Compensation and organizational Culture
Organizational culture is built around a number of things one of them being the reward system. Under the reward system we have compensation which is an important exercise (Heneman, 2002). Research has revealed that many companies have been working on setting up compensation systems. Compensation is one of the prevailing demands of the business environment existing today. However, many firms keep failing in implementing the compensation systems because of the problems in the pay systems (Driskill & Brenton, 2010). Compensation systems and organizational cultures are inter-linked. The way in which compensation programs are structured and implemented will often have a direct impact on the culture of the organization. On the other hand, the already established organizational culture determines how the compensation programs or systems will be enforced in the organization (Gómez-Mejía, Berrone & Franco-Santos, 2010). With highly skilled workforce, Microsoft has a compensation system which has come under sharp criticism in the recent times. This paper looks into the compensation system of Microsoft Corporation. It discuses the benefits and shortfalls of the compensation system and how it affects the development strategy of the company (Zobal, 1999)
The information in this analysis has been sourced from academic sources like books and journals. Non-academic sources like company websites have been used to supply important information. Analysis has been based on knowledge and concepts from academic sources.
Linking compensation to organizational culture
Many people have the assumption that the true culture of an organization is portrayed in its reward and compensation system. Indeed compensation has been termed as a core function of human resource management. When it is implemented in its true sense and meaning, compensation can reinforce the key values and culture of an organization. It can also gear the organization in achieving its strategic business objectives. The major objective of compensation is to attract maintain the desired mix and quality of workers (Kuhn, 2009). Compensation has a direct impact on prevailing employees of an organization. Compensation systems carry important messages concerning the practices and values of an organization towards its employees. The culture of an organization is determined by the way the organization executes its functions. Employees programs are key to a functional organization. One thing that determines how the employees will respond to an organization is the benefits that they get for their output. This is codded in the compensation system of the organization (Cable & Judge, 1993).
Microsoft Corporation is a big company that has been a leader in the computing industry. It often makes its plans on a long-term basing by utilizing long-term strategies. Compensation in long-term oriented companies like Microsoft bases on long-term performance. Compensation, incentives and related programs are thus aligned to the general strategy of the company and its initiates and manned by the top executives. In such a big company, compensation systems are very wide. They extend to even the investors of the company. Therefore, the compensation policies for Microsoft are comprehensive so that it can cover all those who ought to be covered by the program (Society for Human Resource Management, 2012). Compensation policies go with performance measures and top executives emphasize on the creation of value o a long-term basis. The top management is also ensuring that the progress in the compensation system is communicated to the wider audience. This is in line with the goals of management of creating a good image of the company to the publics. Compensation systems are reflectors of corporate governance by organization. Corporate governance is used in creating a corporate culture for the organization. Effective compensation programs bring about a good corporate governance picture of the organization. Therefore manager strive to improve the compensation system with the knowledge that these systems are crucial in corporate performance of the organization (Deloitte, 2009).
Microsoft Corporation has a compensation committee which is one of the pointers of commitment to compensation. The company has realized the significance of compensation in strategic planning and the realization of the strategic objectives of the organization. The role of the compensation committee is discharging the responsibilities of the Board as it relates to the compensation policy of the company. The committee is bestowed with the mandate of ensuring that the company adopts policies that govern the benefits and compensation programs in the company. Generally, the committee oversees the evaluation of the compensation system of the company. It comes up with compensation policies and oversees their implementation. The committee has been given room to seek for external counsel before coming up with recommendations on improving compensation programs. The recommendations made by the committee are taken to the board of the company where they are deliberated. The Board is the chief decision maker. The committee review compensation at various levels of the organization and proposes recommendations to the board Microsoft Corporation (Website, 2011).
Reward and Compensation system in Microsoft Corporation
Microsoft is in the list of the top companies in the world in terms of wealth success. From its success, Microsoft is a widely respected company. Because of its nature of products, Microsoft is a company that is entirely driven by the employees. The success of the company for all the time it has been operation has been reliant on the effectiveness of their workforce. This means that the staffs of Microsoft form part of the most essential assets for the company. In the early stages of its operation, the company used to source its workforce from Universities. It believed that the young people from the universities were highly motivated and talented to take up the tasks in the company. However, as the company continued to grow, it realized the need to hire more experienced people. Therefore, it launched a head hunting campaign from which it recruited experienced staffs from other companies. The experienced employees have been very resourceful too the growth of the organization. The company valued individual performance and encouraged performance through rewards. Semi annual performance reviews were done and employees were done. They were closely linked to bonus awards, pay increments among many other benefits. This formed part of the company performance strategies. It is quite clear that performance goals were reached when the reward and compensation system was intact and of benefit to all employees. The formal review of the company was highly respected by everybody in the company form the management to all ranks of employees. The management sat with the employees and discussed the review. Common evaluations were included in the formal reviews. This was done by managers to eliminate the unexpected deviations in the reward system. The system even gave a room for self-evaluation by the employees (Bohlander, 2010).
