The human capital perspective assumes that the compensation is considered the employer decision. The organization designs and administrates the payment system for their jobs according to their performance. It aims to reward its employees who do their jobs and achieve the organizational goals. The pay for the job could reflect the seniority or the merit of the job. The reward system should reflect the employee performance in order to achieve the organizational goals. It also relates to the individual based pay. Pay for performance has two major types; the pay for group performance and for individual performance. The pay system based on the group performance involves the shared gaining and it is team-based. But the individual pay involves promotion, variable pay and merit pay (Anuar, Ismail & Abdin 2014).
Employee motivation is a major problem for the business leaders. The unmotivated employees do not put much effort into their job, their work is for a low quality and avoid being at the workplace. Managers at Toyota usually search for the reasons behind the employee’s work and the reward they deserve. They believe that they cannot motivate employees, but they can promote learning and development culture that supports the employees’ motivation (Ganta 2014).
The following section discusses the main seven challenges of essential reward decisions that an organization needs with an application for the Toyota company.
Different researchers investigated the reward system within organizations. The contemporary expectancy-value theory by Atkinson’s investigated the achievement motivation. It assumes that people have the need for achievement, but expectancies are what people believe about their capability to achieve the success. Motivation is classified into intrinsic and extrinsic, each type suites a group of people. Intrinsic reward is suitable for the task-focused people, where extrinsic motivation is suitable for people who are interested in the results (Rajkumar 2014).
According to the self-determination theory, people need to feel that they are able to control their lives. It is more beneficial for them compared to the feedback. While the goal theories are those theories that address various individuals’ goals. They are closely related to the people’s achievements. The attribution theory argues that people are seeking the main drivers of achievement and its related outcomes. The causal attribution is the reasons that people give to justify their success or failure (Clinkenbeard 2012).
Herzberg’s (1966), as cited in Ganta (2014), created the motivator-hygiene theory, which is considered among the most influential theories. According to Hezberg, motivation is divided into two factors, the work related motivator factors and the surrounding context hygiene factors. While Maslow theory of the hierarchy of needs, as cited in Ganta (2014), is based on the relative importance of people with different needs. Peoples’ needs evolve from the basic needs, self-esteem and self-actualization.
Toyota the Japanese leading automotive producer, adopts the management model called “The Toyota Way’. This model balances between the elements of the continuous improvement, problem-solving and the social factors, including training, teamwork, motivation and leadership. Toyota Way philosophy assumes that the employees are good and aim to maintain teamwork through the self-reflection attitude and the self-criticism. The employees’ behavior is their main driver to excel in performance. They are eager for experimentation; the acquired knowledge through the high-quality learning represents the biggest employee reward (Almeida et al. 2018).
The service-related pay system varies according to the organizational reward system. Some organizations chose the pay seniority, while others choose to pay for performance. The seniority-based pay or the service based pay. It is the reward system that pays according to the years of experience at work. It assumes that the length of service equals accumulated knowledge that improves the performance. It is suitable for the hierarchical structure organizations with a large workforce. Opponents of the seniority reward pay argue that it is a rigid system and failed to adapt to the labor market. Also, seniority contribution will vary because some of them will perform better than the others and should be rewarded accordingly. The system that prevents the employees to escalate by paying the maximum salary leads to employee turnover (Maycock 2015).
Employees who work hard should be rewarded according to their needs. According to Maslow, the reward system can influence the employees to work beyond their commitment (DeBardeleben 2012-2013).
The Toyota Way provides an evidence of developing people in the office, labs and shop floor. It enriches the work and creates a challenging atmosphere that allows the employees to develop their knowledge and skills. Toyota is not a pure bureaucratic or pure rich learning organization, it is somewhere in between and relies on the employee perspective. The managers and engineers work very hard, leaving no room for failure. They are stressed and pressure the employees to work for late hours. The work nature of Toyota led some employees to leave their work because they could not sustain this effort over their entire career. Despite this, some managers describe going to work at Toyota as going to home (Liker & Morgan 2006).
The organization that pays its employees above the market rate invests in the human capital, attracts the talented people and it is able to retain them. A differentiation reward strategy involves the development of a reward system that fits the various needs of the employees. The compensation decisions should focus on establishing a pay structure that represents the local market fairly. The fair pay system is the one that differentiates between the employees according to their performance level. In addition, intensive plans tie the compensation to the important employees’ level and the organization level including, market share and profit. This system informs the employees that their performance is respected and rewarded (Hargis & Bradley 2011).
Toyota provides rewards to increase the employee engagement. It analyzes the employees’ benefits and acknowledges the role of incentives. The company realizes that the reward is an incentive to increase the staff morals (Saunders & Tiwari 2014).
Whether to place primary focus on internal equity when determining pay or be more concerned with external benchmarks
According to equity theory, the inequity in pay creates tension between the individuals that motivates them to reduce inequity. It is the CEO decision to reduce the inequity through the promotion of fairness and the external evaluation. The framework of the motivation-ability integrates the equity theory and the managerial power perspective. The organizational conditions motivate the employees to take certain actions. Organizations gather and analyze peer benchmarking data to decide the employee’s compensation. Organizations that have greater power can attract highly paid employees. They use the benchmarking to maintain a competitive pay package and retain the talented employees (Shin 2016).
