Organization Architecture

In their research paper “Aligning Reward Systems in Organizational Design: How to Activate the Orphan Star Point”, Schuster and Kesler (2011) stated companies are becoming more sophisticated in using organization design as a critical tool for driving business growth through new structure and capabilities and described the importance of alignment of reward systems in organizational design. They elaborated on widely accepted Star Model (figure 1) given by Jay Galbraith (1975) as a lens on organization design that aimed to align structure, process, people and rewards with the business  strategy.

 

 

 

 

 

 

 

Figure 1

Authors explained that Star Model has been widely adopted largely because of its behavioral point of view on organization design. They further elucidated “Metrics inform employees and managers of what is important and provide leadership with a dashboard for steering business growth. Rewards influence behavior and are intended to align individual actions with organizational goals. The wrong incentives may actually make matters worse than no incentives at all”. Authors gave example how compensation policies need to be restructured at global level compare to regional level. They mentioned following impacts when metrics and rewards systems are not realigned with changes in structure:

• Individual performance targets compete with the goals of the strategy.
• Roles and accountabilities are confused or continue to be aligned around the old organization design.
• Decisions are made to optimize performance in one unit contrary to the needs of the larger organization.
• The organization is slow to act and burdened with internal conflicts.
• Leaders resist change (because it is rational to do so when incentives encourage old behaviors).
• Individuals begin to question the impact of the organization design changes on their personal economic wellbeing, distracting them from winning in the new formation.

Reward systems are often the missing element in a comprehensive view of organization design for a number of common reasons:

• Compartmentalized thinking from HR leaders: Organization design professionals exclude compensation input
• The special sensitivity of pay programs Leadership may be reluctant to make adjustments that could reduce accountability for results or upset internal and external equity dynamics.
• Lack of flexibility in core policy Compensation policy is sometimes over- controlled by pay experts focused more on creating consistency than responding to the differentiated needs of business units.
• Legacy of pay and metrics complexity Programs and measures often try to emphasize

Authors stated that “employees should be well compensated with one of these options: Base pay, variable compensation, fringe benefits, performance management. The combination of base pay, variable compensation and benefits needs to be market-driven. Some newly created positions may be considered "pivot" jobs (Boudreau and Ramstad, 2007) due to their disproportionate impact on the building strategic capabilities. From the point of view of compensation strategy, benefits represent a substantial cost of total compensation and therefore must be considered as a strategic cost. Organizations derive little if any behavioral change from this portion of compensation, but benefit programs can be an important factor in attracting and retaining the right talent, and their design can help or hinder the portability of talent around the world or across lines of business. The redesign of an organization can fundamentally change roles and responsibilities in a manner that creates perceived winners and losers. It is easy to give people more money when they are promoted. It is often less clear how to treat pay and perks of those with diminished roles. Human resources (HR) should have a clear practice to guide pay decisions as organization implementation takes place and must be thinking about how to use pay to attract and retain needed talent.”

Authors have given good thoughts around how and why rewards system should be restructured. Though they have not mentioned direct link between motivation and reward system. But how reward system can be designed is well described. I agree that HR should be using their discretion to sustain good employees with good compensation. My previous organization could not compensate even excellent employees due to which some projects suffered a lot. As mentioned that positions/ responsibilities are so well worthy to align their salary as per market and not just with the designations they belong to. In nutshell, reward system plays a crucial part in organization preformation as it can cause turnovers which never works in favor of firm. So it is wise to include well designed reward system in the organization architecture.

 

References

Boudrcau,John W. and Ramstad, Peter M. (2007). Beyond HR: The new science of human

capital. Camridge, MA: Harvard Business School Press.

Schuster, M., & Kesler, G. (2011). Aligning Reward Systems in Organizational Design: How to

Activate the Orphan Star Point. People & Strategy, 34(4), 38-45.