantage over other incentive
mechanisms
Salaries and Rewards Policy on the Organizational Performance
Jain, (2005)states that "human resource management (HRM) is the planning, organizing, directing
and controlling of the procurement, development compensation, integration, maintenance and
separation of human resources to the end that individual, organizational and societal objectives
are accomplished." HRM strives to achieve organizational goals and the goals of employees
through effective personnel programs policies and procedures. Successful performances of the
personnel function can greatly enhance the bottom line of any organization. The personnel
practitioners however are challenged more today than at any time in the history by a changing
and more demanding labor force that has high expectation about the work place. At the same
time, rapidly advancing technologies and outside influences are changing the nature of modern
jobs. It is thus more critical and more difficult to maintain a work environment that motivates and
satisfies human resources (William Pride, 2011)
According to Fox, (2007) "compensation which includes direct cash payment, and indirect
payments in the form of employee benefits and incentives to motivate employees to strive for
higher levels of productivity is a critical component of the employment relationship”. He added
that compensation is affected by forces as diverse as labor market factors, collective bargaining,
government legislation and top management philosophy regarding pay and benefits". A good
compensation package is a good motivator. Hence, the primary responsibility of the HR manager
is to ensure that the company's employees are well paid. Other objectives of compensation
include; to attract capable applicants; retain current employee so that they don't quit; motivate
employees for better performance; reward desired behavior; ensure equity; control cost; and
facilitate easy understanding by all i.e. employees operating manager and HR personnel (Robbins,
2009).
According to (SAPRU, 2013) the following factors influence compensation: the organization's
capacity to pay; prevailing pay and benefits in the industry; compensation in the industry and
availability of special competent personnel; flexibility, i.e. kind of competencies and abilities in
managers; performance/productivity/responsibilities of individual; organization philosophy such
as to be leader or pay prevailing rates; qualifications and relevant experience; and stability of
employment and advancement opportunities. Compensation literally means to counterbalance,
offset, and to make up for. It implies an exchange. Schermerhorn, (2010)argues that
compensation translates binto different meaning among countries and even overtime. He offers
the following alternative. According to Jain, (2005) there are several prerequisites to the effective
installation and operation of payment system: a.) It should be developed and introduced with the
involvement of the workers concerned in a harmonious climate of industrial relations. b) Work-
study precedes the installation of incentive programs. c) The wage structure should be rationalized
on the basis of job evaluation before devising an incentive plan. d) The objective to be
accomplished through incentives should be defined and accordingly, an attempt should be made
to select a scheme, which is most suitable to accomplish them. Social security system provides
benefits such as provident fund, employees‟ state insurance (ESI) scheme, retrenchment
compensation, employment injury compensation, maternity benefits, gratuity, pension, dependent
allowance and contribution toward pension and gratuity claims. Workers include medical and
health care, restaurants, cooperative credit societies and consumer stores, company housing, house
rent allowance. Recreational and cultural services, clubs, cash assistance. Some employers also
provide education, transport facilities and conveyance allowance (Williams, 1998).
The remuneration strategy success is very much linked with corporate responsibility. Employers
and designated managers should apply and realize useful objectives and targets that are linked to
the workers pay and performance that implies effective performance management system
connecting the achievement of workers group, department and individual objectives and targets in
order to remuneration and bonus schemes. (Lockwood, 1994) The implantation of remuneration
strategies for business organizations adheres to their corporate governance structure and provides
a framework for implementing the strategies, policies and procedures that have their roots in the
statement of business principles such as the way organizations do their business that will
positively motivate employees to do better in work and perform beyond standards and
expectations that are expected of them in the diverse workforce as of the present (Lockwood,
1994).
According to Msoroka, (2013), motivation can be either intrinsic or extrinsic. Intrinsic motivation
stems from motivations that are inherent in the job itself and which the individual enjoys as a
result of successfully completing the task or attaining his goals. While extrinsic motivations are
those that are external to the task of the job, such as pay, work condition, fringe benefits, security,
promotion, contract of service, the work environment and conditions of work. Such tangible
motivations are often determined at the organizational level, and may be largely outside the
control of individual managers. Intrinsic motivation on the other hand are those rewards that can
be termed psychological motivations and examples are opportunity to use one‟s ability, a sense of
challenge and achievement, receiving appreciation, positive recognition, and being treated in a
caring and considerate manner. An intrinsically motivated individual, according to Müller, (2011)
will be committed to his work to the extent to which the job inherently contains tasks that are
rewarding to him or her. And an extrinsically motivated person will be committed to the extent
that he can gain or receive external rewards for his or her job. He further suggested that for an
individual to be motivated in a work situation there must be a need, which the individual would
have to perceive a possibility of satisfying through some reward. If the reward is intrinsic to the
job, such desire or motivation is intrinsic. But, if the reward is described as external to the job, the
motivation is described as extrinsic. Good remuneration has been found over the years to be one
of the policies the organization can adopt to increase their workers performance and thereby
increase the organizations productivity. Also, with the present global economic trend, most
employers of labour have realized the fact that for their organizations to compete favorably, the
performance of their employees goes a long way in determining the success of the organization.
On the other hand, performance of employees in any organization is vital not only for the growth
of the organization but also for the growth of individual employee. An organization must know
who are its outstanding workers, those who need additional training and those not contributing to
the efficiency and welfare of the company or organization. Also, performance on the job can be
assessed at all levels of employment such as: personnel decision relating to promotion, job
rotation, job enrichments etc. And, in some ways, such assessments are based on objective and
systematic criteria, which include factors relevant to the person‟s ability to perform on the job.
Hence, the overall purpose of performance evaluation is to provide an accurate measure of how
well a person is performing the task or job assigned to him or her. And based on this information,
decisions will be made affecting the future of the individual employee. Therefore, a careful
evaluation of an employee‟s performance can uncover weak-nesses or deficiencies in a specific
job skill, knowledge, or areas where motivation is lacking. Once identified, these deficiencies
may be remedied through additional training or the provision of the needed rewards. The view
that specific rewards will encourage increases in production has not always been substantiated,
even though management has often attempted to spur production by such offerings and has often
attributed production increase to them.
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