Identifying total rewards systems and organizational culture type using the competing values framework
Table of Contents Acknowledgments iv List of Tables x List of Figures xi CHAPTER 1. INTRODUCTION 1 Introduction to the Problem 1 Background of the Study 4 Statement of the Problem 9 Purpose of the Study 10 Rationale 12 Research Questions 12 Nature of the Study 13 Significance of the Study 14 Definition of Terms 14 Assumptions and Limitations 18 Organization of the Remainder of the Study 19 CHAPTER 2. LITERATURE REVIEW 21 Background 23 Traditional Total Rewards Design 26 Compensation and Benefit Costs 27 Changing Demographics 29 New Total Rewards Model 30
Total Rewards and Employee Attraction and Retention 40 Impact of Total Rewards on Organizational Effectiveness 42 Impact of Total Rewards on Employee Engagement 45 Total Rewards Strategy and the Employment Value Proposition 47 Organizational Culture and Rewards 49 The Competing Values Framework 51 Summary and Critique 55 CHAPTER 3. METHODOLOGY 57 Research Methodology and Design 58 Sample Design 62 Instrumentation 64 Data Collection Procedures 67 Field Test 69 Data Analysis 70 Validity and Reliability 71 Ethical Considerations 73 CHAPTER 4. DATA ANALYSIS AND RESULTS 76 Data Collection 76 Population and Sample 77 OCAI Results 78 Data Analysis 80 Key Total Rewards Themes and Organizational Culture Type 91
Summary 105 CHAPTER 5. DISCUSSION, IMPLICATIONS, RECOMMENDATIONS 105 Summary and Discussion of Results 107 Conclusion 123 Limitations 125 Recommendations 126 Recommendations for Future Research 126 Summary 127 REFERENCES 128 APPENDIX A. TOTAL REWARDS STUDY 139
APPENDIX B. WORLDATWORK TOTAL REWARDS MODEL 144
List of Tables Table 1. Organization Demographics 77
Table 2. Respondent Demographics 78
Table 3. OCAI Results 79
Table 4. Frequency of Coded Responses 81
Table 5. Major Themes – Questions 1 and 2 88
Table 6. Major Themes – Question 3 90
Table 7. Clan Culture Type 95
Table 8. Market Culture Type 99
Table 9. Hierarchy Culture Type 103
Table 10. Adhocracy Culture Type 105
List of Figures Figure 1. Competing Values Framework 55
CHAPTER 1. INTRODUCTION
Introduction to the Problem Today‟s organizations operate in an intensely competitive global market that has increased the pressure to transform the business and management of human capital. Increased technology and industrialization of underdeveloped countries has increased global markets for products, services, and employees. A major shift in the economy, demographics, and legislation over the past two decades has changed the nature of work and human capital strategies such as total rewards required for organizational success. The new global economy is technology and service-based requiring increased human responsibilities, knowledge, and skills that are less job specific and more individual specific (Lawler, 2000). Changes in demographics have shifted populations from mature countries to developing countries resulting in increased competition for the most knowledgeable and skilled people (Simonds, 2007). New legislation and government mandates have resulted in greater controls on employee compensation and benefit plans resulting in increased costs to companies and provided greater protection for employees. Concerns about cost, fewer resources to provide compensation increases, and changing employee demographics and skill sets have resulted in the need to find creative and cost-effective ways to motivate and reward employees (Lawler, 2000). Competition for the most skilled and knowledgeable employees continues to grow, making it more difficult to attract, retain, and motivate top talent from around the world needed to succeed (Janush, 2003).
