Critical Analysis Of Remuneration Systems At O’Meara Electronics

Background and Overview

O’Meara Electronics is a two-decade old company that has been operating in Australia and also in a small market internationally. The company has been able to grab a high market share in the areas where it operates. The company began expanding its overseas business about 10 years ago by establishing four subsidiaries in South-East Asia and another in Germany. O’Meara Electronics owns semi-automated factories where audio equipment, televisions, telephones, digital cameras and other such electronic products are designed and manufactures. The company also has separate departments for research and development, production, human resources, accounting, distribution and storage. O’Meara Electronics has a workforce of about 1000 employees and its Melbourne facility employees another 250 staff members.

In a recent meeting, the President of the members of the company about the declining profitability and the market position of the company. He also suggested that there was an urgent need to bring about changes in areas of performance management and remuneration systems. Consequently, Sarah Jones – Director of Human Resource Management, addressed the meeting and communicated the need of a change program in the company. It was also decided that the company will recruit a HR Consultant for a period of six months to address the on-going issues.

O’Meara is a company that has been operating in its market since quite a while now and a major problem that the company is currently facing is related to its inability to change with the changing market trends and competition. As evident from the case itself, some of the policies and practices of the company can be dated back to its foundation and have not undergone any change till now. As a result, the employees have developed a comfort zone of their own and are not supporting the change initiative taken up by the company.

The second problem that is prevailing in the company is related to its remuneration system. In the very first meeting, the Director of the Human Resource Department of the company herself mentioned the need to make a switch from a position-based remuneration system to a person-based remuneration system. Further, in executive staff forums, it was also discovered that the employees were actually not happy with the remuneration system of the company. They felt that some of the employees were not being paid in accordance to the efforts that they were putting in towards the achievement of organizational goals and objectives. There are clearly certain discrepancies in the remuneration system of the company, which needs to be made more practical and satisfactory for the employees as well as for the employers. 

Discussion on Remuneration and Performance Management

The final problem that O’Meara Electronics is facing in its workplace is related to its performance management systems. Clearly, the company is laying a greater stress on the performance of the organization as a whole and has been ignoring individual performance assessments. Even organizational performance is measured by the company in terms of customer contracts and numbers, which makes the system of managing employee performance levels ineffective.

The company has been facing a tough time in the market because of its declining market share and reputation, which increases the urgency to bring about changes in its operations, processes and strategies that can be related to the problems stated above.

With new human resource practices coming in everyday and with an increase in the focus on employee satisfaction and performance optimization, it has become imperative for business organizations to continuously evolve their human resource management practices for the achievement of organizational goals and objectives. The solution to O’Meara Electronics’ is discussed below:

Performance management system:

Performance management system is a planned approach the enables human resource managers to plan, communicate and measure individual as well as organizational performance levels (Noe, Hollenbeck, Gerhart, & Wright, 2017).

First of all, O’Meara Electronics should develop a completely new system of performance management in its workplace that should be targeted at optimizing individual as well as organizational performance levels. One of the best systems that can be implemented in O’Meara Electronics is Management by Objectives. It is one of the most effective systems that can enable a company to establish a link between individual employee performance and organizational performance (Hayes, 2019).

The first step in MBO is to identify performance objectives for an organization as a whole. To identify these objectives, the mission and vision statements of the company can be consulted by the management. Once the performance objectives of a company have been identified, they can then be broken down into individual performance objectives by using Drucker’s SMART concept. In this concept, he stated that the performance objectives should be Specific, Measurable, Acceptable, Realistic and Time Bound, which forms an acronym for the concept. The third step in the system is to ensure employee participation of the employees in setting up of these objectives. Involving employees would ensure higher level of motivation and job engagement in them. The final step in this system is to monitor the progress of the employees and measure the gap in the desired and the actual performance levels of the employees (Kuldeep, 2011). Having a clear-cut performance management system will enable the company to foster a workplace environment that is performance driven and would also provide the employees with a better clarity of what is being expected from them (Grimsley, 2015).

Evaluation of Current Systems

Remuneration is defined as the compensation that an employee receives in exchange of the efforts he or she puts in for his or her company and the process of deciding the remuneration for the employees is known as a remuneration system (Kagan, 2017).

