A reward system in an organization must be flexible.
Basically, reward systems consist of financial such as base salary, pay incentives and employee benefits and nonfinancial rewards like intrinsic rewards and praises, recognitions and time off among others. Consistent with other human resource (HR) systems, reward systems are perceived to be a key driver for HR strategy, business strategy and organisation culture. As such, reward systems are directly link to employee performance, outputs and productivity. However, there are organisations which offer inflexible pay systems such as the Japan Railways Group.
JR Group: Inflexible Reward System
The Japanese government depends more on their manpower, making it a more important endeavor for them to hire capable persons and to develop the capabilities of the employees to the greatest degree possible. Embedded on a highly patriarchal culture, the reward system in Japan is rather unique compared to other countries. The Japan Railways Group, or the JR Group, which includes seven for-profit companies, for instance, operates a large proportion of intercity rail services.
Employees of the JR Group receive monthly compensation consisting of a monthly salary and several allowances. Salaries are determined by grades that contains 15-30 pay steps. Although the Local Public Service Law approved the principle of function-based wages, stating that the salary must be paid according to the difficulty and complexity of duties and the level of responsibilities, the principle of seniority is much more important. As such, wage differentials sprung on the basis of differences in position and ranking. Pay increases at the time of advancement and promotion to a higher grade are relatively small. Though bonuses are also provided three times a year, the total amount of bonus is a little more than five months of wages. If a JR Group employee was fired, he or she will lose more than 60 months or 5 years of salary (Inatsugu).
Common to the Japanese business environment is the merit accumulated system and the slow promotion system which is still being practiced by Japanese organisations. JR Group is not an exemption. These systems allow the simultaneous hiring of new entrants on the basis of contributions and merits. This and the seniority principle explain the differences in pay and promotion among those who entered the same company at the same time after ten years. Along with lifetime employment principle and seniority-based wage system, the contributions of a JR Group employee, whether positive or negative, will influence career advancement over the long-term.
Moreover, though there are individual assessments, these are more inclined to short-term rewarding. Past contributions are gradually accumulated and are used as the basis of determining job transfers, promotions and advancement. Job transfers, advancement and promotion will be the basis of next job transfers, promotion and advancement, known as lifelong system of competition. Oobeya shugi (open office) is also pursued wherein there will be no partitions at the level of manager and subordinates. Jobs are divided among themselves while also cooperating and covering up for each other, making the evaluation of individual job achievement even more difficult (Itoh).
As such, pays and allowances play an important role in establishing the morale and morals of JR Group employees. In a process where employee performance and productivity experiences delay in rewarding, the morale of the employees suffers in the long run, making them unproductive and extra burden to the company. Such systems, essentially, could hone a single-minded culture while drawing away from the concept of collectivism. For the employees of JR Group externalities could easily manipulate or affected the employees, and there could be the presence of measurement error where true performance may not be reflected.
JR Group: Recommendations for Flexible Reward System
Primarily, wages and salaries are cost inclusive, an investment and critical environmental variable (Armstrong and Murlis, 1988). For the JR Group employees, individual pay system will be sustained and further advocated so that individuals will get higher salaries when they perform well. Individual salary also contains a yearly salary increase with productivity as the main basis as well as work requirement and competence. Realising this, there must be an effective performance assessment mechanism and the role of the managers of JR Group who will determine the performance of subordinates must be strengthened.
Performance based pay is generally individualistic but could be also applied to the performance of a group or team. This will advent JR Group to easiness of communicating what results are of highest priority and to motivate the employees to improve specific results at the same time. Performance measurement system, on the other hand, has four key perspectives: customer, internal, innovation and learning and financial. The hardworking vs unproductive employees of JR Group will be pushed to perform better since the company will avoid giving reward for knowledge and competencies when results have not been achieved. Individual incentive pay is connected to the results of the performance. This is most effective when the employers work with simple tasks and have control over the rate of their work (Ahlgren, Andersson and Skold, 2007).
Notably, when the needs of the employee of JR Group are satisfied, it could no longer function as a motivator. For reward systems on an individual level, there are three motivating factors such as development, power and money. Through this individual reward system for JR Group workforce, employees could acquire the proper motivation to perform better a job and create a healthy competition between them minus the need to wait for ten long years. Furthermore, though the seniority principle remains, there could be a fast-paced promotion system on the basis of concrete evidences of performance. Self-actualization was also perceived to be an important component of individual pay system that motivates the people, principally, through realising the personal significance of performing a task and providing the personal essence for the employee.
Reference
Ahlgren, A, Andersson, I and Skold, H 2007, Individual versus Team Based Reward Systems – A Study on How Organizations Argue for Their Choice, School of Business Economics and Law, Goteborg University.
Armstrong, M and Murlis, H 1988, Reward Management, Kogan Page.
Inatsugu, H 1996, Nihon no Kanryou Jinji System (Public Personnel System in Japan). Tokyo: Touyou keizai shinpou sha.
Itoh, H 1994, “Japanese Human Resource Management from the Viewpoint of Incentive Theory.” In M. Aoki and R. Dore, eds., The Japanese Firm. Oxford, U.K.: Oxford University Press.
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