The shift from a manufacturing economy to a knowledge-based economy along with a more mobile workforce has changed the way United States employers and employees look at pay. Compensation has become tied less to the job or length of service and more to the market value of an individual‟s skills (Chen & Hsieh, 2006). In response to increasing cost pressures and the need to do more with less, organizations are moving away from automatic base salary increases to rewards tied to individual and organizational performance (Jesuthasan, 2003). This move to performance-based pay supports the shift from the traditional entitlement mentality of the United States manufacturing economy that provided equal wages for all employees in a job or salary grade, to rewards programs that recognize individuals for their competencies and contribution (Bates, 2004). Organizations initially responded to these changes with new and innovative compensation and benefits strategies designed with a focus on attracting and retaining top employees through significant cash sign-on bonuses, stock options, and benefit programs that provided "program du jour" offerings such as bring your pet to work, free food and catering to the whims of the new recruit (Gibson & Tesone, 2001). In the early 1990s, it was an employee market and excessive compensation and fads were thought to be "a necessary evil to attract and retain competent employees" (Muralidharan, 2006, para. 4). There was a war for talent and the company rewards strategy was to "crank-up" pay levels to try to buy talent and skills needed to succeed (Zingheim & Schuster, 2001). Health care and benefit costs were significantly lower and stock options were an inexpensive reward too that could attract employees with the potential promise of wealth.
Providing more compensation and large numbers of stock options and rich benefits packages was a quick and easy way to attract and retain top talent. Since the early 1990s, it has become clear the war for talent requires much more than high pay, stock options, and costly benefits programs. Although strategically designed compensation and benefit programs are critical, the most successful companies realize there are broader factors to consider in attracting, retaining, and motivating employees (WorldatWork, 2007). Companies today realize the traditional model of total rewards is no longer effective in attracting and retaining top talent and critically skilled employees necessary to compete in today's global economy. Compensation is no longer viewed as the single reward necessary to motivate employee behavior but rather one of many rewards available to management (Chen & Hsieh, 2006; Milkovich & Newman, 2008). Fortune Magazine‟s Survey of Most Admired Companies cite culture as a critical factor in the ability to attract and retain key talent and an important driver of employee behavior (Hay Group, 2007). Highly successful companies have strong unique cultures that support employees to achieve strategic objectives and enhance organizational performance (Cameron & Quinn, 2006). A strong organizational culture is recognized to have an impact on firm performance, long-term effectiveness, and human capital and is considered critical for success in today‟s global market (Giancola, 2008; Kerr & Slocum, 2005). Strategic human resources management (SHRM) practices such as reward strategies help to “create a distinctive and unique culture of people with homogeneous work values, norms, and tastes” (Bloom & Milkovich, 1998, p. 13). Compensation and
rewards systems structure and define the terms of the relationship between employees and the organization and are important determinants of employee behavior (Bloom & Milkovich, 1998; Gerhardt & Milkovich, 1992). Total rewards systems design and how individuals are rewarded communicate an organization‟s beliefs and values and are key to understanding organizational culture (Kerr & Slocum, 2005). Reward systems can be structured to help create and support the desired culture to attract individuals with the right values, skills, knowledge, and abilities and motivate them to further organizational goals and objectives (Bloom & Milkovich, 1998). Reward systems that do not fit the culture prevent organizations from maximizing the employment relationship required for organizational success. Analyzing reward systems can provide leaders with a basis for developing reward systems that support the current organizational culture or supporting long-term cultural change in an organization (Kerr & Slocum, 2005). Background of the Study There is consistent evidence and general management acceptance that high- performing strategic human resources management (SHRM) systems have a positive impact on company performance that is significant (Becker & Huselid, 1998; Combs, Ketchen, Hall, & Liu, 2006). Total rewards systems are one key component of SHRM that have an impact on employee and organizational performance (Becker & Huselid, 2006). Unique rewards systems can help drive individual and company performance to higher levels of performance and business success (Heneman & Dixon, 2001). Most of the SHRM literature and research on total rewards systems have been narrowly focused on the relationship between compensation and performance (Bloom & Milkovich, 1998; Gerhart & Rynes, 2003). Total rewards have been evaluated as an