Till date, O’Meara Electronics has been using a remuneration system that was based on the position of an employee in the company. In such a system, the remuneration received by an employee is determined by the position that he holds in the organizational hierarchy whereas his or her skills, competencies, roles or responsibilities do not play a vital role in deciding his or her compensation. Such a system can cause dissatisfaction amongst the employees and can make it difficult for the managers to keep the employees motivated to perform better (People Centre, 2015).

The second step that the company needs to take is to replace its existing remuneration system with a person-based remuneration system that takes a person’s positions as well his skills and competencies into account while determining his or her remuneration. Further, the remuneration system while also have to be connected with the performance management system of the company to ensure a greater effectiveness and optimize the performance levels of the employees (Shields, et al., 2015).

To achieve this, the company will have to prepare job descriptions and job analysis for each and every post in the organization by clearly defining roles and responsibilities of the employees and the competencies required to fulfil them. The remuneration would then be decided on the basis of the skills and competencies of an employee. A person-based remuneration system ensures that a person with more competencies and skills is given appropriate jobs and compensated accordingly (Ledford & Heneman, 2011). With the implementation of such a system, the employees become more inclined towards the achievement of higher competencies and skills, which would help them in developing their careers.

Apart from a person-based remuneration system, the company will also have to develop a benefit program that would be connected to the performance management system. Under this system, the employees working in O’Meara Electronics will be awarded with monitory as well as non-monitory benefits or rewards on the basis of their ability to meet the performance objectives defined for them (MBASkool, 2012). These benefits can be in the form of a bonus, promotions, salary hikes, health insurances, free holiday packages, recognition, etc. Such a system would keep the employees motivated to meet their performance objectives as the successful achievement of their performance objectives would help them in achieving more than just remuneration in their careers. Further, such a remuneration and benefit program will also help the company in reinforcing the right behavior amongst the employees and in keeping them engaged in their jobs (Lawler, 2003).

Conclusion

O’Meara Electronics is definitely facing tough times in the market because of some internal factors and the present situation of the company cannot be turned around in one day. To achieve better results on the overall, the company will have to start a long-term process as soon as possible, which would not only bring about changes in its ineffective human resource management practices but would also improve its reputation in the market as an employer. A change in the remuneration system and a new performance management system would not just prove to be more profitable for the company but will also help in achieving a workplace culture where the employees are more oriented towards the achievement of their performance goals and are ready to accept workplace changes for the betterment of the organization and also of their own.

References

Grimsley, S. (2015, April 26). What Is Management by Objectives (MBO)? – Definition, Advantages & Disadvantages. Retrieved March 2019, from study.com: https://study.com/academy/lesson/what-is-management-by-objectives-mbo-definition-advantages-disadvantages.html

Hayes, A. (2019, March 25). Management By Objectives (MBO). Retrieved March 2019, from www.investopedia.com: https://www.investopedia.com/terms/m/management-by-objectives.asp

Kagan, J. (2017, December 7). Remuneration. Retrieved March 2019, from www.investopedia.com: https://www.investopedia.com/terms/r/remuneration.asp

Kuldeep. (2011, June 14). 6 benefits of Management by Objectives (MBO) for the overall growth of the business. Retrieved March 2019, from www.preservearticles.com:https://www.preservearticles.com/201106147990/6-benefits-of-management-by-objectives-mbo-for-the-overall-growth-of-the-business.html

Lawler, E. E. (2003). Reward practices and performance management system effectiveness. Organizational Dynamics, 32(4), 396-404.

Ledford, G. E., & Heneman, H. G. (2011, June). SkillBased Pay. Retrieved March 2019, from Ledford Consulting Network: https://www.ledfordconsultingnetwork.com/sites/default/files/SIOP-SHRM%20-%20Skill-Based%20Pay,%20FINAL.pdf

MBASkool. (2012, October 20). Retrieved March 2019, from www.mbaskool.com: https://www.mbaskool.com/business-articles/human-resource/5260-performance-management-linking-reward-to-performance.html

Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2017). Human resource management: Gaining a competitive advantage. New York, NY: McGraw-Hill Education.

People Centre. (2015, October 17). Job-based Vs Person-based Pay Structures. Retrieved March 2019, from peoplecentre.com: https://peoplecentre.wordpress.com/2015/10/17/pay-structures/

 Shields, J., Brown, M., Kaine, S., Dolle-Samuel, C., North-Samardzic, A., McLean, P.,Plimmer, G. (2015). Managing employee performance & reward: Concepts, practices, strategies. . Cambridge University Press.