March 13, 2018 [No.50-2017]
Hiroshi Kitani, Professor
Graduate School of Business Administration
Prefectural University of Hiroshima
Part 4: The state of new remuneration in response to diversity
1. Remuneration concepts in personnel management
In personnel management, the remuneration system is positioned at the center of an employment relationship. The employment relationship represents the dynamics of relations among individuals and work organizations, and the relations created by employees and their work organization can be seen from four viewpoints: (i) economic relations, (ii) legal relations, (iii) social relations and (iv) psychological relations.
The motivation of the employees to make contributions is specified by the effectiveness of their organization (this is related to its purpose for the environmental circumstance), and concurrently, it also depends on the satisfaction gained by the individual contributors. The bottom line is that effective incentives (remuneration) are either the discovery of "positive remuneration," or to reduce or remove so-called "negative remuneration." For example, employment becomes attractive by reducing working hours (reduced negative remuneration) or raising wages (increased positive remuneration).
The remuneration can be classified into (i) external remuneration (a monetary reward), (ii) internal remuneration (a psychological reward) and (iii) rewards whose grant is not recognized by the organization. There are three types of remuneration forms paid to work, which are (i) monetary remuneration in the form of wages and salary, (ii) monetary remuneration in the form of fringe benefits and (iii) nonmonetary remuneration, and those are closely related each other, so that it is difficult to classify them clearly. The non-monetary remuneration is separated into (1) a reward associated with duties (satisfaction with duties); (2) a reward associated with the organization (an authority, a privilege and a position); (3) a reward from social relations (human relationships); (4) a reward from the local community (credit as an adult); (5) a reward as a structure (membership) and (6) others.
2. Challenges of the current remuneration system
The conventional division of the remuneration into the external and the internal remuneration follows the hygiene and motivation factors in the two-factor theory of Herzberg. External remuneration is separated into monetary and nonmonetary remuneration, with monetary remuneration consisting of wages and fringe benefits, while the nonmonetary remuneration is a package of various elements such as position, approval, commendation, evaluation, short-term and long-term careers, capacity development, and employment security. However, this remuneration system causes major doubts.
Firstly, although external and internal remuneration seem to be different, they are actually two sides of the same coin and are duplicated. For example, it is easy to imagine that some people have a sense of achievement (internal remuneration) because they were promoted to a sectional chief (external remuneration), as well as it is also a general phenomenon that they have a sense of capability (internal remuneration) because they received an award (external remuneration). In addition, it is also easily imaginable that professional athletes will get a sense of accomplishment (internal remuneration) due to the increase in their yearly wages from 300 million yen in the previous year to 500 million yen (external remuneration).
Accordingly, those are the facts that the external remuneration could be factors (or stimulation) for internal remuneration. In other words, internal remuneration is nothing but an objective variable of external remuneration. In such case, if remuneration, which is the basis of productivity and motivation is narrowed down to the external remuneration only (which can be granted by the company to its employees), it will make it easier to discuss the administration of rewards.
The second doubt is that contents of the nonmonetary remuneration seem to be constituted randomly. Position, approval, evaluation, short- and long-term careers, capacity development and employment security appear to be lacking unity. However, in fact, all of these are factors relating to career, as well as elements of the personnel management system, which is "evaluation – treatment (other than wages) – development." There is no room for dispute in the importance of nonmonetary remuneration. If so, a new concept and a new classification designation to represent the nonmonetary remuneration, whose nuance is not complementary nor peripheral such as "other than (important) monetary" will be required.
3. New remuneration sought by various personnel
Accordingly, there are two important points in the establishment of the remuneration system requested by a diversity of human resources.
Firstly, an economic reward must be reorganized with the goal of determination according to the importance of work (role) and the level of its achievement (results) as the original results-oriented approach that is being aimed at. This goal needs to be enhanced as employees become more diversified, with Western multinational companies being typical examples. It is difficult to obtain an understanding of diversifying employees with the vague criteria and evaluation that have been applied by Japanese companies. However, ingenuity with regard to the details of the application becomes essential as has been learned from a mistake in the results-oriented approach.
Secondly, for a non-economic reward, it is required that conventional nonmonetary remuneration, which provides opportunities and support to realize a good career (hereinafter referred to as "career remuneration"), are separated from the psychological reward or that the psychological reward is driven out from the framework of the remuneration temporarily as a result variable. In other words, it becomes necessary to position "evaluation – treatment – development" other than wages as the new "carrier remuneration."
However, today, it can be considered that another important remuneration that has not been referred to as a conventional nonmonetary reward exists. This is "time," as has been frequently mentioned so far.
"Constraint employees" mean employees who have some limitations on the place they work, the time they work or their job. In this case, if it is considered in a way such that constraints on working people are caused by time restricts or that most of the constraints can be relieved by providing time, the new remuneration sought nowadays is nothing but time (referred to as "time remuneration"). Then the time remuneration is a concept that rises for the first time above the horizon by considering an employee as an individual and recognizing him/her as a person who is free and having relationships with his/her family, local community and society.
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