Reward System in Organizations
Category : Inflexible Reward System
1. Executive Summary
This paper tackles the application of Abraham Maslow’s Theory of Needs Hierarchy and Victor Vroom’s Expectancy Theory in the creation of effective reward systems in organisations. The paper first presents sufficient illustrations and examples of Ford Motor Company’s reward system. Next, the aforementioned theories are discussed herein. Lastly, a concise analysis of Ford’s reward system is presented in the latter part of the paper, through a comparison of the two job levels with different responsibilities at the mentioned organisation. This last discussion is supported by an application of Maslow’s and Vroom’s theories, and how Ford’s reward system has successfully motivated the human resources.
Understanding what motivates people is necessary at all levels of management. Motivation is generally linked to reward, and it is widely recognised that reward management is central to the regulation of the employment relationship. The reward system varies from oragnisation to organisation, and comes in various and concrete forms, including monetary or non-monetary, tangible or intangible, and physical or psychological, and these are offered to the employees as compensation for the productive work they execute (2001).
An effective reward system can serve the strategic purposes of attracting, motivating, and retaining employees to achieve organisational goals. A formalised corporate reward system is necessary because it appeals to capable and skilled employees to fill the available positions in a specific organisation. Additionally, such method helps retain employees in the organisation, hence maintaining a stable workforce with an acceptable turnover rate. Lastly, an efficient reward system also motivates employees to perform their responsibilities to the fullest degree of their personal capacities (2001).
3. Reward System in Ford Motor Company
Ford Motor Company (Ford) is multinational organisation that manufactures internationally acclaimed automobiles. It is ranked as the world’s third largest company in its field based on sales of vehicles in 2005, and is chosen as one of the globe’s most profitable corporations (2006).
Ford employs an effective reward system exemplified by the restructuring of its operations and its organisational chain of command. The corporation has practically shifted its manufacturing processes towards a team-based methodology wherein employees have far better control over their responsibilities ( 2006). For instance, instead of simply following the instructions of managers, workers can directly contact the suppliers to talk about quality of equipments and to take autonomous action to eradicate product flaws. This is evidently one form of incentive for employees because they are not treated as mere machines in the organisation; they can practice their personal judgment to make their own decisions with regard to matters that concern the organisation they work for. Moreover, because of the resultant increase in productivity, quality of products and work satisfaction, Ford has further developed this approach which consequently allows employees to have better control over their own jobs.
Next, Ford maximises the use of current technological advancements to introduce incentive programs for its employees. Ford is one of the numerous organisations in the United States that make use of the Internet to run incentive programs for employee motivation and recognition, award selection, award fulfilment, and the like (2002). Online-oriented employee motivation poses various benefits that are advantageous for employees and the organisation itself. For example, promotional materials are posted in the Internet as there is no longer a need for these to be printed in paper (2002). These materials can be immediately and efficiently added or removed from the Internet, based on the employees’ decision or judgment. Hence, online incentive programs save time, money, and even permits greater control for the organisation and employees.
Ford also acknowledges the significance of environmentally and socially responsible corporate actions. Through corporate social responsibility (CSR), increased benefits are presented to stakeholders, including employees, consumers, dealers, suppliers, media, the government, and the community (2006). Hence, through efficient corporate social responsibility, Ford is able to improve the quality of life of its employees and their families, the local society, and the community in general.
Lastly, another form of compensation for the employees at Ford is the company’s programmes for Employee Involvement (EI). EI brings benefits to Ford with enhanced employee creativity, lessened absenteeism, better quality of products, and improved relations between employees and the administration (1992). Two concrete examples of programmes involved in EI are the Mutual Growth Forum (MGF) and the Employee Assistance Plan (EAP). The goal of MGF is to develop the relationship between employees and management through a two-way communication. To do this, the concerned parties conduct regular meetings to discuss matters of mutual interest, such as product plans, competition, economics, holiday schedules, work conditions, and the like (1992). For EAP, it aims to encourage employees to alter their way of life so as to have improved well-being. EAP is completely voluntary and is intended to aid workers who may have health problems, drug dependency, and the like (1992). The programme also includes a referral technique for professional counseling, assessment, and treatment, as well as wellness activities for health risk evaluations, stress management, hypertension monitoring, and so on (1992).