Toyota success or failure is devoted to the organization as a whole. This culture encourages the employees to maintain good relationships with each other and exchange ideas with the teammates (Saunders & Tiwari 2014).
Many organizations choose to adopt the centralized pay systems, while others adopt the standardized pay policies. Druker and White (2009), as cited in Thompson & Ryan (2014), introduced the ‘new pay’ system. It stresses the importance of adopting a contingent approaches to reward that is aligned with the business strategy. It is called the hybrid approach that incorporates the competence-based pay through paying for results and competence for the employee’s past performance and expected success in the future.
In Toyota, the team members are dedicated to the company. The team spirit influences the team members to act as a group that devotes the success to the whole group. In the USA, Toyota has to adopt an individual reward system to match the western culture. For example, in Japan, the twice per year bonus is based on the company performance as a whole not related to the individual employee or department performance. But in the USA, the bonus is related in its component to the individual performance (Liker & Morgan 2006).
Researchers argue that the time-based reward system is related to the past performance, not the current value. It can result in injustice as it is based on the seniority and hierarchy. Managers use this system to limit the access to hierarchy. The literature did not define right and wrong approaches to adopt in employee reward, organizations have the choice according to their strategy and the ways they decide to achieve their goals (Thompson & Ryan 2014).
Toyota is a learning organization, it tries new things, evaluates, reflects and selects the best course of action. Toyota main aim is work standardization, it represents a part of the process of continuous improvement. Then comes the role of reward and punishment according to group performance metrics. The management carefully monitors the company performance (Liker & Morgan 2006).
Organizations could decide to use a mix of reward programs that match the extrinsic and intrinsically motivated employees. People differ in their appreciation of the reward according to their age, gender or race. The reward mix represents various reward elements, including monetary and non-monetary reward elements (Rajkumar 2014).
Toyota adopts a mix of reward systems that satisfy the group culture in Japan and the individualistic culture in the western countries. A survey conducted in 2012, revealed that more than 70% of the employees at Toyota are satisfied with the company life. They expressed that their job is rewarding (Toyota 2014).
Conclusions
Intrinsic reward is suitable for the task-focused people, where extrinsic motivation is suitable for people who are interested in the results. Toyota the Japanese leading automotive producer, adopts the management model called “The Toyota Way’. This model balances between the elements of the continuous improvement, problem-solving and the social factors, including training, teamwork, motivation and leadership. Toyota main aim is work standardization, it represents a part of the process of continuous improvement.
Some organizations chose the pay seniority, while others choose to pay for performance. Toyota is not a pure bureaucratic or pure rich learning organization, it is somewhere in between and relies on the employee perspective.
Toyota provides rewards to increase the employee engagement. It analyzes the employees’ benefits and acknowledges the role of incentives. The company realizes that the reward is an incentive to increase the staff morals.
The team spirit influences the team members to act as a group that devotes the success to the whole group. In the USA, Toyota has to adopt an individual reward system to match the western culture.
References
Almeida, D, Souza, D, Baptista, R, Gupta, C & Campos, D 2018, ‘Fundamental principles of the Toyota Way and the theory of constraints: Comparative analysis and synthesis’, International Journal of Services and Operations Management, vol 30, no. 1, pp. 51-71.
Anuar, A, Ismail, A & Abdin, A 2014, ‘Administrator’s role in performance pay system as a determinant of job satisfaction’, Sains Humanika, vol 2, no. 2, pp. 11-17.
Clinkenbeard , P 2012, ‘Motivation and gifted students: Implications of theory and research’, Psychology in the Schools, vol 49, no. 7, pp. 622-630.
DeBardeleben, B 2012-2013, ‘Marine corps promotion system: Rewarding merit or seniority?’, Marine Corps University, USA.
Ganta, V 2014, ‘Motivation in the workplace to improve the employee performance’, International Journal of Engineering Technology, Management and Applied Sciences, vol 2, no. 6, pp. 221-230.
Hargis, M & Bradley, D 2011, ‘Strategic Human Resource Management’, Academy of Strategic Management Journal, vol 10, no. 2, pp. 105-126.
Kusurkar, R, Custers, E & Cate, O 2012, ‘Have motivation theories guided the development and reform of medical education curricula? A review of the literature’, Academic Medicine, vol 87, no. 6, pp. 735-743.
Liker, J & Morgan, J 2006, ‘The Toyota way in services: The case of lean product development’, Academy of Management Executive, vol 20, no. 2, pp. 6-20.
Maycock, E 2015, ‘Managing employee reward: Inplementing competency based pay as an alternaative to seniority based pay’, International Journal of Advanced Research in Engineering & Management (IJAREM), vol 1, no. 4, pp. 44-59.
Rajkumar, R 2014, ‘Employee preferences as a significant influence on reward mix determination’, University of Pretoria, South Africa.
Saunders, L & Tiwari, D 2014, ‘Employee engagement and disengagement: Causes and benefits’, The International Journal Of Business & Management, vol 2, no. 5, pp. 44-52.
Shin, T 2016, ‘Fair pay or power play? Pay equity, managerial power, and compensation adjustments for CEOs’, Journal of Management, vol 42, no. 2, pp. 419–448.
Thompson , A & Ryan , A 2014, ‘Employee reward’, in Human resource management, 7th edn, Pearson, USA.
Toyota 2014, ‘Suatainability Report’, Toyota, Japan.
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