Managing Human Capital

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MHC assignment MBA1






MHC assignment MBA1

The case:

"IF EMPLOYEES UNDERVALUE THE COST OF BENEFITS, WHY SHOULD A COMPANY NOT DROP BENEFITS AND SIMPLY ADD MORE DIRECT COMPENSATION" TABLE OF CONTENTS 1. 2. 3. 4. 5. 6. 7. 8. A LIST OF FIGURES AND TABLES Introduction Literature Review Strategic Approach And Analysis Conclusion Reference Bibliography Appendix page 3 5 13 22 23 26 28


MHC assignment MBA1



It took difficult years with no Christmas bonuses because of the expansion of the business and poor European sales. The newly appointed managing director of Gourmet Foods, Andrew Straw, has decided to pay a bonus to the workforce of 120 employees in post on 1st December and announced his intention to express his appreciation for the staff's contribution in this way at a meeting with employee representative in early November. Consequent to that, the pay slips to staff circulated the Friday before the Christmas break revealed that everyone had received an extra £100 in their pay packet. Much to the MD's disappointment, his gestures was not received with the universal approval he had expected. Most employees appeared to be disappointed with the amount they had received and Andrew Straw began to wish he had not bothered with the bonus at all but put the money to a more productive use by investing in new packaging equipment. The story above raises the questions like to what extent does what we know about motivational theory explain the staff's reaction to their Christmas bonus? What lessons can be learnt about rewarding performance from Andrew Straw's unfortunate experience? What do you think Andrew Straw should do about a Christmas bonus next year? It is something worthwhile that individual employees are compensated in various ways for their participation in and contribution to the organisation that employed him or her. It is good we consider the concept of total compensation in which the first distinction is between extrinsic and intrinsic reward. Intrinsic rewards are rewards individual gives themselves from what they do. Extrinsic rewards are rewards an organisation gives to its employees for participating in the organisation and for contributing to its success. According to Joan E. Pynes,(2008) the expectancy theory was developed by Victor H. Vroom (1964) which states that decision-making process undertaken by an individual rests on three sets of perception: expectancy, instrumentality and valence. The expectancy of the employee is his or her perception that certain level of effort is required to achieve a certain level of performance. Instrumentality is the power of the employee to believe that a certain level of performance will be associated with various outcomes like increase in pay or promotion. Valence is the attractiveness of the outcomes. Vroom believed that in action these perceptions are assumed to be combined. If the employees compare themselves to other employees both within and outside the organisation, and they find out their ratio of outcomes to inputs for others is lower, they may feel under rewarded. Although, rarely do the employees feel over-rewarded, the basis of goal -setting theory is that the goals employees pursue are significant factor in 3|Page

MHC assignment MBA1

achieving organisational performance. But for these to be motivating, Mento et al. (1987) identify that set goals need to be specific, demanding but realistic, accepted by employees as desirable and the subject of subsequent feedback, or put in short form SMART(specific, measurable, agreed, realistic and timed) which is evident in so many organisational performance management schemes(IDS, 2003). Based on research which suggests that despite rising trends such as total reward statements, employees are continuing to undervalue employee benefits, with...
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