4. Theory of Needs Hierarchy
4.1. An Overview
In 1943, Abraham Maslow, introduced the Hierarchy of Needs Theory of human motivation. Presently, this needs theory is the most relevant framework utilised by organisations from all over the world, since it offers sound insights with regard to human behavior and consequent human resources satisfaction.
According to Maslow, human needs are categorised into five broad types – physiological, safety, social, esteem, and self-actualisation (2001). These needs are organised in ascending hierarchical order, with psychological needs at the lowest level and with self-actualisation at the highest. Such an arrangement is based from Maslow’s conclusion that the lower-level needs are the most generic because the fulfilment of these needs or requirements is necessary for people’s survival (2001). Eventually, as these lower-level needs are reasonably satisfied, the higher-level needs take on growing relevance as causal factors in human behaviour (2001). The five needs are summarised as follows:
Figure 1. Maslow’s Hierarchy of Needs
- Physiological needs are the basic things that are vital for the sustenance and maintenance of life, such as air, food, water, shelter, sleep, and physical survival.
- Safety needs deal with a person’s protection from danger, uncertainty, risk, or fear. Examples of these are safe labour conditions, freedom from mental or physical damage, as well as job stability (organisational context).
- Social needs, or the needs for fondness, love, special relations with other individuals, and having an important part in a group.
- Esteem needs, or the desire for confidence, status, reputation, recognition, self-respect, self-reliance, and prestige. The fulfilment of these needs cause a person to feel good about himself/herself; likewise, that individual also hopes that other people would recognise his or her worth as a human being.
- Self-actualisation needs, which is the realisation of one’s abilities, personal development, autonomy, creativity, and intellectual vitality. These are the requirements that would satisfy a person’s highest potentials, maximising the capabilities and to make every effort so as to be the best s/he can possibly be (2001).
4.2. An Application into Organisational Context
The Theory of Needs Hierarchy is utilised by organisations to fulfil employee’s needs and to motivate them to be more productive in the corporations they work for. One concrete example of the application of Maslow’s theory in organisations is through the organisation’s reward system.
With regard to effective reward systems in organisations, managers or key officers should remember that the lower-order physiological and safety needs are mainly fulfilled through direct and indirect factors of compensation such as salaries and benefits, as could be derived from the figure above (2001). On the other hand, the psychological factors of compensation focus on the social, esteem, and self-actualisation higher-level needs of employees.
5. Expectancy Theory of Motivation
5.1. An Overview
In comparison to the theory of needs hierarchy, the expectancy theory, advocated by a Canadian Psychology Professor, , aims to explain why people act as they do, in light of their own aspirations and their expectations of reaching these goals (2001).
According to Vroom, human motivation is influenced by two factors, namely expectancy and valence. Expectancy is an individual’s perception of the possibility that a certain outcome is caused by particular behaviours, whereas valence is the value that a person assigns to a certain outcome that could be a result of specific behaviours; it is therefore an index of how much an individual desires a certain outcome (2001 ). Furthermore, expectancy is composed of two separate parts: effort to performance expectancy and performance to outcome expectancy. Effort to performance expectancy is a person’s perception of the possibility that enhanced effort will lead to enhanced performance (2001). Conversely, performance to outcome expectancy is a person’s perception of the possibility that enhanced performance would lead to enhanced rewards (2001). Algebraically, the expectancy theory can be illustrated as such (Figure 2):
Figure 2. Vroom’s Expectancy Theory
Based from this model, for motivation to happen, there are three conditions to be satisfied – performance expectancy should be greater than zero, the outcome expectancy should likewise be greater than zero, and reward valence should also be greater than zero. It should be noted that high expectancies or high valence alone would not lead to motivated behaviour.
