The Value of Hrm to Business Organizations

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Loughborough University Business School

Human Resource Management

Coursework Title: The Value of HRM to Business Organizations

The Topic Chosen: Total Reward


Nowadays, human resource management is widely believed to be of great value to the business organizations, but how each element of HRM adds value to the business organization is unknown. In this paper, we want to choose total reward as the specific topic to analyze the value of total reward to business organizations by analyzing Toyota and Google cases.

Section 1: Literature Review of Total Reward

Decades of research demonstrating that pay is not the only motivator, the development of globalization and the much more competitive business environment have all made traditional reward (mainly financial reward) viewed to be out of date. Business organizations need a new holistic approach.

• The Concept of Total Reward
The concept of total reward emerged in the 1990s as a new way to motive employees using all types of reward. Schuster and Zingheim(1992) modernize compensation programs, demonstrating how the elements of compensation including variable pay, base pay, performance management, measures and goals, and benefits can be used to support business goals. Base on the past literatures of total reward, we can define that total reward uses a holistic approach and embraces everything that employees value in the work relationship. It refers to all the types of reward (financial and non-financial, extrinsic and intrinsic, direct and indirect), all the tools and resources that make up the company’s strategy to attract, motivate and retain the employees. What is more, it should align with the business strategy and the HRM strategy of the company (Fernandes, 1998; Davis, 2007; WorldatWork, 2006).

• The Model of Total Reward
Also since 1990s, various total reward models have been developed. Schuster and Zingheim(2000) pose a total reward model which has four elements-individual growth, compelling future, total pay and positive workplace and show how the four elements can collectively create an employee value proposition to attract, motivate, and retain employees. Lyons and Ben-Ora (2002) introduces a total reward model which includes six main elements—base salary, variable salary, other compensation, benefits, perquisites and performance management. In addition, the WorldatWork(2006), introduces a new total reward model of five elements, each of which has programs, practices, elements and dimensions that collectively define an organization's strategy to attract, motivate and retain employees and suggests that total reward should operate in the context of overall business strategy, organizational culture and HR strategy.

While each model is unique in determining the elements of the model, all the models recognize the importance of leveraging different rewards to satisfy the employees, contributing to the improved performance of business organizations.

• Theory Basis of Total Reward
The content theories of psychology indicate what specific types of needs motivate employees. Maslow’s need hierarchy theory (1943), essentially tells us that people have all kinds of needs (not only money) and the needs satisfied are not as strongly motivating as unmet ones. Although this theory has not been fully verified, it does contribute to the total reward—the various needs of the employees should be considered, and the employers should satisfy the employees’ unmet need, since it motivates the employees most. The two-factor theory ‘provides a useful distinction between maintenance items that are necessary but not sufficient and motivational factors that have the potential for improving employee effort’( Davis & Newstrom, 1989 ). But this theory has been widely criticized because it is not universally applicable.

Process theories, such as expectancy theory, equity theory, reinforcement theory and goal-setting theory, focus on the ‘structural...
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