independent system rather than a holistic system that is an integral part the broader SHRM system and architecture. Researchers recognize, however, that synergies exist between SHRM systems and business strategy that merit consideration when conducting research studies. This concept is often referred to today in SHRM as “fit.” Research in this area has focused on the fit between various human resources (HR) practices and an organization‟s competitive strategy (e.g., Miles & Snow, 1994; Wright & Snell; 1991). This strategic view is based on the idea that effective HR systems must be horizontally aligned and HR practices must complement each other to support the business strategy (Bowen & Ostroff, 2004; Wright & Snell, 1991). Becker and Huselid (2006) suggest that the concept and nature of fit is a central concept for future SHRM research as the fit between SHRM systems and strategic capability is the basis for HR‟s contribution to a company‟s competitive advantage. Total Rewards Systems Many companies are responding to pressures in the global marketplace, changing demographics, and the changing nature of work by designing compensation programs from a framework of total rewards that incorporates the traditional elements of compensation and benefits with non-traditional elements of work-life, recognition and performance, and career development. Since the early 2000s, professional associations, human resources consultants, and compensation professionals have been advocating a total rewards approach (Giancola, 2008; Milkovich & Newman, 2008). A recent Hay Group (2007) survey of more than 2,000 companies in 88 countries shows that employers are turning to innovative ways to reward employees while reducing costs. Innovations include expanding the traditional view of rewards to make greater use of non-monetary
rewards such as career growth opportunities, training, flexible work scheduling, meaningful job design, and recognition programs (Boulter, 2009). A new model of total rewards has been formally adopted by the WorldatWork and is comprised of five key elements that can be tailored by organizations to meet the needs of the business and employees (Christofferson & King, 2006). The model incorporates the elements of the employment value proposition and puts work-life, recognition and performance, and career development on the same level of compensation and benefits and provides greater individualization based on employee need or desire (Asinof, 2006). The five key elements of the WorldatWork total rewards model are compensation, benefits, work-life, performance and recognition, development and career opportunity (Christofferson & King, 2006). The unique way a company integrates the five elements together determines the total rewards model for that company to support the business strategy, improve organizational performance, and drive employee engagement. The WorldatWork total rewards model is similar to total rewards models recently developed by major human resources consultants. The models are similar in that they expand the view of total rewards to include elements beyond traditional compensation and benefits (Hay, 2009; Mercer, 2006; Towers Perrin, 2007; Sibson Consulting, 2009; Watson Wyatt, 2009; Zingheim & Schuster, 2001). Additional elements include items such as work-life, career development, work environment, quality of work, work content, affiliation, positive workplace, and a compelling future that includes company image, success, and growth (Giancola, 2008). The WorldatWork total rewards model, however, is viewed as “…arguably the most influential since the association championed the model
from the outset and is the primary provider of the latest thinking and education on the subject” (Giangola, 2008, p. 52). A total rewards approach to employee attraction and retention is aligned with the changing economy, demographics, and legislation and supports employers‟ needs to reduce the costs of compensation and benefits programs (Giancola, 2008). Poorly designed, administered, and understood total rewards programs can increase attrition of top talent and misdirect employee achievements in performance to individual and organizational objectives (Scott, McMullen, Sperling & Bowbin, 2007). Gerhart and Rynes (2003) suggest that an integrated total rewards strategy and the impact on employee motivation, performance, attraction, retention, and effectiveness is an area that has not been thoroughly studied but one that requires greater understanding through research studies. Previous compensation research has shown that pay is a primary motivator of employee behavior and that research is needed to “improve the conceptualization and measurement of total compensation by more effectively integrating both benefits and nonmonetary aspects of reward systems” (Gerhart & Rynes, 2003, p. 261). A review of recent literature suggests that most companies fail to implement an integrated approach to total rewards that incorporates more than traditional compensation and benefits (Gonzalez, 2008; O‟Malley, 2008). Although there is agreement by compensation practitioners and human resources leaders regarding the value of a total rewards approach, the reasons for not adopting a total rewards concept have not been widely studied or reported (Gerhart & Rynes, 2003; Giangola, 2008). The failure to move from a traditional view of rewards to an integrated total rewards strategy combining compensation and benefits with work-life, performance and recognition,
employee development and career opportunity, prevents organizations from attracting, retaining, and motivating top talent and individuals needed to succeed in today's global economy. Organizational Culture and Total Rewards Business leaders and human resources professionals are placing greater emphasis on culture to attract, retain, and motivate employees to increase individual and firm performance. A recent 2007 survey of 1,200 international business executives show that 90% believe that corporate culture is as important as business strategy for organizational success (Bain & Company, 2007). Human resources leaders cite organizational culture as one of the key challenges facing them today along with attracting and retaining key talent and leadership development (Theaker & Piercy, 2008). This is a change from earlier surveys that showed technology, cost-cutting initiatives and process improvement as most important for organizational success and increased human resources efficiency. Although both business and human resources leaders see culture as an important strategy for success, less than 10% of companies are successful at building a high-performance culture (Bain & Company, 2007). Total rewards systems reflect and reinforce the cultural norms of an organization and are a primary signal of organizational values and culture (Cable & Judge, 1994; Schein, 1993; Turban & Keon, 1993). They are an integrated part of the SHRM system that communicates to employees the desired and appropriate behavior and response and provide a collective view of what is expected by the organization (Kerr & Slocum, 2005). Prior research on compensation systems and fit has been typically viewed from a strategic framework of competitive business strategies such as Miles and Snow typology
