Reward architecture for developing human capital
Managers can use rewards as tools to motivate employees in order to attain organizational goals and objectives. Though companies still give traditional wage and salary increment annually for overall performance, rewards increasingly are being tied directly to excellent employee performance in the form of one-time bonuses. As a result, rewards reinforce every employee's performance on a regular basis. The higher productivity growth rates of the Japanese, for example, may be due to their reward system that encourage employee/labour to take a direct interest in raising productivity.
Reward management is concerned with the formulation and implementation of strategies and policies of rewarding employees fairly, equitably and consistently in accordance with their contribution to the organization. It essentially deals with development, implementation, maintenance, communication, and the evaluation of reward processes.
We know that architecture deals with designing. Rewards architecture deals with how rewards are designed based on some fundamentals. Lepak and Snell (2009) proposed two such key fundamentals-(1) value of human capital; (2) uniqueness of human capital. Generally, the 'human capital' is widely used in HRM to describe people at work and their collective knowledge, skills, abilities and capacity of develop and innovate. It aims to provide quantitative as well as qualitative data on a range of measures, (such as labour turnover or employee engagement levels) to help identify which sort of HR interventions will drive business performance.
It is widely accepted that the value of organizations is drawn form a mixture of tangible assets in the form of equipment, money, land or other physical objects together with intangibles in the form of brand, reputation, knowledge and, of course, people-critically important in an increasingly knowledge-based economy.
Value of human capital is inherently dependent upon its potentials to contribute to the competitive advantage or core competence of the organization. On the contrary, uniqueness of human capital refers to the aspect of specialized competencies that are difficult to replace or replicate.
The value and uniqueness of human capital function have been emphasis on strategic determinants of alternative employment modes in an organization. When these dimensions are interconnected, we can begin to derive an architecture of four quadrants that simultaneously links the strategic characteristics of human capital, employment modes, employment relationships, and HR configurations.
The figure highlights our different scenarios for developing human capital. These are:
1. Uniqueness-high, value-low: Alliancing Human Capital (e.g. getting software programmers through agreement with IT company)
2. Uniqueness-high, value-high: Developing Human Capital (e.g. grooming management trainees)
3. Uniqueness-low, value-low: Contracting Human Capital (e.g. obtaining security service from an outside provider)
4. Uniqueness-low, value-high: Acquiring Human Capital (e.g. recruiting operational staff).
In summing up, the above four scenarios highlight the different options to provide employee rewards in consistent with their contribution to the organization. One of the common perceptions is that employees may be getting more for or getting less of the benefits that employers offers. This mentality among the employer and employees must be changed and they must be willing to share more responsibility as the case may be for their wellbeing as well as betterment of the organization and country in the days ahead. It will also helps to develop human capital in proper way.
Dr Md Abu Taher, Member, University Grants Commission of Bangladesh & Director, Board of Directors, Jibon Bima Corporation, Dhaka