5.2. An Application into Organisational Context
The expectancy theory possesses vital implications when being applied to an organisation’s reward system: 1). a clear connection between rewards and performance must be determined; 2). the connection between rewards and performance must be relayed to employees; 3). the rewards must be provided based on performance; 4). rewards must fulfill the specific needs of the employees so as to draw out a high level of motivation; and, 5). barriers in organisations that hinder excellent performance must be eradicated to ensure motivated behaviour to take place (2001).
6. Assessment of the Success of Ford’s Reward System based on Maslow’s Theory of Needs Hierarchy and Vroom’s Expectancy Theory
6.1. Two Job levels at Ford Motor Company
Evidently, similar to any other organisation, Ford is composed of two job levels for it to effectively operate. These two job levels are namely the human resources and the manager. Basically, the manager or CEO of Ford, namely Alan Mulally, is the person who administers the projects, activities, and practically everything that occur in the organization. On the other hand, the human resources of the company are the people that possess the essential skills and capabilities that are needed for the organisation to survive and eventually develop. Consequently, individuals who belong in these two job levels have to be accordingly and appropriately compensated, for them to be able to be productive people in the organisation they work for.
To be more specific, it is Mulally’s job to create an effective rewards system that would be employed in the whole corporation. To do so, he should carefully and thoroughly observe and assess the whole organisation, so that the reward system that would be created surely fits the company.
For instance, Mulally have discovered that Ford employees get unenthusiastic with their work if they are not given enough opportunity to have better and more flexible control over their work tasks. Consequently, it is Mulally’s responsibility to make the necessary steps so that Ford workers would be motivated in terms of the mentioned aspect of their work.
To live up to this responsibility, Mulally altered the manufacturing processes of Ford towards a team-based approach so that employees would have better control over their responsibilities. As was discussed in the previous part of this paper, workers at Ford now could directly interact with suppliers, instead of simply following the instructions of their supervisors.
As for the second job level, human resources likewise have a part in the formulation of an effective reward system in the company. It is a known fact that employees are the ones who toil so that quality goods and products would be created by Ford. Because of this, it is important that they are substantially compensated, based on what they give and what else they could offer for the company’s success.
For example, it is the responsibility of employees to voice out their concerns with regard to motivation in the organisation. As was discussed earlier, human resources at Ford formerly believed that they were not significantly involved in the organisation they work for. They voiced out this concern to the management and the corporate leaders were able to create the Employee Involvement program for the Ford workers. Additionally, programs for these human resources have been created, for them to feel truly appreciated and valued in the company they work for. Consequently, they eventually feel motivated to exert their best efforts to the corporation and bring to the consumers quality and excellent goods and services.
6.2. An Application of Theory of Needs Hierarchy in Ford’s Reward System
With the aforementioned examples of Ford’s reward systems, one can conclude that Ford was, and is still, successful in providing to its employees the fulfilment of their needs, based from Maslow’s Theory of Needs Hierarchy, as well as Vroom’s Expectancy Theory.
As was earlier mentioned, the actions employed by Ford – higher salary, decreased working hours, ability to have control over their individual work, social fulfilment, and the like – have led to lower rates of turnover, job stability, self-respect, and eventual self-actualisation.
More specifically, Ford’s programmes for Employee Involvement (EI) are the perfect examples of how the company successfully employed a reward system, based on Maslow’s theory. At first glance, these EI programs answer to the employees’ social needs for special relations with their colleagues, as well as their need to be an important part of a group. However, one could apply a deeper perspective on these programs, since these also answer to employees’ safety, esteem, and self-actualisation needs. For instance, the Employee Assistance Plan (EAP) is specifically created to focus on the health and safety issues of the workers at Ford. Because of such programme, employees in Ford know that although their jobs can sometimes pose risks for their health and may even be dangerous, they are assured that they are accordingly and appropriately compensated.
Furthermore, the Mutual Growth Forum (MGF) also created as one of Ford’s EI programs, dealing with employees’ needs for esteem and eventual self-actualisation. Since employees are asked to participate in important discussions on matters that greatly concern the organisation, they know that their opinions and ideas are valued. Their worth as workers and as human beings is therefore valued and as a result, they gain confidence and respect for themselves.