and Porter business strategy model (Becker & Huselid, 2006). The traditional view is that compensation systems must fit with business strategy and organizational goals to be effective (Bloom & Milkovich, 1998). Heneman and Dixon (2001) suggest rewards systems must be designed and implemented to fit not only business strategy and organizational structure but also company culture to be effective. Organizational culture is viewed as an important link in the SHRM model that is critical to strategy implementation and to understand company performance (Dyer & Erikson, 2005; Roberts & Hirsch, 2005). SHRM scholars recommend examination of the relationship between HR systems and social structures such as culture that may enhance the relationship between SHRM and company performance (Bowen & Ostroff, 2004). Statement of the Problem Compensation practitioners and major consulting companies have been advocating a total rewards approach as the key rewards strategy for more than a decade. Although many organizations and compensation professionals recognize the new model of total rewards and the importance of adopting this holistic and more strategic view of rewards to attract, retain, and motivate talent, few companies are successfully implementing the concept (Buck Consultants, 2007; O‟Malley, 2008;Watson Wyatt, 2005). Organizational culture often determines the effectiveness of SHRM practices such as total rewards (Noe, Hollenbeck, Gerhart & Wright, 2003). A total rewards system reflects the values of an organization in how employees are treated and guide employee behavior (Milkovich & Newman, 2008). Total rewards systems should be designed to reflect the desired organizational culture and increase the likelihood that employees will
perform in a manner that helps the company successfully achieve business objectives. Problems can arise when total rewards systems are inconsistent with organizational culture or change in organizational strategy (Giancola, 2008; Heneman & Dixon, 2001). Assessing the culture and values of an organization is one of the key steps in developing a successful total rewards strategy (Milkovich & Newman, 2008). Organizational culture, however, is often not clearly understood or defined by HR leaders or compensation professionals (Bundy, 2007). Edgar Schein (2008) notes that “…culture is as invisible to members of the organization as water is to the fish that swim in it” (p. 23). Schein (2008) further posits the role of the HR function is to understand organizational culture to develop HRM systems and strategies that support individual employee needs to attract, retain, and motivate employee performance. According to Rynes and Gerhart (2000), there has been no systematic research examining, which pay strategies best fit a particular culture and no research regarding the role of pay strategies in creating and sustaining organizational culture. A review of the literature further shows little research in the area of organizational culture and total rewards systems or analysis of how different compensation systems might reflect organizational culture. Purpose of the Study The purpose of this qualitative study was to gather information about total rewards systems and organizational culture type. Although research has examined organizational culture in the context of company and SHRM performance, none have examined total rewards systems and culture in the context of Cameron and Quinn‟s (2006) Competing Values Framework model of organizational culture. There is no
empirical research in this area, therefore, no hypotheses were offered. As a result, this study was exploratory to determine what exists. This was a qualitative research study designed to collect emerging data about total rewards through open-ended questions from which key themes were developed (Creswell, 2003). The selection of this method was suitable for the study based on the nature of the questions and the researcher‟s desire to gain information and understanding from compensation professionals about their total rewards systems. An e-mail link was sent to participants requesting a response to open-ended questions regarding total rewards at their organizations. Additionally, an organizational culture profile was assessed using Cameron and Quinn‟s (2006) Organizational Culture Assessment Instrument (OCAI). A qualitative approach to this study can provide insight into the issues regarding total rewards that interest both compensation practitioners and researchers (Cassell, Symon, Buehring, & Johnson, 2006). The use of open-ended questions allowed compensation professionals unrestricted ability and freedom to respond. Demographic information was also collected about the number of employees in the organization, the type of organization (public, private, or nonprofit) and the participants‟ years of experience in compensation and benefits. The study used the framework of Cameron and Quinn‟s Competing Values Framework (CVF) as the theoretical framework for the research. The CVF was measured using the Organizational Cultural Assessment Instrument (OCAI) adapted by the researcher to assess the organizational culture profile through a self-reported questionnaire.