One thing about compensation and reward programs of any organization is that they have to spread throughout the organization. Compensation programs have to benefit all employees of the company because all employees are players in the strategic plans of the organization. Whether the compensation committee is helping Microsoft to reach its objectives is a question which cannot be fully answered. While Microsoft has a compensation and review system, an internal in-look of the organization reveals that there are serious flaws within the system which have serious effects on the strategic performance of the organization. One of the effects of the flawed system of compensation in Microsoft is the high rate of employee turnover. The company is loosing highly skilled employees to younger companies like Google and Yahoo (Smit, Palmer & Van, 2000).
Problems in the Compensation and Reward System
There has been a reported growth in frustration amongst the employees of Microsoft due to stagnant salaries. The company takes too long to review the performance of its employees. Microsoft has 21 salary categories for its workers. Statistics from the company shows that between the year 2004 and 2006, the minimum, midpoint and maximum compensation guidelines remained unchanged for eight salary categories. The other salary categories recorded a very low increment – less than three percent. The compensation and reward system of the company favors the top management employees of the company. The review system is not helping to improve the compensation programs and the reward of employees. Therefore many critics point out that the system is inefficient. The reward and compensation review has to be very open to all the employees so that they can identify with it since it is the tool to be used in assessing them. This has not been the case with the system in Microsoft which is the reason why many employees have been complaining and are unsatisfied with the system (Nachtigal, 2006).
The lapses in the compensation and rewarding system has many negative effects to a company especially so a technological company. As it was noted earlier organization reward and compensation system has a direct impact on the corporate culture of the firm. The corporate culture of a firm is the enticing factor of many organizations. It determines which type of staffs they will be able to lure from the market. Because of the poor reward and compensation system witnessed in the recent year Microsoft has been loosing staffs to other competitor companies in the information technology industry. The loss of experienced skilled labors in such an industry brings a big gap. This is because the cost of hiring and training these employees is very high. The firm also incurs loses in terms of system failures as new employees are sought to fill the gap that is left by the employees who departs from the company. In cases where the entire market is aware of the culture of the organization, it becomes very hard for a company to acquire the right employees. This has an adverse impact on the performance of the company as competition mounts from other companies that have good reward programs for their workers. Also, the overall reputation of the company is lost as the company looses creativity to continue inventing newer products for its customers in the market Ferris, G. R. (1999).
Microsoft has to copy examples for other high tech companies like Boeing which has a very elaborate and open compensation and reward programs for its employees. Both these firms employ highly skilled laborers. However, the employees of Boeing enjoy transparency on pay levels and the review system. Boeing encourages collective bargaining system. This results in collective agreements that are satisfactorily to all the employees. The information about the salary grade levels is availed to all employees in Boeing. The rate of retention, salary adjustments and the number, layoff information and all other kinds of information which is considered sensitive is also availed to Boeing employees. The review scores and annual bonuses in Microsoft are done by the management behind closed doors. The systems are so closed in Microsoft such that the employees rarely understand how the reward system is structured. Boeing has happy employees because they understand the benefits that they get from the organization in exchange for their services. They understand the system of compensation and reward because they fully participate in it. The rate of employee retention in the company is very high (Griffin, 2012).
The only way through which Microsoft can regain its performance is through aping the examples such as the one in Boeing. The employees of Microsoft have to be more involved in the reward and compensation programs. The company has to stop sidelining employees when making decisions or formulating policies on reward and compensation. Organizational performance advocates notes that rewards are more effective when they are designed or chosen by the recipients themselves (Griffin, 2012).
Compensation and reward is a component of organizational performance management that focuses on employees. Compensation and reward systems play a crucial role in motivating the employees in organizations. Despite its big name and presence in the market, Microsoft Corporation has been accused of having ineffective compensation system. This is affecting their performance as it is causing unrest and high turnover in its workforce. This is affecting its performance. The company cans salvage itself by reviving its reward and compensation system by copying examples from companies like Boeing.
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