With these specific programs, it is quite clear that Ford’s reward system, based on Maslow’s theory of needs hierarchy, are completely successful in motivating the employees. Employees are happier and more productive individuals because almost all their needs are satisfied by the organisation they work for.
6.2. An Application of Expectancy Theory in Ford’s Reward System
Ford is able to provide appropriate compensation for the work of the employees, they are motivated to exert a high level of performance. For instance, through the concrete incentive programmes, employees of Ford feel that they are valued as parts of the organisation. They are not mere machines that generate products and answer to the instructions of their supervisors; they can voice out their concerns and ideas without fear of isolation or termination.
Moreover, it is previously established that employees at Ford are remunerated in almost every aspect of their work life, through the corporation’s effective rewards system. Likewise, since the specific needs of employees – Physiological, safety, social, esteem, or self-actualisation – are addressed by the organisation, the values that these employees attach to fulfill their needs are also considered. Because of such appropriate compensations for the employees’ efforts, they are encouraged to exercise an optimal level of performance in the organisation.
Additionally, if one would examine the previously discussed application of Vroom’s theory, one would see that Ford’s reward system answers to the five vital implications of the expectancy theory, when it is applied in the corporate reward system. For example, one could easily see that Vroom’s theory gives importance on the connection of the human resources’ performance, and the reward or other forms of compensation that they would obtain because of their work output.
To be more specific, Ford accordingly rewards people who are perceived to have the ability and skills to contribute to the further development of the company. This could be concretely seen through Ford’s restructuring of operations and organisational chain of command. Ford’s managers have evidently seen that the performance of their employees is excellent, and that they could be trusted when it comes to making their own decisions with regard to their work responsibilities. As a form of suitable reward, human resources now have the right and privilege to make their own decision and to converse with Ford’s shareholders without having to consult their supervisors and managers.
Furthermore, Vroom’s theory also focuses on the fulfilment of the specific needs of employees so that they would be consequently motivated. It is evident that every reward system at Ford certainly satisfies the specific needs of its human resources.
Lastly, the expectancy theory also stresses the fact that barriers in companies which hinder the excellent performance of human resources must be accordingly eliminated, so that they would be motivated with their work. Ford’s reward system also answers to this, and this could be specifically seen in the company’s technological programmes.
Traditional and conventional thinking are barriers to the success of organisations, especially if they exist in a technologically advanced society. Ford has accordingly made considerable efforts to eradicate such behavioural barrier, because the company is open to technological tools that aid the corporation’s advertising and motivational efforts.
Because Ford makes use of the internet and web resources for its incentive programmes and promotions, human resources are accordingly motivated to perform their best, to be able to produce quality and excellent goods and services for consumers.
Hence, although Ford previously encountered failures with regard to employee motivation, it is able to get back on its feet. It currently makes use of an effective reward system, concretised through the outstanding and dramatic changes in its labour-management relations, as well as through the existing incentives and various forms of employee involvement in the company. In conclusion, such a reward system consequently leads to the organisation’s positive image and international success, towards employees, consumers, partners and various stakeholders.
Abraham Maslow’s theory of needs hierarchy presents the needs of human beings into five hierarchical categories namely physiological, safety, social, esteem, and the eventual need for self-actualisation. On the other hand, Victor Vroom’s expectancy theory explains why employees act the way they do, in light of their aspirations and their expectation of reaching those goals. These theories are two recognised frameworks that are utilised to generate effective reward systems in organisations.
Using Ford Motor Company as an example, this paper has applied the abovementioned theories in the formulation and enactment of Ford’s own reward system. Ford is able to substantially satisfy most of the needs of its employees, based from Maslow’s hierarchy of needs. Similarly, since employees are suitably compensated, they are motivated to exert a high level of performance with regard their job. Consequently, based from Vroom’s expectancy theory, the values that they attach to fulfill their needs are also considered in the company they work for. In short, Ford is an ideal example of an organisation that experienced failure and eventually triumphed, through the formulation of an effective reward system based on Maslow’s theory of needs hierarchy and Vroom’s expectancy theory.