Rationale This study provides insight into rewards systems and culture type and provides further understanding of fit between total rewards systems and organizational culture. Compensation professionals design and develop total rewards strategies and systems and are often involved in administering compensation. They are critical to the success of total rewards programs that have an impact on compensation costs and attraction and retention. Understanding the fit between total rewards systems and culture type can focus compensation professionals on designing and implementing total rewards systems aligned with the business strategy and culture of the organization to create a winning employee value proposition and key competitive advantage. Research Questions The research questions focused on total rewards systems associated with certain culture type using the framework of Cameron and Quinn‟s (2006) Competing Values Framework. Questions that guided the study included 1. What elements are perceived by compensation managers to be most important in total rewards systems? 2. What elements do compensation managers think need to be changed to improve total rewards systems? 3. How do compensation managers measure success of total rewards systems? 4. How does organizational culture type impact compensation managers‟ perception of total rewards systems?
Nature of the Study This was a qualitative research study designed to collect emerging data through open-ended questions from which key themes were developed (Creswell, 2003). A qualitative method is recommended when there is an issue to be explored or when there is a need to gain a better understanding of phenomenon when there is little known (Creswell, 2007; Strauss & Corbin, 1990). The selection of this method was suitable for this study based on the nature of the questions, the lack of information in this area, and the researcher‟s desire to gain greater understanding about total rewards systems and organizational culture. A qualitative approach to the study provided insight and information into the issues regarding total rewards that interest both practitioners and researchers (Cassell et al., 2006; Strauss & Corbin, 1990). This approach was appropriate for this study as the researcher sought information for discovery and understanding rather than hypothesis testing (Merriam, 1998). The use of open-ended questions was viewed as the best method for gathering information and provided compensation professionals unrestricted ability and freedom to respond to questions about total rewards in their organization. The nature of this study expanded on an earlier qualitative study on total rewards by Scott et al. (2007). This study collected data on the elements included in total rewards and asked additional questions beyond the Scott et al. study (2007) in an effort to learn how companies have expanded the traditional model of total rewards to include non- traditional elements. The study further sought to identify the characteristics of total
rewards systems for each culture type as described by Cameron and Quinn‟s (2006) Competing Values Framework. Significance of the Study This study adds to the SHRM research on total rewards systems and organizational culture, an area in which little research exists. It used the Cameron and Quinn‟s (2006) organizational culture theoretical framework to describe total rewards systems associated with different culture types. Results can provide guidance to organizations that seek to develop an effective total rewards strategy to create a winning employee value proposition that aligns employees with the organizational culture to attract, retain, and motivate top talent and critical skills, and meet the changing demographics and needs of global employees. Compensation professionals can use the results to take practical steps to align total rewards systems with culture to improve effectiveness of total rewards programs in key areas. Further, the study can provide a foundation for further research about the fit between total rewards systems and organizational culture. Definition of Terms Attraction. The ability an organization has to hire employees with the right skill and talent required to achieve organizational success. (WorldatWork Total Rewards Model, 2008) Benefits. Programs that protect employees and families from financial risks and include traditional programs such as retirement, medical, dental and nontraditional programs such as identity theft and pet insurance. (Christofferson & King, 2006)